Aegion Corporation Reports Second Quarter 2013 Diluted Earnings Per Share from Continuing Operations of $0.47

Aegion Corporation (Nasdaq Global Select Market: AEGN) today reported financial results for the second quarter and first six months of 2013. Excluding one-time items defined as non-GAAP¹, second quarter 2013 net income from continuing operations totaled $13.3 million, or $0.34 per diluted share, compared to $13.2 million, or $0.33 per diluted share in the prior year quarter. On a non-GAAP basis, net income from continuing operations for the first six months of 2013 was $16.9 million, or $0.43 per diluted share, compared to income from continuing operations of $20.6 million, or $0.52 per diluted share, in the first half of 2012.

The second quarter 2013 financial results also include an unusually large $1.6 million, or $0.03 per diluted share, non-cash unrealized loss from foreign currency fluctuations on dollar denominated foreign subsidiary loans and payables.

J. Joseph Burgess, Aegion’s President and Chief Executive Officer, commented, “Obviously, there were a number of impacts to the second quarter that created noise around our results, including the gain on the sale of our German joint venture, expenses related to the Brinderson acquisition, the non-cash write-down of our investment in Bayou Coatings, unrealized losses on foreign currency movements and the discontinued operations of Bayou Welding Works. Additionally, customer driven project deferrals and weather-related lost production days in the second quarter and the first half dampened our first half operating performance. However, we have the backlog in hand, especially from North American Water and Wastewater and Corrpro, and overall market strength in key businesses that give us confidence for significant improvement in earnings, cash flow and return on invested capital in the second half of 2013, consistent with our modestly reduced full year guidance.”

2013 Second Half and Full-Year Outlook

Energy and Mining enters the second half of the year with backlog and momentum in key markets. Corrpro finished the first half of 2013 on track to meet its 2013 operating income plan, with operating margins in the range of 12 to 13 percent and with revenue growth expected to be at or near 10 percent. Corrpro’s backlog on June 30, 2013 was a near-record $82 million as the company enters its peak season. UPS expects continued strong performance in North America and the Middle East, but faces a slowdown in mining-related lining activity in South America and from energy-related lining projects in Mexico. The anticipated third-quarter completion of UPS’ $65 million Morocco project creates a gap in backlog that will take time to fill. CRTS received final notice for an early August start on the primary pipe weld coating activities for both the offshore and onshore portions of the $27 million Wasit project. The Wasit project has experienced significant delays since the original June 1, 2012 start date. This project is expected to be a key contributor to second-half earnings. The previously cited lull in Gulf of Mexico activity and its impact on our Bayou coating facilities in New Iberia, Louisiana appear to be subsiding. Bayou is actively bidding offshore projects scheduled to begin in 2014. The outlook for Bayou in Canada remains favorable as the pipeline construction season begins this fall. Full-year revenues for our Energy and Mining segment are likely to increase 15 to 20 percent in 2013, compared to prior guidance of 20 to 25 percent growth. This includes contributions from the Brinderson, LP acquisition, which is expected to be included in Energy and Mining and begin reporting financial results in the third quarter. Operating margins for our Energy & Mining segment are forecasted to be in the range of 9 to 10 percent.

Aegion announced the closing of the Brinderson, LP acquisition on July 1, 2013. Brinderson reported $200 million in backlog as of July 1, 2013. This sizeable backlog, as well as continued strong interest from Brinderson’s customers, position Brinderson to contribute earnings of $0.08 to $0.10 per diluted share in the remainder of 2013. The Company recognized $1.9 million in acquisition-related expenses in the Energy and Mining segment related to the Brinderson acquisition.

Our North American Water and Wastewater segment increased operating income by 25.9 percent, or $2.6 million, in the first half of 2013 compared to the prior year period, ending the quarter with a record backlog of $221.1 million. Significant projects began in Baltimore and St. Louis during the second quarter and will continue through the remainder of the year. Over the past twelve months, Insituform Technologies secured $55 million in project awards in these two markets. Project activity will likely accelerate in Western Canada after the most severe weather conditions on record during the first half of the year. Insituform Canada recently announced a $10.6 million project award in Montreal, which is scheduled to commence in the third quarter. Record backlog and a robust bid table provide confidence in full-year revenue growth in the high single digits, and high single digit operating margins.

Our International Water and Wastewater segment significantly reduced year-over-year losses with solid performance in the Netherlands, Malaysia and Spain, offsetting severe weather delays in Queensland, Australia and performance issues in the United Kingdom. Second quarter 2013 financial results included a $1.7 million year-over-year reduction in operating losses from the legacy projects in Singapore. Our projects in Malaysia are ahead of schedule, allowing for the expected completion in 2013 of work originally scheduled to conclude in 2014. Project activity in the second half of the year, especially large diameter pipe rehabilitation, is also expected to accelerate in Brisbane, Australia, where severe flooding caused significant project delays in the first six months of the year. Market conditions in the Netherlands remain favorable for the remainder of the year, and efforts are underway to improve project performance in the United Kingdom, where first half 2013 performance was disappointing. Full year 2013 outlook for the International Water and Wastewater segment remains on track to deliver operating income in the $3 million to $4 million range for the European business, while operating income in the Asia-Pacific region is expected to be near break-even.

Project delays significantly impacted our Commercial and Structural segment results during the first half of 2013. In North America, several large projects planned for the second quarter were pushed back by customers until later in the year. Global Commercial and Structural backlog grew 5.7 percent to $52.2 million at June 30, 2013 compared to March 31, 2013, while increasing 77 percent compared to June 30, 2012. The larger backlog and quick book-to-bill nature of this business support expectations for a recovery in the third and fourth quarters, but not enough to overcome the year’s slow start. Full year Commercial and Structural revenue for 2013 is now expected to grow 10 to 15 percent compared to prior growth expectations of approximately 30 percent. Beginning in the second half of 2012, Fyfe North America made significant investments in sales and business development, primarily in the pipeline and building end-markets. The build-out of the expanded organization has taken longer to complete than expected, resulting in lower sales acquisitions in the first half of 2013, especially for higher margin pipeline projects. As a result, gross margins for the full year will be modestly below the typical range of 40 to 45 percent. Lower revenue growth also is expected to compress full-year operating margins to high single digits, compared to prior guidance of margins in the mid-teens. The rate of proposal submissions and conversion to executable projects has increased over the last two months, resulting in $13 million of yet-to-be-signed, or soft backlog, which should soon be added to the $19 million in North American backlog at June 30, 2013. Fyfe North America has visibility to over $40 million of additional near-term contracts, primarily in the higher margin pipeline and building segments. Fyfe’s slow start to the year does not diminish the market opportunity for the widely accepted Fibrwrap^® technology. We believe the increasing sales prospects and acquisitions are early indicators the Commercial and Structural segment will return in 2014 to the strategic growth objectives that we identified earlier this year.

Mr. Burgess stated, “We have a high volume of projects to complete in the remaining months of the year based on the large backlog we have in hand today. However, we can’t discount the possibility that a portion of this work will shift into 2014. Sales activity planned for Bayou New Iberia, United Pipeline Systems in Mexico and South America, and Fyfe North America will build 2014 backlog, rather than necessarily produce projects for completion in 2013. For these reasons, we are modestly reducing non-GAAP earnings per share guidance to $1.50 to $1.60, excluding the contribution of Brinderson which is expected to add $0.08 to $0.10 per share in the second half of the year. Prior guidance was $1.60 to $1.80 inclusive of Brinderson. All three platforms are expected to significantly contribute to the second half performance to achieve the full-year earnings per share outlook. We expect cash flow from operating activities in the range of $100 million and return on invested capital of 7 to 8 percent, including the amortization of intangibles for the Brinderson acquisition. The foundation for the sustainable growth we seek lies in the robust end-markets we serve across all of our businesses. We anticipate the second half of this year will be much more indicative of the growth we expect from these strong market fundamentals.”

Recent Strategic Decisions

Aegion completed two important actions in the second quarter of 2013 to further the Company’s strategic objectives. First, Aegion sold its 50 percent ownership interest in the Company’s German joint venture, Insituform Rohrsanierungstechniken GmbH (“Insituform-Germany”) for a pre-tax gain of $11.3 million. Second, the Company’s Board of Directors approved the liquidation of Bayou Welding Works (“BWW”), which is now reported as discontinued operations.

Mr. Burgess commented, “Our commitment to the Company’s long-term strategic and financial objectives requires continuous review of our operations. The decisions to sell our stake in Insituform-Germany and close BWW acknowledge these businesses are no longer consistent with our strategy and were not delivering the earnings and return on invested capital that we expect. BWW has struggled for several years to achieve profitability, becoming a significant distraction to the core Bayou operations. Both of these actions will allow us to reallocate resources to the growth segments of our Company.”

The Company has now presented BWW as a discontinued operation for the quarter and six-month period ended June 30, 2013 and also restated prior period financial results. The financial reporting of the closure and expected charges to the profit and loss statement are in accordance with generally accepted accounting principles.

BWW ceased bidding new work and substantially completed all ongoing projects as of June 30, 2013. For the quarter, Aegion recognized GAAP cash and non-cash, pre-tax charges of $8.1 million, or $5.0 million after tax. On a pre-tax basis, the Company recorded $3.1 million in operating losses, $3.9 million to write down goodwill and other intangibles and $1.1 million to write down fixed and other assets to fair value. Aegion expects a cash liquidation value of as much as $10.0 million from the disposal of the BWW and its assets, including working capital.

BWW revenues for the year ended December 31, 2012 and six months ended June 30, 2013 were $11.1 million and $8.1 million, respectively. BWW reported an operating loss of $2.4 million and $9.9 million for the same periods, respectively.

Other Activities

Starting in January 2014, and solely during the month of January in each calendar year thereafter, the Company’s equity partner in Bayou Coating, Stupp Brothers Inc. (“Stupp”), has the option to acquire from the Company (i) the assets of Bayou Coating at book value as of the end of the prior fiscal year, or (ii) the Company’s equity interests in Bayou Coating at forty-nine percent of the book value of Bayou Coating, as of the end of the prior fiscal year, with such book value to be determined on the basis of Bayou Coating’s federal information tax return for such fiscal year. The Company has received notice from Stupp that it intends to exercise the option in January 2014. Stupp has not indicated which option method it intends to exercise. In connection with this notice, in the second quarter of 2013 the Company recognized a non-cash charge of $2.7 million ($1.8 million after-tax, or $0.04 per diluted share) related to the goodwill the Company allocated to Bayou Coating as part of the purchase price accounting associated with the Company’s 2009 acquisition of The Bayou Companies L.L.C. (“Bayou”). The write-off in the investment balance represents the Company’s current estimate of the difference between the carrying value of the investment on the Company’s balance sheet and the amount the Company may receive in connection with Stupp’s exercise of the option.

Consolidated Highlights

Second Quarter 2013 versus Second Quarter 2012

Revenues decreased $12.4 million, or 4.9%, primarily due to project delays and severe weather conditions in portions of North America coupled with lower workable backlog levels within our Commercial and Structural segment and our Energy and Mining segment’s coating operations. Revenues from our industrial linings operations declined by $10.8 million, or 26.3%, from lower revenues recorded on our large project in Morocco, which experienced production delays during the quarter. Our global water and wastewater business improved during the quarter from strong project execution in North America and growth in the Netherlands, Spain and Malaysia.

Gross profit decreased 5.9 percent, or $3.7 million, to $58.6 million due to a decline in our Energy and Mining and Commercial and Structural segments. Within Energy and Mining, the decline primarily related to low backlog levels in our coating operations and continued project delays on our large projects in Morocco and the Wasit offshore gas field. Our Commercial and Structural segment gross profit declined because of lower workable backlog, isolated performance issues and project delays in its North American operations. Partially offsetting these declines were improvements in our global water and wastewater businesses, specifically in North America. In North America, we successfully executed several large diameter projects during the second quarter of 2013 and saw a shift to more medium and large diameter work, which are higher margin projects.

Operating expenses decreased $1.3 million, or 3.1%, because of operational efficiencies gained in our cathodic protection operations as well as continued improvements leveraging the fixed cost structure in our North American water and wastewater operation. Partially offsetting these declines were increased operating expenses for our International Water and Wastewater segment and our industrial linings operations as we continue to expand our presence internationally.

On a non-GAAP basis, operating income decreased 11.6 percent to $17.7 million due to the reasons discussed above. Operating income declined in our Energy and Mining and Commercial and Structural segments. These segments declined $5.7 million and $2.1 million, respectively. Partially offsetting these declines were improved performance in our global water and wastewater businesses. Operating income increased in our North America and International Water and Wastewater businesses by $3.1 million and $2.4 million, respectively.

Cash Flow

Net cash flow provided by continuing operations in the first six months of 2013 was $16.9 million, or 74.7 percent compared to $46.0 million in the first six months of 2012. The decrease in operating cash flow from 2013 to 2012 was primarily related to slower than anticipated cash collections from certain businesses and lower distributions from our non-majority owned joint ventures. We used $13.8 million during the six-month period ended June 30, 2013 compared to $3.9 million provided in the comparable period of 2012 in relation to working capital. The primary component of our working capital increase during the six-month period ended June 30, 2013 was slower collections on receivables compared to the prior year period. We anticipate a significant improvement in cash collections in the second half of 2013 from expected greater revenues and earnings contribution.

Net cash flow provided by investing activities in the first six months of 2013 was $6.5 million compared to a $60.8 million use of cash in the first six months of 2012. The increase in cash provided was the result of the 2012 purchases of Fyfe Asia (for a net purchase price of $39.4 million) and Fyfe Latin America (for a net purchase price of $3.0 million), paired with lower capital expenditures in 2013 related to funding in 2012 for a new insulation coating plant in partnership with Wasco Energy at our facility in New Iberia, Louisiana and expansion of our Canadian coating operation, which investments were substantially higher in the first six months of 2012. In addition, we received $18.3 million during the second quarter of 2013 in connection with the sale of our 50 percent interest in our German joint venture.

Net cash flows from financing activities used $28.1 million during the first six months of 2013 compared to $15.9 million provided in the first six months of 2012. During 2012, we borrowed $26.0 million on the line of credit under our credit facility to fund the purchase of Fyfe Asia on April 5, 2012 and for working capital and joint venture investments. In 2013, we used $15.8 million to repurchase 696,310 shares of our common stock through open market purchases and in connection with our equity compensation programs.

Net cash flow for the first six months of 2013 was a $15.4 million use of cash.

Our Energy and Mining segment contract backlog at June 30, 2013 was $193.0 million, which represented a $14.7 million, or 7.1 percent, decrease compared to March 31, 2013 and a $52.2 million, or 21.3 percent, decrease compared to June 30, 2012. Backlog for our industrial linings operations declined sequentially and on a year-over-year basis primarily from our execution of the $65 million United Pipeline Systems project in Morocco, which represented 49.4 percent of our industrial lining backlog at June 30, 2012, but only 8.2 percent of the industrial lining backlog as of June 30, 2013. Market conditions remain favorable across all markets for our industrial linings applications and margins in backlog are improving. Our cathodic protection operation increased its backlog by $10.3 million, or 14.3 percent, to $82.1 million at June 30, 2013 compared to March 31, 2013 due to increased sales acquisitions primarily in Canada and lower revenues during the second quarter of 2013 due to project deferrals caused by severe weather conditions. Our coating operations are experiencing a temporary lull in the timing of offshore projects for the Gulf of Mexico, resulting in a recent decline in backlog. As a result, nearly all of their prospects for future backlog are slated for 2014, including a large concrete coating project originally expected for the second half of 2013.

Contract backlog in our North American Water and Wastewater segment at June 30, 2013 was a record $221.1 million, a $48.9 million, or 28.4 percent, increase from backlog at March 31, 2013 and a $62.9 million, or 39.8 percent, increase from backlog at June 30, 2012. This segment won multiple large projects during the quarter in the Eastern and Midwest regions of the United States. Market activity remains strong and our bidding performance has continued to be at normal levels. We expect backlog to moderate slightly in the coming quarters as we work through a number of large project wins; however, we believe the market remains strong for the remainder of 2013 and into 2014 as the economy continues to recover.

Contract backlog in our International Water and Wastewater segment was $44.1 million at June 30, 2013. This represented a decrease of $5.3 million, or 10.7 percent, compared to March 31, 2013 and a decrease of $12.9 million, or 22.6 percent, compared to June 30, 2012. These decreases were primarily due to strong operations and production in Spain, the Netherlands and Malaysia. Backlog levels in Australia were lower at June 30, 2013 due to completion of the last contracts in Sydney. We believe this business will secure additional work in our key operational areas in the coming months.

Contract backlog in our Commercial and Structural segment was $52.2 million at June 30, 2013. This represented an increase of $2.8 million, or 5.7 percent, compared to March 31, 2013 and an increase of $22.7 million, or 76.9 percent, compared to June 30, 2012. Backlog increased during the quarter ended June 30, 2013 compared to the prior periods due to new project awards and lower revenue due to the project delays, as several jobs were pushed into the second half of 2013. Compared to June 30, 2012, Fyfe Asia backlog increased $18.8 million, or 133.0 percent, because of two large project awards in Hong Kong during the second half of 2012.

Segment Reporting

Second Quarter 2013 versus Second Quarter 2012

Excluding acquisition-related expenses, Energy and Mining operating income decreased $5.7 million to $8.1 million from the prior year quarter, due principally to slower progress on the industrial lining project in Morocco as a result of a technical issue, customer-directed delay for the large robotic coating project in Saudi Arabia and the second quarter of 2012 containing a large, higher margin, concrete job for our coating operations in New Iberia, Louisiana that was not present during the second quarter of 2013. The industrial lining work in Morocco declined $1.9 million, or 100.8 percent, compared to the prior year due to added costs to address a pipe connection issue. We mobilized additional resources to resolve this issue, including personnel, which negatively impacted lining production in other areas. The technical issue on the Morocco project has been resolved and the project is expected to be completed during the third quarter of 2013. Partially offsetting these declines were solid results from our cathodic protection operations, specifically in its North American market.

Second Quarter 2013 versus Second Quarter 2012

Our North American Water and Wastewater segment achieved a $3.1 million, or 52.3 percent, increase in operating income compared to the prior year quarter. Operating margins improved 280 basis points because of favorable project mix to more medium and large diameter work. We also have maintained our bidding discipline and have experienced continued success in our enhanced project management structure. These increases were partially offset by continued weather delays in the western regions of Canada.

We remain committed to delivering strong performance in the context of a challenging, but stabilized, water and wastewater market in the United States. With improving contract backlog, we anticipate high single digit top line growth and continued operating margin expansion in this business for the year.

Second Quarter 2013 versus Second Quarter 2012

Operating income in our International Water and Wastewater improved by $2.4 million, or 103.6 percent, for the second quarter of 2013 compared to the prior year quarter. The increase was attributable to a significant reduction in the losses on legacy projects in Singapore compared to 2012. During the quarter, we reduced losses associated with Singapore by $1.7 million to $0.6 million compared to a loss of $2.3 million in the second quarter of 2012. We have essentially completed these projects as of June 30, 2013. Partially offsetting this improvement was a $0.2 million decrease in gross profit related to our Australian operation because of severe flooding in Brisbane and higher material transportation costs. In our European operations, growth and profitability improvements in our Spanish operation were partially offset by poor project execution on two jobs in the United Kingdom.

Second Quarter 2013 versus Second Quarter 2012

Operating income, excluding acquisition-related expenses, in our Commercial and Structural segment decreased $2.1 million, or 76.8 percent, compared to the prior year quarter. Project delays and lower workable backlog in the North America market and slower progress on large pipeline projects in Hong Kong accounted for $1.2 million of the decrease. The remaining difference comes from slower than anticipated sales acquisitions, primarily higher margin pipeline projects, in North America and higher costs associated with several projects. Partially offsetting these declines was a slight increase in operating income from Fyfe Asia. These factors contributed to the 570 basis point reduction in gross profit margins. We expect margins for this segment to improve in the remainder of 2013 as we work through the project delays and execute against a higher backlog in North America and Asia.

Aegion Corporation is a global leader in infrastructure protection and maintenance, providing proprietary technologies and services to (i) protect against the corrosion of industrial pipelines; (ii) rehabilitate and strengthen water, wastewater, energy and mining piping systems and buildings, bridges, tunnels and waterfront structures; and (iii) utilize integrated professional services in engineering, procurement, construction, maintenance and turnaround services for a broad range of energy related industries. More information about Aegion can be found on our internet site at www.aegion.com.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. We make forward-looking statements in this news release that represent our beliefs or expectations about future events or financial performance. These forward-looking statements are based on information currently available to us and on management’s beliefs, assumptions, estimates or projections and are not guarantees of future events or results. When used in this document, the words “anticipate,” “estimate,” “believe,” “plan,” “intend, “may,” “will” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Such statements are subject to known and unknown risks, uncertainties and assumptions, including those referred to in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on February 27, 2013. In light of these risks, uncertainties and assumptions, the forward-looking events may not occur. In addition, our actual results may vary materially from those anticipated, estimated, suggested or projected. Except as required by law, we do not assume a duty to update forward-looking statements, whether as a result of new information, future events or otherwise. Investors should, however, review additional disclosures made by us from time to time in our periodic filings with the Securities and Exchange Commission. Please use caution and do not place reliance on forward-looking statements. All forward-looking statements made by us in this news release are qualified by these cautionary statements.

Regulation G Statement

We have presented certain information in this release excluding certain items that impacted income, expense and earnings per share from continuing operations. The (non-GAAP) earnings per share exclude the earnings impact of acquisition-related expenses, gain related to the sale of Insituform-Germany, charges associated with our decision to liquidate Bayou Welding Works and a goodwill write-off associated with the anticipated sale of our shares in Bayou Coatings, LLC. Aegion management uses such non-GAAP information internally to evaluate financial performance for our operations, as we believe it allows us to more accurately compare our ongoing performance across periods.

Aegion^®, the Aegion^® logo, Insituform^®, the Insituform^® logo, United Pipeline Systems^®, Tite Liner^®, Bayou Companies^®, Corrpro^®, CRTS™, Fibrwrap^®, Fyfe™ and Brinderson^® are the registered and unregistered trademarks of Aegion Corporation and its affiliates.