Q4 2019 Earnings Call
[music].
At this time all participants are in all the cinnamon out later they'll be a question and answer session and instructions will follow at that time.
Anyone requires assistance during the call. Please press star and then share out when you touched turn telephone.
As a reminder, this event is being recorded its my pleasure to turn the call over to your host Katy casing Senior Vice President strategy and communications.
Katy you May proceed.
Good morning, and thank you for joining us today.
No I must be or check Gordon <unk>, President and Chief Executive Officer, and David Moore, Aegeans Executive Vice President and Chief Financial Officer.
Issued a press release yesterday that would be referenced during the prepared remarks on this call you can find a copy of our press release and our Safe Harbor statement on the Investor section at age bands website at Www Dot H. young Dot com.
During this call the company will make forward looking statements, which are inherently subject to risks and uncertainty the company does not assume the duty to update forward looking statements.
With that I'm pleased to turn the call over to Chuck Gordon.
Hey, good morning, everyone joining us on the call today.
Good day to brief review about 2000, Nike performance highlights discuss the current market drivers of growth areas for core businesses and lay out our key focus areas for 2020.
First I want to spend a moment discussing safety our number one and most important value at age on as proved to zero it since our possible or underground solutions business finished 2019 without a single safety incident, marking the first time in several years that entire business unit completed the year without any injuries or automotive.
Accidents.
Across the rest of the business 21 of our offices work is free and 61 completed the year without an osha recordable.
Despite a strong record overall, our total recordable incident rate and lost time incident rate ticked up slightly due to challenges nicely the pockets of the business.
These results served as an important reminder, that safety is a continuous journey with no end point and we are focused on further improving our performance in 2000 2020.
Shifting to our financial results for the year 2019 was a turning point for IGI on [noise].
We delivered on the adjusted earnings targets, we laid out at the start of the year a first for the company. Following several years that had been marked by earnings for tool Ti as result of the combination of challenging businesses and challenging markets.
Our success was result of strong operational discipline and consistent execution on hundreds of projects across our core service wines and notably did not include the benefit of a significant large project, which has provided push into our earnings in the past. Our results also reaffirmed the effectiveness of multiyear restructuring and simplification.
Efforts, we've taken to streamline focus the organization.
I'd like to touch on three highlights it drove our strong performance in 2019 and position us well for continued success in 2020.
First we improved adjusted gross margin is our north American feature for business by 300 basis points to drive infrastructure solutions segment margins to the highest level in four years.
The Insituform business is the flagship brand for Aegon and represents the wine trouble earnings operational excellence in this business is paramount for our success and our teams delivered in 2019 crew productivity increase significantly and we added several new technology offerings to our product portfolio to bolster.
Our position as a global leader in trench, the CIA P.P. water and wastewater rehabilitation solutions.
Second United pipeline systems, or industrial linings business was a standout performer corrosion protection segment.
Doubling its earnings contributions compared to the prior year.
In the Middle East, we expanded our presence in Saudi Arabia, and commission to New <unk> wrote a whiting facility with our U.S.T.S. joint venture partner to offer a more comprehensive whitening solution.
In the U.S. results were also up sharply and we successfully completed or rehabilitation project with a large midstream operator, which we hope will lead to additional opportunities for maintenance of existing infrastructure.
And third our energy services segment delivered its third consecutive year of double digit adjusted earnings growth with demand for our core maintenance services, reaching record highs. We also made early headway in our efforts to expand into the Rocky Mountain region by successfully winning a three year maintenance war with a major refinery in Salt Lake City.
They're not a highlight for the year I want to provide an update on our corporate business performance.
Over the course of 2019, we're aligning the organization structure to drive greater accountability and ownership reduced overhead cost streamline key process and improve PNM reporting and analytics. These changes delivered positive results results still fell short of expectations.
In the fourth quarter, we initiated plans to further downside U.S. operations, including the closure of three branches and the exit of capital intensive drilling is another four additional branches to address unprofitable portions of the business challenge by high cost big structure and persistently low utilization levels.
These actions included a reduction of approximately 70% of corporates U.S. workforce and nexsan of activities that contributed approximately 20% to corporate U.S. as 2019 revenues.
These changes allow us to refocus on leveraging the course drinks, which corporate was founded on more than 35 years ago, including being a leading provider of excellent engineering technical services and material sales to our customers. Despite the reduction in revenues. We believe these actions will result in considerable improvement in profitability in our.
Back to be a leading driver of our earnings growth in 2020.
In addition to those key business performance updates I also want to highlight our continue investment in innovation in 2019.
Our R&D spending increased nearly 15% over the prior year and we advanced development efforts on several key initiatives.
Within the infrastructure solutions segment, we focused on one do you expect you Bogart you'd be product line to include it you'd be cured felt weiner, which offers a 20% to 30% discount to a traditional you'd be glass product to improving the quality of our standard C.I.P.P. Weiner for use in pressure pipe applications and three find.
Realizing the development of the state of the art robots that will be used to install leak freeze seal on lateral connections in portable water pipe rehabilitation projects.
Within the corrosion protection segment efforts focused on or did you tell data collection and analysis tool to provide critical real time monitoring an assessment of the external corrosion threats to help guide decision, making for pipeline operators as part of their asset integrity management program, we commercialized in advanced data collection unit for use in the.
Filled that interfaces with our asset integrity management database to significantly reduce the time required to provide survey results to our customers as well as increased the accuracy of the collected data.
These investments demonstrate our commitment to provide value to our customers through differentiated technologies.
I'll now walk to review, our market outlook backlog position and growth drivers for the business as we shift our focus in 2020.
Hey, John serves primarily aging infrastructure markets, where the demand for maintenance and rehabilitation greatly exceeds available funding in resources, providing a long term growth to do you look at each of our core markets today, approximately 85% of our revenues are from the maintenance and <unk> patient of existing infrastructure, which lessens our dips.
And it's a new construction activity and reduces our risk and cyclical markets. We also see a growing global awareness of health safety and environmental issues, which further reinforces the need for the environmentally sustainable solutions that we are well positioned to provide.
We ended 2009 total contract backlog of nearly 660 million when excluding the impact of exited or to be exited business, where order intake was impacted due to restructuring actions backlog in our remaining businesses increased 3% and supports our outlook for revenue growth in 2020.
Our <unk> market outlook for the infrastructure solutions segment is very strong a recent bluefield research forecast estimates that in the U.S. alone more than 230 billion of capital expenditures are forecasted over the next decade to address water and wastewater pipeline infrastructure, where the national average age of water and wastewater.
Plans has climbed to over 45 years, it's estimated that water loss at U.S. utility average is 15% annually with some municipalities, losing more than half of all the water pumped and treated for distribution to customers.
We are well positioned to serve this growing demand both domestically and abroad.
Our extensive portfolio intervention solutions now includes 13 lighting technologies for use in our contracting business or for distribution through third party product sales. Despite our decision to exit installation activities internationally, we remain focused on expanding our global product sales to allow us to can you continue to leverage or so.
Dry manufacturing presence with a lower risk and higher margin operating model.
Our place in underground solutions products, while more niche are also a strong complement to serving the water markets as well as offering broader structural strengthening solutions in other market applications.
Our infrastructure solutions contract backlog at December 31st 2019, excluding the impact of exited or to be exited businesses was in line with last years levels driven by an increase in the North American since you for business that was offset by softness in the Asia Pacific flight business due to regional each.
No I mean can geopolitical challenges.
Excluding the impact of exited businesses our revenue growth in this segment in 2020 is expected to be driven by new product offerings in the insituform business and higher underground solutions volumes.
Shifting to our corrosion protection segment, we believe oil and gas fundamentals are supportive for growth in the markets. We are Kate targeting which primarily include maintenance of existing infrastructure in the midstream oil and gas market in North America, and more upstream focus demand in the middle East.
You asked oil and gas production set records in 2019 without putting key energy basins, including the Permian Appalachian in the Bakken, reaching new highs in the fourth quarter International Energy and agency projects. The country will continue to dominate global growth in oil and natural gas through 2025.
As supply is growing sewage U.S. export market and the I forecast you asked will become a net energy exporter by 2022.
For midstream operators this strength in production in demand continues to create new opportunities to expand existing networks build greenfield pipelines in the true existing infrastructure is operating safely and efficiently as possible.
Hey, John is well positioned to serve this demand with our bought broad suite of corrosion protection offerings. Additionally, approximately three and four of corporate was North America customers are regulated pipeline operators and the business further stands to benefit by using our digital data collection and analysis tool to help our customers comply with.
[music] midstream and upstream pipeline regulations.
Yeah look in the Middle East remains promising as well there are currently more than 200 billion worth of oil gas and petrochemical projects under execution in the middle East with another 200 billion plus or projects under consideration for the future.
Strong product acceptance for our industrial linings and coating applications, along with our solid track record over the past decade positions us well to capture growth opportunities arising from this multiyear development pipeline.
Our contract backlog at your read excluding the impact of accident or to be actually the businesses.
Sent 225 million growth was driven by an increase in awards for United pipeline systems in the U.S. and Middle East.
Our coatings business the large South America project, we announced last year valued at seven to 10 million was delayed. It now is expected to begin in February be substantially completed in 2020.
Additionally, we are finalizing terms at a new offshore coating project in the Middle East estimated at 7 million and expect to have assigned contract within the next week.
We are pursuing several other middle east coatings projects in the same or what similar value range to take place over the next six to 24 months.
The markets for energy service segment remained stable as well, where we are the lead outsource provider of maintenance services and refineries in California in Washington State.
The average age of West Coast refineries is greater than 80 years with current capacity operating consistently utilization rates above 90%.
Contributing to strong demand for maintenance turnaround and construction services to keep plants operating safely and efficiently.
Additionally, hi, regulatory standards and environmental mandates drive strict compliance criteria and investment for refinery maintenance, which in turn supports recurring revenue streams.
Our Union operation had six it has differentiate itself by successfully navigate in California strict labor market regulations, which we believe has increased stickiness with our blue chip customer base.
Contract backlog at year end I percent from the prior year driven by increases in them in maintenance and turnaround services. This backlog increased doesn't include the recent Salt Lake City Award, which was signed in early January demand for turnaround activities has picked up in recent months as predicted and we expect to see higher ball.
Comes in 2020 compared to 2019. Additionally, we've had success in expanding our specialty service offerings, including a contract signed early this year to exclusively provide safety services at two additional California refineries.
As I look forward to the year ahead.
I believe we aren't inflection point in our business, we've substantially completed a process that began five years ago to position our operations in markets with favorable scale in earnings profiles, we are simplified our overhead structure to align with our more focused organization.
As a result of these efforts, we shrink the topline in certain underperforming into or divested portions of the business.
However, moving into 2020, we are transitioning into a new phase of growth for the organization focused on profitable expansion in core markets. We are differentiated from our competitors in several ways.
Our strong focus on technology innovation, evidenced by R&D investments that have doubled historical levels in recent years.
Our unmatched market coverage, which enables us to serve customers in all 50 states in more than 90 countries and on six continents globally as we deploy new technologies, we are well positioned to leverage our channels to market for faster product acceptance.
Our global manufacturing capabilities, which allow us to enjoy stronger margins than traditional installation only contractors and provides tremendous market intelligence is we look for new ways to meet the ever changing needs of our customers and lastly, our track record of strong free cash flows, which enables us to continue to invest for growth.
While returning cash to shareholders.
We are well positioned with market tailwinds and growth opportunities in each of our three segment and we are targeting significant earnings growth in 2020.
Keys to achieving our targets in the coming year include one maintaining market share in the North America gravity sewer rehabilitation market, well commercializing, our new insituform technology offerings and expanding our presence in the pressure pipe water market, we celebrate the development of new product offerings, but recognize.
It is it's a long road with a highly fragmented customer base to gain broad market acceptance. This will require tremendous amount of market education and the solution selling approach versus a more traditional product sales approach to which the businesses accustomed.
X to executing on the many international project opportunities for United pipeline systems and coating services businesses.
Many of these projects are driven by new construction and why we feel very confident in our ability to win and successfully execute the work we are unable to control the ultimate timing of the work we believe.
Hopefully adjusted for the risk of delays in our guidance over the for the year, but we could see upside if project timing materializes faster than we expect.
Three driving significant profitability improvements in our corporate business. It is very early in year to gauge success of our expanded restructuring actions.
Through the whole January results were encouraging with increased gross margins and reduced overhead spending that drove a nearly 40% improvement in earnings compared to last year.
The first quarter is typically very weak for this business and it will be critical to minimize losses as we started out the year.
Advancing our expansion efforts in the energy services business into new geographies, we've secured exciting new businesses and must transition. This work seamlessly to our teams and then leverage our strong performance to further expand our specialty service offerings.
Five and lastly, finding opportunities to scale, our smaller more niche businesses, including or underground solutions in Fife businesses in North American Asia.
These businesses are very strong and technical differentiation, but we need to grow our revenue base to improve operating leverage and profitability. We must also continued to remain focused on the strong cost control. We've achieved over the last 12 months, even as we transition the organization to a more growth mindset.
I'm excited about the year head and focusing our efforts on sustained profitable growth to drive long term value creation for our employees customers and stockholders with that overview I'll turn the call over to David to provide additional details regarding our performance and financial targets David.
Thank you Chuck and good morning to everyone on the call.
Excuse me I'll walk through a more detailed review of our full year 2019 results and also discuss our financial guidance for 2020.
Starting with our consolidated results for the year Adrian delivered total revenues of 1.2 billion a decline of 9% from the prior year within 2019 results revenue from exited or to be exited operations totaled approximately 70 million excluding the impact from these business exits rather.
The news on a state same store basis declined 5%, primarily due to the expected reduction in large coating project contributions from corrosion protection. The topline decline drove about $19 million decline in adjusted gross profit. However, we were able to deliver adjusted operating income largely in.
Aligned with the prior year by offsetting substantially all of the gross profit decline with an $18 million or 9% reduction in adjusted operating expenses through our restructuring actions in cost containment efforts are improved project execution and overhead cost controls led to a 40 basis point increase in.
Both adjusted gross margins and adjusted operating margins.
Below adjusted operating income.
We benefited from reduced interest expense on lower debt levels in higher interest income related to the note receivable as part of the by you sale in 2018.
Other income and expense was on favorable for the year compared to 2018, primarily due to a pension settlement that benefited the fourth quarter of 2018.
Our adjusted effective tax rate was 21.5%, which came in lower than our guidance in the prior year do that due to the benefit of or reversal of uncertain tax positions as well as a shift in earnings mix towards lower rate your jurisdictions during 2019.
Income attributable to non controlling interest increased 1 million from the prior year, primarily due to higher results from our industrial linings joint venture in the Middle East All in these factors led to adjusted earnings per share of $1.21 in 2019, a modest increase over 2000 eighteens results and in line.
And with our 2019 guidance.
We reported a GAAP loss per share of 67 cents for the year.
The adjustments between our GAAP and adjusted non-GAAP results consisted of 32 million a pretax restructuring charges pre my primarily related to wind down expenses in fixed asset disposals, the release of currency translation adjustments and losses on the disposal of certain restructured operations.
And employee severance and early lease and contract termination costs. We also recorded 27 million a pretax acquisition and divestiture related expenses, primarily related to the impairment of held for sale assets in connection with the exit a multiple international businesses as part of our restructuring program.
You also will recall in the first quarter of 2019, we recorded a pretax warranty reserve a $4 million related to a waste water rehabilitation project in our North America C.I.P.P. business that was completed in 2017 Im pleased to report that we have successfully completed the warranty repair.
Our work associated with this project.
The nearly 64 million in pre tax adjustments excluded from GAAP results in 2019, approximately 27 million were just over 40% where for charges settled or expected to be settles in cash.
8 million in cash charges were recorded in the fourth quarter with approximately 3 million up such amount related to the expanded corpo U.S. restructuring actions Chuck mentioned earlier I'd like pick one minor correction to one of Chuck's comments on Chuck noted that our workforce reduction in North America was approximately 770%.
The corporate U.S. workforce that number was 20% not 30% or 70%.
Through these expanded corporate actions, though these expanded corporate actions were not anticipated in our previous restructuring guidance. We believe they were necessary to rightsize, the U.S. business and we will yield significant profitability improvement as for age young going forward.
I'll now walk through a review of 2019 results and our 2020 guidance outlet within each of our three segments.
Infrastructure solutions delivered revenues of 591 million in 2019, representing nearly half of Aegons total revenues when excluding exited or to be exited businesses revenues were on par with the prior year.
Revenues in the Insituform business grew for the year, excluding the exit of our international contracting operations.
Bolstered by a 25% increasing global third party product sales offsetting this increase volumes declined in our underground solutions business due to salesforce turnover, which can have an oversized impact is a high degree of technical knowledge needed to get our patented fusible PVC pipe product specified into.
New projects, we were able to get back to full staffing levels by the ended the year and expect to see a recovery in volumes in 2020.
Despite the view that topline performance, we deliver double digit growth in adjusted gross profit and adjusted and achieved adjusted gross margins of 25% due to significant productivity gains in the Insituform, North American business and the exit of underperforming international contracting markets.
We reduced adjusted operating cost by 4% despite higher investments in R&D to support new technology developments, which helped drive a $19 million were 35% increase in adjusted operating income all in our adjusted operating margins increased by 340 basis points to more than twice.
8%.
For 2020, we expect infrastructure solutions revenues to be on par with 2019 results, which included nearly 60 million in revenues attributed to exited or to be exited businesses. Excluding the impact of the exited businesses revenues are projected to grow in the high single digit range driven.
By new product offerings from the Insituform business and higher underground solutions volumes adjusted operating margins are projected to remain on par with a strong results.
In 2019.
Shifting to corrosion protection, we experienced in expected decline across all key metrics driven primarily by the loss of high margin contributions from the large middle East coatings projects that benefited 2018. We also saw a decline in our corporate business as a result of market weakness in Canada and performing.
Challenges in the U.S. Chuck highlighted the strong performance from the United pipeline systems business, which helped to offset the weaker results for 2020 revenues within corrosion protection are expected to increase 2% to 4% from the prior year, excluding the impact of exited or to be exited businesses.
Revenues are expected to increase 7% to 9%, which includes the impact of the corporate U.S. downsizing adjusted operating margins are expected increased 200 to 300 basis points driven by better operational performance Encorepro stronger international coating project contributions and improved.
Operating leverage.
The expected improvement incorporate in corrosion protection earnings is a critical driver for our earnings growth in 2020 as Chuck mentioned, we believe we have risk adjusted our projection for the potential of large project timing.
Variability from our United encoding services businesses.
Significant swings and scheduling represent both upside and downside to our projections and we will keep you updated as we progress throughout the year.
Our energy services segment achieved revenues of 328 million in 2019 demand for our core maintenance services, which accounted for more than 70% of total segment revenues increased 12% to record levels offsetting this growth construction activities decline.
And as part of a more selective bidding strategy, we implemented during the year for smaller capital project opportunities. Additionally, turnaround activities as expected declined following an acceleration into 2018 of work performed at hit refinery labor transitions in late 2018.
We increased adjusted gross margins by 20 basis points and grew adjusted operating margins by 60 basis points due to a strong and continuing focus on streamlining the overhead structure needed to support the business.
We expect energy services to grow revenues in the low to mid single digit range in 2020, primarily by expected increased demand for construction and turnaround services. Adjusted operating margins are expected to remain on par thousand 19 results.
That wraps the review of our operating segment results.
Adjusted corporate spend for 2019 declined 11% to 25 million.
Allusive of an additional 1.4 million of corporate incentive compensation expense in 2019.
The reduction in corporate spend was primarily driven by a simplification of our corporate overhead structure as part of our overall restructuring actions to reduce complexity in the business.
In 2720, we expect a modest increase in the spending in line with general market inflation, and we continue to target a level of corporate spend as a percentage of total revenues in the 2% to 2.5% range.
For consolidated Aegon, we expect a 1% to 3% increase in revenues in 2020.
Excluding exited or to be exited businesses, we are targeting an increase of 6% to 8% overall with increases expected from each of each of our business units, except for pro where as previously discussed we're exiting unprofitable or low return us branches and activities we are targeting.
25% to 75 basis point improvements in both gross margins and adjusted operating margins driven primarily by expected improvements from our corrosion protection segment continued strong performance from our infrastructure solutions and energy services segments and continued focus on cost controls.
Interest expense is expected to be $12 million to $13 million in 2020 due to lower expected debt levels. We expect our adjusted effective tax rate in the 23% to 24% range. All in we are targeting adjusted earnings per share of $1.30 to $1.50.
Looking at the phasing of results in 2020, we expect the first quarter to be the weakest of the year and slightly below the adjusted results achieved in the first quarter of 2019, our first quarter results are always impacted by seasonality due to weather challenges for insituform, Encorepro crews and general slowdown in work really.
Pieces to start the year.
Hey, just Q1 19 results also were benefited from a strong contribution from the large offshore project that was completed during the product during the quarter.
Our infrastructure solution revenues are expected to be down in Q1 due to the exit of international contracting activities.
The new growth for this segment will be weighted later in the year due to expectations for a phased market acceptance for our new technology offerings.
Growth in protection revenues in Q1 are projected to improve over the prior year driven by higher volumes in our United business, Though we are targeting strong earnings improvement in the corporate business. We expect we may still incur segment losses in the first quarter due to seasonal weakness. However, we.
We expect significantly higher results in the remainder of leader to achieve our full year targets.
Energy services revenues in Q1 are expected to be higher than the prior year driven by increased demand for turnaround activities. Our Q1, Mark. It's in the segment are generally the weakest due to the higher employer payroll tax burden that Jeff Max's out in the early part of the year.
We expect restructuring activity in 2020 to be limited to a few remaining items first we're in negotiations to sell our contracting business in Northern Ireland, which transaction, we expect to complete by the end of the second quarter second we need to finalize the corporate restructuring activities initiated during the fourth.
There are 2019.
The remaining activities are primarily related to facility closures and relocations and equipment disposals third we expected material wind down activities from our cathartic protection businesses in the middle East related to a small number of projects remaining in backlog and finally fourth we are wrapping up final dissolution activity.
These for the impacted United businesses in South America in South Africa.
We expect all remaining activities dipping be completed by the end of the second quarter future cash charges are estimated to be between two and 4 million and we may incur additional noncash charges associated with final currency translation adjustments as well as net losses as part of the sale or closure of in personal entities.
Before closing I want to touch on our cash flows for the year.
We generated full year operating cash flows of 79 million nearly doubling the prior years results, we significantly improved working capital balances driven by strong accounts receivable collections in our energy services and corrosion protection segments and as a result of our exit certain international markets our capital allocation was.
Balanced for the year in consisted of $29 million of continued investment in our businesses by a capital expenditures 35 million of debt Paydown and $30 million of share repurchases are cash used for restructuring activities was $14 million in 2019 as has been in the $10 million to $15 million.
Change for the last several years.
Forward to redirecting those cash flows in the future towards activities that will improve returns for age stockholders.
We ended 2019 was 66 million in cash despite the reduction in our cash balance from the prior year. We had success during 2019 and liberating international cash balances as part of the closure of foreign entities as a result as of yearend approximately 61% of Aegions global cash.
Was in the United States as compared to approximately 40 person at the end of 2018 and 2017, we feel good about this level of cash to support the working capital needs of the business and we also have ample access liquidity with our credit facility.
For the coming year, we expect capital expenditures in the $20 million to $25 million range and we have approval to buy back up to 40 million of aging on common stock in open market share repurchase transactions, the ultimate baby buyback levels will depend on the share prices.
That wraps review of our results and outlook for 2000.
Now, let me reiterate Chuck's comments on how pleased we are with our 2019 results in commend EEG on employee for a job well done we look forward to leveraging deposits moment momentum from 2019 to deliver strong top and bottom line growth in 2020.
With that operator at this time, we used to take questions.
As a reminder, Jeff a question you will need to press star one Michelle.
John question press the pound.
Please standby will we can probably couponing roster.
Our first question comes from Eric Stine with Craig Hallum. Your line now.
Hi, Chuck and David.
Hey, good morning, Hey, So I appreciate all the detail that you give across the business and I know that the.
Your guidance range for 2020 is pretty standard a 20 cents, but maybe if you could just boil it down I'd love to hear maybe the three or four.
Factors that would be kind of puts and takes to that to that range.
Sure. So I think I think if we if we think about the upside to the re gerrick.
We.
There is a.
An opportunity for some of the projects in the middle East that we're tracking to actually impact.
Results in Q4, probably we have not included those in our estimate and that would provide upside that could we bring it towards the top of the towards towards the top I think is as you look at the at the downside for the business. It really we need core pro to produce what we said.
And then we also have.
A fair amount of growth baked into new products, which we feel very good about.
There's always some market risk as you as we go through the commercialization phase for those products. So that gives you some ideas David you want to add anything to that.
No I think that covered it well.
Got it and then you just mentioned this some turnover and underground solutions I mean, maybe just a little bit of.
Color there I mean, it sounds like you are being pretty conservative around the new product impact.
And you mentioned that there was a little bit of a dislocation just because of the engineering side of it.
More color on that and how you're thinking about that going forward and be helpful. Sure. So I think what what we talked quite a lot of I want to backup permitted Eric what we talked about was about $60 million with the growth and I asked.
And that 60 million.
Think about it in terms of about in terms of.
What we're going to see in the core business just for market growth.
And what we'll see in terms of new products and then what we think we'll see from.
Life and underground solutions is they continue to gain momentum and on the sales side I think all three of those categories are.
About even not quite bit about even in terms, what we're targeting for growth on the underground solutions side, we had.
Pretty experienced sales force when we started we lost or when we bought the business. We lost some of that experience due to retirement and several other factors.
Last year was a year I think where we brought on a lot of.
Newer sales engineers were very pleased with the caliber that we were able to higher and I think as we go forward into this year that groups up to speed now and we expect to have another solid year from underground solutions.
Okay.
No that's helpful.
Maybe last one for me great to hear that the restructuring is it's kind of nearing an end after I guess, it's been five years, but just curious about Canada I mean, I know, that's a market that it's very up and down and.
No just wondering is that a market that the never have you thought about as a candidate for one that you get out of words, not one where you you've got the cost structure to a spot where.
Its right to have it in place you can flex up and down when needed.
But not not necessarily candidate to get out of.
Great question that Kevin is the is really two stories for us our.
Infrastructure solutions business does very well up there.
It's a nice market for us very strong market for us.
On the oil I think what you're probably alluding to oil and gas side has been has been more challenging and we've taken steps.
Really progressively over the last couple of years trying to at tried to address that weakness I think with.
With with both our lighting business and with our cathartic protection business, we've significantly reduced our fixed cost base to try to adjust to the market weakness, but there is no question is the challenging market. We continue to look at that on the oil and gas side.
Okay. Thanks, a lot.
Our next thank you.
Hey, Salomon with Maxim Group your line.
Hi, Thanks. Thank you good morning, and thanks for that context underground solutions to a and going over your some of your comments on.
Infrastructure solutions was that lower revenue in one Q from the prior brain. Once you 20 from the prior quarter prior year excuse me Mr.
That was for the prior year Tate.
You will ultimately is really due to the exit of the various international markets.
Okay.
And then on the Capex comment it see I mean is that a run rate of Capex going forward. After then to your restructuring or is that a temporary low it seems lower than your previous ranges.
Yeah, It's it's down for a couple of reasons one we we've had some investment in both.
He resources.
Over the last couple of years that we don't see continuing on a go forward basis, but also the exit of the international caught contracting operations and the Capex associated with those businesses. So on a go forward basis I would expect our capex would remain in the $20 million to $25 million range.
I would also add to that that the Bayou business was fairly capital intensive and as.
Required some maintenance capital that obviously went away when we sold the business.
Okay. Thank you very much for those follow up sites.
Thank you and then.
Hello, gentlemen.
Okay.
Hi, good morning, well.
Oh, Hi, So my first question I, just wanted to touch a little bit more on the corporate restructuring and the exit out of the drilling business. I mean is there or is that something now you're going to sub contract I guess I'm curious why you retained it up until now is there was our strategic reason and how are you addressing not moving forward.
So I.
There will be cases, where we'll end up sub contracting that business, we're still going to where we will continue to.
To do provide drilling services, particularly in the in the Gulf region.
Thats an area, where we've we've had pretty good success our challenges.
As we as we moved around different parts of the parts of the country. We didn't always understand some of the below surface issues as well as local contractors and we came to conclusion, we were better off so something that part of the business out there.
There will be there will be other cases, I think where the where the customer just may decide to take drilling on themselves and we we see continued to see a very nice opportunity and construction with doing that can the actions of the anodes to the pipeline there is little bit more value added in that portion of the service and we'll continue to do that.
Across the country, but the drilling piece was very very difficult for us to manage it was capital intensive and we were having trouble with utilization rates.
Pretty much as soon as we left the Gulf Coast area. So we will continue in that business there, but exited in other parts of in other parts of the U.S.
Did that answer your question.
Okay. Thank you.
And then just shifting over to North American C.I.P.P., there could you give us and I'm sorry, if you mentioned this I did happen late but could you give us a sense of some of the trends and in the market that you're seeing in terms of.
Diameter of projects that are out there competition and just generally how municipalities are thinking about investing and.
I'd be curious about the bus pressure pipe anti gravity pipe infrastructure.
I think on.
I guess a couple of comments on that.
Additionally, the small diameter work has been about 80% of the market remember small diameter for us is 12 inch and less and that's been about 80% of the market and then.
The other 20% is medium and large diameter I don't think that has changed dramatically.
Occasionally there's a big project that that pushes it one way or another but I think that.
That ratio reflects actually probably the infrastructure and so we don't we don't see that that that changing dramatically.
There's no question that on the gravity sewer business, we have to continue to.
Improve our productivity to stay competitive thats very competitive that the construction side to that is very competitive.
And what we're seeing though on the on the pressure side and also probably on on some of the medium and large diameter is that there are there are good market opportunities for.
Alternative types of too.
On the pressure pipe side, we've developed three or four different offers that.
Depending on the situation make a lot of sense for the customers the pressure pipe in terms of C. I P. P is still largely undeveloped.
I think when you went as you hear about pressure pipe jobs in the current market what you're hearing about is mostly.
Force main sewer pipes, and not actually portable water pipes.
In the U.S. the CFPB markets.
Very much.
Very much in early stage in Canada approved, particularly in Toronto and in Montreal because of the depth of the line there's been a lot more pressure pipe work done.
But we feel really good about.
2019 in terms that we do have a very good.
Solution set now for the pressure pipe market I think we we got our pressure pipe material right. We have the rate pressure ratings on the pipe we're real excited about that.
We are in the process of field testing, our or of testing our eight inch robots.
We're still doing some tweaking to be able to reinstate laterals.
The with the success rate that we need to have but overall, we see the pressure pipe market. We continue to see that is very exciting opportunity and feel very good that 2019, we got the we have the materials and construction right for the too.
So the I guess why was going to summarize that I think the.
Felt CR p. market continues to be.
Very competitive on the construction side.
Please that we're we're very competitive and we had nice margins in 2019, but it continues to be very competitive.
On the pressure pipe side.
And on some of the larger diameter work.
There's there's opportunities for new technologies that are probably more more cost effective that.
Felt and we're excited to have to address those opportunities.
And that's probably the way I would summarize market.
Great. That's that's really helpful. On and then I guess the last question would be that you know as you now have kind of approach. The end of your restructuring shift back to maybe playing offense that more how are you thinking about where you might want to go with M&A <unk> Bakken and that direction how are you.
Are we thinking about that opportunity on the on the M&A front.
We would we would we would love to do some M&A I think the what we're focused on our right now our tuck in acquisitions.
Support the.
Structure solutions business in particular, I think we've got a strong business model to add insituform if.
Technology or geographic expansion opportunities with tuck in well under that business I think we could leverage those and generate.
Good value.
I think on the CP side, we continue to look for new technology that that would complement.
Corporal or.
I did pipeline systems, but what we what we see as we go forward here is looking at looking at acquisitions that are tuck ins to the existing business and staying very focused on the markets that we're operating in.
And the those acquisitions would would.
Be primarily North America focused.
Thanks again.
Thank you I'm showing no further questions I'd like to turn the call back over to check for any closing remarks.
Thank you operator, our growth this year will depend on our ability to protect our market leading positions and margins, while growing share through innovation and new product offerings as well as driving scale and improved operating leverage in our smaller niche technical offerings.
We have a streamlined footprint market tailwinds and exceptional talent commitment from our global workforce of more than 5000 employees.
Excited for the year ahead, and look forward to updating you on our progress in the coming months. Thank you for joining us.
Ladies and gentlemen, this concludes today's conference call. Thanks for participating.
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