Q1 2020 Earnings Call
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Later, there won't be a question and answer session and instructions will follow at that time.
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As a reminder, this event is being recorded it is 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 meet our check Gordon ATM, President and Chief Executive Officer, and David Maris Indians, Executive Vice President and Chief Financial Officer.
We issued a press release yesterday that will be reference 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 of age bands website at Www Dot aid yen dotcom.
During this call the company will make forward looking statements, which are inherently subject to risk and uncertainty, particularly given the unknown impact of the current Covidien 18, pandemic and the company's respond to meet evolving circumstances.
The company does not assume the duty to update forward looking statement.
That I'm pleased to turn the call over to Chuck Gordon.
Thank you Katy and good morning to everyone joining us on the call today.
The state of the World has changed significantly since our last earnings call my weeks ago.
The Cobot 19 global pandemic has been like anything most of the two expansion in our lifetime.
Communications and companies across the globe been forced to respond to graces for which there is no playbook readily available.
I'm pleased with how well Hey, John has been able to navigate the impacts of this crisis today.
Including our ability to deliver first quarter results that exceeded our expectations going into the year.
These results are a testament to the hard work and commitment of all of our employees and that piece first and foremost a commitment to health and safety.
It was a lot of initial uncertainty concerned about our ability to continue operating would stay at home waters began to emerge we were fortunate that all of our business is qualified as a central services under Federal Cobiz 19 response guidelines published by the cyber security infrastructure Security Agency.
This designation Grad, that's the permission to continue working we also had to prove to ourselves and to our customers that we can continue to keep the health and see if you bought employees and communities is our highest priority.
Within days, our safety team developed to begin executing against a pandemic right response plan, which was broadly distributed to our customers. We performed hazard assessments at each for job sites to identify risk areas, primarily high touch areas and took steps to reduce the risk in each activity, we implemented many new safe.
The process is expanded disinfection it standardization activities on our equipment and at our facilities and let a robust education program on personal hygiene practices.
Oh field crews and pride provided proper personal protective equipment. Most crews are comprised of fewer than six employees and are able to practice social distancing on the job site.
We're activities do not allow it takes me to distancing face masks and shields are required to reduce the spread of infection. In some cases, we've had to upgrade hotel for our crews to widen the CDC recommended providers.
And our manufacturing facilities, we work hard early on to minimize supply chain risk with our key suppliers and build extra inventory where necessary.
All employees and our manufacturing facilities are wearing protective gear and stations are sanitize multiple times each day in some locations. We are staggering shift change is and changing entry and exit routes to minimize risk during busier shift changes.
We've established medical hotlines for workforce and encourage employees, whose job allows it to work from home.
As for Moms are availability has improved we are rolling out temperature monitoring at many of our work sites, including our manufacturing facilities in several field locations.
The feedback from our customers and local regulatory agencies has been very positive and we've been commended for establishing many best practices as an example for other businesses.
Most importantly, our efforts have helped us to minimize the spread of infection and our global workforce of nearly 5000 employees to date, we've had only three positive confirmations recorded 19 and less than 50 suspected but unconfirmed cases that resulted in self isolation.
As stated territories begin to consider relaxing stay at home mandates. We're developing robust returned to work protocols for our office staff to ensure we continue to reduce the spread of infection for our employees.
I'm, so proud of how well our teams have stepped up in the safety response and that will continue to be a positive enabler for us moving forward.
Looking at our first quarter results adjusted EPS of six cents per share exceeded our expectations going into the year.
Results were led by continued track record and strong performance for our infrastructure solutions Energy services segment, and we were successful in both businesses and overcoming March impact from Cobot 19.
Order intake was also strong during the quarter, primarily driven by Insituform, North America business, which led year over year growth in our ending backlog position when excluding the impacts of exited to be or to be exited businesses are strong backlog position, our strong backlog positions us well for the next several months.
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And we are encouraged by continued demand strength from certain of our businesses, including Insituform, North America, corporate and activity in the middle East.
Despite these positive signals in certain parts of the business. We expect current market conditions will have an unfavorable impact on our results for the next several months.
Well the situation remains very fluid we've made our best estimate into expected result for the second quarter, which David will cover in a few minutes the outlook for the second half is clouded with significant amount of uncertainty is the ultimate duration and severance severity is of the pandemic unrelated economic slowdown remain unknown.
Amid this uncertainty we are focused on controlling what is within our control that starts with safety is our top priority.
We're also being nimble with our crews loading and scheduling capabilities in order to quickly adapt to market changes.
We took swift and decisive action to implement a number of aggressive cash savings and cost reduction efforts to help mitigate expected revenue disruptions and we successfully completed an amendment to our credit facility that grants us expanded financial flexibility and liquidity.
Additionally, the benefits are clear from a multiyear effort to reshape the business, which included actions to reduce the up in upstream oil and gas exposure the exit of multiple smaller international businesses. The restructuring of unprofitable businesses in North America, and other efforts to rightsize underperforming business and reduce.
Operating costs.
As a result of these actions we are far better position to date, whether this type of market uncertainty that at any other point over the last several years.
With that market backdrop in mind I'll spend a few minutes discussing our results in current outlook in each of our segments.
[noise] first starting with our infrastructure solutions segment, our core Insituform North America business performed very well in the quarter. We benefited from continued productivity improvement gains favorable weather trends and a good mix of larger diameter projects that cruise executed well.
Stay at home orders created disruption for the business late in the quarter, but our schedules and project managers were able to effectively work with our large customer base and redeploy resources to other jobs in cities to keep crews active.
Our broad geographic reach and scale sets us apart in this regard and provides an advantage over our regional competitors that may not have that kinda flexibility.
As a result, we were able to maintain crew loading it between 90% to 95% of our plant capacity for the year and we continue to operate at similar levels today.
Results were also supported by strong to production from our base for manufacturing facility and our multiple wet out locations across North America.
New order intake for the Insituform North American business was also very strong in the quarter growing more than 25% year over year in driving a 7% increase in ending backlog, we saw a nice market growth maintain good win rates at the bid table and secured projects. It expected margins in line with the prior year well we.
Expect the market disruptions to be more pronounced in the second quarter compared what we saw in the first the impact of this business should be more muted based on the strong backlog position in current operating performance.
We have seen some temporary disruptions in bidding activity due to stay at home orders, but overall market activity through April continues to be strong.
[noise], we're closely monitoring the longer term impact municipal funding as a result of economic slowdown.
Municipal water and wastewater budgets are almost always managed separately from general fund activities.
Utility capital improvement spending is usually funded either directly from user fees or more often three specific purpose loans in revenue bonds that are underpinned by the steady stream of revenues from utility users.
Well, we would expect the fees collected from residential users to remain relatively constant the impact to the economic slowdown on revenue generated from industrial users is harder to project.
We are watching the trends closely and also monitoring for any federal stimulus to municipalities or for other infrastructure spending which was a positive factored into great recession and would likely benefit the business due to show the shovel ready nature of many of our projects.
Our teachers for NAPW operations internationally as well as our Fyfe, an underground solutions businesses delivered positive results in the first quarter. Despite the impact from the virus.
Our lightings manufacturing facility in Europe continues to be operational do it reduced utilization rates due to the the effect the shutdowns in effect from many European countries.
Smaller age you on businesses are expected to be impacted more heavily in the second quarter largely due to the shorter term nature of their order flow and project backlog. However, we expect all businesses continue to operate profitably and expect to see a rebound in demand is activity begins to pick back up.
Shifting to grow our corrosion protection segment.
Results in the quarter were very weak driven by lower than expected results from corporate them coating services.
Actually offset by strong performance from the United business.
In the corporate business, we expected we would lose money in the quarter due to seasonal weakness is and that was the case. We also saw some unfavorable project closeouts related to the wind down of our construction activities at several locations.
Despite these disruptions I feel very good about our decision to downsize our higher cost construction activities. When we did as they would have been hit hard by what we expect to be a slowdown in new pipeline construction.
Across the corporate business. The vast majority of our revenues are driven by compliance related spending from regulatory from regulated pipeline operators.
While we expect to see declines related to the dramatic shift in oil and gas markets. The need for corrosion marketing monitoring compliance will be a demand backstop for the business. We saw strong order intake in the first quarter and ending backlog levels were in line with prior year. Despite the downsizing of the construction business.
We've taken actions to furloughed employees and reduce costs to match, what we expect will be a period of reduced activity related to the portion of the business that is not regulated as well as to address continued market weaknesses in Canada.
However, corporate is expected to remain a staple for the Crozier protection segment and our restructuring efforts are expected to drive a sharp improvement in the second quarter results.
And our coating services business first quarter results were also weaker than expected and were the primary reason for the significant year over year decline in earnings. This was driven by delays on a few larger international projects, including two projects in the middle East as well as a large South America project, we signed last year we.
Back to work on these projects to resume in the second quarter and be recovered within the year, but the loss of revenue in the first quarter drove a sharp decline in profitability due to lack of high margin contributions.
We successfully finalize the contract for a new 6 million dollar offshore coating project in the Middle East, which drove the increase in ending backlog for this segment year over year. This project is currently expected to begin work in the third quarter.
Our United business continued its string of strong its trend of strong performance in the first quarter driven by strength in the U.S. and higher volumes in the middle East, though results were overshadowed by weakness in the corporate I'm quoting services businesses.
Our United in coating services businesses represent our large our largest exposure today touch screen market volatility and our outlook for these businesses varies widely between the eastern and Western Hemisphere.
Middle East operators, and it, particularly Saudi Aramco continued to be the lowest on the global cost curve. They also tend to operate with more nationalistic goals that aren't as sensitive to short term price fluctuations.
For these reasons, we don't expect to see a significant near term slowed down from our middle East business.
Order flow remains strong in the region and we havent seen any signaling a project cancellation or reduced investment going forward, though we continue to monitor to the situation closely for delays our biggest near term risk will be NIM navigating the effects of the global pandemic and increased industry restrictions on the movement of people in goods throughout Threeq.
June which may create temporary disruptions to project schedules.
In the Western Hemisphere, our outlook for the North America business is more uncertain, we've already seen reduced order intake for our United encoding businesses in the U.S. in Canada and expect the activity remained depressed due to capex reductions announced by a number of producers.
I talked on the earnings call will last earnings call about the pickup in United's lining work for midstream customers and this still represents an opportunity for the business. Additionally, we believe there are opportunities to serve the municipal market and we will look to grow that revenue stream.
Across our North America corrosion protection businesses, we recently furloughed, approximately 160 employees and have implemented aggressive cost savings actions to mitigate it the expected weakness in revenues. We will continue to evaluate these businesses over the coming coming months to determine if additional structural changes are needed as well.
Resulted in reduced outlook for North America oil production.
Shifting to our energy services segment results in the quarter were strong and expanded nicely year over year, driven by a significant increase in turnaround volumes in January and February.
We expected to see a recovery in this activity following what we viewed as a temporary slowdown last year.
Turnaround levels in the first quarter were in line with what we've seen historically for the business and would've been even stronger if not for the slowdown we saw in March related to the virus.
Much of the fuel production on the West Coast is captive to local demand, California was one of the first Stacy implement strict shelter in place orders and the resulting slowdown in auto and air travel from the countries most populous state was significant.
Lower demand drove a sharp reduction in refinery utilization and customers reacted quickly by reducing maintenance man hours and deferring many construction in that turnaround activities until later in the year.
While the revenue decline for energy services expect is expected to be the most severe across all of our businesses in the second quarter.
We expect the recovery to be the quickest in highly correlated with the pace of activity picking back up once isolation mandates are lifted.
Longer term demand fundamentals remain strong for the business.
We have limited exposure to upstream market volatility and maintenance turnarounds and upgrades can't be delayed indefinitely without creating a significant risk refinery safety or regulatory compliant. We've also continued to preserve our geographic expansion into the Rocky Mountain region and feel good about our ability to secure new downstream contracts.
Even during this downturn.
That wraps up review of each of the segment, whether as much near term uncertainty surrounding virus in oil market declines. We believe the company continues to be well positioned for the long term the critical need to repair aging infrastructure is not lessened by this crisis and maintenance and rehabilitation activities comprised.
More than 85% of our revenues were taking decisive actions today to adapt to and be resilient and these turbulent markets.
I am confident we will successfully navigate this crisis and continue to generate long term value for our customers communities and shareholders with that overview I'll turn the call over to David to provide additional details regarding our performance in near term financial targets David.
Thank you Chuck and good morning to everyone on the call I'll walk through a more detailed review of our first quarter results. Some of the actions we have taken do improved financial flexibility and our guidance outlook for the second quarter.
Starting with our consolidated results for the quarter.
John delivered total revenues of 287 million, an increase of 4% from the prior year, excluding the impact from exited or to be exited businesses revenues on a same store basis increased 9% driven primarily by increases from energy services and infrastructure solutions adjusted gross profit to.
Claimed 5% or 2.6 million, primarily due to reduction for grows in protection as a result of international coating project delays, which also drove the on favorable mix margin mix in the quarter.
Partially offsetting the lower gross profit adjusted operating expenses declined 3% due to continued focus on cost containment.
Adjusted operating income declined 1.3 million compared to Q1 19, primarily due to lower gross profits.
Below adjusted operating income, we benefited from reduced interest expense on lower rates and lower average debt levels throughout the first quarter.
Other income and expense were favorably compared to Q1 19, due primarily to favorable FX, we meet remeasurements. Our adjusted effective tax rate was 26.2%, which was in line with the adjusted rate for Q1, 19 income attributable to non controlling interest increased over the prior year.
Due to higher results from our industrial linings joint venture in the Middle East all in these items led to adjusted earnings per share of six cents, which was in line with results in Q1 19.
We reported a GAAP loss per share of five cents for the quarter the adjustments squeak tween, our GAAP and adjusted non-GAAP results consisted of 3.6 million a pretax restructuring charges, primarily related to wind down expenses and fixed asset disposals and employee severance and separation Bennett's benefit.
It's primarily associated with the announced downsizing of the corporate us business, where we closed several offices and exited construction activities that others.
The majority of these charges were settled in cash.
We also recorded 400000, a pre tax acquisition and divestiture related expenses, primarily related the sale of international contracting operations. We closed the sales of our Australian and Spanish businesses in the quarter and also advanced the sales process for for our Northern Ireland business, though the process.
This was put on hold late in the first quarter due to the tier deterioration in market conditions related to cobot 19.
We expect to resume the sales process as soon as market conditions permit.
We have substantially completed all announced restructuring activities and expect future cash charges to be a material. We may incur additional non cash charges related to the final shutdown entities and the player planned sale at the Northern Ireland contracting business.
As Chuck referenced in his remarks, we will continue to evaluate impacts to the business as a result of the cobot 19 pandemic and oil market declines to determine whether additional structural changes to the business are required as a result of changes to long term demand fundamentals any such additional structural changes.
As could require additional cash and non cash restructuring charges.
I'll now know I'll now walk through a review of our first quarter results in the second quarter outlook for each of our three segments. While we are accustomed to providing full year guidance for the business. The current market volatility and uncertainty has resulted in limited visibility as a result, we do we withdrew our pre.
Obviously announced full year guidance targets in late March. However, we have made our best estimate for Q2 results based on what we know today in the markets.
Infrastructure solutions delivered revenues of 130 million in the first quarter, when excluding exited or to be exited businesses revenues increased 8% from Q1, 19, primarily driven by higher volumes from the Insituform North America business as well as increases in global third party product sales following.
The sale of several of our international contracting businesses in lieu of a more favorable product sale Mark model.
Our underground solutions business also saw an increase in volumes over the prior year, partly a result of adding sales resources to support the business in 2019.
Adjusted gross margins and adjusted operating margins improved nicely compared to the prior year driven by strong productivity and project mix from Insituform North America, the benefits of exiting underperforming operations and continued cost containment across the business.
All in our adjusted operating income grew by 15% to more than 14 million a strong first quarter for the segment on the continued strength of our North American contracting business and despite the impact that cobot 19 disruptions beginning in March.
For the second quarter, we expect infrastructure solutions revenues to decline, 15% to 20% compared to the prior year, excluding the impact of exited or to be exited businesses revenues are projected to declined 5% to 10%.
Adjusted operating income is expected to decline by 15% to 20% inline with the revenue reduction.
With a strong focus on fixed a fixed cost reductions across the business in order to preserve margins.
Revenue declines are expected across all businesses due to covert 19 disruptions that we expect our smaller fyfe underground solutions and international businesses to see a larger impact largely due to the shorter term nature of their backlog and orders.
These businesses are still projected that contributed positive earnings during the second quarter.
The impact on the Insituform North America business.
While unfavorable is expected to be more muted driven by the strong backlog position and favorable mix of projects going into the quarter.
Shifting to the corrosion protection segment revenues in the first quarter were 66 million, which increased 6% from the prior year when excluding the impact of exited or to be exited businesses higher revenues were the result of strong United pipeline volumes in the U.S. and middle East that offset decline.
Lines in both the core pro in coating services businesses.
Despite the higher revenues the unfavorable mix, resulting from the lower coating services volumes was the primary driver for the decline in adjusted gross profit and adjusted gross margins.
We also recognize significant contributions in Q1 19 related to a large high margin offshore coating project and Didnt see similar performance this year to the due to the delay of several international projects.
While it is typical to have a loss in the first quarter for the core pro business. We also experienced a loss from the coding services business, which resulted in the nearly 5 million dollar adjusted operating loss for the segment.
We do expect these coating projects will resume activity in the second and third quarters. Following reaches recent scheduling disruptions related to coded 19.
For the quarter.
Revenues within corrosion protection are expected to decline, 515% to 20% from the prior year, excluding the impact of exited for to be exited businesses revenues are expected to decline 10% to 15%.
The revenue decline is primarily driven by lower corporate volumes, particularly in the US where we recently completed efforts to closed several offices and exit contracting activities at others. The United in core coating services businesses are expected to see slightly lower revenues as well primarily driven by reduced.
Outlook for the North America businesses as a result of the oil market declines middle East activity for both businesses is expected to remain strong in the second quarter.
Despite the lower revenues adjusted operating income is expected to be flat to slightly improved compared to Q2 19, driven by cost reductions in all businesses as well as expected profitability improvements, resulting from the core from North America restructuring actions.
We have already begun to see improving utilization trends for the business in April and expect that to continue as long as we can match crude loading levels to any potential disruptions related to covert 19.
Our energy services segment delivered a 13% increase in revenues in to 91 million in Q1, 20, driven by a more than doubling of turnaround volumes in the quarter. You may recall, we viewed the decline in 2019 turnaround volumes as a temporary event related to the pull for.
Forward into the second half of 2018 of 2019 turnaround activity in advance of state mandated labor transitions in January and February. This year, we saw nice recovering recovery in turnaround volumes to levels more in line with historical trends start strong topline results combined with.
A reduction in operating expenses resulted in a doubling of adjusted operating income and a 110 basis point improvement in adjusted operating margins.
Results would have been even stronger but for the reduction of maintenance hours in March and the deferral of construction and turnaround activities that were slated to begin late in the quarter. Each as a result of the Cove at 19 crisis.
This is it.
Excuse me the significant decline in consumer demand for fuel as a result of stay at home restrictions has driven the sharp decline in maintenance man hour since mid March and is expected to persist during the second quarter and until we see restrictions lifted and a resumption of more typical auto and air traffic usage.
Q2, 20 revenues for the segment are expected to declined 40% to 50% compared to the prior year.
Despite the significant revenue to reduction adjusted operating income is expected to be breakeven due to cost savings actions to reduce fixed overhead while visited well visibility is limited beyond Q2, we would expect the second quarter to represent the worst of the impacts to energy services.
Assuming a recovery and consumer activity begin sometime during the quarter.
That wraps the review of our operating results for the segments.
Adjusted corporate spend for the first quarter increased by approximately 1 million compared to Q1 19, primarily driven by a number of smaller one off items that went against us in the quarter also the first quarter of 2019 included the benefit of the $400000 earn out reversal in the second quarter.
We expect as much as a 30% to 40% decline in corporate spending year over year, driven by the significant cost reduction activities, we implemented in late March.
These activities included efforts to drive reduce costs across all of our businesses as well as reduced cash outflows and included a temporary cast waste reduction for North America salaried employees, ranging from 15% for lower salary bands to 50% for senior leadership at 100% for three executive leaders.
Including myself, Chuck Gordon and our general counsel.
And on paid for low impact in more than 15% of the North America workforce.
Freeze of all noncritical spending for capital expenditures travel and other discretionary spending.
Suspension of the company's discretionary open market share repurchase program and suspension of cash fees for the company's board of directors.
We will continue to evaluate the duration of these actions based on evolving market conditions, but expect the majority of them to remain in place through the second quarter and others through the ended the year.
The cash savings the code associated with the salary reductions are estimated to be approximately $4.5 million for the second quarter. It is the current intention of agents Board to award restricted stock units to employees in replacement of therefore going forgone salary the equity compensation expense associated with such awards.
Would be expense over the vesting period of the awards.
For consolidated Asia, We expect a reported revenue decline in the second quarter of between 20, and 30% we expect declines to adjusted operating income to be in a similar range interest expense is expected to be higher based on higher Q1 borrowings and the potential for increased borrowings in Q2 if needed.
As well as higher rates associated with our recent credit amendment, which I'll touch on more in a moment all in we are projecting adjusted earnings per share of 20 to 30 cents, which has significantly improved from our first quarter results, but expected to be below the prior year levels due to lower revenues and business to rest.
Disruptions associated with the current market crisis.
While it is our expectation that we will see improved earning trends in the back half of the year as we begin to emerge from the pandemics impacts visibility as to limited to provide an update out an updated outlook at this time.
Before closing I want to touch on our cash flows and recent efforts to improve liquidity. We had net operating cash usage of 8 million in the first quarter, which is in line with the prior year and in line with historical trends for the business, where first quarter outflows related to annual incentives and renewals tend to exceed cash generation.
From C weaker seasonal results, we saw an unfavorable impacting working capital primarily driven by the strong revenue growth from energy services that drove an increase in receivables at quarter end.
To date, we have not experienced any significant delays and payments and our April cash collections have been strong. However in response to current market conditions, we have instituted biweekly accounts receivable in unbilled reviews with each business unit with a focus on all past due accounts and all larger outstanding.
Balances separately, we have implemented to enhance credit credit risk for review procedures for both new and existing clients with specific focus on clients with significant upstream activities and exposure.
Capital expenditures in the quarter were 6 million down approximately 25% from Q1 19 due to a freeze on new spending implemented in March we expect capital expenditures for the remainder of the year to be limited to only critical needs and our managing to an expected 10 million spend in 2020.
We repurchased 5 billion of age on common stock in the first quarter, consisting of 3 million related to open market repurchases and 2 million in purchases to satisfy tax obligations related to employee equity issuances. While we believe current share prices are significantly undervalued, we've made the prudent decision.
And to suspend our ongoing share repurchase program until conditions improve.
We ended the first quarter was 70 774 million in cash, which was aided by incurred incremental net debt borrowings in the quarter of approximately 25 million.
In mid March we began discuss discussions with our lending group to seek expanded financial flexibility to successfully navigate downside risks from the current market crisis yesterday, we complete isn't an amendment to our credit facility, which includes more flexible financial covenants and based on current projections.
Right provides agios and with more than 100 million of additional borrowing capacity over the next 12 months, while our interest rates have increased as a result of this amendment. We believe this was a prudent action to ensure aegon has ample liquidity to whether our unexpected disruptions during this volatile time.
James.
The company paid approximately 2 million for fees and expenses associated with the amendment approximately 600000 of the fees will be expense in the second quarter with the remainder amortize over the remaining term of the credit facility.
We also have been following the various us in the international governmental programs implemented in response to the curve at 19 crisis.
Hey, John did not qualify for the Paycheck protection program and we believe that the amendment to our credit facility was more favorable to Aegon then participating either in the main street loan program, where the main street expanded loan program.
We do believe that age general realized certain tax benefits associated with the provision of the cares act, including the deferral of approximately 15.6 million up 2020 employer payroll taxes until 2021 in 2022.
Separately, we believe our international operations in Canada, United Kingdom, New Zealand, Singapore, Hong Kong, and Malaysia will benefit from waves wage such as these available in these countries, we intend to closely evaluate any programs for which he John entities qualify.
That wraps a review of our first quarter results and near term outlook for the second quarter as Chuck mentioned, we remain focused on controlling what is in our control and that includes aggressive cost and cash management efforts to ensure we have solid financial strength and liquidity to whether what we expect to be a protracted period of uncertain.
In the markets and for our Asia businesses. We believe we are well positioned to successfully navigate this crisis and we'll look to provide additional updates in the coming months.
With that operator at this time, we would be pleased to take questions.
Ladies and gentlemen to ask a question you will need to press star one on your telephone to withdraw your question.
County.
Ask a question press star one on your telephone.
One moment, while we can pile today roster.
Our first question comes from Eric Stine of Craig Hallum.
Good morning, good morning, everyone.
Thanks, Hey, So hey, I just wanted to start with Insituform North America looks to me like operating margins best ever.
Given your history to start the year.
Do you think about that going forward, because I know youre going to have some productivity disruption, but then you've also got low oil, which I would assume means lower resin prices and also low transport. So just some thoughts going forward would be helpful.
So I think that.
You.
You've hit it pretty well, we would expect disruptions that would would impact productivity negatively from the coded virus, particularly as we have to move crews around and move them outside their normal geography, but we do expect that to be offset and sort of balanced out with reduced raw material.
Prices as you as you probably remember Eric our resin and our polyester prices are both petrochemical based and we would expect to see some.
There were beginning to see some price decreases in that area. So as we look at the business. We would expect those two things to sort of balance each other out.
And Eric we're also seeing the benefit of exiting the smaller international markets you referenced those being the NRE margins being the best ever.
We reported there is actually the platform margins, but certainly the platform margins are benefiting from strong performance in the Insituform North America business as well as the expiration of the international contracting markets.
Got it helpful. Maybe you mentioned this a little bit I'm just curious maybe if you go into a little more detailed this done the.
Competitive side, what you're seeing in the market I would think given your presence that this is an opportunity. If you look a little bit more long term that you pick up some share.
Whether its crew work or third party tube sales.
So what we what we've seen in North America from the crew side is that the bid table has been disrupted I would say minimally but has been a little bit disrupted in April that not because of any funding issues, but just because some of the municipalities didn't have the.
People one on staff working to be able to put the bids together and analyze them.
But thats been rather minor I think that the business to date has has remained fairly competitive but as we look forward, we're certainly going to be looking for opportunities to.
Do more in the more on that side of the business. If if the opportunities are good.
Got it okay.
Maybe last one for me just energy services.
I mean, I know, it's dependent especially in California.
On the stay in place or shelter in place orders there but.
Wondering I mean for the facilities that had turnaround scheduled for late in the year is that something where potentially.
You could get those move forward when access to facilities starts to loosen a little bit.
So we have people going into the facilities everyday we really don't have we don't really have an access issue. It the challenges the refineries are running at very low rate and so they're under a lot of their under tremendous.
Revenue and cost pressure and so they reduced their activity inside the facilities just.
More as a response to the low utilization of their facilities.
We are.
We are working with some of our customers to see if theres an opportunity to do a sort of protracted turnaround maintenance on why they're running slow and we're working with some of them on that but it's too early to say whether that will be successful or not most of the turnarounds have been moved either into the fourth quarter. This.
Year or into the first half of next year. So.
As you are probably well, where the turnarounds don't get cancelled, but they do get they do get pushed back so.
We'll see how that plays out that some of these that is some of the uncertainty that we're we're seeing in the quarter and also in the second half of the year. We just we just don't know yet.
Okay. Thanks, a lot.
Okay. Thank you are.
Our next question comes from well shelf at Stifel.
Hi, Noel.
Hi, guys, Hi, guys congratulations on another quarter.
So just Chuck I appreciate your comments on the funding for a lot of.
North American CTP product projects and kind of what you're seeing.
Okay level I guess, a couple of questions one now.
How are you thinking just about about the risk around funding given that I think a lot of state.
Hi, just under unprecedented pressure on DC risk.
Some of these funds getting shuffled around a little bit bucket.
And and then second if you could comment on how you're thinking about the potential for additional.
Hi, Charles stimulus measures.
Great great questions.
I guess the first the first with the first question no. We don't see municipalities moving funds around ever to a great extent the utilities are set up.
As debt Standalone entities in funds and typically the revenues from the from the.
Rate payers.
I have to pay for the utility operation and they have to pay for capital expenditures. What happens is is that if the if the capital expenditures in operations.
Are covered by the rates they raise rates and vice versa also happens if it goes the other way.
Probably 80%, maybe and that and again these are really general numbers, but.
Significant majority of the projects are funded with revenue bonds.
And those revenue bonds to typically once they are issued have to be spent in about three years to maintain your tax status.
And so as we look forward I don't see the.
Challenges the municipal general funds are having impacting our side of the business to a great extent there could be some but in most cases I don't think that will be the case what.
That will impact is the fees and the.
And the monthly charges that you municipalities get from industries.
A lot of the industry's use a significant amount of water and wastewater and we will the municipalities utilities will see a revenue reduction as as we get into the as we get into recession, but I'm not I'm not sure how deep that will be and it will certainly be dependent on what the industrial.
Bases in a locality so as we look at the business.
We would we would absolutely prefer that to municipalities be healthy but.
I think our side in the way it is funded is.
Somewhat sheltered from the challenges that to the municipal general funds are going to have the second the second part of your question was.
Related to the stimulus spending.
We are certainly working with our industry Association.
And trying to lobby for water and wastewater to be part of that you probably remember that the federal government government or you may remember the federal government.
Provided stimulus spending for water and wastewater infrastructure.
As in the last great recession in the way they did that was they.
Provided fine they provided funds for the state revolving fund funds and if the municipalities use that money quickly enough.
They were forgive me if they use the money quickly enough and they came in under budget those those actually turned into grants and the loans were forgiven.
And so we would we would certainly.
Love to see something like that happened.
We're trying to monitor it the best we can but.
There is there's a lot of activity a lot of conversation in Washington, and we'll see how the next stimulus package comes out hopefully it will would include something for water and wastewater infrastructure did that answer your questions.
Thank you.
A couple of course.
Thanks.
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I'm not showing any further questions at this time Mr. Gordon. Please proceed with any further remarks.
Thank you operator, I want to take this time to extend my thanks to our global workforce, who have continued to dedicate themselves in the organization in the face of significant uncertainty and personal challenges. We will continue to provide updates on the business as we know them and we'll look to provide more details on our longer term outlook. Once we have better visibility. Thank you for Joe.
Joining us today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
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