Q3 2020 Aegion Corp Earnings Call
Your improvements driven by higher utilization are rightsized overhead structure and increase profitability.
Following restructuring activities earlier in the year. The business has made gains across many disciplines, including project execution order intake and cash collections and I'm confident is on track to be a critical and stable earnings contributor following a period of underperformance.
Finally.
Yes business has performed very well operationally, while reacting very quickly to changing market conditions.
While year to date revenues are down versus prior year operating contribution has increased.
Despite this strength in the quarter was not without its challenges driven by more significant cobot related disruptions for the coating services business and energy services segment that began in March and persisted over the last several months.
These impacts in the form of international project delays and reduced refinery maintenance demand, resulting in a combined 16 cent year over year reduction in adjusted EPS in the quarter and a 45% reduction through the first nine months.
David will provide more detail on our quarterly performance in a few minutes.
But before that I'd like to spend some time discussing the key initiatives, we announced yesterday, starting with the strategic review of the energy services segment.
The energy services business has been challenged in the near term by a sharp reduction in west coast fuel consumption and increased pricing pressures from refinery operators.
Overtime, we believe the business will return to pre cobot volume and profitability levels. However, the pace of recovery is likely to be slower than we initially expected and the goodwill impairment charge. We recorded in the quarter reflects this uncertainty over the near to medium term.
Our decision to engage bank of America is our advisors to review strategic alternatives for the energy services segment is not based on the reaction to these more recent event, but rather a recognition of the lack of a long term fit of the business within the age on portfolio.
The business was acquired in 2013 as part of the strategy to diversify into oil and gas markets as.
As a standalone the business has multiple strengths, it's the leading provider of outsourced maintenance services on the West coast.
Led by a strong and tenured management team that has built long standing relationships with leading blue chip refinery operators.
Long term demand is underpinned by the need to keep aging refineries operating safely and efficiently as a critical component of the energy mix on the West coast.
And the business has been a consistent free cash flow generator for Aegon aided by low capital intensity strong cash conversion and a relatively low operating risk profile driven by a stable backlog of highly recurring revenue streams.
However, the business lacks fit within the overall age on portfolio and a couple of key areas.
It does not offer the potential for significant technical differentiation, particularly in the area of pipeline infrastructure rehabilitation and protection, which we are striving for in our core markets. The built business model as a contracting its labor provider does not match the rest of the Aegon businesses its margin profile is lower than.
Our other two platforms and we don't see a path to increase margins to meet a john's expectations for our business units or segments.
Our actions over the last several years to reduce complexity and simplify the organization in key markets have yielded multiple benefits the.
The management team with the support of the board of Directors believes this evaluation further advances that strategy to narrow our focus and resource allocation toward being a leading provider of differentiated pipeline rehabilitation and protection technologies.
With that goal in mind, we also announced our plans to evaluate opportunities to meaningfully grow our North America water and wastewater presence with the following considerations in mind.
Our cornerstone and such form business has been an industry leader in the trenches rehabilitation space for almost 50 years and we believe there's further opportunities to leverage our scale an unmatched market reach.
We also continue to see increasing demand for fusible, PVC and Tite liner as excepted transpose pipeline rehabilitation technologies.
Notwithstanding this progress we believe there is more we can do to penetrate the drinking water market to be an early and leading tracks a solutions provider in the space.
While our top priority today as an expanding our water and wastewater presence. We also remain committed to the leading technologies within our corrosion protection segment, which today, primarily serve the oil and gas markets.
The corporate North America business, which is focused on maintaining pipeline safety and environmental performance as a leading north American provider of Cathartic protection technology remains a key focus for Aegon and represent significant earnings upside over the next several years.
Long term demand is supported by compliance driven mandates for midstream pipeline operators and is more insulated from impacts related to commodity price fluctuations.
Additionally, we are focused on expanding core pros offerings to serve broader energy market applications, including those in the growing renewables landscape.
Our asset integrity management tool continues to gain broader acceptance and adoption by some of our larger customers as their primary corrosion assessment tool for maintaining compliance and to assist in prioritizing their integrity spend I'd.
A differentiating feature of our asset integrity platform is that it allows customers to align their inline inspection data with a cathartic protection information, we generate to provide a more comprehensive view of the condition of their pipeline asset.
Our United business has been and will continue to be a leading market provider of pipeline lining technology, and the oil and gas space space, but there exists a good opportunity in the municipal market as well the Tite liner technology continues to be successfully used in municipal pressure pipe projects and we believe there is significant.
Kept pent potential to better Leverages technology to support our growth initiatives in the pressure market.
Our coating services business has a strong niche market position and we are focused on continuing to leverage our differentiated robots in coating technologies into other markets and across other portions of the aging on business.
To support these strategic efforts agents balance sheet is in the best shape of the last several years and we have significant financial firepower to advance a combination of organic and inorganic initiatives to grow the business. We can also further differentiate ourselves as a leading technology providers sustainable solutions for critical pipeline.
Rehabilitation and protection, which represents an attractive investment opportunity for what we believe will be a long term shift in investment dollars towards towards supporting sustainable and DSD friendly solutions.
We plan to provide more update on these strategic initiatives, including the evaluation of energy services within the coming months.
Before I turn the call over to David I want to spend a few minutes discussing our backlog position and current market outlook for each of the segments. Our consolidated contract backlog as of September 32020, with $678 million up 2% over the prior year, when excluding exited or to be exited operations.
Backlog for the infrastructure solutions segment is down 2.5% compared to prior year, driven primarily by a slight decline in Insituform North America. This decline is not a function of weakening markets. It is more a reflection of comparing to a very strong Q3 backlog number last year, which was capped off by a record.
Order intake month in September 2019.
Year to date, new orders for Insituform, North America are up 3% compared to 2019, and we continue to project overall market growth for the municipal wastewater business. This year.
While backlog is down for our five structural strengthening business, primarily due to cold weakness underground solutions backlog is up 16% year over year, which further supports a positive outlook for me is municipal market demand in.
In recent months, we've spent a fair amount of time communicating about the resiliency of municipal funding for water and wastewater markets.
We have certainly seen this play out in our strong order intake this year, but there remains some broader concern about the next 12 to 18 months and what they might look like.
During the quarter, we surveyed many of our municipal agencies to better understand set set sentiment as they begin to roll out plans for their fiscal year 2021 budgeting.
Based on our survey results more than half of that spawned its expected no change to water and wastewater capital funding in 2021, and approximately 30% of respond is actually expect to see increases in spending next year, which we believe provides a nice counterbalance to the 20% of respondents at signaled the potential for reduced.
Spending.
The water and wastewater market is highly fragmented so it's difficult to project the behavior of our more than 1200 North America customers.
However, we believe our findings which have been corroborated by other market research reports, we've seen in the last month provides strong support for continued stability in the North America CPP market in 2021. Additionally.
Additionally, AG on NR Insituform business in particular would be a clear beneficiary of any potential federal stimulus that offer support to water and wastewater infrastructure investment.
Shifting to corrosion protection contract backlog, excluding exited businesses was up 3% compared to prior year growth was driven primarily by a 12% increase in corporate North America backlog driven by strong order intake over the last several months. This growth is notable considering our decision to be more selective.
In bidding higher value at design and engineering projects and shift away from the riskier and lower margin construction projects that have resulted in lower revenues this year.
After rebate after a rebasing of our revenues this year due to downsizing our footprint and so forth in certain North America regions, we expect to see topline growth as we move into 2021.
Backlog for the United business is down compared to the prior year, primarily driven by weaknesses in the North America oil and gas market. However, we continue to see strong growth in the middle East following our successful expansion in last year into Saudi Arabia.
The strength of the Middle East business has helped United to maintain results on par with the prior year, despite from announced impacts in the North American markets.
Coating services backlog is higher than prior year, primarily due to the large international projects that have been delayed this year two projects alone one in the middle East and one in South America represent approximately $12 million of revenue and backlog that were expected to be performed this year, but will now shift the majority of contributions into.
2021.
While we are disappointed with the project delays. It is important to note that none of our coatings projects have been canceled cobot impacts of likely pushed our sales funnels out by 12 to 18 much months, which provides earnings upside for the next couple of years.
Shifting to energy services contract backlog increased 9% over the prior year to 232 million.
The increase here is not intuitive given the volume weakness as we've seen over the last several months, but it's driven by a few key factors first our turnaround backlog is up sharply driven by expectations for a strong Q 20, Q1 21 turnaround season following the impact of several deferrals this year concern.
Construction backlog is up slightly driven by remaining work on the renewable diesel construction project that we announced in late June.
The scope of this project has increased from the 8 million previously announced to over $14 million.
Maintenance volumes overall are on par with the prior year with new Rocky mountain wins, helping to offset lower hours with some of our larger west coast clients.
That wraps review of the market outlook, one last brief update I want to touch on is the CEO search we announced last quarter as part of my plans to retire.
We are now four months into a process. It often takes six to nine months. Our board of directors continues to advance the search process for a CEO successor, and I continue to remain committed through this transition.
I will turn the call over to David to discuss our quarterly results in Q4 Court for Q4 guidance for the business David. Thank you Chuck and good morning to everyone on the call I will walk through a more detailed review of our third quarter results and our guidance outlook as we close out the year echoing Chuck's comments I am pleased with the results in the quarter.
Which came in towards the high end of our guidance I am also very pleased with the strength of our balance sheet. The cash discipline Aegon has achieved this year positions, the Oregon organization very nicely to capitalize on growth opportunities moving forward.
I will discuss that more in a few minutes, but first I'll start with a review of our consolidated CNL results for the third quarter.
Starting with the top line total revenues in the quarter were $276 million declining $33 million or 11% compared to the prior year, when excluding exited or to be exited businesses that revenue decline was 6%, which was generally in line with our guidance range as was the case in the second quarter.
We saw varying degrees of coated related reductions across much of the business. However, the insituform North America business continued to be a bright spot and grew its top line.
Revenues by $12 million or 10% from the prior year, which helped offset reduced volumes in other parts of the business.
We achieved a 90 basis point improvement in adjusted gross margins as well as a 30 basis point improvement in adjusted operating margins. This margin performance helped us to manage a nearly $33 million reduction in revenues to a decline of just over $1 million in adjusted operating income in addition to strong operational.
Performance cost discipline was a key driver in the quarter. We also benefited from some of the savings measures that were still in place in the quarter, including approximately $3 million in savings relating related to a combination of foreign weight subsidies and the suspension of company matching contributions for retirement plans, which.
We're price, partially offset by higher equity compensation expense related to the return of salary to employees. Following the reductions that were in place in the second quarter.
We have since lifted most of the more targeted measures that were put in place in late March and expect an immaterial benefit from these actions going forward. These items helped us to navigate reduced demand and keep employees working in certain parts of the business, where we may have needed to take harsher actions otherwise.
Below adjusted operating income we had increased adjusted interest expense due to higher rates related to our recent credit facility amendment, partially offset by reduced debt balances compared to the prior year.
Within other income and expense net foreign currency trends transaction losses were 700000 in Q3 20 compared to a gain of 100000 in the prior year. Our adjusted effective tax rate was 21.5%, which was slightly lower than the prior year due to the mix of earnings are my.
An already interest earnings were slightly higher than the prior year due to stronger contributions from our United pipeline systems joint venture in the Middle East All in we delivered adjusted earnings per share of 32 cents.
On a GAAP basis, we recorded a loss per share of 93 cents, which reflected a $39 million pre tax noncash charge related to the write down of goodwill at energy services Chuck.
Chuck highlighted the challenges we have experienced in this business related to significant activity reductions and pricing pressure given the prolonged uncertainty around the expected recovery for the business. We determined in the third quarter that a triggering event had occurred and worked with external advisors to perform a fair value evaluation.
And which resulted in the impairment.
Other adjustments to earnings included $4.2 million in pre tax restructuring charges. The majority of which were cash charges primarily related to the substantial completion of restructuring activities incorporate North America, including the downsizing of the lower margin construction business and other profitability improvement.
Actives, we also implemented a small number of reductions in force across other corrosion protection businesses driven by coded related slowdowns.
Additionally, we recorded $1.3 million in charges, primarily related to the divestiture of our Australian contracting business, which we announced earlier this year.
We will continue to evaluate the long term financial impacts to the business and the need for more permanent or structural changes in light of covance challenges and the related oil and gas market weakness future charges related to the previously announced activities are expected to be immaterial, though our evaluation of strategic alternatives.
As for the energy services business May result in additional structural changes as Chuck mentioned, we plan to provide an update on this evaluation in the coming months.
I will now now walk through a high level review of our third quarter results and fourth quarter guidance outlook for each of the segments infrastructure solutions delivered another quarter of strong results that exceeded expectations driven by continued outstanding performance from the Insituform North America business total segment revenues declined three per.
Percent, excluding exited or to be exited businesses revenues increased 6% driven by a 10% increase in interior for North America volumes, which more than offset declines from our smaller fyfe underground solutions and international businesses. Adjusted gross profit margins reached the highest quarterly levels and more.
Than four years, and adjusted operating margins increased 240 basis points to more than 15% results benefited from strong productivity in North America improved international results and favorable fuel and material cost variances.
All in we increased adjusted operating profit for the segment by 16% to more than $23 million.
Which is a tremendous result in light of the day to day challenges our crews face to continue to face and successfully navigate during this pandemic.
For the fourth quarter, we expect infrastructure solutions revenues to decline, 5% to 7% compared to the prior year.
Excluding the impact of exited or to be exited businesses revenues are projected to be flat to slightly improved adjusted adjusted operating margins are expected to be 50 to 100 basis points higher than the prior year.
Margins over the last six months have benefited from an estimated 100 to 150 basis point uplift related to fuel pricing variances on projects that were bid prior to the sharp downturn in oil prices as well as a benefit related to foreign weighed subsidies. We expect this benefit to taper off as we close out the year.
And move into 2021.
Shifting to our corrosion protection segment topline performance came in shy of our guidance expectations, primarily due to delays in international coatings projects. However, strong margin performance, primarily from our corporate North America business helped to offset these impacts revenues for the segment decline.
And 20% overall and 17% when excluding exited or to be exited businesses.
Much of the year over year decline was expected as a result of the downsizing of some of our unprofitable corporate use construction activities.
Though we saw additional reductions due to the international coating project delays despite.
Despite these top line changes we kept adjusted operating income largely flat to the prior year due to strong adjusted margin increases corporate North America was the bright spot here delivering adjusted gross margin increases of 640 basis points and adjusted earnings contributions that more than doubled the prior year's results.
The majority of this increase was due to higher utilization and improved performance. Although we also received a benefit for more foreign weighed subsidies.
For the fourth quarter corrosion protection segment revenues are expected to decline, 12% to 17% from the prior year. Adjusted operating margins are expected to increase 200 to 300 basis points, primarily driven by continued improvements in corporate North America profitability and contributions.
The large coating projects in the Middle East and South America, representing approximately $12 million in current backlog are currently expected to contribute an immaterial amount in the fourth quarter with the majority of contributions shifting into 2021 any acceleration of scheduling could provide upside to the quarter, though we are not expecting that.
At this time.
The energy services segment remains the most heavily impacted from the pandemic and results came in lower than our expectations due to the sharp reduction in west coast fuel consumption that has forced refinery operators to pull back on maintenance spending while revenues declined 18% from Q3 19 revenues increase.
20% compared to the trough, we experienced in the second quarter, reflecting a partial recovery in volumes adjusted margins were impacted by the effects of temporary price concessions granted to refinery operators as well as unfavorable fixed cost absorption.
As we look to the fourth quarter, we expect energy services to experience revenue declines of 30% to 40% compared to the prior year, resulting in a projected adjusted operating loss for the quarter as we look towards 2021, we expect revenues and profitability to improve sharply and we are well positioned with backlog for.
Our strong first quarter turnaround season. The business also continues to have opportunities to increase this activities through additional expansion in Washington State and the Mark Rocky Mountain region and into adjacent industrial spaces. However, we are not projecting recovered to pre cobot volume levels for this segment for the next 18% to three.
86 months, and we expect the impact of pricing pressures to read dealt in a 100 to 150 basis point decline in gross margins over the near to medium term.
That wraps the review of our operating segment results and outlook. All in we are projecting adjusted earnings per share in the fourth quarter to be slightly below Q3, 20 results with the biggest sequential change driven by typical seasonal revenue reductions in infrastructure solutions related to the holidays and anticipate.
Good winter weather impacts in the North America in Singapore and business.
While it is too early for us to provide a guidance outlook for 2021, we would expect earnings upside compared to this year's results in several parts of the business, including the smaller Fyfe underground solutions and international operations within infrastructure solutions due to an expected recovery in volumes falling covisint really.
Good weakness this year, the coating services business, which should benefit from execution in 2021 of the large international projects that have been delayed this year the corporate business due to the annualized benefit of the strong margin improvements we have seen in the last two quarter as a result of our restructuring activities and finally the energy.
Services business as it begins to recover from the sharp volume and margin reductions experienced this year.
On the flip side, while we expect strong cost discipline to continue into next year and beyond there were strict cost savings measures that benefited 2020 that we would expect to return to more normalized spending levels in 2021.
Overall, we believe we are well positioned to deliver earnings above 2019 adjusted results recovering from the declines we experienced in 2020 due to the pandemic. This outlook does not assume any structural changes to the business that may result from the strategic initiative Chuck outlined earlier.
We are working through our annual budgeting process right now and look forward to variety providing more details in the next few months.
Before wrapping up I want to highlight our cash flows and balance sheet strength, which continued to be major differentiators for us as we navigate the pandemic.
Our ending global back cash balance as of September Thirtyth was $77 million, which was net of significant further debt repayments in the quarter and comprised nearly 80% of cash held in the us which enables easier access to fund working capital needs for the business.
Our net debt level as of September thirtyth was less than $150 million the lowest level since 2015.
Our leverage ratio was 2.3 times and well within our required covenant compliance limits, we paid off all outstanding revolver borrowings of $26 million in the quarter, including required amortization payments on our term loan debt reduction through the first nine months was more than $50 million, we have current capacity.
We need to borrow more than $140 million on our revolving line of credit.
Six months ago, we were facing we were preparing our balance sheet and liquidity position to be defensive in the face of prolong pandemic uncertainty to today. We believe we can be more aggressive of me today. We believe we can be more offensive with our balance sheet and cash flows and as Chuck laid out are looking to capital.
Lies on this strength with investments to grow the business, both organically and Inorganically.
Net operating cash flows year to date through September Thirtyth were $79 million, which is two and a half times higher than the prior year level and exceed the full year generation from each of the last five years a.
A big driver of the increase year over year was through working capital improvements of nearly $33 million, we have been aggressive in accounts receivable monitoring and collections, reducing inventory needs, where we can and working to extend payment terms with suppliers key businesses driving the favorable working capital changes include Insituform north of.
America, Corporate North America, and United pipeline systems, each of which has made significant project progress with cash collections. This year.
Additionally, operating cash flows have benefited year to date by approximately $8 million in deferred payments related to the timing of federal estimated tax payments and employer payroll taxes as permitted by the cares Act capital expenditures year to date were $15 million down nearly 30% from the prior year period due to spending.
Restrictions expenditures year to date were used primarily to support the Insituform North America business and Middle East project activity, we continue to target full year capex spending to be between 15 and $20 million with a focus on only funding critical business needs are.
Our share repurchase program was suspended during the second and third quarters due to the due to the financial uncertainties of Cove. It following $5 million in first quarter purchases at this time, we currently expect to resume resume our open market share repurchase program in November.
Over the last five years Aegon has returned more than $150 million to its stockholders through open market share repurchases. The expected reinstatement of Aegon share repurchase program is based on the company's strong cash position expectations for continued strong cash flow generation and our sustained commitment to returning.
Cash to stockholders.
That wraps up our review of our third quarter results and outlook as we close out the year with that operator at this time, we would be pleased to take questions.
Ladies and gentlemen, if you have.
Have a question at this time please press the star and then the number one key on your patch tone telephone. If your question has been answered all units currently yourself from the queue. The first time.
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Your first question is from the line of panic, tying with Craig Hallum Your line.
Good morning.
Hey, maybe just starting on energy services and what you're looking at.
In that process.
Im just curious I mean, it sounds like this was a decision not made because the businesses has been difficult due to covance, but just.
I'm curious.
Given that you think there is.
Pretty steep improvement and maybe not back to normalized levels is this something where you think it I mean is it potential are possible that it makes some sense to wait event that you can maximize what that value is or.
Is this something where you potentially just decide look this has been a distraction it's not a great fed.
It's not always envisioned back in 2013 on us acquire just some thoughts on that.
Yes, so what I'd tell you is all those options are on the table. What we've found over the last six months I would say probably the last three or four months is that the recovery has been slower than we initially thought when we went into this in March we thought that we'd have a pretty steep recovery.
With that business as we look at the business now we would expect it to probably be more in that.
18% to 24 months range, but all options are on the table at this point Thats, where we hired in the banker and we're going to we're going to look hard at it.
With with the best option is for US as we go forward and we would expect to have a real clear answer on that by the certainly by the end of the year or over the next couple of months.
Got it.
Okay, I guess I'll stay tuned there.
I'd, London, just talking about the Sonic protection and first time I've heard that you may move into the renewable space there.
Just maybe what that looks like relative to the rest of the business.
Curious is there a scenario where you've gotten some inbound interest and then there is the investment needed. If you were to go down that path.
So that transfer the technology.
Transfers pretty well.
We have had inbound inquiries protect group, particularly with wind energy.
Added today, it's a very small portion of the business, but we see an an exciting opportunity as we move forward to begin to penetrate that space.
In in a bigger way than we have in the past we're excited about it so it will be it's a good opportunity for the business.
Got it and.
Any other areas seminars and we should we think about this is because when that means that.
That primary area for this the other area that we've seen a fair amount of interest is a lot of the transmission lines in North America have been out there for quite a while their aged.
Almost most of the most of the lines the big ones have a cathartic protection system around the base we.
We see an opportunity there to and we're starting to bid some of that kind of work as as those.
Those lines are upgraded and rehabilitated so both those both those areas, that's really not necessarily renewable but it certainly outside of our core oil and gas business.
Got it Okay, maybe just one more I'll sneak in on the gross margins in.
In Insituform, North America, I mean that a while and infrastructure as a whole.
Ore grade.
And I mean is it fair to say it sounds like you had some not necessarily one time items, but that this was kind of you had a lot of things come together to push that number.
I mean, we didn't think that this is a sustainable number obviously, you're pushing for higher number all in is.
But is that a fair way to characterize it.
Yes, Hey, Eric as David.
I think where we are through the nine months is probably 100 100 basis points higher than it otherwise would have been.
For the quarter, probably 100 to 150, and what I would what I would look at is we have had the favorable impact of lower oil prices as compared to the pricing we assumed when we bid project, that's beginning to taper off and so as we move into 2021 that really should not be a benefit.
Separately, we did have some wage subsidies in Canada during the quarter and then the third thing is I guess going the other way is the salary deferrals that we had in the second quarter. There was the financial impact of those in the third quarter, but then that was somewhat offset by you know we did not have the four one k. match in the third.
Quarter, which we are restating or we are reinstating that as of November onest. So.
A number of items certain certainly we believe the margins are significantly improved from previously that has a lot to do with the exit of the international operations, the lower performing contracting operations, great performance out of out of the the nor business.
We believe there is continued opportunity for improvement in margins as we move forward and we complete the exit of all the contracting operations that were exiting and continue to increase our third party product sales.
Yes.
Okay. Thanks, a lot.
Thank you.
Your next question comes from the line of Liana Jellison with D.A. Davidson Your line is open.
Good morning, joining me.
Good morning, how are you.
Good thank you.
My question today, mostly about on your balance sheet strength and capital expenditures.
First question is regarding the balance sheet strength and the plan to be more offensive with capital spending would you have to wait until you've chosen you new CEO before moving forward with any big expenditures.
I think so I guess a couple of questions on his great question.
The management team and the board is very well aligned on what we need to do as we go forward.
Certainly the new CEO needs to be part of a process and have ownership in whatever strategic direction.
That we that we've put in place we believe we've got a great strategy in place and these to be executed the new CEO will have to be part of that execution.
But we also we also recognized very clearly that M&A is always has an opportunistic element to it.
And while we certainly want the new CEO to have ownership for the strategy.
We are we are prepared to move forward, if we need to quicker although.
Although I would I would suspect that a new CEO CEO would be in place and be very much part of whatever process that we go through as we spend capital in the future.
Okay that helps thank you and then second part of that is when you are thinking about organic investments are there any of your business segments that.
Would receive a disproportionately large amount of internal Capex, where you think you could compounds.
Capital expenditures are the best.
I don't I don't think I guess couple of couple comments for the business that we're in I feel like our businesses are pretty well capitalized I don't I don't I think our maintenance capital has been more than adequate over the last four or five years.
We are certainly looking across the business at where we can invest capital to enhance growth and we're going through our 2021 budgeting process right now and Thats critical component of it but overall I think the business is well capitalized David maybe you want to add to that yes, no I agree with that I think you.
Post the divestiture of Bayou, our capex, including maintenance and growth capital has been about $25 million on an annual basis about three of that would be energy services. So as we look forward I would expect that our our capex would be somewhere in the 20% to $25 million range and that would be capital says.
For both organic growth as well as maintenance capital.
Okay, great. Thank you I'll jump back in queue.
Thank you.
The next question comes from the line that will be lots with Stifel. Your line is open.
Morning, Noelle Huh.
Hi, Good morning, David.
Ill pass on to.
Hi, Merle.
So.
Some pretty good market opportunities out there.
It's a challenge to go to the kind of restructuring that they went through and keep everybody focused on the market. We are glad that we're that's behind us and while we're happy with I think with the with the cost structure and the and the gross margins and operating margins. The Big Challenge now for the business and when we feel really good about it.
The opportunity to grow the top line.
Okay.
Helpful and then two.
Given your strategic focus on really on growing and enhancing the water and waste water side of the business could you just give us a bit of a sense in terms of inorganic opportunities. You know if you were looking at things what would they be smaller deals kind of akin to underground solutions or PIF or are there some some bigger.
Her assets that you might look at ask you on potentially look to to become bigger in that market.
Both organically and Inorganically, So Sunil I guess, there's a there's a couple of answers that question. We I don't we're going to look at whatever whatever opportunities that are out there.
And while size certainly matters and underground solutions as you know it was about a 90 million dollar acquisition and we would we would really like to do some of that size or maybe even larger the bigger the bigger issue for us is making sure. We've got a good strategic fit that we understand the business and we understand that municipal water and waste.
Water market really well now and I think the.
We're going to focus on opportunities. There first we have a very well functioning business I think we have the we have the ability to integrate a business into that space and you know as we go forward, we're going to we're going to look for ways that we can we can scale up that business over the next several years.
I think what you'll see coming out of that is you'll start to see as you know the the municipal water and wastewater business and the technology. The pace of technology changes is slow and I think what you'll see coming out of the next couple of years is you will see us get more and more traction with the with the pressure pipe technology.
But I think in the in the near it near to medium term here, we are going to look at opportunities to scale that business.
Okay great.
And then last question just with the elections approaching you know anything notable you guys are really thinking about or or watching on given either outcome and does it change how you're thinking about the potential for an infrastructure bill.
Katie I'm going to turn that over to you.
Prior more up on that than I am sorry, Yes, you know I think I think no matter what happens to the administration, we feel like there's a lot of support today for a potential infrastructure, though.
And you know as Chuck mentioned in his remarks.
Insituform in particularly be an obvious beneficiary in that scenario I think the other thing to consider and with the upcoming elections is a you know wherever things turn out historically.
Our aim stronger regulatory environment, whether that's through the EPA or on the oil and gas side through FERC or FEMSA. Historically that you know stands to benefit our business on a the wastewater side as well as the cathartic protection side. So I think we're going to be well.
Positioned no matter, what the administration looks like over the next four years.
Very helpful. Thank you.
Once again, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
There are no further questions at this time I'd like to turn the call back over to speakers Chuck Gordon.
Thank you operator, we are focused on closing out the year safely and advancing the key strategic initiatives, we laid out in our release yesterday, we have a lot of exciting opportunities in front of us and I look forward to providing more updates over the coming months.
Ladies and gentlemen. This concludes today's conference. Thank you for participation have a wonderful day you may all disconnect.
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