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Aegion Corp  (NASDAQ:AEGN)
Q1 2019 Earnings Call
May. 02, 2019, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Aegion Corporation's First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this event is being recorded.

It is now my pleasure to turn the call over to your host Katie Cason, Vice President, Finance and Investor Relations. Katie, you may proceed.

Katie Cason -- Vice President, Finance and Investor Relations

Good morning and thank you for joining us today. On the line with me are Chuck Gordon, Aegion's President and Chief Executive Officer; and David Morris, Aegion's Executive Vice President and Chief Financial Officer. We issued a press release yesterday that will be referenced during the prepared remarks on this call. You'll note in the release that for the quarter ended March 31, 2019, the Company began reporting corporate expenses as a separate reportable segment rather than the prior practice of allocating those costs to the operating segments.

For comparability, the reported information for the quarter ended March 31, 2018 has also been revised to conform to this new presentation. Additionally, we filed a Form 8-K last night that includes revise segment disclosures for all four quarters of 2018. You can find a copy of our press release, the Form 8-k and our Safe Harbour statement on the Investor section of Aegion's website at www.aegion.com. During this call, the Company will make forward-looking statements, which are inherently subject to risk 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.

Charles Gordon -- President and Chief Executive Officer

Thank you, Katie and good morning everyone to joining us on the call today. I'm pleased to spend a few minutes talking about the quarter and our outlook for both Aegion and the markets we serve for reminder of 2019. Aegion's first quarter results were largely in line with our expectations going into the year, highlighted by improved performance in our North America CIPP business and continued demand in our core markets. We tend to get a slower start out of the gate due to weather and customer delays on releasing work in backlog, both of which are typical early in the first -- in the fiscal year. This year was no different in that regard.

We've seen others in the construction space talk about extreme weather and Aegion was impacted particularly in our US and Canadian CIPP and cathodic protection businesses. In fact, the last two years have been the harshest in terms of cold and rainy weather since I took over as CEO in 2014. Despite these seasonal factors, project execution was solid and we grew adjusted gross margins by 20 basis points, even slower contributions from the high margin coating projects that benefited this last year. And market demand is robust, we have solid backlog in front of us and our crews are poised to deliver strong results over the next several months. We are confident in our ability to deliver earnings growth in 2019 and continue to advance opportunities for further expansion over the next several years.

Now, I'll walk through a review of performance highlights and the market outlook for each of our segments. Starting with Infrastructure Solutions. I'm very pleased with our performance in the quarter and our ability to nearly double adjusted operating income despite lower revenues from exited businesses. Our North America CIPP operations are the cornerstone of Aegion, as a larger -- largest contributor of both revenue and profits. We saw improvement in this business across multiple fronts in the quarter, including crew productivity and increased win rates at the bid table.

Average production per crew per week grew 8% versus Q1 of last year and we had fewer manpower and equipment charges. You recall, we struggled with bringing on new crews in 2018. Those crews are more stable now and yielding stronger results. International CIPP results also increase sharply, primarily driven by the divestiture the Denmark business, but also due to improvements in the remaining operations in Ireland, the Netherlands and Spain. Our faith in Underground Solution businesses also achieved expectations for the quarter. So overall, an encouraging start to the year for the entire segment.

We ended the quarter with more than $300 million in backlog -- in contract backlog. North America CIPP backlog was down year-over-year, partially driven by the increase in total production and revenue in the quarter, which was achieved with fewer crews. Order intake was also down in the quarter, due to lower bid table activity to start off the year, though our win rate increased slightly particularly on large diameter bid. The variability in bid table timing is typical and we still expect overall market growth this year. In fact, we've already seen activity pick up nicely evidenced by the recent large award announced last week for $13 million of CIPP wastewater work in Montreal. With nearly five months in backlog and the strong sales funnel looking forward, we're confident in our ability to deliver our revenue growth targets for the year, as well as a 100 basis point to 200 basis point improvement in adjusted gross margins.

We are continuing development efforts on our internal service line reinstatement technology to provide a more comprehensive trenchless solution for pressure pipe rehabilitation. Recent modifications have been driven by the need to achieve consistent and smooth clearance of our robots in the smaller 6-inch diameter pipes with the ability to handle bends and curves. Our focus on ensuring that this technology is viable -- is a viable and reliable solution for the market has extended our timeline fulfilled testing into the second half of the year. Market interest is high, which further reinforces the need to develop a cost effective solution to the lateral reinstatement challenge facing the industry.

On the wastewater side, we had near perfect execution and results on field trials in Florida for our recently developed UV cure felt liner technology during Q1. We estimate as much as 10% of the North America CIPP gravity sewer market currently uses glass CIPP liners that are cured with UV light. The successful introduction of the UV felt liner has the potential to open up $100 million of additional market based on installed value. This represents the biggest area of early acceptance of this product. Since, our UV cure felt liner offers a lower price point than traditional glass liners.

Overall, the outlook is strong for municipal infrastructure spending over the next several years. Our vertical market integration in the industry sets us apart and we continue to innovate and operate safely and productively to maintain our market leading position in the wastewater space. And we ultimately aim to provide technically differentiated trenchless solutions for the rehabilitation of small diameter pressure pipes as well.

Shifting to Corrosion Protection, results in the quarter were affected by the seasonal weakness as I mentioned earlier. The weather was disruptive, but we also solved slower than expected pace of work releases by customers, which impacted our cathodic protection business the most as well some of our North America industrial linings projects. Compared to prior year, both the top and bottom line declines were primarily due to reduced earnings from the large Middle East coating projects that significantly contributed 2018 results. But overall results came in weaker than expected, we were stable -- still able to achieve 20% gross margins in the corner -- in the quarter on strong project performance for the work we were able to execute.

I want to touch on cathodic business in more detail. Although, we were disappointed with Q1 results. We liked this business for multiple reasons. It fits our core mission of protecting, rehabilitating and maintaining pipelines. The majority of our work is based on engineering, monitoring and rehabilitating cathodic protection systems on existing regulated midstream oil and gas pipelines, which is less susceptible to the uncertainty of project approvals and funding in the capital spending cycle.

And we see strong market demand for more accurate and timely data analytics to support pipeline rehabilitation and maintenance decision. Large midstream oil and gas pipeline companies are facing the potential of additional regulations later this year, which may include expansion of corrosion monitoring requirements to gathering pipelines and other previously non-regulated lines, as well as more onerous reporting requirements for data collection and traceability. We are well-positioned to benefit from this growth through our continued investment in data management and data assessment offerings.

Aegion's cathodic protection business currently has over 300 certified corrosion technicians and engineers working out of more than 20 offices spread across North America. We believe this geographic scale delivers significant value for our clients, as we are organized to provide responsive on-site local services like, pipeline services and rehabilitation of cathodic protection systems. However, the successful of business model is based on maintaining productive utilization across the offices.

Q1 revenue which was below expectations due to weather and slower expected customer releases came in at about 90% of our expectation despite good backlog. Lower than expected revenues combined with high fixed costs resulted in a larger than expected loss for the quarter. Our project execution in the field has improved significantly over the last year. However, we continue to focus on leveraging overhead across offices to drive efficiency and be more cost effective. We still have work to do to get the optimal overhead structure, processes systems and economies to scale in place to support and drive growth for this business, to deliver more consistent profitability and higher margins. We are executing a number of initiatives to streamline this part of the business and expect to see significant improvements over the coming months.

Contract backlog for the Corrosion Protection segment ended the quarter at $123 million down 2% when excluding the exited or plan to exited businesses, as part of our restructuring, including the Bayou divestiture in late August last year. The decline was driven by the roll off of approximately $22 million of backlog related to large Middle East coating projects, which were completed in the quarter. Excluding those projects backlog increased significantly and levels for the remaining cathodic protection and industrial lining businesses were at nearly three year highs.

US cathodic protection win rates have increased nicely after struggling on order intake early in 2018 and backlog is up more than 20%, which will fuel stronger second and third quarter performance. Ending backlog for the remaining industrial linings businesses in the US, Canada, Chile and the Middle East was up 85% from prior year levels. Since, this business tends to be tied to new construction projects, customer driven work delays are common. However, we are very confident that the work will happen and our teams have the strong track record of project execution to deliver consistent margins that are accretive to typical CP margins.

Within the coating services business, we are seeing a strong project funnel, while we don't have this ability to a large project in the $20 million to $30 million range. We are layering in some nice wins in that medium sized $5 million to $10 million range, including an April award realize Aegion's robotic internal field joint coating technology on water pipelines for mining project in South America. The project is expected to begin mid-year and continue into early next year. We're also working on a number of upcoming bid packages in the Middle East and are investing in our robot -- robotics technologies so the rates deliver as this work comes to market.

Looking at our Energy Services segment, we grew revenues from our base load maintenance business by more than 20%. This growth was unable to offset declines in turnaround activity that drove the prior year revenues to a quarterly record. So overall top line results declined 12%. Q1 was an outlier last years' multiple refineries accelerated turnarounds early in the year. These activities tend to deliver a higher margin in maintenance services.

Contract backlog a quarter and increased slightly to $218 million, driven by modest increases in construction and turnaround activities. However, growth in the quarter was below our previous expectations, which we needed to deliver our segment outlook for the year. While, we expect to see a decline in turnarounds this year, the slowdown has more -- has been more than we originally planned. Timing for this activity is lumpy and we are confident we'll pick up again later this year or early in 2020. Importantly, our outlook for core maintenance activities which comprise more than two-thirds of the total segment remains solid and we expect continued growth in these activities in 2019.

All-in, we've reduced our outlook for revenues to reflect the decline and turnaround activities, as well as slight decline in construction projects. However, we are still targeting strong margin expansion and operating income growth through this year through improved performance and operating expense reductions. That wraps up the review of our segments. We are reaffirming our outlook for modest earnings growth in 2019. Our reductions to top line projections and energy services will be offset with continued declines in operating expenses where we continue to make progress through cost reduction initiatives.

In our February call, I highlighted the following key focus areas for 2019. First, returning to North America CIPP business to 2016 productivity levels. We came out of the gate strong in this effort and segment reform, results reflect those improvements. Second, driving further improvement in the execution of the cathodic protection services business. As I mentioned earlier, project execution has made a lot of strides over the last 12 months and our current focus is on optimizing the overhead structures to support and grow the business profitably. Third, a renewed focused on delivering more value to the stakeholders through technological differentiation of expanded offerings, which we continue to advance particularly in our core CIPP operations.

Fourth, maintaining Energy Services' share in the West Coast refinery market, we continue to expand our core maintenance activities which drive the lion's shares of results for the segment and we viewed a dip in turnaround activities as temporary this year. Fifth and finally, we are on target to substantially complete restructuring activities by the end of the second quarter. We may see the sale of our announced international divestitures in the Middle East and South Africa slip into the second half of the year, but the substantial portion of restructuring activities, closures and organizational changes are nearing wrap up in the next couple of months.

We're on track to deliver the financial and operational goals we laid out for 2019. This progress combined with our strong market outlook for infrastructure spending over the next several years positions us well to generate significant shareholder value over the next 12 to 18 months. I want to thank (inaudible) Aegion's outgoing Chairman of the Board for his 22 years of service. I also want to welcome Stephanie Cuskley to the Chair role. I look forward to working with Stephanie to transition Aegion out of restructuring and into sustainable earnings growth as we move into the second half of 2019 and into the future.

With that, I'll turn the call over to David to provide additional details regarding our first quarter performance and financial targets. David?

David Morris -- Executive Vice President and Chief Financial Officer

Thank you, Chuck and good morning to everyone on the call. As Chuck previously mentioned, we were generally pleased with our results in the quarter, particularly the much improved performance from our Infrastructure Solutions segment and good progress on cost savings across the business. Construction activity is always slower starting out the year, due to a seasonal weakness and we were up against favorable comparisons in Q1 '18 that we knew wouldn't repeat. However, our crews executed well and we are in a good position across our three platforms to significantly improve performance over the next several months.

I'll walk through a more detailed review of our Q1 '19 results and also discuss our financial guidance outlook for the rest of the year. Starting with our consolidated results for the quarter, Aegion delivered total revenues of $277 million, which were 15% lower than Q1 '18 partly due to the impact of exited or to be exited businesses as part of our restructuring activities, including the divestitures of Bayou and our Denmark CIPP business and the exits of multiple -- smaller international locations within Infrastructure Solutions and Corrosion Protection. Excluding these impacts, revenues declined 8%, primarily driven by an expected reduction in two areas.

First, lower contribution from the large Middle East coatings projects substantially completed last year that benefited Corrosion Protection. And second, lower turnaround activity at energy services following a record revenue quarter in Q1 '18. Lower revenues drove the declines in adjusted gross profit and adjusted operating income though we increased adjusted gross margins by 20 basis points to 19.1% led by improved productivity in our North America and international CIPP operations in Infrastructure Solutions. Additionally, adjusted operating expenses declined $6 million or 12 % from Q1 '18.

Of this decline, approximately 45% was due to exited businesses, the other 55% was the result of significant focus on cost reduction across the entire business that is yielding positive results. We are not finished with our efforts to improve operating leverage, but we are making progress and our ability to limit a nearly $50 million decline in revenues to just over a $2 million reduction in adjusted operating income is evidence of these actions. Below adjusted operating income, adjusted interest expense declined due to lower average debt levels compared to the prior year. We also had higher interest income due to the interest received on the $8 million note receivable acquired in the Bayou sale last year.

Our adjusted effective tax rate in the quarter was 26.5%, compared to 2% in the prior year, which benefited from discrete items related to the vesting of employee equity awards. Income attributable to non-controlling interest declined primarily due to the divestiture of Bayou. All-in, these results led to adjusted earnings per share of $0.06. On a GAAP basis, we reported a loss per diluted share of $0.13. Included in GAAP results was a $4.4 million pre-tax warranty reserve related to a wastewater rehabilitation project in North America CIPP business. The project was substantially completed in 2017 and required installation of 22 60-inch liners under unique conditions including depths of more than 50 feet, design requirements for a heavier than normal liner and on favourable water table conditions at the time of installation, due to unseasonable rains.

Inspections performed late last year and additional testing in the first quarter of this year, revealed failures on five of the 22-liners which will require full replacement during 2019. We have not experienced warrantied work of this magnitude in more than a decade. We are focused on completing rehabilitation efforts in a timely manner to ensure the full integrity of our installed liners and client satisfaction. In addition to the warranty accrual, GAAP results included $2.9 million of restructuring charges, primarily related to the previously announced exits of multiple smaller international businesses. We expect to substantially complete restructuring activities over the next few months with remaining cash and non-cash charges between $12 million and $16 million.

Looking more closely at results within each of our segments. Infrastructure Solutions delivered revenues of $132 million down 2% from Q1 '18 due to exited or to be exited businesses. Excluding this impact, revenues increased 2%, primarily due to productivity improvements in our North America CIPP business. Adjusted gross profit increased 16% and adjusted gross margins increased 370 basis points to nearly 24%, driven by improved execution in our North America CIPP business, loss avoidance from exit -- exiting the Denmark business and increases from remaining international CIPP businesses.

Adjusted operating expenses declined $1.5 million or 8%, which contributed to 450 basis point improvement in adjusted operating margins to more than 9%. For the year, we still expect the Infrastructure Solutions reported revenues to grow by 1% to 3%, which equates to a 6% to 8% increase when excluding the impact of exited or to be exited operations. Adjusted gross margins are expected to improve 100 basis points to 200 basis points and we may see further upside, if we continue to see productivity improvements from our North America business. As we enter our seasonally stronger construction periods, we expect top line strength to drive adjusted operating margin into the double-digit range for the rest of the year.

Within Corrosion Protection, we expect that the first quarter to be impacted by lower project contributions from the large Middle East coatings project substantially completed last year, as well as typical seasonal weakness from weather and slower work releases. Customer delivered driven delays, however, we're worse than anticipated and unfavorably impacted the cathodic protection and industrial linings businesses. These factors, combined with the exit of multiple -- the exit of multiple businesses, including the Bayou divestiture led to a $34 million decline in revenues compared to Q1 '18 and resulted in an adjusted loss of $1.5 million in the quarter. Despite the top line weakness and related favorable absorption of fixed costs, adjusted gross margins were healthy at 20%, prior year gross margins of 24% benefited from a greater mix of higher margin coating projects. Adjusted operating expenses declined nearly $3 million or 16% through a mix of exited businesses as well as cost reduction initiatives. We are pleased with progress on reducing costs, but as Chuck mentioned, we still have work to do on the overhead structure within the global cathodic protection business to achieve better operating leverage and profitability for the segment.

For 2019, we are reaffirming our guidance for Corrosion Protection revenues to decline 15% to 20% from 2018 levels. Excluding the impact of exited or to be exited businesses, revenues are projected to decline 3% to 5% with adjusted gross margin declines of 150 basis points to 250 basis points, both of which reflect the absence of larger coatings projects in 2019 that significantly benefited 2018. Despite the lower start to the year strong backlog levels including the recently announced South America coating services project win, support our ability to recover volumes over the next several months.

Shifting to Energy Services, Chuck talked about the decline and turnaround activities as the main driver for lower results in the quarter, despite significant growth in maintenance revenues. Additionally, Q1 results always include higher employer, payroll tax obligations though this impact was more muted in Q1 '18 due to the higher mix -- margin mix of work. We were able to reduce operating -- adjusted operating expenses by 5% despite slightly unfavorable impacts from unabsorbed project management and other administrative costs due to the revenue decline.

For 2019, we now expect Energy Services revenues to decline in the mid-single digit range, reflecting a lower outlook for turnaround and construction activities. We are still targeting a 50 basis point to 100 basis point improvement in adjusted gross margins and expect further operating expense reductions which together are expected to result in higher adjusted operating income compared to 2018. As Katie mentioned at the start of the call, in addition to our three operating segments, we also began reporting corporate spending as a fourth segment this quarter, which we believe provides greater visibility into the true operating costs needed to support our businesses and segment profitability trends.

Corporate spend primarily consists of global functional leadership, related incentive and facilities cost and public company spending not directly attributed to the operating segments. First quarter corporate spending of a $5.5 million decline $1.8 million from the prior year due to cost reduction initiatives including lower personnel costs and favorable medical trends as a result of plan design changes. We expect first quarter spend to be the lowest of the year, partly due to our phasing of incentive compensation accruals later in the year when we have higher earnings generation from the rest of the business. We aim to keep corporate spending levels as a percentage of revenue in the 2% to 2.5% range, which is below our pure average based on recent benchmarking.

For consolidating Aegion, we expect a 4% to 6% decline in reported revenues in 2019, excluding the impact of exited or to be exited businesses revenues are expected to be largely to be flat to slightly higher. This outlook reflects loss contribution from the large Middle East coatings projects substantially completed in 2018 and lower expectations from energy services, largely offset by growth within the Infrastructure Solutions and the cathodic protection and industrial linings businesses within Corrosion Protection. We continue to target modest improvements in both adjusted gross margins and adjusted operating margins driven by our exit of unprofitable businesses and improvements within our North America CIPP and cathodic protection businesses. Additionally, we are pleased with the initial progress we have achieved on SG&A reductions and believe our actions can bring operating expense as a percentage of revenue below 15% by the end of 2020.

Net interest expense is expected to decline from 2018 partly due to lower expected debt levels as well as interest income to be received related to the bridge loan provided to the buyer as part of the Bayou divestiture. We expect our adjusted effective tax rate to remain within the 23% to 24% range. All-in we're reaffirming our outlook for modest improvement in adjusted earnings per share in 2019. We expect second quarter adjusted results to be near those achieved in Q2 '18 with further strength in the second half of the year. That wraps our review of Aegion's adjusted results and guidance for 2019.

Turning briefly to our cash flows, net cash used for operations was $6.5 million in the quarter. It's not uncommon for the first quarter to result in cash usage given the seasonal weakness and earnings combined with heavy cash needs for incentive compensation payouts, tax obligations and various annual renewals. During the quarter, we also invested $8 million in maintenance and growth capital for our core businesses with increases over the prior year partly due to recent investments in the North America CIPP business. We also repurchased 622,000 shares of our common stock for $11 million through our open market share repurchase programs.

In addition, we repurchased an additional 153,000 shares of our common stock for $3 million to satisfy tax obligations related to employee equity awards. We ended the quarter with $64 million in cash, which is lower than recent levels though we feel good about our liquidity position and access to revolver borrowings. We also expect cash generation to pick up as we enter our feasibly stronger earnings period. For the year, we are still targeting capital expenditures in the $25 million to $30 million range and we have approval to buy back up to $32 million of Aegion common stock in open market share repurchase transactions.

That wraps a review of our first quarter results and outlook for 2019. With that operator, at this time, we would be pleased to take questions.

Questions and Answers:

Operator

Certainly. (Operator Instructions) And our first question comes from the line of Eric Stine with Craig-Hallum. Your line is now open.

Charles Gordon -- President and Chief Executive Officer

Good morning, Eric.

Eric Stine -- Craig-Hallum -- Analyst

Good morning, Chuck. Good morning, David.

David Morris -- Executive Vice President and Chief Financial Officer

Hi, Eric.

Eric Stine -- Craig-Hallum -- Analyst

Hi. So obviously I mean you have had well, for quite some time it's been about restructuring and exiting some of these businesses. But just curious I mean, when you look at your platform areas where you feel like potentially you can add to it whether it's adding more technology some geographies in some of your businesses or maybe your under serving the market. Just any thoughts along those lines would be great because as you said, I mean, I think you are expecting to be done with what you're doing right now, hopefully second quarter or third quarter of this year?

Charles Gordon -- President and Chief Executive Officer

Yeah. Thanks for the question Eric. We're actively looking for additional technology for both the cathodic protection services business and for the Insituform business. I think that we probably won't look at geographic expansion either one of those businesses. We will continue to have a lot of international business as we sell, as we sell tubes out of Insituform. But both those businesses could potentially benefit from more technology that we would tuck into the existing businesses.

Eric Stine -- Craig-Hallum -- Analyst

Got it. And maybe just sticking with the restructuring and some of the exit end market. Do you -- I mean how -- you don't need to break it down by specific markets, but how has the process gone when you get out of these markets, getting set up with third-party tube sale arrangement, maybe just talk about that from a high level?

Charles Gordon -- President and Chief Executive Officer

Sure. So I'm going to give you a really good example, as you know, we exited France in late 2014 or early 2015. That market had been unprofitable for us for a long time and we are now selling tube into that market. The run rate for the tube sales is between $1.5 million and $2 million at margins that are around mid-30s. Far more profitable than anything we've ever had and we're doing construction business there. And that's an example, I think we have an opportunity to provide more tube in the UK and Wales that's another market that we exited just recently. We actually just exited this quarter. We were unable to do a lot of third-party tube sales because we were a competitor in that market.

As we've exited, I think that opens up a nice up market opportunity there. And that's what we're seeing is that, as we exit these markets, we're able to come in with tube supply and actually make more money by providing tube with significantly less risk than we have when we try to do construction in small markets. So we continue to be pleased with how that transition is going, certainly, a lot of work to do. And as we exit the construction side, we're trying to build up our network and our distribution internationally for CIPP tubes.

Eric Stine -- Craig-Hallum -- Analyst

Got it. Okay. Thanks. Maybe just a last one just jumping over to Corrosion Protection. Just the -- you talked about the funnel and I know that you finished the two big Middle East projects and you've got some small or medium sized projects in there right now, as you look longer term, whether it's those $5 million to $10 million projects or even larger projects maybe just thoughts on how you see the mix between onshore and offshore because I -- correct me, if I'm wrong, but I do think there is a margin difference between the two?

Charles Gordon -- President and Chief Executive Officer

There is, we certainly have higher margins offshore. The projects that we see in the Middle East are mostly offshore although we do some onshore work there. The Peru project is onshore and what we're seeing as we look out with the sales funnel is that this year -- they are going to have -- the coating services business going to have a solid year. It's certainly down compared to last year because of the lack of a big project, but they're going to have a solid year. As we go into 2020, we're pretty excited about what we see in the sales funnel, particularly in the Middle East . So yeah, it is a mix of onshore and offshore there, but I would -- but the majority of the projects are offshore.

Eric Stine -- Craig-Hallum -- Analyst

Got it. Okay. Thanks a lot.

Operator

Thank you. And our next question comes from the line of Noelle Dilts with Stifel. Your line is now open.

Charles Gordon -- President and Chief Executive Officer

Good morning Noel.

Noelle Dilts -- Stifel -- Analyst

Hi. Good morning. So I'm sorry, I was a little late jumping on. So apology if you already addressed some this, but my first question was just in US CIPP, you talked about, in even last quarter bidding coming in a little bit slow early in the quarter and then it looks like it picked up. As you looked into that more, was there really any trend that you would call out in the market or was that just normal fluctuations and it's been encouraging to see that pick up some of these larger projects here recently? How would you describe the mix of larger work and small diameter work in the market?

Charles Gordon -- President and Chief Executive Officer

So the market was down for the quarter. What we saw was the market was really slow particularly in January and February, it started picking up in March. And as we look out, we see a strong market for the rest of the year, Noelle. And I don't think there's any -- anything to it other than normal variability. We can't see anything that we would say as a trend that we would see as a trend. The amount of large diameter work was down little bit in the first quarter although our win rate was up. As we look out, I think it's pretty, pretty standard type work. Most of these bids that we win include a mix of small, medium and large diameter. So typically these projects are mix of all three, but I don't think we see it, as we look out over the rest of the year significant change in the overall mix of what we see coming onto the market. In the first couple of months of the quarter, the bid table was slow although and it picked up nicely and as we look out now looks strong to us for the rest of the year.

Noelle Dilts -- Stifel -- Analyst

Okay. Thanks. And then shifting over to the corrosion actually the cathodic protection business within Corrosion Protection, I know there you've been working on kind of improving profitability. Can you just give us a sense of where you think you are in the process and how much more opportunity you see for improvement?

Charles Gordon -- President and Chief Executive Officer

So I want to make a couple of statements about that before we get into where we think we're going. In the first quarter that business missed revenue by about 10% like I mentioned. Unfortunately, because of the high fixed cost nature of the business, it's a lot of people cost and it's the kind of people cost, these are engineers and technicians. It's not construction labor. These are technicians and engineers that we need to have for the rest of the year. Unfortunately, those kind of revenue misses a significant portion drops to the bottom line and that's really what happened. And as we looked at it, we know we're going to have bad weather in Q1 and in fact that certainly happened. I think there were two things that we didn't plan on. We knew we had good backlog going into the year. We were -- the customer releases were much slower than we expected although the business was in backlog and the releases have certainly come in March and April now.

The second thing that happened was that while, we expect a lot of snow in Canada in the Midwest and Northeast. We did get a lot of rain in the South and that hurt the business and it was unusually wet year down there for us, which impacts our ability to do some of the construction work. So we were -- we did miss our revenue expectation, which unfortunately really drops to the bottom line in that business very significantly. As we go forward, we're in the process of reviewing the business and the cost structure and implementing actions so that we reduce the overall breakeven point.

If you think about that business, it's always going to have a slow one -- a slow Q1. The revenue and the work releases and weather are always going to be impacted in Q1. So what we're driving toward is being able to reach sort of a breakeven point for that business in Q1 and then the rest of the year will be very strong. I would guess -- not guess, we project that we'll have those actions in place by the end of this quarter and as we move into the second half of the year, we expect to have the ongoing cost structure in place. So that's how we're looking at the business and the timing.

Noelle Dilts -- Stifel -- Analyst

Okay. Thank you very much.

Charles Gordon -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from the line of Tate Sullivan, Maxim Group. Your line is now open.

Charles Gordon -- President and Chief Executive Officer

Good morning, Tate.

Tate Sullivan -- Maxim Group -- Analyst

Hi. Thank you. Good morning. Good. Thank you for all the detail and then, particularly on the technology developments. First, when you -- what caused the field testing or did I miss that -- misinterpret that the field in testing for the robot's selling technology for smaller diameter water pipes, drinking water pipes to extend to the second half or is that on schedule?

Charles Gordon -- President and Chief Executive Officer

It is slightly off schedule. We had originally anticipated that we would be doing field testing with the 8-inch and 10-inch robots in June. That looks like it's going to move into the third quarter. And then, as you can imagine, these robot there's a lot going on with these robots and to downsize them so they fit and work effectively in a 6-inch pipe is challenging. And we would expect that field testing to occur probably going into the fourth quarter. But I would say, we're probably off by a couple months with the 8-inch to 10 inch field test.

Tate Sullivan -- Maxim Group -- Analyst

That brings up my other question to. If you based on the robot technology you already have project, I think you have it in the Middle East inspecting wealth inside of pipelines. Can you leverage that experience and bring in terms of what you're trying to do in the US in smaller diameter?

Charles Gordon -- President and Chief Executive Officer

So it's pretty fundamentally different robots. I think, we're comfortable with robotic technology, that Middle East robots what we do is, we go in and we take a picture of the world, so we can show our customer the quality of the world that they have. Then, we clean it. Then, we coat it and then, we take another picture of it. And a lot of that technology is based on our ability to spray the coating on evenly and really go along ways into the pipes. Sometimes we're in the pipe a kilometer to be able to keep up with the welding unit on a pipeline construction project. What we do -- what we're doing with the lateral reinstatement is a bit different. We go in and we cut out the laterals, we put up. We put a plug and that has a magnet in it. And then the robot goes in with seals and we pop up -- we pop a seal in place. And so what the robots are doing mechanically is very different. We are certainly comfortable with robots and we have used the robotic team that does the internal weld group. We have used them to help develop the robots that we use on the municipal side of the business, but the robots themselves are functionally very different.

Tate Sullivan -- Maxim Group -- Analyst

Okay. Thank you. And then, the UV cure field testing and the $100 million market value. Just I was confused on, if you're replacing you can use UV to replace or redo work that was done with glass liners, is that a fair summary?

Charles Gordon -- President and Chief Executive Officer

Yeah. So what I want to be clear on it, so we think that the overall market I think we've talked a lot of people about this is probably in the $1.1 billion, $1.2 billion area for wastewater CIPP in North America. About 10 -- glass has about a 10% share of that. So what they're doing is which uses a glass liner and it's saturated with resin and the resin catalyst is kicked off with UV light rather than steam. Our traditional method is to use steam as uses UV light. And so it's about $100 million worth of business there on an installed basis. That's done with glass. We see the initial opportunity for the product to replace that space in the business because the felt has a better cost point than glass. The cure process is the same, the resin that we'll be using is the same. But the tube itself, which is beta felt provides all the structural strength you need in a sewer. But you're using a felt liner instead of a glass liner, so it's significantly cheaper. And that's going to -- we believe that provides a nice value for our customers in the marketplace and we anticipate that we have an opportunity to win a lot of that $100 million business over time.

Tate Sullivan -- Maxim Group -- Analyst

Okay. Thank you for that detail. And the last one for me David, on the warranty related work that you announced is that excluded from the operating profit and infrastructure or how is that accounted for?

David Morris -- Executive Vice President and Chief Financial Officer

Yeah. For our adjusted results, we have excluded that warranty reserve that we took during the quarter. So the GAAP results do included, but the adjusted results excluded.

Tate Sullivan -- Maxim Group -- Analyst

So that's, is that most of that what you exclude from operating income for infrastructure's, I think it's $6.6 million or how much of that was structuring in there?

David Morris -- Executive Vice President and Chief Financial Officer

Yeah. There was about $2 million related to restructuring that was associated with infrastructure solutions that was also excluded from the adjusted results.

Tate Sullivan -- Maxim Group -- Analyst

Okay. Great. Thank you very much for all the detail. Have a good rest of the day.

David Morris -- Executive Vice President and Chief Financial Officer

Thanks, Tate.

Tate Sullivan -- Maxim Group -- Analyst

Thanks.

Operator

Thank you. (Operator Instructions) And our next question comes from the line of Zane Karimi with D.A. Davidson. Your line is now open.

Charles Gordon -- President and Chief Executive Officer

Good morning.

Zane Karimi -- D.A. Davidson -- Analyst

Good morning. This is Zane on for Brent. So first off, we've kind of talked previously about and I was helping for a refresh view on the build out of North American pipeline infrastructure and how it's continuing at a feverish pace? You said you would like lag in term of demand for your services. And do you have a better view today when you think of demand for your services in this market and could this accelerate down the road?

Charles Gordon -- President and Chief Executive Officer

So most of our business is on existing pipelines. We do some new pipelines. What I think we've talked about is that we believe our cathodic protection services business in North America can grow in the sort of that mid-single digit range over time. That's the growth that we expect from that business probably 75% to 80% of that business is on -- is actually conducted on existing pipelines. There is a lot of new pipeline growth but when you look at the percentage of the miles of new pipeline put in versus the existing infrastructure, the percentage growth of the overall infrastructures is still rather low, it's probably in the 3% or 4% a year annual growth rate. And we think, we can grow faster than that pipeline infrastructure is growing, but we believe we can maintain sort of 5% top line growth rate in the business over time.

Zane Karimi -- D.A. Davidson -- Analyst

Great. And then on that up a little bit, but did you quantify or how much did weather really impacted CIPP in the quarter?

Charles Gordon -- President and Chief Executive Officer

So, that the CIPP business year-over-year would -- the weather impact was about the same as we looked at it. We take a look at crew days loss to weather, it was about the same year-over-year. The biggest issue for us though was at our Canadian operation, which is a very profitable part of the business was down for much of the first quarter particularly in Western Canada. The Western Canadian business almost did no work during the first-two months of the year, which is unusual for them.

So as we as we looked around the country, the mix of where the weather impacted was a little bit different. Now the weather impact for 2018 and 2019 was up significantly over what we've seen in previous years. But this year from a CIPP standpoint was about same as last year.

Zane Karimi -- D.A. Davidson -- Analyst

Okay. Thank you for that. And one final, I just finalize this restructuring efforts this year. How are you looking at capital allocation, where your priorities are?

Charles Gordon -- President and Chief Executive Officer

Actually, they'll be the same as they have been. First priority is debt repayments, followed by capital investments. Third would be share repurchases, we believe continuing to repurchase shares is a good use of cash. And then finally, acquisitions not at this point looking to do any sort of large acquisition, but as Chuck said if we'd see opportunities for a technology acquisition that would be something we'd be interested in.

Zane Karimi -- D.A. Davidson -- Analyst

All right. Thank you for your time.

David Morris -- Executive Vice President and Chief Financial Officer

Okay. Thank you.

Charles Gordon -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And I'm showing no further questions at this time. So with that, I'll turn the call back over to CEO, Chuck Gordon for closing comments.

Charles Gordon -- President and Chief Executive Officer

Thank you, operator. Aegion is now entering its seasonally stronger construction cycle and we have the backlog in crews in place to deliver significant results over the next several months. I look forward to updating you on our performance and progress on key initiatives as we progress throughout the year. Thanks for joining the call today.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day.

Duration: 49 minutes

Call participants:

Katie Cason -- Vice President, Finance and Investor Relations

Charles Gordon -- President and Chief Executive Officer

David Morris -- Executive Vice President and Chief Financial Officer

Eric Stine -- Craig-Hallum -- Analyst

Noelle Dilts -- Stifel -- Analyst

Tate Sullivan -- Maxim Group -- Analyst

Zane Karimi -- D.A. Davidson -- Analyst

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