Aegion Corp (AEGN) Q3 2018 Earnings Conference Call Transcript
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Aegion Corp (NASDAQ: AEGN)
Q3 2018 Earnings Conference Call
Oct. 31, 2018, 9:30 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good morning and welcome to Aegion Corporation's Third Quarter 2018 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's my pleasure to turn the call over to your host, Katie Cason, Vice President, Finance, 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 posted a presentation that will be referenced during the prepared remarks, that you can find on the Investor section of Aegion's website, at www.aegion.com. You can find our Safe Harbor statement in that presentation and then the press release that we issued yesterday evening.
During this call and in the presentation materials, the company will make forward-looking statements, which are inherently subject to risk and uncertainties. The company does not assume the duty to update forward-looking statements.
With that, I will now turn the call over to Chuck Gordon.
Chuck Gordon -- President and Chief Executive Officer
Thank you, Katie, and good morning to everyone joining us on the call today. For those following along with the slides we posted this morning, let's start on Slide 3 of the presentation. Aegion delivered second quarter adjusted EPS of $0.45, a more than 40% increase above prior year and our highest quarterly results in nearly 2 years. Results were primarily driven by strong execution on our international coating projects within Corrosion Protection as well as improvement stemming from restructuring actions taken over the last year. These positive drivers overcame the impact of unfavorable mix within infrastructure solutions, weaker top line results in the Cathodic Protection business and an isolated project challenge at Energy Services.
The project mix in North America CIPP and lower backlog within Cathodic Protection are expected to further impact fourth quarter results relative to previous expectations. We have revised full-year guidance to target adjusted EPS improvement of 15% to 20% over 2017 results. While we are discouraged by the expected Q4 revenue shortfall of the previous forecast, our end markets remain quite healthy, and we have a strong sales funnel, as we look to 2019 in each of our 3 segments. In our August earnings call, we announced that we are reviewing our international operating footprint to ensure we were doing business in markets with an appropriate operating model, risk profile and where we generate adequate returns on investment and cash. As a result of this review, we are announcing the exit of multiple additional international markets as well as further actions to streamline and optimize the business.
If you turn to Slide 4, I'll provide an update on these strategic initiatives. First, we announced the completion of the Bayou sale in the quarter for total proceeds of $46 million. The transaction is expected to reduce Aegion's future earnings volatility. Additionally, we were able to extract a significant amount of income and cash from the assets over the last 2 years, due to the successful completion of the large deepwater project and the subsequent divestiture of the business.
We previously announced the exit of the Australia and Denmark CIPP operations and continued those efforts in the quarter. In Australia, an active sales process remains under way with the prospective buyer and we currently expect to complete a transaction in the first quarter of 2019. In Denmark, contracting activities were completed by the end of September and a small group of retained employees are now working through final punch list items and closure-related activities. We are pleased to announce that we reached an agreement earlier today to sell the Denmark CIPP business. During the quarter, we disclosed estimated cost for exiting Denmark contracting to be in the $5 million to $6 million range with cash costs of approximately $1 million. The sale of the business will more than offset the cash costs of exiting the business in Denmark. The agreement includes a multiyear license in tube sales supply agreement.
Finally, we announced yesterday, the decision to exit several additional international markets following a more comprehensive review of our international footprint. I can talk about a few of these moves specifically. We are exiting our industrial linings businesses in Mexico, Brazil and Argentina. In each of these countries, we've been successful in the past, winning projects for Tite Liner installation. However, the markets don't provide the long-term growth profile or scale to warrant a fixed operating footprint, AR collection has been challenging, it's proven difficult to extract our cash from these businesses and we've been impacted negatively from foreign exchange exposure.
We are exiting additional smaller international operations but are unable to provide full specifics today as we are working through communication plans in those markets following formal Board approval on the actions late last week. We expect the total cash charges related to these additional efforts to be in $8 million to $10 million range with annualized savings of more than $5 million. In total, combined revenues from the exited operations including Denmark and Australia are less than 5% of Aegion's total, yet have generated $5 million in adjusted pre-tax losses year-to-date or $0.11 per share.
I recognized a distraction to the business and uncertainty for investors from these prolonged restructuring initiatives. We have dedicated management in place to wind down these restructuring activities and expect substantial completion by mid 2019. Not only will we benefit from the cost savings and loss avoidance going forward, but these exits and further actions will drive improved focus on delivering organic growth from the other 95% of our business.
With that update on restructuring initiatives, I'll walk through a discussion of operational highlights and our outlook for each segment starting with Infrastructure Solutions on Slide 5. First, I'll touch on the performance highlights in the quarter, particularly within the North America CIPP business. Following challenges in the first half of the year from weather and new crew ramp up, productivity improved in the third quarter. We continue to face pressures from the extremely tight labor market, and keeping crews adequately staffed and trained to maintain historical productivity levels. Crews installed approximately 15% more footage in the quarter compared to the prior year. However, the project mix was more heavily weighted toward small diameter work driving average revenue per foot down by more than 20%.
The net negative impact and quarterly revenue versus last year due to the installation of a higher proportion of small diameter work was $18 million. Traditionally, roughly 80% of our CIPP installations are on small diameter liners. Although large diameter projects are much smaller percentage of our total installed footage, their revenue per foot can average 10 times to 20 times higher for a host of reasons, including material cost, longer installation and curing time and also generally a higher component of subcontractor revenues related to greater project complexity which are a further boost to the top line. By comparison, in the second half of 2017, we completed work on the large $8 million project in Canada as well as the pressure pipe project in Southern California, both had higher margins in our typical project flow and we've been able to backfill a similar work in 2018.
Overall, backlog for the segment is $343 million down 4% from the prior year, primarily due to reductions from exited or to be exited markets, including Fyfe North America contract in Europe and Asia. North America CIPP backlog grew 2% from the prior year. We saw some softness in the bid table in July and August, which tend to be quieter periods as municipalities roll over to new fiscal years that resulted in new growth order below our expectations. However, activity picked up nicely in September and the funnel for 2019 looks to be as healthy as or stronger than 2018. Also, we recently were low bid on a large project for nearly $11 million in Massachusetts, as well as a $7 million project in New York, both are medium to large diameter projects and are expected to be strong contributors in 2019. Also, on the pressure pipe side, we've seen new orders up 35% year-over-year with CIPP projects up more than 20% and demand for Fusible PVC up more than 40%. Much of the increases in the CIPP pressure pipe backlog will be workable in 2018.
Looking at -- looking more at the underlying market health, we track trends in State Revolving Funds or SRF, a federal state partnership program to the EPA that provides low cost financing for a wide range of water quality infrastructure projects and accounts for as much as 50% of the municipal funding for pipeline rehabilitation. Annual funding levels are a market gauge for a municipally dependent business. Recent approvals for the state funding of clean water projects in 2019, are up 21% year-over-year, exceeding $1.5 billion for the first time in 5 years. Additionally, drinking water funding is up 35% year-over-year to more than $1 billion. This funding covers all types of water infrastructure projects, not just those in pipeline -- in the pipeline rehabilitation market. However, these types of increases are a leading indicator for the general health of municipal spending over the next 12 months and bodes well for our wastewater and drinking water growth outlook.
We've also recently rolled out a new technology within our wastewater business that enables UV or ultraviolet curing of small diameter felt lining installations versus our more traditional steam curing process. Historically, UV cure has only been used for glass liner installations, which tends to be more popular in Europe and is not widely used in the US to its higher installed cost. Our new technology does not require a glass liner. And we believe it will be an attractive alternative for municipal customers. The UV curing process versus steam cure results in a significantly reduced overall investment to CIPP installation equipment and a smaller equipment footprint at each job site. Due to the highly fragmented nature of our customer base, any new technology takes time to penetrate the market, but we are excited about offering a solution that differentiates us in the wastewater space as we also seek to offer new technologies in the pressure pipe side of the business.
Shifting to our outlook for the full year. We are now targeting revenues to be flat, slightly below 2017 record revenues driven by the project mix I mentioned as well as significant weather impacts we experienced in the first part of the year. Adjusted margins are now expected to be on par to slightly improved from the prior year also impacted by the mix issues.
I'd like to move on to Corrosion Protection on Slide 6. We ended the quarter with backlog of $137 million, down 21% from the prior year, primarily due to work performed in the quarter on multiple coating projects. The large Middle East projects valued at more than $35 million are now more than 80% complete. We expect to roll the activity in those projects in Q4 of '18 with final project completion by the end of Q1 of '19. We've exhibited a track record of strong performance in the region and recently signed another $4 million contract for offshore coating work in 2019. While we don't anticipate another $30 million plus project in the next 12 months to 18 months, we do expect to continue offshore development over the next several years, as well as a healthy funnel of onshore work that will fuel a strong flow of projects for our Middle East business.
In the industrial linings business, backlog levels are slightly higher than prior year, and include significant increases for projects in the US, Canada and the Middle East that offset declines in markets that we are exiting in Mexico, Brazil and Argentina. We acquired a small competitor at the end of the second quarter for $6 million and are seeing the benefit of expanded market coverage and relationships following that transaction. We've experienced challenges with getting work released due to customer driven delays this year but feel good about our backlog position and timing of work on multiple projects as we look toward 2019.
Within the Cathodic Protection business, our focus continues to be on the pace of improvement. We are not yet where we expected we would be. As we look at progress this year, our safety culture is significantly better and improved project execution has resulted in significantly higher gross margins across key service lines. However, we haven't generated the top line, we needed to meet our operating income targets and backlog levels at September 30 were 10% below prior year, primarily due to the completion of several large construction projects in the Northeast of the US that were in backlog a year ago. We don't believe this is an underlying market issue. More consistent execution and expanded sales focus on key accounts has started to pay off.
Since June, new orders were up 10% year-over-year and we're seeing average monthly win rates closer to 60% compared to the rates in the 30% range, earlier this year. We revised our guidance to reflect the lower backlog position as we move into the fourth quarter. However, we continue to see progress and expect an improved outlook for 2019. For the full year 2018 outlook, we expect Corrosion Protection segment revenues to decline 15%, reflecting the lost contribution from the Bayou business, which included the 2017 impact from the deepwater project. Excluding the Bayou results, revenues are projected to increase 5% to 10%. Adjusted operating margins are still expected to be in the 3.5% to 4% range benefiting from strong performance on the coating projects.
Shifting to Energy Services on Slide 7. After 6 consecutive quarters of year-over-year improvement in operating income, the business experienced significant challenges with the lump sum construction project, that resulted in the reduction of operating income versus the prior year. The contract is with the large refinery customer and nearly doubled in scope over course of the project. Unforeseen underground infrastructure challenges that the customer was unaware of late in the third quarter led to significantly lower than planned productivity levels. We have a strong relationship with the client and requested a significant change order that could favorably impact Q4 of '18 and offset some of the third quarter weakness.
Additionally, we've completed the lump sum scope of work and converted the rest of the project to time and materials to minimize our risk due to future scope changes. We also completed the acquisition of a small specialty turnaround contractor P2S for $3 million. This small investment will help us accelerate our expansion into more specialty turnaround service offerings. Our backlog at September 30 declined 10% or $22 million from the prior year. However, as we've discussed previously, the roll off of this year from backlog-related to two maintenance contracts up for renewal, accounts for more than $30 million in declines. We expect to successfully renegotiate both agreements in the fourth quarter. Adjusting for this, our backlog is up from the prior year due to increases in our maintenance business.
For the full year, we continue to expect mid to upper single-digit revenue growth with expected operating margins of 2.5% representing a nearly 50 basis point increase from FY17 levels and slightly reduced from the previous guidance due to the isolated project challenge.
This wraps up review of the markets and outlooks for each of the segments. As I mentioned earlier, we are now targeting EPS growth for the full year of 15% to 20%. Looking at 2019, we are pleased that our core markets remain healthy. While we don't have visibility into replacing the $35 million international coating project, we will see the elimination of losses from the international businesses that we are exiting as well as continued improvement in the profitability of the Cathodic Protection business. Additionally, we believe that the North America rehab business has passed the execution and productivity issues that hurt performance in the first half of 2018. We are also excited about the potential impact of the technically differentiated UV cure felt product that we have introduced to the market. While we are optimistic about 2019, we are working through our annual budgeting process now and we'll continue to provide an update on our outlook for next year as well as refresh view of our long-term financial growth targets during Q1.
With that, I'm happy to turn the call over to David for additional perspectives on our results and outlook components for the remainder of 2018. David?
David Morris -- Executive Vice President and Chief Financial Officer
Thank you, Chuck, and good morning to everyone on the call. Looking more at the third quarter results, let's move to Slide 8. Aegion delivered adjusted diluted earnings per share of $0.45 in the third quarter compared to $0.32 in Q3, 2017. As Chuck highlighted, the main drivers for the more than 40% increase in adjusted earnings per share, included strong execution on a number of coating projects and Corrosion Protection at improved contributions from a number of businesses undergoing restructuring activities over the last year. These favorable earnings drivers help to offset the unfavorable revenue mix within Infrastructure Solutions and weaker revenues within our Cathodic Protection business.
Consolidated Q3 '18 revenues declined slightly compared to Q3 '17. Despite the small dip in revenues, we saw a 10 basis point improvement in adjusted gross profit margin and a 160 basis point improvement in adjusted operating margin, driven by a more than $5 million reduction in operating expenses in Q3 '18 compared to Q3 '17. This was our third consecutive quarter of year-over-year operating expense reductions, driven by restructuring savings and lower corporate spending as a result of ongoing cost containment efforts.
On a GAAP basis, we reported a net loss of $0.01 per diluted share. The difference between GAAP earnings and our adjusted results is primarily related to restructuring charges and divestiture-related expenses, including a loss related to the sale of the Bayou. During Q3 '18, we recorded an $8.7 million pre-tax loss on the sale, with a lower valuation primarily attributed to project uncertainty from the steel tariffs announced earlier this year.
I'll now turn to the segment reviews starting with Infrastructure Solutions on Slide 9. Revenues declined 11% year-over-year to $156 million, primarily driven by the unfavorable mix within the North America CIPP business that Chuck discussed previously as a result of a higher component of small diameter work during Q3 '18. Year-to-date, revenues for the segment are on par with prior year's record results driven by crew expansion within North America and sharply higher demand for our Fusible PVC product, which together, offset a more than $10 million decline in revenues related to our second half '17 exit of the Fyfe North America structural business.
Despite the revenue decline in Q3 '18, we achieved strong improvements in adjusted margins delivering adjusted gross margins of nearly 25% and adjusted operating margins of nearly 11%. Year-over-year increases were primarily attributed to significant improvements at 3 restructured businesses Fyfe North America, Australia and Denmark and higher contributions from our Fusible PVC business. These improvements offset lower North America CIPP margins from the unfavorable project mix and the absence in Q3 '18 of the $3.9 million royalty settlement recorded in Q3 '17 which favorably impacted Q3 '17 gross margins by approximately 200 basis points.
We were able to deliver strong margin performance despite still incurring more than $1 million in adjusted operating losses during the quarter from the Australia and Denmark CIPP businesses. Going forward, we are targeting a return over time to annualized double-digit operating margins in this segment following the exit and multiple underperforming businesses that had been a drag on results over the last 2 years.
Turning to Corrosion Protection on Slide 10. Revenues grew 3% to a $106 million primarily due to work executed on multiple coatings projects during the quarter. The large Middle East contracts were a large contributor during the quarter with exceptional execution, but we also benefited from other favorable projects in that business this year in both the US and Middle East. Partially offsetting the strength in the coatings business, we saw declines in Cathodic Protection from lower-than-expected new orders growth, continued customer driven delays on a number of our linings projects and a reduction in Bayou revenues due to a sale on late August.
Corrosion Protection adjusted gross margins and adjusted operating margins increased 290 basis points and 650 basis points, respectively, driven primarily by the favorable coatings projects. Additionally, operating expenses declined nearly $3 million from Q3 '17 to Q3 '18 helping to drive adjusted operating margins to nearly 8%. In the Cathodic Protection business, gross margins were down slightly during the quarter due to lower revenues in Q3 '18 as a result of the absence of a large construction project executed during Q3 '17. However, adjusted gross margins in this business are up more than 400 basis points year-to-date driven by improved execution across all key service lines including construction, engineering, and material sales.
I'll wrap up the operating discussion with Energy Services on Slide 11. Revenues for the third quarter increased nearly 20%, driven by significant increases in both maintenance and construction activities, which offset the expected declines in turnaround activities following the strong first quarter activity this year. Unfortunately, much of the higher construction revenue was work performed on a large construction project, where the team faced significant challenges during the quarter. As Chuck laid out, the project nearly doubled in size from its original budget and our project team encounter multiple delays due to site conditions that were are unknown to the client or contemplated by our bids. These project challenges led to Energy Services significant reduction in adjusted operating income and margin performance in the quarter.
We do expect to realize a significant cost recovery on this project in the fourth quarter which if realized would help offset a significant portion of the third quarter shortfall. As we look forward, final refinery labor transitions are anticipated to be completed by year-end and we expect to see cost savings in 2019 related to reduced overhead levels that were needed to manage the transition activities over the last couple of years. We remain focused on growing higher margin specialty services within the segment and are continuing to benefit from the strong cash generation this business provides due to favorable cash conversion and low capital needs to support ongoing activities.
That wraps our review of each of the segments. Now let's review our year-to-date cash performance on Slide 12. We have generated cash flow from operating activities of $14 million through the first 9 months of 2018, compared to $32 million in the prior year. The decline year-over-year is primarily attributed to favorable customer prepayments in 2017, related to the large Middle East coating projects. Additionally, we have spent $7 million more in cash for restructuring activities in 2018 compared to 2017. We collected $38 million in cash proceeds related to the Bayou sale in late August, which we used to reduce borrowings on our revolving line of credit. Current borrowings against our revolver, were $19 million as of the end of September.
Investments and capital expenditures year-to-date are $22 million and primarily consist of equipment and fleet purchases associated with crew expansion in North America CIPP, ongoing maintenance CapEx to support the business and investments in technology. We expect total capital expenditures for 2018 to be in the $25 million to $30 million range, reduced from our previous guidance due to lower needs related to exited businesses. We spent nearly $19 million for share repurchases in the first 9 months, which included open market repurchases of approximately 548,000 shares for $13.2 million and an additional $5.4 million spent to acquire approximately 225,000 shares related to employee tax obligations in connection with the vesting of Employee Equity Compensation awards.
We spent $9 million year-to-date to fund the 2 small acquisitions within our Energy Services and Corrosion Protection businesses that Chuck previously discussed. We ended the quarter with $69 million in cash, which is below our target cash position of $80 million to $90 million, partially due to the higher cash restructuring costs we have incurred in 2018. Looking forward, we expect operating cash flows to be seasonally higher in the fourth quarter and we also expect to reduce our required working capital as we exit the additional international operations. We have a strong liquidity position in excess to revolver borrowings and feel good about our ability to continue to invest in the business through maintenance capital and small acquisitions while also continuing to return cash to investors through open market share repurchases.
Turning to Slide 13, I'll walk through additional detail of our consolidated full-year outlook. As Chuck mentioned, we are now targeting adjusted earnings-per-share growth of 15% to 20% over 2017 results. Our revised outlook reflects the impact of lower than projected revenues from our Infrastructure Solutions and Corrosion Protection businesses. We now expect revenues to be down 1% to 3% from 2017's record results. Despite the lower projections, we feel good about the organic revenue growth that has enabled us to offset the absence in 2018 of nearly $95 million of 2017 revenues from the large deepwater project. We expect adjusted gross margin and adjusted operating margins to be on par with 2017, driven by improvements in our Energy Services segment, our restructure businesses, Cathodic Protection and coating services which together are our offsetting declines in 2018 associated with contributions from the large deepwater project in 2017.
Operational spend as a percentage of revenue is expected to be closer to 15.5% down from 2017 due to restructuring savings and cost containment efforts. We also remain focused on streamlining our SG&A spending as we continue to simplify the business. We expect interest expense in the $14 million to $14.5 million range and income attributable to non-controlling interest of approximately $1 million. We are still targeting our adjusted effective tax rate to be between 23% and 24%.
For our 2017 restructuring initiatives announced in August, 2017, we have incurred $126 million in charges to-date including cash charges of $21 million and non-cash charges of $105 million, inclusive of $86 million in impairment charges recorded in 2017. We expect $130 million in total charges related to the August 2017 actions and the divestitures of our Australia and Denmark CIPP businesses. We expect all charges and restructuring activities associated with these actions to be substantially completed by the end of 2018.
We are targeting an additional $25 million in total charges associated with exiting the additional international businesses announced today and our efforts to further optimize certain North American operations. Of those charges, we expect $8 million to $10 million to be cash charges. As a result of these new actions, we expect to realize incremental annual savings of more than $5 million in addition to avoiding the significant operating losses and margin dilution associated with the smaller underperforming businesses over the last several years. We expect to incur substantially all charges related to these actions by mid 2019. While restructuring activities have taken longer than we initially anticipated and communicated, we substantially completed all activities with respect to the initial 2000 restructuring actions by June 30, 2018 with the exception of the Bayou sale, which was concluded on August 31 and the sales of Denmark and Australia, which we expect to conclude in early November -- excuse me, and no later than Q1 '19 respectively.
The new restructuring actions that we announced today while extending the timeline for restructuring activities, are a result of the further review of Aegion's international operations that we discussed during our August call and reflect our continued efforts to simplify the company and focus the management team and the company's capital on operations and activity that support Aegion's long-term growth and profit objectives. We are confident these new actions will results in a more focused and streamlined business capable of achieving organic growth in our core markets and delivering long-term value for Aegion stockholders.
That wraps the review of our third quarter results and outlook for 2018. With that, operator, at this time, we would be pleased to take questions.
Questions and Answers:
Operator
(Operator Instructions) Our first question comes from the line of Eric Stine with Craig-Hallum. Your line is now open.
Chuck Gordon -- President and Chief Executive Officer
Good morning, Eric.
Eric Stine -- Craig-Hallum -- Analyst
Hi, Chuck and David. Good morning. Just wanted to start on the Infrastructure Solutions. I know you mentioned in depth the mix issues impacting 3Q, 4Q, but I may have missed this. But any commentary, I know you mentioned the 2 projects, which are more medium to large diameter, but just overall what you think about the mix, how that looks like in 2019? And then does that change any of your plans for that segment going forward, whether it's number of crews or other steps you might take?
Chuck Gordon -- President and Chief Executive Officer
As we look forward to the business, the market is healthy and we don't anticipate having a mix problem as we go into 2019. I think what happened in Q3 was a function that as we got into our workable backlog, we had a lot of small diameter work and we -- the crews did a great job getting it out there, they had their really good quarter. But it certainly impacted our revenue, it certainly impacted our gross margins. I look at that as a short-term phenomenon. It certainly doesn't reflect what we see is what the overall market opportunity and we're committed to the market and being competitive in that market over the long term.
Eric Stine -- Craig-Hallum -- Analyst
Got it, OK. And then, just sticking with mix and move into Corrosion Protection. You talked about the 2 projects in the Middle East and what the pipeline looks like beyond those? But any thoughts on or any details you can share on mix between onshore and offshore, since I know there is a -- there is a margin difference between the 2?
Chuck Gordon -- President and Chief Executive Officer
So we've been successful over there booking what I would call smaller to medium sized projects, projects that are in the $4 million to -- $5 million to $10 million range. We don't spend a lot of time talking about those. But we continue to be successful in booking those the $4 million project that I mentioned, is an offshore project. As we go forward, I think we expect to see continued projects of that size. We don't believe that over the next 8 to -- 12 to 18 months, we're going to see another $30 million project like the one that we're working on. But I would say, the mix of onshore and offshore over there is generally favors the offshore.
Eric Stine -- Craig-Hallum -- Analyst
Got it, OK. And then maybe last one for me, just to clarify. So in Energy Services, the cost recovery that potentially comes in 4Q, just to confirm, so that's not in your guidance in any way that would represent upside?
Chuck Gordon -- President and Chief Executive Officer
Yeah we -- I guess our current guidance would anticipate a recovery related to that. We've built that into our fourth quarter forecast.
Eric Stine -- Craig-Hallum -- Analyst
You did. Okay.
Chuck Gordon -- President and Chief Executive Officer
Yes.
Eric Stine -- Craig-Hallum -- Analyst
Thanks a lot.
Chuck Gordon -- President and Chief Executive Officer
Thank you.
Operator
Our next question comes from Brent Thielman with D.A. Davidson. Your line is now open.
Brent Thielman -- D.A. Davidson -- Analyst
Great, thank you. Maybe just picking up on that last question, could you clarify the impact of that lump sum projects, I guess, within ES and -- I'm trying to get a feel for what margins would have been kind of normalized, then what you're looking to recover from the customer?
Chuck Gordon -- President and Chief Executive Officer
We are in the middle of discussions with our customer. We've got a great relationship with them, but we don't want to talk about exactly what the overall charge would be. I will tell you that even had we not had the project challenge, our overall margin would have been lower than what we expected for the quarter.
Brent Thielman -- D.A. Davidson -- Analyst
Okay. Maybe sticking with ES, if I thought about kind of this reinclusion at the $30 million for the 2 large customers back into the backlog base, I mean that suggests something like kind of single-digit improvement year-over-year. Is that how you're thinking about this business as we enter kind of 2019 in terms of the growth potential?
Chuck Gordon -- President and Chief Executive Officer
I think as we -- what we've said for long-term growth in CP is in that mid single-digit range and that's what we expect year-over-year. And as we go forward, we continue to have that kind of expectation for the business. Occasionally, we're going to get a large project and there always going to be a bit of an outlier, we love them when we get them, but year-over-year growth excluding those large projects, we would expect to be in that mid single-digit range.
Brent Thielman -- D.A. Davidson -- Analyst
Okay. And then in Cathodic Protection, the 10% improvement in orders since June, can you just talk a little more about where you see the order strength that these markets or customers that have been on the sidelines and now starting to step up to the plate, are they new markets or customers you're pursuing? Any more color there?
Chuck Gordon -- President and Chief Executive Officer
Sure. So we've seen a nice pickup in orders in the US, and somewhat in Canada over the last 4 months or over the 4 months that I mentioned, that our typical base in that business is midstream oil and gas. And I think what's happened in the US is that we have been executing very well over the last 9 months and I think we've regained the confidence of our customer base and we expect to do even more as we go forward. The Canada market is still a bit slower than we would like, the oil and gas resurgence that we've seen in the US has been far slower in Canada. We have seen improvement in orders, but the market over there is still overall is slow. But I think what you're -- what we're really saying is that in the US business in particular, we're coming out of a business that wasn't performing as well as it needed to, the business is performing very well now. We remain the largest player in our market space and I think we've had been very successful at regaining our market share over the last 3 or 4 months.
Brent Thielman -- D.A. Davidson -- Analyst
Okay. So it's fair to say this is all work that's pretty familiar to you.
Chuck Gordon -- President and Chief Executive Officer
I'm sorry.
Brent Thielman -- D.A. Davidson -- Analyst
This has all work that's fairly familiar to you, it's not new markets or something?
Chuck Gordon -- President and Chief Executive Officer
Right. And the other thing that's happening that we're very excited about is, we continue to develop our AIM package. We're working really closely with our 2 largest customers and tailoring that package to really fit what they need. We're excited about it. They are excited about it. And it really has helped, I think our overall relationship with those companies and we're excited about that going forward. And what that package does is, it gives us a differentiator in terms of our ability to manage data in the Cathodic Protection market. We continue to be very excited about that.
Brent Thielman -- D.A. Davidson -- Analyst
Okay. Last one for me, just the restructuring actions that you're taking now, what -- I understand some specifics you don't want to share, but can you just talk a little bit about what that's going to entail? And through this process, should we anticipate slower bookings that in North America near term as you take these actions?
Chuck Gordon -- President and Chief Executive Officer
I don't think the North America business should be impacted at all in terms of bookings. So the business in Mexico, Brazil and Argentina will be substantially wound down by the end of the year and we'll be -- we'll have exited those businesses. And we have some other international operations that we'll be announcing here shortly. But overall, I don't expect the North America business to be impacted at all. It's a different management team, they are very focused on the task at hand. And I believe we'll be able to exit those businesses with no impact on the North America business.
Brent Thielman -- D.A. Davidson -- Analyst
Okay, great. Thank you.
Chuck Gordon -- President and Chief Executive Officer
You're welcome.
Operator
Our next question comes from Craig Bibb with CJS Securities. Your line is now open.
Chuck Gordon -- President and Chief Executive Officer
Good morning, Craig.
Pete Lucas -- CJS Securities -- Analyst
Hi, good morning. It's actually Pete Lucas for Craig.
Chuck Gordon -- President and Chief Executive Officer
Hey, Pete.
Pete Lucas -- CJS Securities -- Analyst
Just one following up on the Infrastructure Solutions mix. But you had mentioned the market is healthy and going forward, you don't anticipate the mix issue in '19. Just wondering does that mean that you expect to win a higher percentage of the large diameter business or that there is more available large diameter business to bid on? Just trying to figure out what the issue was and how it looks going forward?
Chuck Gordon -- President and Chief Executive Officer
I think going forward, what we expect to see is sort of a traditional mix of large and small diameter projects. I don't see a change, based on the visibility we have in the market, we don't see a real change in that mix. What we do expect is that we're going to book our historical share of that market. And based on that, my expectation is that our backlog going into 2019 and particularly as we get a little bit further into the year is going to reflect our historical win rates in that portion of the market.
Pete Lucas -- CJS Securities -- Analyst
So, I guess another way to ask then would be so the shortfall that we saw here the mix issue that you had in the last quarter, was it a lack of winning those larger projects or just a lack of the projects?
Chuck Gordon -- President and Chief Executive Officer
No, I think we had a lot of where we win depends on exactly where these projects are being bid, our local strengths, how well we know the customer. There's a lot of things that go into this. And what I would say is that we did not win the share of those projects that we expected to probably earlier in the year.
Pete Lucas -- CJS Securities -- Analyst
Very helpful. Thanks guys.
Chuck Gordon -- President and Chief Executive Officer
You're welcome.
Operator
(Operator Instructions) Our next question comes from Noelle Dilts with Stifel. Your line is now open.
Chuck Gordon -- President and Chief Executive Officer
Good morning, Noelle.
Noelle Dilts -- Stifel -- Analyst
Hi, good morning. So I just wanted to discuss the trends you're seeing in Cathodic Protection, a little bit more. Can you just give us a sense of kind of what you're seeing as it relates to demand, just kind of on the maintenance side versus new project activity and where you think -- I know you said on the call you kind of don't think it's so much a market issue, in terms of the revenue being a bit below your forecast, but maybe you could help us understand sort of unpack that a little bit and give us better sense of what you're seeing?
Chuck Gordon -- President and Chief Executive Officer
Yeah, love to. So I think what we've seen this year is a much higher -- is a higher mix of maintenance activity. The 2 projects that I mentioned as you're -- we may have mentioned on a phone call, but we did the Cathodic Protection on the DAPL Pipeline. We also did on the Rover Pipeline. The DAPL was a portion that was still on backlog, last year, the Rover was nearly all in backlog. Those were 2 new construction projects that certainly had impact on our revenue and margin in the Northeast US.
This year what we've seen is really good volumes in terms of survey, engineering, the kind of work that we do on the maintenance side, we are -- we have seen maybe a bit of a low on the construction on new construction, although as we go forward, we have some very good projects coming up. So I think the business still tends to be about 75% maintenance related, that portion of the business is strong. The new construction piece has been a little bit slower this year, but I would expect that that's probably order pattern and I'm sure we'll get whatever our share is as we go into next year. The markets -- the overall market, particularly on the maintenance side, Noelle, seems very healthy to me.
Noelle Dilts -- Stifel -- Analyst
Okay, great, that's helpful. And then just, it was encouraging to see that you're seeing better utilization of crews and not really seeing any labor constraints on the -- in the Infrastructure Solutions. But given what we've heard from a lot of folks within the industry, they are seeing some regional and pockets of late labor tightness. Is there -- are you watching that, is there any concern, particularly as it relates to Energy Services and finding some of the right folks to work on those jobs as they move forward?
Chuck Gordon -- President and Chief Executive Officer
I think there was maybe a couple of questions. The first one is, it was relative to NAR, I don't want to minimize the labor challenges. It's been a tremendously difficult year keeping our crews completely manned. And what I would say is on a week-in and week-out basis, we typically probably have a couple of crews sideline, that's a couple lot of 70 plus. But we typically have a couple of crew sideline for labor issues and it's just keeping people and maintaining the crews, has been very difficult. So I don't want to minimize that at all. I think we've been able to put -- experience people on crews with new people, and we've been able to maintain and actually improve our productivity but the labor issue for NAR has been challenging all year.
Energy Services is a unique situation. We have our -- as you know, our folks go into the refineries every day, that portion of the market is well compensated. We do not tend to have anywhere near the same level of turnover on them in our -- on our routine maintenance business. We do have challenges when we do turnarounds and when we do construction projects, finding people. But we've been able to manage that pretty well. As we went through the year, the big issue there is really more on the construction projects and not on the maintenance side.
Noelle Dilts -- Stifel -- Analyst
Okay, great. And then last, I understand you're not in a position to give 2019 guidance, can you give us the couple little bits of information around how you're thinking about '19? But are there any comments you'd like to make or provide around just kind of high level expectations as it relates to growth and sort of margins, looking into next year?
Chuck Gordon -- President and Chief Executive Officer
Well, we've had -- as you look at the business, we've had a challenging year with our CIPP business in North America. It started out with a lot of weather issues in Q1. It really was a tough, I mean it's -- weather always sounds like an excuse for a construction company. But we really did have a challenging Q1 from a weather standpoint. We also had some project issues that were isolated in the Midwest that I don't expect to repeat themselves. And as we -- and then on top of that we were moving into new geographies in a extremely tight labor market. And so as we move into '19, I think lot of these issues will be behind us. I expect labor markets is going to continue to be tight, but I wouldn't expect the other 2 issues. So we are optimistic about our ability to improve margins in that business over what we've seen this year just because of some of the weather and project issues we've had.
On the Cathodic Protection side, we've seen very nice margin improvement year-to-date and gross margin improvement year-to-date. And that business needs to continue that rate of improvement. They've done a great job. It's not where we want it to be Noelle but it's so much better than it was a year ago and the most important thing is we're executing really well in front of our customers. So we're optimistic about that business also. Overall, I'm optimistic about the business. We are in the process of rolling up budgets. We don't see anything in the markets that has us concerned in the overall markets that have us concerned. But we do have a lot of pushes and takes this year. As you can imagine as we go through the budgeting process and we'll be able to provide a good update on '19 in February when we have our Q4 call.
Noelle Dilts -- Stifel -- Analyst
Thanks very much.
Chuck Gordon -- President and Chief Executive Officer
Thank you.
Operator
(Operator Instructions) I'm not showing any further questions in queue at this time. I'd like to turn the call back to Mr. Gordon for closing remarks.
Chuck Gordon -- President and Chief Executive Officer
Thank you. The entire management team remains focused on taking the actions necessary to serve our stakeholders, including our employees, customers and shareholders globally. We will continue to drive results in the remaining 2 months of 2018 and we look to see increased earnings through improved execution in organic growth in 2019 and beyond. We look forward to providing more updates on our outlook early next year. Thanks for joining us today and for your continued support of Aegion.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.
Duration: 50 minutes
Call participants:
Katie Cason -- Vice President, Finance and Investor Relations
Chuck Gordon -- President and Chief Executive Officer
David Morris -- Executive Vice President and Chief Financial Officer
Eric Stine -- Craig-Hallum -- Analyst
Brent Thielman -- D.A. Davidson -- Analyst
Pete Lucas -- CJS Securities -- Analyst
Noelle Dilts -- Stifel -- Analyst
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