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Aegion Corp (NASDAQ:AEGN)
Q4 2019 Earnings Call
Feb 27, 2020, 9:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good morning, and welcome to Aegion Corporation's Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] Later, there will be a question-and-answer session, and instructions will follow at that time. [Operator Instructions]
It is my pleasure to turn the call over to your host, Katie Cason, Senior Vice President, Strategy and Communications. Katie, you may proceed.
Katie Cason -- Senior Vice President, Strategy and Communications
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 can find a copy of our press release and our Safe Harbor statement on the Investors 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 to everyone joining us on the call today. I'll provide a brief review of our 2019 performance highlights, discuss the current market drivers and growth areas for our core businesses, and layout our key focus areas for 2020. First, I want to spend a moment discussing safety, our number one and most important value at Aegion. As proved to zero instance are possible, our Underground Solutions business finished 2019 without a single safety incident, marking the first time in several years at an entire business unit completed the year without any injuries or automotive accidents.
Across the rest of the business, 21 of our offices work instant free and 61 completed the year without no issue recordable. Despite a strong record overall, our total recordable incident rate and lost time incident rate ticked up slightly due to challenges in isolated pockets of the business. These results served as an important reminder that safety is a continuous journey with no endpoint, and we are focused on further improving our performance in 2020.
Shifting to our financial results for the year. 2019 was a turning point for Aegion. We delivered on the adjusted earnings targets, we laid out at the start of the year, a first for the company following several years that have been marked by earnings volatility, as a result of a combination of challenging businesses and challenging markets. Our success was a result of strong operational discipline and consistent execution on hundreds of projects acrossed our core service lines and notably did not include the benefit of a significant large project, which has provided cushion to our earnings in the past. Our results also reaffirm the effectiveness of the multi-year restructuring and simplification efforts we've taken to streamline and focus the organization.
I'd like to touch on three highlights that drove our strong performance in 2019 and position us well for continued success in 2020. First, we improved adjusted gross margin in our North American Insituform business by 300 basis points to drive Infrastructure Solutions segment margins to the highest level in four years. The Insituform business is the flagship brand for Aegion and represents the lion share of our earnings. Operational excellence in this business is paramount for our success and our teams delivered in 2019. Crew productivity increased significantly, and we added several new technology offerings to our product portfolio to bolster our position, as a global leader and transfer CIPP water and wastewater rehabilitation solutions.
Second, United Pipeline Systems, our industrial linings business was a standout performer in our Corrosion Protection segment by doubling its earnings contributions compared to the prior year. In the Middle East, we expanded our presence in Saudi Arabia and commissioned to new rotolining facility with our USTS joint venture partner to offer a more comprehensive widening solution. In the US, results were also up sharply and we successfully completed the rehabilitation project with a large midstream operator, which we hope will lead to additional opportunities for maintenance of existing infrastructure.
And third, our Energy Services segment delivered its third consecutive year of double-digit adjusted earnings growth with demand for our core maintenance services reaching record highs. We also made early headway in our efforts to expand into the Rocky Mountain region by successfully winning a three-year maintenance award with a major refinery in Salt Lake City.
So now to highlight for the year. I want to provide an update on our Corrpro business performance. Over the course of 2019, we aligned the organization structure to drive greater accountability and ownership, reduced overhead cost, streamline key process and improved P&L reporting and analytics. These changes delivered positive results, but results still fell short of expectations.
In the fourth quarter, we initiated plans to further downsize US operations, including the closure of three branches and the exit of capital intensive drilling it another four additional branches to address unprofitable portions of the business challenged by high cost fixed structure and persistently low utilization levels. These actions included reduction of approximately 70% of corporate US workforce and an exit of activities that contributed approximately 20% to corporate US's 2019 revenues.
These changes allow us to refocus on leveraging the core strengths, which copper [Phonetic] was founded on more than 35 years ago, including being a leading provider of excellent engineering, technical services and material sales to our customers. Despite the reduction in revenues, we believe these actions will result in considerable improvement profitability and are expected to be a leading driver of our earnings growth in 2020.
In addition to those key business performance updates, I also want to highlight our continued investment innovation in 2019. Our R&D spending increased nearly 15% over the prior year and we advanced development efforts on several key initiatives. Within the Infrastructure Solutions segment, we focused on; one, the expansion of our UV product line to include UV Cure Felt Liner, which offers a 20% to 30% discount to a traditional UV glass product; two, improving the quality of our standard CIPP liner for use in pressure pipe applications; and three, finalizing the development of the state-of-the-art robots that will be used to install leak-free seal on lateral connections and portable water pipe rehabilitation projects.
Within the Corrosion Protection segment, efforts focused on our digital data collection and analysis tool to provide critical real-time monitoring and assessment of external corrosion threats to help guide decision making for pipeline operators as part of their asset integrity management program. We commercialized in advanced data collection unit for use in the field that interfaces with our asset integrity management database to significantly reduce the time required to provide survey results to our customers, as well as increase the accuracy of the collected data. These investments demonstrate our commitment to provide value to our customers through differentiated technologies.
I'll now walk through review of our market outlook backlog position and growth drivers for the business, as we shift our focus to 2020. Aegion serves primarily aging infrastructure markets, where the demand for maintenance and rehabilitation greatly exceeds available funding and resources, providing a long-term growth trajectory in each of our core markets. Today, approximately 85% of our revenues are from the maintenance and rehabilitation of existing infrastructure, which lessens our dependence on new construction activity and reduces our risk in cyclical markets. We also see a growing global awareness of health, safety and environmental issues which further reinforces the need for the environmentally sustainable solutions that we are well positioned to provide.
We ended 2019 with total contract backlog of nearly $660 million, when excluding the impact of exited, or to be exited business where order intake was impacted due to restructuring actions, backlog in our remaining business has increased 3% and supports our outlook for revenue growth in 2020. Our market outlook for the Infrastructure Solutions segment is very strong. A recent Bluefield Research forecast estimates that in the US alone, more than $230 billion of capital expenditures are forecasted over the next decade to address water and wastewater pipeline infrastructure, where the national average age of water and wastewater pipelines has climbed to over 45 years. It's estimated that water loss at US utility averages 50% annually with some municipalities losing more than half of all the water pumped and treated for distribution to customers.
We are well positioned to serve this growing demand both domestically and abroad. Our extensive portfolio of trenchless solutions now includes 13 lining technologies for use in our contracting business or for distribution through third-party product sales. Despite our decision to exit installation activities internationally, we remain focused on expanding our global product sales to allow us to continue to leverage our strong manufacturing presence with a lower risk and higher margin operating model. Our Fyfe and Underground Solutions products while more niche are also a strong complement serving the water markets as well as offering broader structural strengthening solutions in other market applications.
Our Infrastructure Solutions contract backlog at December 31, 2019, excluding the impact of exited, or to be exited businesses was in line with last year's levels, driven by an increase in North America Insituform business that was offset by softness in this Asia-Pacific Fyfe business due to regional economic and geopolitical challenges. Excluding the impact of exited businesses, our revenue growth in this segment in 2020 is expected to be driven by new product offerings in the Insituform business and higher Underground Solution volumes.
Shifting to our Corrosion Protection segment. We believe oil and gas fundamentals are supportive for growth in the markets we are targeting, which primarily include maintenance of existing infrastructure in the midstream oil and gas market in North America and more upstream focus demand in the Middle East. US oil and gas production set records in 2019 with output and key energy basins, including the Permian Appalachian and the Bakken, reaching new highs in the fourth quarter. The International Energy Agency projects the country will continue to dominate global growth in oil and natural gas through 2025. As supply is growing, so as US export market in the EIA forecast the US will become a net energy exporter by 2022.
For midstream operators, this strength and production in demand continues to create new opportunities to expand existing networks build greenfield pipelines and ensure existing infrastructure is operating as safely and as efficiently as possible. Aegion is well positioned to serve this demand with our broad suite of Corrosion Protection offerings. Additionally, approximately three and four of Corrpro's North America customers are regulated pipeline operators and the business further stands to benefit by using our digital data collection and analysis tool to help our customers comply with new midstream and upstream pipeline regulations.
The outlook of the Middle East remains promising as well. There are currently more than $200 billion worth of oil and gas and petrochemical projects under execution in the Middle East, with another $200 billion plus of projects under consideration for the future. Strong product acceptance for our industrial linings and coating applications along with our solid track record over the past decade positions us well to capture growth opportunities arising from this multiyear development pipeline.
Our contract backlog at year end, excluding the impact of exited, or to be exited businesses increase 7% to $125 million. Growth was driven by an increase in awards for United Pipeline Systems in the US and Middle East. In our coatings business, the large South America project we announced last year valued at $7 million to $10 million was delayed and now is expected to begin in February be substantially completed in 2020. Additionally, we are finalizing terms at a new offshore coating project in the Middle East estimated at $7 million and expect to have a signed contract within the next week. We are pursuing several other Middle East coatings projects in the similar -- what similar value range to take place over the next six months to 24 months.
The markets for Energy Services segment remains stable as well, where we are the lead outsource provider of maintenance services in refineries in California and Washington State. The average age of West Coast refineries is greater than eight years with current capacity operating consistently at utilization rates above 90%. Contributing to strong demand for maintenance, turnaround and construction services to key plants operating safely and efficiently. Additionally, high regulatory standards and environmental mandates drive strict compliance criteria and investments for refinery maintenance, which in turn supports reoccurring revenue streams.
Our union operation has differentiated itself by successfully navigating California strict labor market regulations, which we believe has increased stickiness with our blue-chip customer base. Contract backlog at year end grew 5% from the prior year, driven by increases in maintenance and turnaround services. This backlog increase doesn't include the recent Salt Lake City Award, which was signed in early January. Demand for turnaround activities have picked up in recent months as predicted, and we expect to see higher volumes in 2020 compared to 2019. Additionally, we've had success in expanding our specialty service offerings including a contract signed earlier this year to exclusively provide safety services at two additional California refineries.
As I look forward to the year ahead, I believe we are in inflection point in our business. We've substantially completed a process that began five years ago to position our operations in markets with favorable scale and earnings profiles. We are simplified our overhead structure to align with our more focused organization. As a result of these efforts, we shrank the top line in certain underperforming and/or divested portions of the business. However, moving into 2020, we are transitioning into a new phase of growth for the organization focused on profitable expansion in core markets. We are differentiated from our competitors in several ways.
Our strong focus on technology innovation evidenced by R&D investments that have doubled historical levels in recent years. Our unmatched market coverage, which enables us to serve customers in all 50 states in more than 90 countries and on six continents globally, as we deploy new technologies, we are well positioned to leverage our channels to market for faster product acceptance. Our global manufacturing capabilities, which allow us to enjoy stronger margins than traditional installation only contractors and provides tremendous market intelligence, as we look for new ways to meet the ever-changing needs of our customers. And lastly, our track record of strong free cash flows, which enables us to continue to invest for growth, while returning cash to shareholders.
We are well positioned with market tailwinds and growth opportunities in each of our three segments and we are targeting significant earnings growth in 2020. Keys to achieving our targets in the coming year include: one, maintaining market share in the North America gravity sewer rehabilitation market, while commercializing our new Insituform technology offerings and expanding our presence in the pressure pipe water market. We celebrate the development of new product offerings, but recognize it's a long road with a highly fragmented customer base to gain broad market acceptance. This will require tremendous amount of market education and a solution selling approach versus a more traditional product sales approach to which the business is accustomed.
Two, executing on the many international project opportunities for a United Pipeline Systems and Coating Services businesses. Many of these projects are driven by new construction. And while we feel very confident in our ability to win and successfully execute the work. We are unable to control the ultimate timing of the work. We believe we are appropriately adjusted for the risk of delays in our guidance over -- for the year, but we could see upside, if project timing materializes faster than we expect.
Three, driving significant profitability improvements in our Corrpro business. It is very early in the year to gauge success of our expanded restructuring actions through -- though January results were encouraging with increased gross margins and reduced overhead spending that drove nearly 40% improvement in earnings compared to last year. The first quarter is typically very weak for this business, and it will be critical to minimize losses as we start out the year. Advancing our expansion efforts in the Energy Services business into new geographies. We've secured exciting new businesses and must transition this work seamlessly to our teams and then leverage our strong performance to further expand our specialty service offerings.
Five and lastly, finding opportunities to scale our smaller more niche businesses, including our Underground Solutions in five businesses in North America and Asia. These businesses are very strong in technical differentiation, but we need to grow our revenue base to improve operating leverage and profitability. We must also continue to remain focused on the strong cost control we've achieved over the last 12 months, even as we transition the organization to a more growth mindset. I'm excited about the year ahead and focusing our efforts on sustained profitable growth to drive long-term value creation for our employees, customers and stockholders.
With that overview, I'll turn the call over to David to provide additional details regarding our performance and financial targets. David?
David Morris -- Executive Vice President and Chief Financial Officer
Thank you, Chuck and good morning to everyone on the call. Excuse me, I'll walk through a more detailed review of our full year 2019 results and also discuss our financial guidance for 2020. Starting with our consolidated results for the year, Aegion delivered total revenues of $1.2 billion, a decline of 9% from the prior year. Within 2019 results, revenue from exited, or to be exited operations totaled approximately $70 million. Excluding the impact from these business exits, revenues on a same-store basis declined 5%, primarily due to the expected reduction in large coating project contributions from Corrosion Protection.
The top line decline drove [Indecipherable] $19 million decline in adjusted gross profit. However, we were able to deliver adjusted operating income largely in line with the prior year by offsetting substantially all of the gross profit decline with an $18 million or 9% reduction in adjusted operating expenses through our restructuring actions and cost containment efforts. Our improved project execution and overhead cost controls led to a 40 basis point increase in both adjusted gross margins and adjusted operating margins. Below adjusted operating income, we benefited from reduced interest expense on lower debt levels and higher interest income related to the note receivable as part of the Bayou sale in 2018.
Other income and expense was unfavorable for the year compared to 2018, primarily due to a pension settlement that benefited the fourth quarter of 2018. Our adjusted effective tax rate was 21.5%, which came in lower than our guidance in the prior year due to the benefit of reversal of uncertain tax positions as well as a shift in earnings mix toward lower rate jurisdictions during 2019. Income attributable to non-controlling interest increased $1 million from the prior year, primarily due to higher results from our industrial linings joint venture in the Middle East. All in, these factors led to adjusted earnings per share of $1.21 in 2019, a modest increase over 2018 results and in line with our 2019 guidance.
We reported a GAAP loss per share of $0.67 for the year. The adjustments between our GAAP and adjusted non-GAAP results consisted of $32 million of pre-tax restructuring charges, primarily related to wind-down expenses and fixed asset disposals. The release of currency translation adjustments and losses on the disposal of certain restructured operations and employee severance and early lease and contract termination costs. We also recorded $27 million of pre-tax acquisition and divestiture-related expenses, primarily related to the impairment of held for sale assets in connection with the exit of multiple international businesses as part of our restructuring program.
You also will recall, in the first quarter of 2019, we recorded a pre-tax warranty reserve of $4 million related to a wastewater rehabilitation project in our North America CIPP business that was completed in 2017. I'm pleased to report that we have successfully completed the warranty repair work associated with this project. Of the nearly $64 million in pre-tax adjustments excluded from GAAP results in 2019, approximately $27 million or just over 40% were for charges settled or expected to be settled in cash. $8 million in cash charges were recorded in the fourth quarter with approximately $3 million of such amount related to the expanded Corrpro US restructuring actions Chuck mentioned earlier.
I'd like to take one minor correction to what Chuck's comments, Chuck noted that our workforce reduction in North America was approximately 70% of the Corrpro US [Phonetic] workforce that number was 20%, not 30% or 70%. Through these expanded Corrpro actions though these expanded Corrpro actions were not anticipated in our previous restructuring guidance. We believe they were necessary to right-size the US business and will yield significant profitability improvements for Aegion going forward.
I'll now walk through a review of 2019 results and our 2020 guidance outlook within each of our three segments. Infrastructure Solutions delivered revenues of $591 million in 2019 representing nearly half of Aegion's total revenues, when excluding exited, or to be exited businesses revenues were on par with the prior year. Revenues in the Insituform business grew for the year, excluding the exit of our international contracting operations bolstered by a 25% increase in global third-party product sales.
Offsetting this increase, volumes declined in our Underground Solutions business due to sales force turnover, which can have an oversize impact due to the high degree of technical knowledge needed to get our patented fusible PVC pipe product specified into new projects. We were able to get back to full [Indecipherable] levels by the end of the year and expect to see a recovery in volumes in 2020.
Despite the muted top line performance, we delivered double-digit growth in adjusted gross profit and adjusted -- and achieved adjusted gross margins of 25% due to significant productivity gains in the Insituform North America business and the exit of underperforming international contracting markets. We reduced adjusted operating cost by 4% despite higher investments in R&D to support new technology developments, which helped drive a $19 million or 35% increase in adjusted operating income. All in, our adjusted operating margins increased by 340 basis points to more than 12%.
For 2020, we expect Infrastructure Solutions revenues to be on par with 2019 results, which included nearly $60 million in revenues attributed to exited, or to be exited businesses. Excluding the impact of the exited businesses, revenues are projected to grow in the high-single digit range driven by new product offerings from the Insituform business and higher Underground Solutions volumes. Adjusted operating margins are projected to remain on par with the strong results [Technical Issues] in 2019.
Shifting to Corrosion Protection, we experienced an expected decline of costs, all key metrics, driven primarily by the loss of high margin contributions from the large Middle East coatings projects that benefited 2018. We also saw a decline in our Corrpro business as a result of market weakness in Canada and performance challenges in the US. Chuck highlighted the strong performance from the United Pipeline Systems business, with [Phonetic] helped to offset the weaker results. For 2020, revenues within Corrosion Protection are expected to increase 2% to 4% from the prior year. Excluding the impact of exited, or to be exited businesses revenues are expected to increase 7% to 9%, which includes the impact of the Corrpro US downsizing.
Adjusted operating margins are expected to increase 200 basis points to 300 basis points, driven by better operational performance at Corrpro, stronger international coating project contributions and improved operating leverage. The expected improvement in Corrpro -- in Corrosion Protection earnings is a critical driver for our earnings growth in 2020. As Chuck mentioned, we believe we have risk adjusted our projection for the potential of large project timing variability from our United and Coating Services businesses. Significant swings and scheduling represent both upside and downside to our projections and we will keep you updated as we progress throughout the year.
Our Energy Services segment achieved revenues of $328 million in 2019. Demand for our core maintenance services, which accounted for more than 70% of total segment revenues increased 12% to record levels. Offsetting this growth construction activities declined as part of a more selective bidding strategy, we implemented during the year for smaller capital project opportunities. Additionally, turnaround activities as expected declined following an acceleration into 2018 of work performed at refinery labor transitions in late 2018.
We increased adjusted gross margins by 20 basis points and grew adjusted operating margins by 60 basis points, due to a strong and continuing focus on streamlining the overhead structure needed to support the business. We expect Energy Services to grow revenues in the low to mid-single digit range in 2020, primarily by expected increase demand for construction and turnaround services. Adjusted operating margins are expected to remain on par with 2019 results.
That wraps the review of our operating segment results. Adjusted corporate spend for 2019 declined 11% to $25 million inclusive of an additional $1.4 million of a corporate incentive compensation expense in 2019. The reduction in corporate spend was primarily driven by a simplification of our corporate overhead structure as part of our overall restructuring actions to reduce complexity in the business. In 2020, we expect the modest increase in the spending in line with general market inflation and we continue to target a level of corporate spend as a percentage of total revenues in the 2% to 2.5% range.
For consolidated Aegion, we expect a 1% to 3% increase in revenues in 2020. Excluding exited, or to be exited businesses, we are targeting an increase of 6% to 8% overall with increases expected from each of our business units except Corrpro, where as previously discussed, we are exiting unprofitable or low return US branches and activities. We are targeting 25 basis point to 75 basis point improvements in both gross margins and adjusted operating margins, driven primarily by expected improvements from our Corrosion Protection segment, continued strong performance from our Infrastructure Solutions and Energy Services segments and a continued focus on cost controls. Net interest expense is expected to be $12 million to $13 million in 2020 due to lower expected debt levels. We expect our adjusted effective tax rate in the 23% to 24% range. All in, we are targeting adjusted earnings per share of $1.30 to $1.50.
Looking at the phasing of results in 2020, we expect the first quarter to be the weakest of the year and slightly below the adjusted results achieved in the first quarter of 2019. Our first quarter results are always impacted by seasonality due to weather challenges for Insituform and Corrpro crews and general slowdown in work releases to start the year. Aegion's Q1 '19 results also were benefited from a strong contribution from the large offshore project that was completed during the quarter.
Our Infrastructure Solution revenues are expected to be down in Q1 due to the exit of international contracting activities. Revenue growth for the segment will be weighted later in the year due to expectations for a phased market acceptance for our new technology offerings. Corrosion Protection revenues in Q1 are projected to improve over the prior year, driven by higher volumes in our United business though we are targeting strong earnings improvement in the corporate business, we expect we may still incur segment losses in the first quarter due to seasonal weakness. However, we expect significantly higher results in the remainder of the year to achieve our full year targets.
Energy Services revenues in Q1 are expected to be higher than the prior year, driven by increased demand for turnaround activities. Our Q1 [Technical Issues] segment are generally the weakest due to the higher employer payroll tax burden that [Technical Issues] out in the early part of the year. We expect restructuring activity in 2020 to be limited to a few remaining items. First, we are in negotiations to sell our contracting business in Northern Ireland, which transaction we expect to complete by the end of the second quarter.
Second, we need to finalize the corporate restructuring activities initiated during the fourth quarter of 2019. The remaining activities are primarily related to facility closures and relocations and equipment disposals. Third, we expect a material wind-down activities from our cathodic protection businesses in the Middle East, related to a small number of projects remaining in backlog. And finally fourth, we are ramping up final dissolution activities for the impacted United businesses in South America and South Africa. We expect all remaining activities to be completed by the end of the second quarter. Future cash charges are estimated to be between $2 million and $4 million and we may incur additional non-cash charges associated with final currency translation adjustments as well as net losses as part of the sale or closure of international entities.
Before closing, I want to touch on our cash flows for the year. We generated full year operating cash flows of $79 million, nearly doubling the prior years' result. We significantly improved working capital balances, driven by strong accounts receivable collections in our Energy Services and Corrosion Protection segments and as a result of our exit of certain international markets. Our capital allocation was balanced for the year in consisted of $29 million of continued investment in our businesses by a capital expenditures, $35 million of debt pay down, and $30 million of share repurchases. Our cash used for restructuring activities was $14 million in 2019 and has been in the $10 million to $15 million range for the last several years. Forward to redirecting those cash flows in the future toward activities that will create improve returns for age of stockholders.
We ended 2019 with $66 million in cash, despite the reduction in our cash balance from the prior year. We had success during 2019 and liberating international cash balances as part of the closure of foreign entities. As a result, as of year end, approximately 61% of Aegion's global cash was in the United States as compared to approximately 40% at the end of 2018 and 2017. We feel good about this level of cash to support the working capital needs of the business and we also have ample access to liquidity with our credit facility. For the coming year, we expect capital expenditures in the $20 million to $25 million range and we have approval to buy back up to $40 million of Aegion common stock in open market share repurchase transactions to ultimate [Indecipherable] buyback levels will depend on the share prices.
That wraps the review of our results and outlook for 2020. And I want to reiterate Chuck's comments on how pleased we are with our 2019 results and command each Aegion employee for a job well done. We look forward to leveraging the positive moment -- momentum from 2019 to deliver strong top and bottom line growth in 2020.
With that operator, at this time, we will be pleased to take questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from Eric Stine with Craig-Hallum. Your line is now open.
Eric Stine -- Craig-Hallum -- Analyst
Hi, Chuck and David.
Charles Gordon -- President and Chief Executive Officer
Hey, Eric. Good morning.
Eric Stine -- Craig-Hallum -- Analyst
Hey. So I appreciate all the detail that you gave across the business, and I know that your guidance range for 2020 is pretty standard at $0.20, but maybe if you could just boil it down, I'd love to hear maybe the three or four factors that would be kind of puts and takes to that range?
Charles Gordon -- President and Chief Executive Officer
Sure. So I think, if we think about the upside of the range, Eric, we -- there is an opportunity for some of the projects in the Middle East that we're tracking to actually impact results in Q4 probably. We have not included those in our estimate and that would provide upside that could -- would bring us toward the top of the -- toward the top. I think as you look at the downside for the business, it really -- we need Corrpro to produce what we said. And then we also have a fair amount of growth baked into new products, which we feel very good about, but there is always some market risk as you -- as we go through the commercialization phase for those products. So that give you some ideas. David, do you want to add anything to that?
David Morris -- Executive Vice President and Chief Financial Officer
No, I think that covered it well.
Eric Stine -- Craig-Hallum -- Analyst
Got it. And then you just mentioned that some turnover at Underground Solutions, I mean, maybe just a little bit of color there. I mean, it sounds like you are being pretty conservative around the new product impact and you mentioned that there was a little bit of a dislocation just because of the engineering side of it, but more color on that and how you're thinking about that going forward would be helpful?
Charles Gordon -- President and Chief Executive Officer
Sure. So I think what we talked about, I want to -- I want to back-up from [Indecipherable]. We talked about was about $60 million worth of growth in IS [Phonetic] and of that $60 million, think about it in terms of about -- in terms of what we're going to see in the core business just for market growth. And what we'll see in terms of new products and then what we think we'll see from Fyfe and Underground Solutions is, as they continue to gain momentum on the sales side. I think all three of those categories are about even not quite, but about even in terms of what we're targeting for growth.
On the Underground Solutions side, we had a pretty experienced sales force when we started. We lost or when we bought the business, we lost some of that experience due to retirement in several other factors. Last year was a year, I think where we brought on a lot of newer sales engineers. We're very pleased with the caliber that we were able to hire and I think as we go forward into this year that groups up to speed now, and we expect to have another solid year from Underground Solutions.
Eric Stine -- Craig-Hallum -- Analyst
Okay. No, that's helpful. But maybe last one for me, great to hear that the restructuring is, it's kind of nearing an end after I guess it's been five years, but just curious about Canada, I mean I know that's a market that it's very up and down. And I'm just wondering, is that a market that ever -- have you thought about as a candidate for one that you get out of or is that one where you've got the cost structure to a spot where it's right to have it in place you can flex up and down when needed, but not necessarily candidate to get out of.
Charles Gordon -- President and Chief Executive Officer
That's a great question. Canada is really two stories for us. Our Infrastructure Solutions business does very well up there. It's a nice market for us, very strong market for us. On the oil, I think what you're probably alluding to is oil and gas side, and that have been more challenging. And we've taken steps really progressively over the last couple of years trying to address that weakness. I think with both our linings business and with our cathodic protection business, we have significantly reduced our fixed cost base to try to adjust to the market weakness, but there is no question is a challenging market and we continue to look at that on the oil and gas side.
Eric Stine -- Craig-Hallum -- Analyst
Okay. Thanks a lot.
Charles Gordon -- President and Chief Executive Officer
Thank you.
Operator
Our next question comes from Tate Sullivan with Maxim Group. Your line is now open.
Tate Sullivan -- Maxim Group -- Analyst
Hi. Thanks. Thank you. Good morning and thanks for that context Underground Solutions too [Phonetic]. And going over some of your comments on Infrastructure Solutions was that lower revenue in 1Q from the [Indecipherable] 1Q '20 from the prior quarter or prior year, excuse me, I missed that?
David Morris -- Executive Vice President and Chief Financial Officer
That was for the prior year, Tate.
Tate Sullivan -- Maxim Group -- Analyst
Okay.
David Morris -- Executive Vice President and Chief Financial Officer
Ultimately, it's really due to the exit of the various international markets.
Tate Sullivan -- Maxim Group -- Analyst
Okay. And then on the capex comment, let's see [Phonetic] -- is that a run rate of capex going forward after them to your restructuring or is that a temporary low, it seemed lower than your previous ranges too?
David Morris -- Executive Vice President and Chief Financial Officer
Yeah. It's down for a couple of reasons. One, we've had some investment in both IT resources over the last couple of years that we don't see continuing on a go-forward basis, but also the exit of the international contracting operations and the capex associated with those businesses. So on a go-forward basis, I would expect our capex would remain in the $20 million to $25 million range.
Charles Gordon -- President and Chief Executive Officer
I would also add to that Tate, the Bayou business was fairly capital intensive and required some maintenance capital that obviously went away, when we sold the business.
Tate Sullivan -- Maxim Group -- Analyst
Okay. Thank you very much for those follow up items.
Charles Gordon -- President and Chief Executive Officer
Thank you.
Operator
And our next question comes from Noelle Dilts with Stifel. Your line is now open.
Noelle Dilts -- Stifel -- Analyst
Hi. Thanks. Good morning.
Charles Gordon -- President and Chief Executive Officer
Good morning, Noelle.
David Morris -- Executive Vice President and Chief Financial Officer
Hi, Noelle.
Noelle Dilts -- Stifel -- Analyst
Hi. So my first question, I just wanted to touch a little bit more on the Corrpro restructuring and the exit out of the drilling business. I mean is there -- is that something now you're going to subcontract. I guess, I'm curious, why you retained it up until now. Is there -- was there a strategic reason and how are you addressing that moving forward?
Charles Gordon -- President and Chief Executive Officer
So there will be cases where we'll end up subcontracting that business. We are still going to -- we will continue to do provide drilling services, particularly in the Gulf region that's an area where we've had pretty good success. Our challenge is, as we moved around different parts of the country, we did not always understand some of the below surface issues, as well as the local contractors, and we came to conclusion, we are better off something that part of the business out. There will be other cases. I think where the customer just may decide to take drilling on themselves and we see -- continue to see a very nice opportunity in construction with during the connections of the anodes [Phonetic] to the pipeline. There is a little bit more value-added in that portion of the service and we'll continue to do that across the country, but the drilling piece was very, very difficult for us to manage and we use capital intensive and we are having trouble with utilization rates pretty much as soon as we got the Gulf Coast area. So we'll continue in that business there but exited in other parts of -- in other parts of the US. Did that answer your question?
Noelle Dilts -- Stifel -- Analyst
It did. Thank you. And then just shifting over to North American CIPP. Could you give us -- and I'm sorry, if you mentioned this I did hop on late, but could you give us a sense of some of the trends in the market that you're seeing in terms of diameter of projects that are out there, competition and just generally how municipalities are thinking about investing in? I'd be curious about both pressure pipe and gravity pipe infrastructure?
Charles Gordon -- President and Chief Executive Officer
Okay. I think I guess a couple of comments on that. Traditionally, the small diameter work has been about 80% of the market. Remember small diameter for us is 12-inch and less and that's been about 80% of the market. And then the other 20% is medium and large diameter. I don't think that has changed dramatically. Occasionally, there is a big project that pushes that one way or another. But I think that, that ratio reflects actually probably the infrastructure and so we don't see that changing dramatically. There is no question that on the gravity sewer business, we have to continue to improve our productivity to stay competitive, that's a very competitive that the construction side of that is very competitive.
And what we're seeing though on the pressure side and also probably on some of the medium and large diameter is that there are good market opportunities for alternative types of tube. On the pressure pipe side, we've developed three or four different offers that, that depending on the situation, make a lot of sense for the customers. The pressure pipe in terms of CIPP is still largely undeveloped. I think when you, as you hear about pressure pipe jobs in the current market, what you're hearing about is mostly force means sewer pipes and not actually potable water pipes.
In the US, there is a CIPP markets very, very much in an early stage in Canada, particularly in Toronto, and in Montreal because of the depth of the line there has been a lot more pressure pipe work done. But we feel really good about 2019 in terms that we do have a very good solution set now for the pressure pipe market. I think we got our pressure pipe material right. We have the right pressure ratings on the pipe. We're really excited about that. We are in the process of field testing our 8-inch robots. We're still doing some tweaking to be able to reinstate laterals at the -- with the success rate that we need to have. But overall we see the pressure pipe market. We continue to see that's very exciting opportunity and feel very good that in 2019, we got -- we have the materials and construction rate for the tube.
So, I guess I was going to summarize that, I think the felt CIPP market continues to be very competitive on the construction side. I'm pleased that we're very competitive and we had a nice margins in 2019, but it continues to be very competitive. On the pressure pipe side and on some of the larger diameter work, there is opportunities for new technologies that are probably more, more cost effective than felt and we're excited to have tubes to address those opportunities and that's probably the way I would summarize the market.
Noelle Dilts -- Stifel -- Analyst
Great. That's really helpful. And then I guess the last question would be that as you now have kind of approach the end of your restructuring shift back to maybe playing offense, a bit more. How are you thinking about where you might want to go with M&A as you kind of move back in that direction. How are you thinking about that opportunity on the M&A front?
Charles Gordon -- President and Chief Executive Officer
We would love to do some M&A, I think what we're focused on our -- right now, our tuck-in acquisitions to support the Infrastructure Solutions business in particular, I think we've got a strong business model at Insituform. If technology or geographic expansion opportunities with tuck-in well under that business. I think we could leverage those and generate good value. I think on the CPE side, we continue to look for new technology that would complement Corrpro or United Pipeline Systems. But what we see is, we go forward here, is looking at acquisitions that are tuck-ins to the existing business and staying very focused on the markets that we're operating in, and those acquisitions would be primarily North America focused.
Noelle Dilts -- Stifel -- Analyst
Thanks again.
Charles Gordon -- President and Chief Executive Officer
Thanks, Noelle.
Operator
And at this time, I'm showing no further questions, I'd like to turn the call back over to Chuck for any closing remarks.
Charles Gordon -- President and Chief Executive Officer
Thank you, operator. Our growth this year will depend on our ability to protect our market-leading positions and margins while growing share through innovation in new product offerings as well as driving scale and improved operating leverage in our smaller niche technical offerings. We have a streamline footprint, market tailwinds and exceptional talent commitment from our global workforce of more than 5,000 employees. I'm excited for the year ahead and look forward to updating you on our progress in the coming months. Thank you for joining us.
Operator
[Operator Closing Remarks]
Duration: 50 minutes
Call participants:
Katie Cason -- Senior Vice President, Strategy and Communications
Charles Gordon -- President and Chief Executive Officer
David Morris -- Executive Vice President and Chief Financial Officer
Eric Stine -- Craig-Hallum -- Analyst
Tate Sullivan -- Maxim Group -- Analyst
Noelle Dilts -- Stifel -- Analyst
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