Insituform Technologies, Inc. Reports Significantly Improved First Quarter 2008 Results

Insituform Technologies, Inc. (Nasdaq Global Select Market: INSU) today reported first quarter income from continuing operations of $2.0 million, or $0.07 per diluted share. This compares to a loss of $3.3 million, or $0.12 per diluted share, in the first quarter of 2007. First quarter net income was $1.9 million, or $0.07 per diluted share, after accounting for discontinued operations. This compares to a net loss of $15.3 million, or $0.56 per diluted share, for the first quarter of 2007. In the first quarter of 2007, the Company announced the closure of its tunneling business and recorded a pre-tax charge of $16.8 million, or $11.8 million after-tax, an impact of $0.43 per diluted share. These results are inclusive of approximately $500,000 in expenses recorded during the quarter in connection with a proxy contest initiated by a dissident stockholder group. "As we discussed in our last quarterly announcement, we expect 2008 to be significantly better than 2007, and our results for the first quarter are just that. These results are indicative of the progress that we have been making on our strategic initiatives in terms of growth, project execution and cost management. We ended the quarter with improved contract backlog in each of our business segments and geographies. I am particularly encouraged by the 9 percent improvement in contract backlog from year end 2007 at our North American sewer rehabilitation business. Our Tite Liner® business had a phenomenal first quarter and ended with record contract backlog once again. We continue to build momentum and I am convinced that we are well-positioned to deliver to our stockholders in 2008 and beyond,” said Alfred L. Woods, Chairman. "As we announced earlier this month, our Board of Directors recently completed its review of our Company’s strategic options and determined that the best way to enhance value for our stockholders was to execute our Company’s business plan and proceed with the hiring of a new Chief Executive Officer. In the first quarter, our execution of the plan produced significant improvement in revenues, operating income and net earnings over the first quarter of 2007. After the quarter closed, we also announced the hiring of our new President and CEO, Joe Burgess, and I am personally excited and pleased to turn the CEO’s office over to Joe. He is an experienced and capable business leader with a strong background in the water and wastewater services industries. We are confident of our Company’s future success under his leadership,” said Alfred L. Woods, Chairman. Consolidated revenues in the first quarter were $125.9 million, a 9.5 percent increase over the first quarter of 2007. Revenue growth came primarily from the European operations where backlog was strong and European currencies were at historic highs against the U.S. Dollar during the quarter. The Tite Liner® business experienced significant revenue growth as it continued to expand internationally and benefited from strong performance in various regions, most notably South America. Consolidated gross profit for the first quarter of 2008 increased $6.5 million, or 31.9 percent, from the same period in 2007. Gross profit was primarily impacted by the increase in revenues and margins in the rehabilitation business. Gross profit improved in the European contracting operations by more than 20 percent due to revenue growth. The U.S. sewer rehabilitation business increased its gross profit performance by 36 percent as a result of improved project execution and improved backlog margins from one year ago. The business also benefited from decreased fixed crew costs, both labor and equipment. Consolidated operating expenses in the first quarter of 2008 decreased by $0.6 million, or 2.3 percent, to $23.6 million from $24.2 million in the same period in 2007, primarily due to decreases in corporate overhead and field support expenses in rehabilitation resulting from ongoing realignment efforts. Corporate overhead in the first quarter declined $0.9 million, or 8 percent, year-over-year, despite $0.5 million of expense related to an ongoing proxy contest with a dissident stockholder group. Operating expenses increased by $0.9 million in our European, Insituform Blue® and other international operations as a result of continuing investment for future growth. Foreign currency exchange rates also contributed to the increase in operating expenses. Consolidated operating income in the first quarter of 2008 was $3.3 million, representing an increase of $7.1 million from the first quarter of 2007. Net income including loss from discontinued operations in the first quarter of 2008 of $1.9 million represented an increase of $17.2 million over the first quarter of 2007. First quarter 2008 revenues in the rehabilitation segment improved $6.8 million, or 6.5 percent, year-over-year. Gross profit in the segment improved $6.2 million, or 40.4 percent, year-over-year. Most of the gross profit increase resulted from improvement in the United States and Europe, but there were modest profit improvements experienced in other international markets. Revenues in the Tite Liner® business improved $4.2 million, or 35.9 percent, year-over-year due primarily to projects completed in South America. The U.S. and Canadian regions also experienced modest growth. Gross profit for Tite Liner® improved slightly, while the margin was lower than the first quarter of 2007. First quarter 2007 gross profit in Tite Liner® was favorably impacted by approximately $1.3 million related to project closeout gains. Gross profit improvement in the first quarter of 2008 offset partially by slightly increased operating expenses resulted in an increase in Tite Liner® operating income of $0.1 million, or 2.8 percent, as compared to the first quarter of 2007. Total contract backlog of $285.6 million at March 31, 2008 was significantly higher than total contract backlog of $259.0 million at December 31, 2007 and $201.7 million at March 31, 2007. Total backlog in the rehabilitation segment at March 31, 2008 was $253.4 million. This represented an increase of $20.6 million, or 8.9 percent, over the backlog for the segment at December 31, 2007, and an increase of $66.2 million, or 35.4 percent, as compared to backlog at March 31, 2007. These increases were due primarily to backlog increases in the United States, Europe and Insituform Blue®. In addition, approximately $35 million of the backlog in the rehabilitation segment at March 31, 2008 and December 31, 2007 came from the recently awarded projects in our newly formed joint venture in India. This work will commence late in the second quarter of 2008. Tite Liner® contract backlog at March 31, 2008 reached another all-time high at $32.2 million, an increase of $6.0 million, or 22.9%, compared to the previous record level of backlog of $26.2 million at December 31, 2007. Compared to March 31, 2007, Tite Liner® backlog at March 31, 2008 increased $17.7 million, or 121.9% percent, from $14.5 million. "We saw improvement in our sales performance in the U.S. sewer rehabilitation market during the quarter as our project acquisition rate improved while pricing remained stable. This trend is very encouraging” Woods said. "We are seeing very favorable trends in our international business, as well. During the quarter ended March 31, 2008 we completed our first project in India and it came in higher than our bid gross margin. We will begin our major projects in India late in the second quarter, and we have major projects underway in both Australia and Hong Kong, as well. We had another quarter of nice revenue growth in Europe, although earnings growth in Europe did not keep pace with revenue growth as a result of expenses associated with the ongoing realignment of our European management for continued growth and expense reduction.” "We continue to invest in the growth of our Tite Liner® and Insituform Blue® businesses. With record backlog and the continued strong oil and mining markets, we anticipate continued strong growth for Tite Liner® in 2008. We recently announced a high profile I Blue® project to rehabilitate 10,000 feet of 48-inch water line under Madison Avenue in New York. This $4.25 million project will be a significant step forward in our ongoing effort to prove the I Blue® technology in the marketplace,” Woods said. On March 31, 2008, the Company received a final judgment in the amount of $7.7 million against its former excess insurance carrier. As previously reported, the Company had recorded an insurance claim receivable in the amount of the judgment in prior reporting periods in accordance with the Company’s revenue and claims recognition policies. The judgment included all the actual damages the Company had sought to recover against the excess carrier as well as approximately $1.6 million in prejudgment interest. In 2004, the Company filed a lawsuit in U.S. District Court in Boston after the excess insurance carrier failed to acknowledge coverage under its policy’s contractor’s rework endorsement and to indemnify the Company for its loss in excess of the primary policy for work the Company was required to remediate with respect a CIPP process installation project performed in 2003 in Boston. The Company expects the excess insurance carrier to appeal the judgment. On February 15, 2008, the Company received the cash proceeds ($4.5 million) from the settlement of the CAT Contracting patent infringement litigation. The settlement amount was recorded in the fourth quarter of 2007. Unrestricted cash increased to $88.8 million at December 31, 2007 from $79.0 million at December 31, 2007 due to stronger cash collections on receivables and the collection of $4.5 million from the CAT Contracting patent infringement litigation settlement. Insituform Technologies, Inc. is a leading worldwide provider of proprietary technologies and services for rehabilitating sewer, water and other underground piping systems without digging and disruption. More information about the Company can be found on its Internet site at www.insituform.com. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a "safe harbor” for forward-looking statements. The Company makes forward-looking statements in this news release that represent the Company’s beliefs or expectations about future events or financial performance. These forward-looking statements are based on information currently available to the Company and on management’s beliefs, assumptions, estimates or projections and are not guarantees of future events or results. When used in this document, the words "anticipate,” "estimate,” "believe,” "plan,” "intend,” "may,” "will” and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Such statements are subject to known and unknown risks, uncertainties and assumptions, including those referred to in the "Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on March 10, 2008. In light of these risks, uncertainties and assumptions, the forward-looking events may not occur. In addition, our actual results may vary materially from those anticipated, estimated, suggested or projected. Except as required by law, we do not assume a duty to update forward-looking statement, whether as a result of new information, future events or otherwise. Investors should, however, review additional disclosures made by the Company from time to time in its periodic filings with the Securities and Exchange Commission. Please use caution and do not place reliance on forward-looking statements. All forward-looking statements made by the Company in this news release are qualified by these cautionary statements. Insituform®, the Insituform® logo, Insituform Blue® and Tite Liner® and Clean water for the world® are the registered trademarks of Insituform Technologies, Inc. and its affiliates.   INSITUFORM TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts)     For the Three Months Ended March 31, 2008     2007     Revenues $ 125,927 $ 114,982 Cost of revenues   99,041         94,599   Gross profit 26,886 20,383 Operating expenses   23,631         24,185   Operating income (loss) 3,255 (3,802 ) Other income (expense): Interest expense (1,227 ) (1,493 ) Interest income 848 949 Other   767         702   Total other income   388         158   Income before taxes on income (tax benefits) 3,643 (3,644 ) Taxes on income (tax benefits)   1,074         (710 ) Income before minority interests and equity in losses of affiliated companies 2,569 (2,934 ) Minority interests (156 ) (48 ) Equity in losses of affiliated companies   (383 )       (306 ) Income (loss) from continuing operations 2,030 (3,288 ) Loss from discontinued operations, net of tax   (87 )       (11,988 ) Net income (loss) $ 1,943       $ (15,276 )   Earnings (loss) per share: Basic: Income (loss) from continuing operations $ 0.07 $ (0.12 ) Loss from discontinued operations   (0.00 )       (0.44 ) Net income (loss) $ 0.07 $ (0.56 ) Diluted: Income from continuing operations $ 0.07 $ (0.12 ) Loss from discontinued operations   (0.00 )       (0.44 ) Net income (loss) $ 0.07 $ (0.56 )   Weighted average number of shares: Basic 27,470,623 27,254,380 Diluted 27,933,969 27,254,380   INSITUFORM TECHNOLOGIES, INC. SEGMENT DATA (Unaudited) (In thousands, except per share amounts)     Three Months Ended March 31, 2008     2007     Revenues: Rehabilitation $ 110,075 $ 103,321 Tite Liner   15,852         11,661   Total revenues $ 125,927       $ 114,982     Gross profit: Rehabilitation $ 21,652 $ 15,417 Tite Liner   5,234         4,966   Total gross profit $ 26,886       $ 20,383     Operating income (loss): Rehabilitation $ (130 ) $ (7,095 ) Tite Liner   3,385         3,293   Total operating income (loss) $ 3,255       $ (3,802 )   INSITUFORM TECHNOLOGIES, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (In thousands)     March 31, 2008     December 31, 2007     Assets Current assets Cash and cash equivalents $ 88,783 $ 78,961 Restricted cash 2,781 2,487 Receivables, net 90,638 85,774 Retainage 22,425 23,444 Costs and estimated earnings in excess of billings 37,639 40,590 Inventories 17,849 17,789 Prepaid expenses and other assets 28,991 28,975 Current assets of discontinued operations   23,130       31,269 Total current assets   312,236       309,289 Property, plant and equipment, less accumulated depreciation   72,813       73,368 Other assets Goodwill 122,566 122,560 Other assets   26,284       26,532 Total other assets 148,850 149,092 Non-current assets of discontinued operations   9,287       9,391   Total Assets $ 543,186     $ 541,140   Liabilities and Stockholders’ Equity Current liabilities Current maturities of long-term debt and line of credit $ 365 $ 1,097 Accounts payable and accrued expenses 91,630 87,935 Billings in excess of costs and estimated earnings 9,813 8,602 Current liabilities of discontinued operations   8,918       14,830 Total current liabilities 110,726 112,464 Long-term debt, less current maturities 65,000 65,000 Other liabilities 6,483 7,465 Non-current liabilities of discontinued operations   1,048       953 Total liabilities   183,257       185,882 Minority interests   2,895       2,717   Stockholders’ equity Preferred stock, undesignated, $.10 par – shares authorized 2,000,000; none outstanding – – Common stock, $.01 par – shares authorized 60,000,000; shares issued and outstanding 27,470,623 275 275 Additional paid-in capital 105,223 104,332 Retained earnings 240,919 238,976 Accumulated other comprehensive income   10,617       8,958 Total stockholders’ equity 357,034 352,541   Total Liabilities and Stockholders’ Equity $ 543,186     $ 541,140   INSITUFORM TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)     For the Three Months Ended March 31, 2008     2007     Cash flows from operating activities: Net income (loss) $ 1,943 $ (15,276 ) Loss from discontinued operations   (87 )       (11,988 ) Income (loss) from continuing operations 2,030 (3,288 ) Adjustments to reconcile to net cash provided by (used in) operating activities: Depreciation and amortization 3,968 4,152 Gain on sale of fixed assets (1,118 ) (471 ) Equity-based compensation expense 901 1,664 Deferred income taxes (2,021 ) (2,280 ) Other (300 ) (282 ) Changes in operating assets and liabilities: Restricted cash (294 ) (354 ) Receivables net, retainage and costs and estimated earnings in excess of billings 2,228 7,224 Inventories 1 (391 ) Prepaid expenses and other assets (1,496 ) 710 Accounts payable and accrued expenses   4,281         (10,358 ) Net cash provided by (used in) operating activities of continuing operations 8,180 (3,674 ) Net cash provided by operating activities of discontinued operations   3         244   Net cash provided by (used in) operating activities   8,183         (3,430 )   Cash flows from investing activities: Capital expenditures (3,151 ) (4,199 ) Proceeds from sale of fixed assets   644         78   Net cash used in investing activities of continuing operations (2,507 ) (4,121 ) Net cash used in investing activities of discontinued operations   (5 )       (246 ) Net cash used in investing activities   (2,512 )       (4,367 )   Cash flows from financing activities: Proceeds from issuance of common stock – 637 Additional tax benefit from stock option exercises recorded in additional paid-in capital – 45 Principal payments on notes payable (732 ) (727 ) Principal payments on long-term debt – (15,713 ) Proceeds from lines of credit   –         5,000   Net cash used in financing activities   (732 )       (10,758 ) Effect of exchange rate changes on cash   4,883         1,838   Net increase (decrease) in cash and cash equivalents for the period 9,822 (16,717 ) Cash and cash equivalents, beginning of year   78,961         96,393   Cash and cash equivalents, end of period $ 88,783       $ 79,676