bwx technologies, inc. (bwxt) ceo rex geveden on q3 2018 results - earnings call transcript
BWX Technology Co. , Ltd. (NYSE:BWXT)
Third quarter 2018 earnings call at 9: 00 a. m. on November 7, 2018
Vice President and Chief Investor Relations Officer, Geveden
President and CEO David Black-
Senior Vice President and CFOAnalystsPete Skibitski-
GlobalRob spiega, a still-
Bob Rawick
CJS Securities
SunTrustKristine Liwag-
Ibuprofen Suspension Drops Bank of America
Ladies and gentlemen, thank you for your support and welcome to BWX Technologies, Inc.
Third Quarter Earnings Call
At this time, all the participants were listening. only mode.
After the company is ready to speak, we will ask questions. and-
The answer link and instructions will be held at that time.
Please note that this tooling activity is being recorded.
I want to transfer the phone to our host now, sir.
Alan Nethery, vice president and chief investor relations officer, Alan xt.
Please continue.
Thank you, Nicole. Good morning.
Thank you for joining us in discussing the 2018 third quarter results we reported on Tuesday afternoon.
A copy of our press release and investor briefing, including details related to today\'s discussion, can be found in the investor section of the bwxt website. com.
With me this morning is Rex Geveden, President and CEO;
David Black, senior vice president and chief financial officer.
Please, as always, understand that certain matters discussed at today\'s conference call are moving forward --
Statement under federal securities law. Forward-
Forward-looking statements involve risks and uncertainties, including the risks and uncertainties described in the safe harbor clause at the end of Tuesday\'s press release, and our recent 10-K and 10-Q filings.
These risks and uncertainties may result in significant differences in the actual results of the company and we are not obliged to update this information
Except as required by law.
At today\'s conference call, we will also provide
GAAP financial indicators, such as adjusted earnings per share, are in line with GAAP in the earnings release on Tuesday and in our investor briefing.
BWXT believes that
GAAP measures provide greater insight and transparency to the company\'s operational performance.
These measures help to facilitate the comparison of operational results to the prior period and help to understand the ongoing operations of the BWXT.
With this, I\'m transferring the phone to Rex now.
Thank you, Alan. Good morning, everyone.
Yesterday we reported earnings of $0 for the third quarter.
40 per share, revenue growth of 1. 5%.
Our results include incremental reserves for missile tube rework, resulting in $0.
Negative impact on the numbers we reported in the third quarter and $0.
23 years of negative impactto-date.
We see good growth in orders, mainly in nuclear business, resulting in a backlog of more than $3. 8 billion.
Let me briefly introduce the third quarter highlights of our three reporting sections.
In the nuclear operation, we got 6-
$0. 505 billion per year for dilution of highly enriched uranium.
As expected, this is the largest contract in the history of the nuclear fuel service business, creating an additional backlog design and providing visibility over the next decade.
We also continue negotiations on the next multi-year pricing agreement, which is scheduled to be completed by 2019.
Based on discussions with customers and scenario planning, we believe that the scope of accelerated work related to the procurement of two operators approved by Congress is more likely.
In the nuclear power group, we continue our trend.
Income is growing rapidly and profits are high.
We completed the acquisition of medical radioisotopes for $0. 213 billion, which included a future cash tax benefit of about $50 million.
In the first 100 days after the closure, we moved our employees to BWXT, transferred seven of the eight nuclear regulatory licenses, and integrated the financial system.
The most important thing is that we take advantage of the expertise of new employees for the moly-99 product line.
It is worth noting that we have completed all the above work without interrupting the ongoing business.
We included a summary of medical radioisotope transactions in our investor briefing.
The business generated about $8 million in revenue in the NPG sector in the third quarter, and we expect its revenue in the first year to be between $40 million and $50 million.
Intangible amortization will operate around $6 million a year, and we now expect a slight increase in business in the first design 12 months.
Finally, in terms of nuclear services, BWXT received a $0. 85 billion 30-month contract extension at Portsmouth gas diffusion plant, Pike County, Ohio, and obtained a multi-year commercial nuclear
We will continue to demonstrate our long-term capabilities.
Grow in the long term and see positive long-term trends in all aspects of our business. Year-to-
The total revenue of NOG and NPG increased by 6. 2%. Our year-to-
Increased daily earnings per share were $0.
Revenue growth and operational improvements, plus $0.
Preferential tax rate of 19.
These gains were offset by $0.
23 missile reserves and $0.
Interest costs and other investments including R & D.
We updated the 2018 guidelines to reflect the situation this yearto-
The latest results, including missile reserves, are now expected to be within $2 per share. 23 to $2.
Revenue is about $1. 8 billion.
During the investor analyst day on last October, we provided a long-term
Semester guidance for low double
In three to five years, the number of earnings per share increased in 2017.
We have been in 10 months.
Long-term guidance remains the same and has a positive appeal to all of our growth pillars and the line of sight of various organic growth initiatives.
We look forward to the next tooling multi-Colombian order.
Pricing agreement for one year plus potential benefits for two yearscarrier buy.
While this growth will take most of the decade, we still see positive signals of incremental growth in this market.
As we begin our long renovation cycle, our commercial nuclear energy business in Canada continues to grow strongly.
The increase in win rates and nuclear services has begun to improve the financial position in this area, including restructuring, and there are still a large number of outstanding opportunities.
Awarded a great deal of opportunities for liquid waste contracts in Savannah, management and operation in Savannah and Hanford and Omeprazole Enteric-Coated Capsules Ridge.
Our recent acquisition is a good start to the tech-
99 generator product line.
In addition, the company intends to take advantage of opportunities both organic and inorganic.
We have a good balance sheet.
There is enough capacity to support additional growth.
Before I transfer the call to David to discuss more financial details, let me provide you with an update on the missile tube.
At the beginning of the second quarter, we
The problems related to the inspection technology and quality of the missile tube volume well were identified.
We stopped production of specific welding and inspection activities and started to work with our customers to implement remedial measures.
At the end of the second quarter, when we started reviewing the scope and extent of the remedies required, we established an early Reserve.
Since then, we have identified several causal factors associated with this issue and have taken corrective measures to prevent recurrence.
A comprehensive re-inspection of all affected components has been basically completed and well repair has begun.
It is worth noting that none of the affected missile launch tubes were integrated into the submarine.
After completing a joint investigation with our customers, we determined that problems and rework work were more important than previously thought.
So we added $26.
The reserve for the third quarter is 7 million, which we estimate will provide reasonable contingency measures for the remaining uncertainties and costs to cover the expected maintenance costs.
We have evaluated the cause and extent of the conditional criticism and are satisfied that the issue is limited to specific types of welds on that product line.
The problem is characterized by sufficient understanding that it needs to be remedied.
Our customers rely on BWXT to provide high
We have to reliably operate high quality complex components in challenging environments and we will take all necessary steps to reinstall these missile tubesfor-
For the balance of the project, the service conditions and the normal delivery speed of the reconstruction.
Now, let me transfer the call to David to discuss the division results, guidance and other financial matters.
David Black. Thank you, Rex.
In the third quarter of 2018, the revenue of the Nuclear Operations Group was US $0. 319 billion, including the negative impact of US $40 million from the missile pipeline reserves, resulting in 1.
6% per cent less than in 2017. The year-over-
The increase in the Navy, nuclear fuel and low-hybrid operations partially offset the annual decline.
Operating income for the quarter was $45.
6 million, including $26.
$7 million in reserves for missile tube rework.
Third, reserves are not included
NOG\'s operating profit margin expanded by 120 basis points to 21 in the quarter.
7% compared Natural 20. 5% before-year period.
As Rex mentioned, part of the backlog has increased to more than $2.
9 billion is driven by a contract award of more than $0.
Uranium dilution 5 billion.
The revenue of the nuclear power group is $79.
The third quarter of 2018 was 2 million per cent, an increase of 15% per cent over 2017 due to increased fuel manufacturing and medical radioisotope acquisitions.
On an organic basis free of medical radioisotopes, revenue from the division increased by about 4%.
NPG operating income growth of 7. 6% to $9.
1 million compared to the previous year, this is due to the increase in fuel manufacturing and the acquisition of medical radioisotopes.
NPG backlog completed $0. 868 billion in the third quarter.
In the third quarter, the Nuclear Services Group contributed $6 in operating income.
5 million higher than the same period last year.
Compared with 2017, the company\'s capital expenditure rose 29% in the third quarter to $27 million.
Depreciation and amortization totaled $15 million in the third quarter, an increase of about 10% over the same period last year.
Today, we have already spent $60 million in capital, and although this may be a lighter aspect, we still expect to spend about $0. 15 billion this year.
At the end of the third quarter, the company\'s cash and short positions
The net fixed-term investment position for restricted cash is $68. 9 million.
In the third quarter, the cash flow generated by operating activities was generally $26 million, compared with $80.
7 million in the third quarter of 2017. Lower year-over-
Annual operating cash flow changes are driven by incremental pension funds of about $0. 118 billion.
In the absence of additional pension funding, operating cash flows increased by approximately 14% over the previous year.
At the end of the third quarter, the company\'s total debt was $0. 781 billion, including $0. 4 billion in senior notes, $0. 291 billion in fixed-term loans and $90 million in credit loans.
We still have $68 million L/C under our credit loan, so the remaining $0. 342 billion is available.
As noted in the documents of the previous quarter, we completed the purchase of an annuity contract that transferred approximately $0. 244 billion in pension obligations.
The total amount of our money pension contributions for the third quarter is $0. 128 billion, which includes any two-year and voluntary contributions of $0. 118 billion in support of the pre-funding.
In addition to maximizing a favourable corporate tax rate environment, we expect this incremental cash contribution to suspend any substantial mandatory pension funding requirements in our domestic eligible plans for the next four years.
At the end of the third quarter, the total pension was 93% and the liability was about $1. 2 billion.
In the third quarter, we also returned $79 million in cash to shareholders, including a $63 million share repurchase and a $16 million dividend.
On November 6, our board announced a cash dividend of $0.
16 shares of common stock per share payable in the fourth quarter of 2018 also approved a new $0. 25 billion share repurchase authorization.
This resulted in a total of $0. 337 billion in outstanding share repurchase authorizations.
As Rex mentioned, with respect to the guidance, we have updated the guidance for 2018, which is not expected now
EPS is in the range of $2. 23 to $2.
Revenue is about $1. 8 billion.
Our guidelines take into account missile tube reserves, and the acquisition of medical radioisotopes increases Interest expenseto-
Date of the show.
At NOG, we now expect revenue of about $1.
3 billion, the expected profit of High teenagers, including CAS pension reimbursement and missile Management reserves.
At NPG, we now expect revenue of about $0. 37 billion, including the acquisition of medical radioisotopes.
Profit margins are expected to be higher than typical this year, at about 14%, mainly due to a surge in Ontario\'s power outage services related to commercial nuclear power.
The acquisition is expected to contribute to revenue for 2018, but is largely offset by amortization of transactions.
But as Rex said, it grew slightly in the first year.
In addition to the fact that we expect the effective tax rate for this year to be between 22% and 23%, all other components of the 2018 guidance remain unchanged.
We will provide more formal 2019 guidance on the fourth quarter call, but as we approach the beginning of the year, let me give you some color of the moving parts.
We saw 2019 growth in the medium term. single digits.
At NOG, we expect an increase in the first Colombian order.
Since the execution time of the nuclear core is 6 to 8 years, we will basically transfer from an average of about 15 cores to about 16.
In NPG, we should see an increase in the acquisition of medical radioisotopes, and with the power outage expected to be less than 2018, the power business will experience periodic fluctuations in on-site services.
We also look forward to the low double
In the revised 2018-kilometer guide, including missile tube reserves, EPS has increased in number. From a non-
From an operational point of view, we will face the EPS headwinds from the continuous interest rate pressure in the first half of this year, as well as the non-
Due to the purchase of an annuity to transfer the pension obligation, the cash EPS hinders the lower pension income.
The 2019 effective tax rate is expected to be very much in line with 2018, we see an increase in total capital expenditure of the company, a sustained increase in Navy growth expenditure, and an increase in our tech capital
With the construction of our facilities, 99 m commercial product line.
With this, I will return the phone to Rex and ask him to make some concluding remarks.
Thank you, David.
We are still excited about entering the medical radioisotope market.
After the acquisition, we have a more detailed understanding of the facility modifications required to support moly-99 Mo-99 product line.
Through ongoing discussions with Ontario Power Generation, our irradiation service provider, we have improved the timeline for providing reactor tools.
A few weeks ago, we had a formal type C meeting with the FDA and verified our planning assumptions and regulatory pathways for tech generators.
Based on all of the above, our revised baseline schedule will launch the product in 2021.
Let me briefly introduce our milestones and the changes that have taken place in the past few months.
There are three main components of our way forward;
1. Support the reactor access equipment for irradiation;
Second, manufacturing product line;
The third is the regulatory process.
For reactor access equipment, we are making some necessary modifications to the tool design.
We intend to complete the design work by the spring of 2019 and make the equipment by the fall of next year.
Prior to the CNSC approval, we will install the equipment during the first quarter 2020 downtime.
In completing the manufacturing of medical radioisotope collection, the improvement of the design concept is realized for radio chemical and radio pharmaceutical production lines.
Our future milestones require final equipment design in the summer of 2019, facility renovation at the end of next year, and final installation in the spring of 2020.
Finally, in terms of regulation, we are satisfied with our interaction with the FDA.
We hope to shine-
99 reference batches in the summer of 2020, FDA is expected to approve our tech-
99 generators supported revenue for the first quarter of 2021.
We will continue to look forward to the entire business
Our strong backlog, the introduction of new technologies and the exceptional competitive positioning support long-term growth in all areas. In the near-
In the long run, we remain focused on leveraging nuclear for growth and access to the medical Radioisotope Market, pursuing promising opportunities and commercial nuclear power and nuclear technology service Space in Canada, at the same time lay the foundation for new opportunities for space nuclear power and propulsion, nuclear material processing and small modular reactors.
With this, I would like to start a discussion on the issue. Operator? Question-and-
[Answer]
Operation instructions]
Our first question comes from Peter skisbiki at Alembic Global.
Please continue.
If I\'m not mistaken, Pete skitzkirex, do you say the problem with the tube is $0?
This quarter was $21 and $0.
02 in the fourth quarter? Is it -
Did I hear it wrong?
Rex GevedenIt is $0.
This quarter was $21, $0.
Including our reserves in the second quarter.
David blacklet. The $0.
Pete, 02 is the last quarter.
Pete skitsky, are you going to book it for zero profit in the future? David BlackYes.
Pete skisbiki, but you will still be more for the next one.
I think this year will be rewarded in 2019.
Is it accurate?
Rex gevedel, the original award schedule was presented on 2019. That\'s correct.
Pete skitzki, are you still running for this?
We are Rex GevedenWe.
Pete skisbiki is just trying to finish the test tube.
Rex, can you talk about what\'s wrong with the well?
Well, is this a Training question, a material question or something?
Can you tell us how you guys describe this completely?
Rex gwynso, there are two factors that are happening.
One is our testing technology, and the other is ultrasonic testing technology.
This is inappropriate.
So in terms of welding, we are missing some of the rejected welding instructions.
These are to give you a little context, a very large volume well.
Think about them, the biggest, is about 100-
Inches long, a bit like a cross
The size of a playing card.
Therefore, there are many welding materials, hundreds of welds and many Weld layers.
So, first of all, they are complex and challenging welds.
Generally speaking, you will encounter some process problems on welds of this size.
Unfortunately, we missed a lot due to our inspection techniques. And then -
This is part of it.
The other part is that our welding technology is not enough for those large-volume welds.
As a result, we have changed the eligibility criteria and enhanced training standards in this regard.
So, we screened our welders in a very different way.
We are screening our inspectors in a very different way.
So, we feel we are right on this issue.
Nevertheless, these wells are indeed challenging, very large in size and difficult to mine.
Give me the last one Pete skisbiki and I\'ll be in line to go back.
Should we look forward to your capital deployment?
Given the new authorization, is it starting to become more active in repo from here?
Rex gwynso, Pete, we are very specific about this.
What I\'m trying to say is that what we\'re talking about is that every year we clean up the dilution with our share repurchase authorization and that doesn\'t change.
We may eliminate this dilution in the first quarter of this year.
But we do want this tool to be available because we do have the ability to balance sheets, and this option should be available when we consider how to deploy capital in the next two or three years.
If we see a very interesting opportunity, an opportunistic situation in which we buy back some of our shares, if we think we can create significant value for our shareholders, we will definitely do so.
The next question comes from Rob Spingarn of Credit Suisse.
Please continue.
Rob SpingarnI knows that you have completed the transaction and would like to ask if you can tell us more clearly how you are moving from your existing business to your future business or let us know in more detail.
You talked about 2021, but I want to talk about a few of us. hundred-million-
For the business that is doing, the annual market of the dollar
The existing business you acquired is clearly only a small part of it.
As the new product line goes live, how should we see revenue flowing over time?
Rex gevedel, the first thing, there are about five existing lines of business, and none of the businesses we acquired are moly-
99, is the largest amount of radioactive isotope products in the world.
But there are a lot of interesting product lines there, including therasoft and strondeau and a few other things.
By the way, in the next year or two, there will be a few new product lines that will be organically launched.
What we have to do is build the moly tech product line into that product line using existing facilities, modify the thermal battery in radio chemistry to some extent, and then provide a new conventional medicine for the generator itself.
We believe that we will have the opportunity to capture a large part of the North American market from moly-99.
So you can expect, from an income point of view, that as we get from the moly-99.
It\'s fair to think that the existing business is growing at a rate of $50 million per year, because you said they have brought in some new business online products, from now until the end of 2020 or 2021, that\'s how it looks, and then when moly-
99 start shift?
David Black, you have painted it perfectly.
We have already said that this is a $40 million to $50 million business in the next 12 months.
We see increasing demand signals for the two main product lines, for example, these new products will appear on oxoxine, when we acquire the business, A generic infection label drug is entering an ongoing portfolio of products, followed by another iodine isotope.
So yes, you will see a very important step change when moly shows up.
This is obviously the acquisition paper.
First of all, we like the market for radioisotopes, but of course we are interested in being able to surround Morley-
Line 99, this is a favorable acquisition of this.
Rob SpingarnAnd, can you remind us how you see the overall market size of the molybdenum market you are entering? 99?
Rex gwynso of Morley
99, according to your views on spot prices, product availability, etc. , there are various views on the future size of the market.
As we have said, we believe that Moley\'s global market
99 is about 0. 4 billion, and the North American market is about 0. 16 billion.
The market is estimated to be worth billions of dollars.
We are a bit conservative in our opinion.
But, think about it, we attack the North American market first, so think it\'s a fully accessible market, and for us, the potential market for this single product line is about 0. 16 billion.
Rob spingarn, then switch the gears slightly to your middle position
Single digit growth or color next year.
What is the business line behind this?
What do we think about this?
Because I think it has something to do with what the street might think.
Rex GevedenThink believes this is mainly driven by the Nuclear Operations Group.
We got some additional quantities from Colombian orders that will come along with the new pricing agreement that we are negotiating with our customers at the Naval Reactor.
The nuclear power group will benefit from the revenue and radioisotope business acquired, but there are some negative cyclical aspects of the service business. That one has -
The service business depends on disruption, and the it cycle is about a million plus or minus per year-ish.
In this way, the service business will have negative growth next year. So we can see the nuclear power group as a neutral income situation.
And then, nuclear services group, we don\'t think it\'s an income-
Because we usually integrate the operating income of the joint venture, we can create business.
However, the business was first developed from the Technical Services Department and then from the advanced technology group.
Some new income.
Generate business from it.
So, you can think of it like that, led by the growth of the nuclear business.
Rob SpingarnAnd, thank you for the last thing on the numbers.
This may be David\'s, but in addition to operating FAS/CAS and welding rework costs, NOG profit for the quarter, can you tell us what this is?
David BlackI means there is no profit on 21 missile reserves.
7% as we said there.
So, again, FAS/CAS is 200 to 300 basis points for internal reimbursement.
Rob SpingarnIn, operations?
The operation part is still David BlackIn, yes.
Rob spinglass Kay.
Then, do you have any information on trends in how CAS and/or Arisa contributions should evolve over the next few years?
Obviously, this is the pension model.
David blackso, I mean, in our last actuarial calculation, we felt that we still had FAS/CAS differences in our numbers for the next three years, and after that, we fell by half and disappeared.
So it will disappear in five years, but it will start to change in three years.
So we will update all of you when we get the next actuarial calculation.
We also say some of the downsides for next year, because it is clear that getting rid of a $0. 244 billion pension means that we are getting rid of assets and assets that pension income or pension income will also disappear.
So there are some downsides here, but I think it\'s important to get out of debt and volatility.
The next question is Bob Labick from CJS Securities.
Please continue.
Bob LabickThanks released the original look and color in 2019.
Just curious, is this below your original expectations?
It\'s obviously a little lower than the street.
So wonder if it\'s lower than yours?
If so, what changes compared to your expectations?
Is that pipe related?
Is it related to a power outage or will it cause a difference?
Then, in general, in order to return to the low double digits of three to five years, what kind of growth rate should we expect?
Bob, Rex GevedenI does not see this as inconsistent with our internal planning.
In these three to five years of strategic baseline, our growth in naval demand is in line with what we see now.
I don\'t think we\'re going to suddenly go from three quarters a year to four quarters a year, anything like that.
As we have described on the phone, as David has described, over time, revenue has grown slowly and layer by layer.
Finally let you understand, let\'s call it a 20% volume increase.
So that\'s the way we expect it.
Canada\'s growth story is evolving as we think.
The story of medical radioisotopes, we
Of course, after a year\'s delay in the product introduction there today, we talked more, but that doesn\'t affect 2019 at all, because we didn\'t expect much about it in 2019.
So no, I think this and our long term
Strategic Plan.
We will definitely step up on the back end of those three to five.
The year to that low. double digit.
But from what we think internally, it looks like it can be implemented.
David Black asked me to add that when you talk about three to five --year, low-double-
The digital growth of earnings per share, so it won\'t-
Revenue growth will not imitate this.
So that\'s why we\'re driving EPS growth, because that\'s where the commitment is.
Bob LabickAnd, so, can you remind us of your target leverage level and future between 2019 and what is going on beyond the expected level of capital expenditure? Does the new repo authorization indicate that you are
Our leverage ratio-
We came out of spin and said we were comfortable.
The customer was comfortable twice.
Since then, we have said that we are satisfied with the above.
We felt we could stop trading quickly with the cash generated.
So if this is for the right thing, and in return for shareholders, we will do the right thing and then we should be able to postpone it very quickly.
So as far as capital is concerned, we are at about 150 of the capital year at the moment, and we think that may continue in 2019.
Then, after that, we will start looking for capital.
We still have capital growth that needs to be done by the Navy, and we have achieved the facilitization we want in the isotope business.
But when all this is over, cash spending will fall again.
The next question comes from David Strauss of Barclays.
Please continue.
The unidentified analyst is actually David\'s Matt.
I think I can get back to the missile launch tube soon.
I guess how long do you think it will take to get back to the schedule.
At this point, is your client delayed, or is there any risk to work out the overall sub-construction schedule, or are you ahead of time enough that they are not subject
We-Rex gwynso.
Our plan is to ask for all repairs to be completed next year.
Call it in the middle of next year.
As far as any delay is concerned, I think the Navy can speak on this schedule, but it has been publicly stated that the United States, ColombiaS.
The missile will not affect the vessel.
I think there\'s another one for your overall idea of last night\'s election.
I mean, I think some of the talk on the Democratic side of the house, probably just to cut the budget, it seems that your project is almost unsafe and not completely in danger, but just, how do you see the kind of favorable situation that you have talked about in the past, probably the third Virginia-level or faster carrier, what is the latest news you hear in these scenarios? Rex GevedenYes.
I think we\'ll see how Congress does it.
I would say that we have said from the very beginning that even before the presidential election, the bipartisan support for Colombia was good and that Colombia was the top acquisition program for the Navy, we also saw the idea of buying Virginia permanently.
We have seen this in the last few years here.
This is what we have built in the strategic baseline, around these advantageous scenarios of accelerating carrier procurement, or around the number of 13 Virginia and blocks approved by the authority, we have never included it in our
So I think our strategic baseline, two Virginia people per year, plus the normal pace of Columbia and Ford, is a great sustainable way to think about the future
In these product lines
I do believe that with the change in the polarity of the house, it is unlikely that some of the rise will happen.
I think the unidentified analyst is just another way to turn to service, and I think your guidance means a very good Q4.
Is there anything to step up there?
What has just been given to you is that you have also won some contracts there this year, what is the prospect that EBIT can develop from here?
If you can give us the latest news about Savannah, what is the latest news there?
In the service industry, we see many different elements of performance improvement.
One is live performance, which we perform for DOE and our joint venture limited liability company.
We have seen good charging performance on all of these sites.
We see very good utilization rates for our staff.
We have the ability-
Thanks to the way we deploy people, we have been able to better absorb G & A and overhead accounts.
Besides, we have some income.
As I mentioned, the growth that emerged in the advanced technology group related to early answers.
This is helpful for all of this.
It pushes more things to the bottom line, provides better absorption, and actually, it gives us a bit of a top line.
And then, besides that, we see that in a small part of doing the US business, we see some rise. S. -
Nuclear reactor repair base.
We have or we have obtained a very important contract in the third quarter, which will greatly help the business, so all parts of the business are now working together.
We have not given the color of the business in 2019.
But definitely on the rise.
So it will drive our profit growth next year.
The next question comes from Michael Ciarmoli from SunTrust.
Please continue.
Michael CiarmoliJust is likely to be the first, $1 nuclear action guide this year.
3 billion, I think I recalled last quarter that we will get some strength in the second half on the mix of Columbia and down.
Compared with the first half of 2018, the second half looks quite flat.
Is this all the pressure from the missile tube, or is something else sliding 2019 to the right?
There is some pressure on Rex GevedenThere and I would like to say that most of the pressure is related to the missile tube.
There is a little time risk in the fourth quarter, which we have stated in our guidance here, and a little time risk associated with the next pricing agreement negotiation.
When we arrive at a term table to influence, we take the assumption that we think about income and interest rates and, therefore, operating income.
These are the two factors.
And then, just next year, for clarity, I think core organic MPG revenue could fall.
This was offset by the $40 million Nordion.
I mean, if the service is bland, maybe NOG, we should consider it in the range of 4% to 7% growth.
Is my calibration correct?
That\'s what I think. That\'s right.
Michael CiarmoliAnd, then, for me, the last one, Rex, is just about the medical isotope, I mean, just in the last quarter, we were thinking about 2019.
I see on the slide that you have left there and you have-I guess you have had an FDA meeting, but I think nodion should help to speed this up.
I mean, between the last quarter and this quarter, is there any substantial change to push the timeline?
Rex gwydney believesyes, Michael.
So, I think there\'s-
First, we are-
Yes, this is a positive timeline, which we have always acknowledged.
But, I think, there are many uncertainties in the schedule, in-
Through this period of development.
In the last quarter, we basically solved the uncertainty of all these timelines.
One of the problems is related to the reactor insertion tool.
This is the equipment we installed at the Darlington reactor site that belongs to Ontario Power Generation.
There is some uncertainty about the regulatory time frame, and there is some uncertainty about what design methods we have to use.
In the end, we had to change our basic design approach, which took us months.
We have also reached a mature point of negotiation with regulatory care, and have a more detailed understanding of what to check and regulatory approval requirements for its reactors.
Then, the last thing is that we make some assumptions and make positive assumptions about the changes that are needed by the Nordion side itself. The acquired business is to implement these two components of the production line, one is called the radiochemical side and the other is called the radio pharmaceutical side.
We really don\'t know what we\'re going to do there.
We made some assumptions about this because we didn\'t have much opportunity during the acquisition.
Now that we have the business and can work out detailed timelines from the bottom up, we have a clearer understanding of what this is.
We certainly didn\'t have that view a quarter or two ago.
So, what we do, I think, is, frankly, we have largely eliminated the uncertainty in the schedule and have some room, frankly, there is some room for some mistakes here, because that person has a certain amount of reserves and is more confident in being able to do so. . .
Just wanted to clarify.
I mean, when we talk about acquisitions, we say the acquisition will not accelerate, but it will reduce the risk and help us reduce the risk.
So I think when we talked more about it last quarter, we said that the technical risk is almost out of the table, but the time risk will be-
Still on the table, this is a positive schedule.
Michael ciarmollet, I just-
Maybe this is the last one.
I mean, is this related to competition?
I mean, are you now behind competitors in this market?
There\'s a change if you go-to-
I know they \'ve been actively discussing market strategies, but what\'s the point of view on the dynamics of competition given the downside?
Rex GevedenI believes this has no effect on us.
We have always been very clear about our market channels.
This is absolutely the same.
We have a very clear view of how many markets we can get, which is the same.
I don\'t believe the competitive environment will change at all.
The next question comes from Ronald Epstein of the Bank of Ibuprofen Suspension Drops, the United States.
Please continue.
This is Christine Liwag. He\'s looking for Ron.
Rex, we \'ve seen that when some companies expand into different markets, they end up looking away from the core business.
Remember the cost of the missile tube and your expansion in the Canadian civilian nuclear and medical radioisotope market, what are you doing to make sure you don\'t look away from your USS.
In particular, we are at the forefront of the nation\'s largest naval cause. S.
Navy procurement since the Reagan administration?
Rex GevedenWell, so we will never look away from the business.
If this business still exists, even this year, it will bring us 80% of our revenue, about
A small part of operating income.
So, this is the star I work on every day.
I have been involved in a lot of substantive work on capital upgrades and missile management issues.
Not only are we from the street, but also from our board of directors, and of course from our entire management team, we have a high profile for the business.
I would say that our focus on this has not changed.
But I also want to say that when we have such a business, it is stable, there is a clear backlog and cash generation capacity, which is our unshirkable responsibility as an executive team, also come up with ways to develop your business.
So, in Canada, moving towards redoubling efforts towards diversifying medical radioisotopes into markets and businesses that fit the core BWXT is the right thing we should do.
But that doesn\'t mean we lack focus on our core business.
This is the gym for our portfolio, we know.
Kristine LiwagAnd can you provide background information about your missile tube business? S. Navy?
Are these businesses separate?
Did they mix up?
Can you give us an idea on whether there will be some spills on operational risk?
First of all, in order to give it some financial features, the missile management business accounts for about 3% of the total revenue of our nuclear business.
So, it\'s actually a small part of the business.
It\'s an interesting growth business for us because of its nature, but for us at the moment it\'s a small source of revenue.
This has to do with the naval reactor business, just because these components are ultimately on nuclear submarines, but in a sense our customers are different customers here, which is not relevant.
Our client is a general purpose power electric boat and then eventually NAVC, while our client on the other side is a naval reactor.
So, the different customer series and any overflow I said in the script, we have done a lot of conditions, a wide range of reasons for criticism, we can be sure, this product is the problem limited to this product line, in fact, it is limited to this particular type of welding on this particular product line.
Therefore, we are very confident that other projects or content of the Naval Reactor part of the business will not be subject to spillover effects.
Kristine LiwagAnd switches the device to medical radioisotopes, and as you meet with the FDA, you can provide more about the most important obstacle to delaying the schedule to your first expected income is
Rex GevedenI will say we-
We always wanted to introduce moly-
99 Pharma, 99 radio Pharma is a generic drug in the market and we believe that if we meet the existing product specifications and deliver basically the same drug to the market, we can avoid humans in a longer regulatory process.
In the FDA\'s way, you won\'t get an assertion in writing about the regulatory path, but, we do get confirmation of our belief, we can handle it as a generic approach and expect a faster approval schedule.
We\'re going to see what\'s going on and the FDA will have to take action on that.
But our meeting with them three weeks ago did verify our planning assumptions.
The next question comes from Josh Sullivan, who is around the harbor.
Please continue.
Josh SullivanJust is just a follower.
At the isotope.
So, what is the 2021 schedule?
Can you please talk about any contract, modification with existing client? Then, maybe you can tell us what your current customer base looks like in any form?
Obviously, what you\'re talking about is the existing portfolio and the acquired business?
Josh SullivanSorry. On the TC-
99 extended the schedule by 2021 with existing customers, if there is any modification, if you have any contract, we do not disclose any information about the supply agreement or any such agreement, so I would like to say that there is no comment on this.
The next question comes from Peter skisbiki at Alembic Global.
Please continue.
Peter\'s BIS Keaups guys.
David, I think, we have a feeling about the multiple of your income you paid for nodionne.
Can you give us a feeling of EBITDA multiples?
David Black means, about 13 years old, but, I mean, we have provided the data in Q.
It\'s about 13 years old.
Then on the expected cash flow for the fourth quarter, if you consider the full year, if we exclude the pension contributions for this quarter, do you think our free cash Net income conversion for the whole year will be close to 1 times?
David Black means there is not much damage.
I mean, obviously we \'ve put the pension into the pension and we\'re going to put it into the pension.
In this case, the fourth quarter is usually the best quarter for our cash.
So, other than that, there was no speculation, but, I think, it would be a good quarter for cash.
Pete skibyl asked me to buy one for Rex.
Does Rex, NASA or DARPA/DOD have any updates on space reactors?
Me too-
I saw something about NASA this quarter.
I think it\'s called Kilopower or KRUSTY, a small reactor.
I\'m just wondering what impact this has on you, if it could be a competitor to your design?
Rex gevedel, who works with NASA, continues to make good progress in nuclear thermal propulsion.
We have been making some fuel samples and have successfully tested them.
What I want to say is that NASA and DARPA are very interested in space reactors.
By the way, we have also seen the Army\'s interest in small reactors, micro reactors on land.
We are very optimistic about the whole market.
KRUSTY is a small power reactor from 1 to 10 KW.
So it is able to do something, for example, if you want to transfer from a radioisotope thermal generator to a fission reactor, it can power the spacecraft.
So, I don\'t think it will be competitive with our interest in nuclear thermal propulsion.
You\'re talking about 500.
Megawatt-class thermal reactors and things like this, as well as surface power generation, may be much higher than the 10 KW said.
KRUSTY is a fun and capable little reactor, but not, competing with our wishes.
We are very, very interested and excited about the potential of small reactors for military and space applications. I would say.
This is the end of our problem. and-answer session.
I want to hand over the meeting back to Sir.
Alan NIRI of any closing word.
Thank you, Nicole, for joining us this morning.
This is the end of our conference call.
A replay of this call will be posted on our website later today.
It will be available for a limited period of time.
Please call me 980 if you have further questions-365-4300. Thank you.
The meeting is now over.
Thank you
Third quarter 2018 earnings call at 9: 00 a. m. on November 7, 2018
Vice President and Chief Investor Relations Officer, Geveden
President and CEO David Black-
Senior Vice President and CFOAnalystsPete Skibitski-
GlobalRob spiega, a still-
Bob Rawick
CJS Securities
SunTrustKristine Liwag-
Ibuprofen Suspension Drops Bank of America
Ladies and gentlemen, thank you for your support and welcome to BWX Technologies, Inc.
Third Quarter Earnings Call
At this time, all the participants were listening. only mode.
After the company is ready to speak, we will ask questions. and-
The answer link and instructions will be held at that time.
Please note that this tooling activity is being recorded.
I want to transfer the phone to our host now, sir.
Alan Nethery, vice president and chief investor relations officer, Alan xt.
Please continue.
Thank you, Nicole. Good morning.
Thank you for joining us in discussing the 2018 third quarter results we reported on Tuesday afternoon.
A copy of our press release and investor briefing, including details related to today\'s discussion, can be found in the investor section of the bwxt website. com.
With me this morning is Rex Geveden, President and CEO;
David Black, senior vice president and chief financial officer.
Please, as always, understand that certain matters discussed at today\'s conference call are moving forward --
Statement under federal securities law. Forward-
Forward-looking statements involve risks and uncertainties, including the risks and uncertainties described in the safe harbor clause at the end of Tuesday\'s press release, and our recent 10-K and 10-Q filings.
These risks and uncertainties may result in significant differences in the actual results of the company and we are not obliged to update this information
Except as required by law.
At today\'s conference call, we will also provide
GAAP financial indicators, such as adjusted earnings per share, are in line with GAAP in the earnings release on Tuesday and in our investor briefing.
BWXT believes that
GAAP measures provide greater insight and transparency to the company\'s operational performance.
These measures help to facilitate the comparison of operational results to the prior period and help to understand the ongoing operations of the BWXT.
With this, I\'m transferring the phone to Rex now.
Thank you, Alan. Good morning, everyone.
Yesterday we reported earnings of $0 for the third quarter.
40 per share, revenue growth of 1. 5%.
Our results include incremental reserves for missile tube rework, resulting in $0.
Negative impact on the numbers we reported in the third quarter and $0.
23 years of negative impactto-date.
We see good growth in orders, mainly in nuclear business, resulting in a backlog of more than $3. 8 billion.
Let me briefly introduce the third quarter highlights of our three reporting sections.
In the nuclear operation, we got 6-
$0. 505 billion per year for dilution of highly enriched uranium.
As expected, this is the largest contract in the history of the nuclear fuel service business, creating an additional backlog design and providing visibility over the next decade.
We also continue negotiations on the next multi-year pricing agreement, which is scheduled to be completed by 2019.
Based on discussions with customers and scenario planning, we believe that the scope of accelerated work related to the procurement of two operators approved by Congress is more likely.
In the nuclear power group, we continue our trend.
Income is growing rapidly and profits are high.
We completed the acquisition of medical radioisotopes for $0. 213 billion, which included a future cash tax benefit of about $50 million.
In the first 100 days after the closure, we moved our employees to BWXT, transferred seven of the eight nuclear regulatory licenses, and integrated the financial system.
The most important thing is that we take advantage of the expertise of new employees for the moly-99 product line.
It is worth noting that we have completed all the above work without interrupting the ongoing business.
We included a summary of medical radioisotope transactions in our investor briefing.
The business generated about $8 million in revenue in the NPG sector in the third quarter, and we expect its revenue in the first year to be between $40 million and $50 million.
Intangible amortization will operate around $6 million a year, and we now expect a slight increase in business in the first design 12 months.
Finally, in terms of nuclear services, BWXT received a $0. 85 billion 30-month contract extension at Portsmouth gas diffusion plant, Pike County, Ohio, and obtained a multi-year commercial nuclear
We will continue to demonstrate our long-term capabilities.
Grow in the long term and see positive long-term trends in all aspects of our business. Year-to-
The total revenue of NOG and NPG increased by 6. 2%. Our year-to-
Increased daily earnings per share were $0.
Revenue growth and operational improvements, plus $0.
Preferential tax rate of 19.
These gains were offset by $0.
23 missile reserves and $0.
Interest costs and other investments including R & D.
We updated the 2018 guidelines to reflect the situation this yearto-
The latest results, including missile reserves, are now expected to be within $2 per share. 23 to $2.
Revenue is about $1. 8 billion.
During the investor analyst day on last October, we provided a long-term
Semester guidance for low double
In three to five years, the number of earnings per share increased in 2017.
We have been in 10 months.
Long-term guidance remains the same and has a positive appeal to all of our growth pillars and the line of sight of various organic growth initiatives.
We look forward to the next tooling multi-Colombian order.
Pricing agreement for one year plus potential benefits for two yearscarrier buy.
While this growth will take most of the decade, we still see positive signals of incremental growth in this market.
As we begin our long renovation cycle, our commercial nuclear energy business in Canada continues to grow strongly.
The increase in win rates and nuclear services has begun to improve the financial position in this area, including restructuring, and there are still a large number of outstanding opportunities.
Awarded a great deal of opportunities for liquid waste contracts in Savannah, management and operation in Savannah and Hanford and Omeprazole Enteric-Coated Capsules Ridge.
Our recent acquisition is a good start to the tech-
99 generator product line.
In addition, the company intends to take advantage of opportunities both organic and inorganic.
We have a good balance sheet.
There is enough capacity to support additional growth.
Before I transfer the call to David to discuss more financial details, let me provide you with an update on the missile tube.
At the beginning of the second quarter, we
The problems related to the inspection technology and quality of the missile tube volume well were identified.
We stopped production of specific welding and inspection activities and started to work with our customers to implement remedial measures.
At the end of the second quarter, when we started reviewing the scope and extent of the remedies required, we established an early Reserve.
Since then, we have identified several causal factors associated with this issue and have taken corrective measures to prevent recurrence.
A comprehensive re-inspection of all affected components has been basically completed and well repair has begun.
It is worth noting that none of the affected missile launch tubes were integrated into the submarine.
After completing a joint investigation with our customers, we determined that problems and rework work were more important than previously thought.
So we added $26.
The reserve for the third quarter is 7 million, which we estimate will provide reasonable contingency measures for the remaining uncertainties and costs to cover the expected maintenance costs.
We have evaluated the cause and extent of the conditional criticism and are satisfied that the issue is limited to specific types of welds on that product line.
The problem is characterized by sufficient understanding that it needs to be remedied.
Our customers rely on BWXT to provide high
We have to reliably operate high quality complex components in challenging environments and we will take all necessary steps to reinstall these missile tubesfor-
For the balance of the project, the service conditions and the normal delivery speed of the reconstruction.
Now, let me transfer the call to David to discuss the division results, guidance and other financial matters.
David Black. Thank you, Rex.
In the third quarter of 2018, the revenue of the Nuclear Operations Group was US $0. 319 billion, including the negative impact of US $40 million from the missile pipeline reserves, resulting in 1.
6% per cent less than in 2017. The year-over-
The increase in the Navy, nuclear fuel and low-hybrid operations partially offset the annual decline.
Operating income for the quarter was $45.
6 million, including $26.
$7 million in reserves for missile tube rework.
Third, reserves are not included
NOG\'s operating profit margin expanded by 120 basis points to 21 in the quarter.
7% compared Natural 20. 5% before-year period.
As Rex mentioned, part of the backlog has increased to more than $2.
9 billion is driven by a contract award of more than $0.
Uranium dilution 5 billion.
The revenue of the nuclear power group is $79.
The third quarter of 2018 was 2 million per cent, an increase of 15% per cent over 2017 due to increased fuel manufacturing and medical radioisotope acquisitions.
On an organic basis free of medical radioisotopes, revenue from the division increased by about 4%.
NPG operating income growth of 7. 6% to $9.
1 million compared to the previous year, this is due to the increase in fuel manufacturing and the acquisition of medical radioisotopes.
NPG backlog completed $0. 868 billion in the third quarter.
In the third quarter, the Nuclear Services Group contributed $6 in operating income.
5 million higher than the same period last year.
Compared with 2017, the company\'s capital expenditure rose 29% in the third quarter to $27 million.
Depreciation and amortization totaled $15 million in the third quarter, an increase of about 10% over the same period last year.
Today, we have already spent $60 million in capital, and although this may be a lighter aspect, we still expect to spend about $0. 15 billion this year.
At the end of the third quarter, the company\'s cash and short positions
The net fixed-term investment position for restricted cash is $68. 9 million.
In the third quarter, the cash flow generated by operating activities was generally $26 million, compared with $80.
7 million in the third quarter of 2017. Lower year-over-
Annual operating cash flow changes are driven by incremental pension funds of about $0. 118 billion.
In the absence of additional pension funding, operating cash flows increased by approximately 14% over the previous year.
At the end of the third quarter, the company\'s total debt was $0. 781 billion, including $0. 4 billion in senior notes, $0. 291 billion in fixed-term loans and $90 million in credit loans.
We still have $68 million L/C under our credit loan, so the remaining $0. 342 billion is available.
As noted in the documents of the previous quarter, we completed the purchase of an annuity contract that transferred approximately $0. 244 billion in pension obligations.
The total amount of our money pension contributions for the third quarter is $0. 128 billion, which includes any two-year and voluntary contributions of $0. 118 billion in support of the pre-funding.
In addition to maximizing a favourable corporate tax rate environment, we expect this incremental cash contribution to suspend any substantial mandatory pension funding requirements in our domestic eligible plans for the next four years.
At the end of the third quarter, the total pension was 93% and the liability was about $1. 2 billion.
In the third quarter, we also returned $79 million in cash to shareholders, including a $63 million share repurchase and a $16 million dividend.
On November 6, our board announced a cash dividend of $0.
16 shares of common stock per share payable in the fourth quarter of 2018 also approved a new $0. 25 billion share repurchase authorization.
This resulted in a total of $0. 337 billion in outstanding share repurchase authorizations.
As Rex mentioned, with respect to the guidance, we have updated the guidance for 2018, which is not expected now
EPS is in the range of $2. 23 to $2.
Revenue is about $1. 8 billion.
Our guidelines take into account missile tube reserves, and the acquisition of medical radioisotopes increases Interest expenseto-
Date of the show.
At NOG, we now expect revenue of about $1.
3 billion, the expected profit of High teenagers, including CAS pension reimbursement and missile Management reserves.
At NPG, we now expect revenue of about $0. 37 billion, including the acquisition of medical radioisotopes.
Profit margins are expected to be higher than typical this year, at about 14%, mainly due to a surge in Ontario\'s power outage services related to commercial nuclear power.
The acquisition is expected to contribute to revenue for 2018, but is largely offset by amortization of transactions.
But as Rex said, it grew slightly in the first year.
In addition to the fact that we expect the effective tax rate for this year to be between 22% and 23%, all other components of the 2018 guidance remain unchanged.
We will provide more formal 2019 guidance on the fourth quarter call, but as we approach the beginning of the year, let me give you some color of the moving parts.
We saw 2019 growth in the medium term. single digits.
At NOG, we expect an increase in the first Colombian order.
Since the execution time of the nuclear core is 6 to 8 years, we will basically transfer from an average of about 15 cores to about 16.
In NPG, we should see an increase in the acquisition of medical radioisotopes, and with the power outage expected to be less than 2018, the power business will experience periodic fluctuations in on-site services.
We also look forward to the low double
In the revised 2018-kilometer guide, including missile tube reserves, EPS has increased in number. From a non-
From an operational point of view, we will face the EPS headwinds from the continuous interest rate pressure in the first half of this year, as well as the non-
Due to the purchase of an annuity to transfer the pension obligation, the cash EPS hinders the lower pension income.
The 2019 effective tax rate is expected to be very much in line with 2018, we see an increase in total capital expenditure of the company, a sustained increase in Navy growth expenditure, and an increase in our tech capital
With the construction of our facilities, 99 m commercial product line.
With this, I will return the phone to Rex and ask him to make some concluding remarks.
Thank you, David.
We are still excited about entering the medical radioisotope market.
After the acquisition, we have a more detailed understanding of the facility modifications required to support moly-99 Mo-99 product line.
Through ongoing discussions with Ontario Power Generation, our irradiation service provider, we have improved the timeline for providing reactor tools.
A few weeks ago, we had a formal type C meeting with the FDA and verified our planning assumptions and regulatory pathways for tech generators.
Based on all of the above, our revised baseline schedule will launch the product in 2021.
Let me briefly introduce our milestones and the changes that have taken place in the past few months.
There are three main components of our way forward;
1. Support the reactor access equipment for irradiation;
Second, manufacturing product line;
The third is the regulatory process.
For reactor access equipment, we are making some necessary modifications to the tool design.
We intend to complete the design work by the spring of 2019 and make the equipment by the fall of next year.
Prior to the CNSC approval, we will install the equipment during the first quarter 2020 downtime.
In completing the manufacturing of medical radioisotope collection, the improvement of the design concept is realized for radio chemical and radio pharmaceutical production lines.
Our future milestones require final equipment design in the summer of 2019, facility renovation at the end of next year, and final installation in the spring of 2020.
Finally, in terms of regulation, we are satisfied with our interaction with the FDA.
We hope to shine-
99 reference batches in the summer of 2020, FDA is expected to approve our tech-
99 generators supported revenue for the first quarter of 2021.
We will continue to look forward to the entire business
Our strong backlog, the introduction of new technologies and the exceptional competitive positioning support long-term growth in all areas. In the near-
In the long run, we remain focused on leveraging nuclear for growth and access to the medical Radioisotope Market, pursuing promising opportunities and commercial nuclear power and nuclear technology service Space in Canada, at the same time lay the foundation for new opportunities for space nuclear power and propulsion, nuclear material processing and small modular reactors.
With this, I would like to start a discussion on the issue. Operator? Question-and-
[Answer]
Operation instructions]
Our first question comes from Peter skisbiki at Alembic Global.
Please continue.
If I\'m not mistaken, Pete skitzkirex, do you say the problem with the tube is $0?
This quarter was $21 and $0.
02 in the fourth quarter? Is it -
Did I hear it wrong?
Rex GevedenIt is $0.
This quarter was $21, $0.
Including our reserves in the second quarter.
David blacklet. The $0.
Pete, 02 is the last quarter.
Pete skitsky, are you going to book it for zero profit in the future? David BlackYes.
Pete skisbiki, but you will still be more for the next one.
I think this year will be rewarded in 2019.
Is it accurate?
Rex gevedel, the original award schedule was presented on 2019. That\'s correct.
Pete skitzki, are you still running for this?
We are Rex GevedenWe.
Pete skisbiki is just trying to finish the test tube.
Rex, can you talk about what\'s wrong with the well?
Well, is this a Training question, a material question or something?
Can you tell us how you guys describe this completely?
Rex gwynso, there are two factors that are happening.
One is our testing technology, and the other is ultrasonic testing technology.
This is inappropriate.
So in terms of welding, we are missing some of the rejected welding instructions.
These are to give you a little context, a very large volume well.
Think about them, the biggest, is about 100-
Inches long, a bit like a cross
The size of a playing card.
Therefore, there are many welding materials, hundreds of welds and many Weld layers.
So, first of all, they are complex and challenging welds.
Generally speaking, you will encounter some process problems on welds of this size.
Unfortunately, we missed a lot due to our inspection techniques. And then -
This is part of it.
The other part is that our welding technology is not enough for those large-volume welds.
As a result, we have changed the eligibility criteria and enhanced training standards in this regard.
So, we screened our welders in a very different way.
We are screening our inspectors in a very different way.
So, we feel we are right on this issue.
Nevertheless, these wells are indeed challenging, very large in size and difficult to mine.
Give me the last one Pete skisbiki and I\'ll be in line to go back.
Should we look forward to your capital deployment?
Given the new authorization, is it starting to become more active in repo from here?
Rex gwynso, Pete, we are very specific about this.
What I\'m trying to say is that what we\'re talking about is that every year we clean up the dilution with our share repurchase authorization and that doesn\'t change.
We may eliminate this dilution in the first quarter of this year.
But we do want this tool to be available because we do have the ability to balance sheets, and this option should be available when we consider how to deploy capital in the next two or three years.
If we see a very interesting opportunity, an opportunistic situation in which we buy back some of our shares, if we think we can create significant value for our shareholders, we will definitely do so.
The next question comes from Rob Spingarn of Credit Suisse.
Please continue.
Rob SpingarnI knows that you have completed the transaction and would like to ask if you can tell us more clearly how you are moving from your existing business to your future business or let us know in more detail.
You talked about 2021, but I want to talk about a few of us. hundred-million-
For the business that is doing, the annual market of the dollar
The existing business you acquired is clearly only a small part of it.
As the new product line goes live, how should we see revenue flowing over time?
Rex gevedel, the first thing, there are about five existing lines of business, and none of the businesses we acquired are moly-
99, is the largest amount of radioactive isotope products in the world.
But there are a lot of interesting product lines there, including therasoft and strondeau and a few other things.
By the way, in the next year or two, there will be a few new product lines that will be organically launched.
What we have to do is build the moly tech product line into that product line using existing facilities, modify the thermal battery in radio chemistry to some extent, and then provide a new conventional medicine for the generator itself.
We believe that we will have the opportunity to capture a large part of the North American market from moly-99.
So you can expect, from an income point of view, that as we get from the moly-99.
It\'s fair to think that the existing business is growing at a rate of $50 million per year, because you said they have brought in some new business online products, from now until the end of 2020 or 2021, that\'s how it looks, and then when moly-
99 start shift?
David Black, you have painted it perfectly.
We have already said that this is a $40 million to $50 million business in the next 12 months.
We see increasing demand signals for the two main product lines, for example, these new products will appear on oxoxine, when we acquire the business, A generic infection label drug is entering an ongoing portfolio of products, followed by another iodine isotope.
So yes, you will see a very important step change when moly shows up.
This is obviously the acquisition paper.
First of all, we like the market for radioisotopes, but of course we are interested in being able to surround Morley-
Line 99, this is a favorable acquisition of this.
Rob SpingarnAnd, can you remind us how you see the overall market size of the molybdenum market you are entering? 99?
Rex gwynso of Morley
99, according to your views on spot prices, product availability, etc. , there are various views on the future size of the market.
As we have said, we believe that Moley\'s global market
99 is about 0. 4 billion, and the North American market is about 0. 16 billion.
The market is estimated to be worth billions of dollars.
We are a bit conservative in our opinion.
But, think about it, we attack the North American market first, so think it\'s a fully accessible market, and for us, the potential market for this single product line is about 0. 16 billion.
Rob spingarn, then switch the gears slightly to your middle position
Single digit growth or color next year.
What is the business line behind this?
What do we think about this?
Because I think it has something to do with what the street might think.
Rex GevedenThink believes this is mainly driven by the Nuclear Operations Group.
We got some additional quantities from Colombian orders that will come along with the new pricing agreement that we are negotiating with our customers at the Naval Reactor.
The nuclear power group will benefit from the revenue and radioisotope business acquired, but there are some negative cyclical aspects of the service business. That one has -
The service business depends on disruption, and the it cycle is about a million plus or minus per year-ish.
In this way, the service business will have negative growth next year. So we can see the nuclear power group as a neutral income situation.
And then, nuclear services group, we don\'t think it\'s an income-
Because we usually integrate the operating income of the joint venture, we can create business.
However, the business was first developed from the Technical Services Department and then from the advanced technology group.
Some new income.
Generate business from it.
So, you can think of it like that, led by the growth of the nuclear business.
Rob SpingarnAnd, thank you for the last thing on the numbers.
This may be David\'s, but in addition to operating FAS/CAS and welding rework costs, NOG profit for the quarter, can you tell us what this is?
David BlackI means there is no profit on 21 missile reserves.
7% as we said there.
So, again, FAS/CAS is 200 to 300 basis points for internal reimbursement.
Rob SpingarnIn, operations?
The operation part is still David BlackIn, yes.
Rob spinglass Kay.
Then, do you have any information on trends in how CAS and/or Arisa contributions should evolve over the next few years?
Obviously, this is the pension model.
David blackso, I mean, in our last actuarial calculation, we felt that we still had FAS/CAS differences in our numbers for the next three years, and after that, we fell by half and disappeared.
So it will disappear in five years, but it will start to change in three years.
So we will update all of you when we get the next actuarial calculation.
We also say some of the downsides for next year, because it is clear that getting rid of a $0. 244 billion pension means that we are getting rid of assets and assets that pension income or pension income will also disappear.
So there are some downsides here, but I think it\'s important to get out of debt and volatility.
The next question is Bob Labick from CJS Securities.
Please continue.
Bob LabickThanks released the original look and color in 2019.
Just curious, is this below your original expectations?
It\'s obviously a little lower than the street.
So wonder if it\'s lower than yours?
If so, what changes compared to your expectations?
Is that pipe related?
Is it related to a power outage or will it cause a difference?
Then, in general, in order to return to the low double digits of three to five years, what kind of growth rate should we expect?
Bob, Rex GevedenI does not see this as inconsistent with our internal planning.
In these three to five years of strategic baseline, our growth in naval demand is in line with what we see now.
I don\'t think we\'re going to suddenly go from three quarters a year to four quarters a year, anything like that.
As we have described on the phone, as David has described, over time, revenue has grown slowly and layer by layer.
Finally let you understand, let\'s call it a 20% volume increase.
So that\'s the way we expect it.
Canada\'s growth story is evolving as we think.
The story of medical radioisotopes, we
Of course, after a year\'s delay in the product introduction there today, we talked more, but that doesn\'t affect 2019 at all, because we didn\'t expect much about it in 2019.
So no, I think this and our long term
Strategic Plan.
We will definitely step up on the back end of those three to five.
The year to that low. double digit.
But from what we think internally, it looks like it can be implemented.
David Black asked me to add that when you talk about three to five --year, low-double-
The digital growth of earnings per share, so it won\'t-
Revenue growth will not imitate this.
So that\'s why we\'re driving EPS growth, because that\'s where the commitment is.
Bob LabickAnd, so, can you remind us of your target leverage level and future between 2019 and what is going on beyond the expected level of capital expenditure? Does the new repo authorization indicate that you are
Our leverage ratio-
We came out of spin and said we were comfortable.
The customer was comfortable twice.
Since then, we have said that we are satisfied with the above.
We felt we could stop trading quickly with the cash generated.
So if this is for the right thing, and in return for shareholders, we will do the right thing and then we should be able to postpone it very quickly.
So as far as capital is concerned, we are at about 150 of the capital year at the moment, and we think that may continue in 2019.
Then, after that, we will start looking for capital.
We still have capital growth that needs to be done by the Navy, and we have achieved the facilitization we want in the isotope business.
But when all this is over, cash spending will fall again.
The next question comes from David Strauss of Barclays.
Please continue.
The unidentified analyst is actually David\'s Matt.
I think I can get back to the missile launch tube soon.
I guess how long do you think it will take to get back to the schedule.
At this point, is your client delayed, or is there any risk to work out the overall sub-construction schedule, or are you ahead of time enough that they are not subject
We-Rex gwynso.
Our plan is to ask for all repairs to be completed next year.
Call it in the middle of next year.
As far as any delay is concerned, I think the Navy can speak on this schedule, but it has been publicly stated that the United States, ColombiaS.
The missile will not affect the vessel.
I think there\'s another one for your overall idea of last night\'s election.
I mean, I think some of the talk on the Democratic side of the house, probably just to cut the budget, it seems that your project is almost unsafe and not completely in danger, but just, how do you see the kind of favorable situation that you have talked about in the past, probably the third Virginia-level or faster carrier, what is the latest news you hear in these scenarios? Rex GevedenYes.
I think we\'ll see how Congress does it.
I would say that we have said from the very beginning that even before the presidential election, the bipartisan support for Colombia was good and that Colombia was the top acquisition program for the Navy, we also saw the idea of buying Virginia permanently.
We have seen this in the last few years here.
This is what we have built in the strategic baseline, around these advantageous scenarios of accelerating carrier procurement, or around the number of 13 Virginia and blocks approved by the authority, we have never included it in our
So I think our strategic baseline, two Virginia people per year, plus the normal pace of Columbia and Ford, is a great sustainable way to think about the future
In these product lines
I do believe that with the change in the polarity of the house, it is unlikely that some of the rise will happen.
I think the unidentified analyst is just another way to turn to service, and I think your guidance means a very good Q4.
Is there anything to step up there?
What has just been given to you is that you have also won some contracts there this year, what is the prospect that EBIT can develop from here?
If you can give us the latest news about Savannah, what is the latest news there?
In the service industry, we see many different elements of performance improvement.
One is live performance, which we perform for DOE and our joint venture limited liability company.
We have seen good charging performance on all of these sites.
We see very good utilization rates for our staff.
We have the ability-
Thanks to the way we deploy people, we have been able to better absorb G & A and overhead accounts.
Besides, we have some income.
As I mentioned, the growth that emerged in the advanced technology group related to early answers.
This is helpful for all of this.
It pushes more things to the bottom line, provides better absorption, and actually, it gives us a bit of a top line.
And then, besides that, we see that in a small part of doing the US business, we see some rise. S. -
Nuclear reactor repair base.
We have or we have obtained a very important contract in the third quarter, which will greatly help the business, so all parts of the business are now working together.
We have not given the color of the business in 2019.
But definitely on the rise.
So it will drive our profit growth next year.
The next question comes from Michael Ciarmoli from SunTrust.
Please continue.
Michael CiarmoliJust is likely to be the first, $1 nuclear action guide this year.
3 billion, I think I recalled last quarter that we will get some strength in the second half on the mix of Columbia and down.
Compared with the first half of 2018, the second half looks quite flat.
Is this all the pressure from the missile tube, or is something else sliding 2019 to the right?
There is some pressure on Rex GevedenThere and I would like to say that most of the pressure is related to the missile tube.
There is a little time risk in the fourth quarter, which we have stated in our guidance here, and a little time risk associated with the next pricing agreement negotiation.
When we arrive at a term table to influence, we take the assumption that we think about income and interest rates and, therefore, operating income.
These are the two factors.
And then, just next year, for clarity, I think core organic MPG revenue could fall.
This was offset by the $40 million Nordion.
I mean, if the service is bland, maybe NOG, we should consider it in the range of 4% to 7% growth.
Is my calibration correct?
That\'s what I think. That\'s right.
Michael CiarmoliAnd, then, for me, the last one, Rex, is just about the medical isotope, I mean, just in the last quarter, we were thinking about 2019.
I see on the slide that you have left there and you have-I guess you have had an FDA meeting, but I think nodion should help to speed this up.
I mean, between the last quarter and this quarter, is there any substantial change to push the timeline?
Rex gwydney believesyes, Michael.
So, I think there\'s-
First, we are-
Yes, this is a positive timeline, which we have always acknowledged.
But, I think, there are many uncertainties in the schedule, in-
Through this period of development.
In the last quarter, we basically solved the uncertainty of all these timelines.
One of the problems is related to the reactor insertion tool.
This is the equipment we installed at the Darlington reactor site that belongs to Ontario Power Generation.
There is some uncertainty about the regulatory time frame, and there is some uncertainty about what design methods we have to use.
In the end, we had to change our basic design approach, which took us months.
We have also reached a mature point of negotiation with regulatory care, and have a more detailed understanding of what to check and regulatory approval requirements for its reactors.
Then, the last thing is that we make some assumptions and make positive assumptions about the changes that are needed by the Nordion side itself. The acquired business is to implement these two components of the production line, one is called the radiochemical side and the other is called the radio pharmaceutical side.
We really don\'t know what we\'re going to do there.
We made some assumptions about this because we didn\'t have much opportunity during the acquisition.
Now that we have the business and can work out detailed timelines from the bottom up, we have a clearer understanding of what this is.
We certainly didn\'t have that view a quarter or two ago.
So, what we do, I think, is, frankly, we have largely eliminated the uncertainty in the schedule and have some room, frankly, there is some room for some mistakes here, because that person has a certain amount of reserves and is more confident in being able to do so. . .
Just wanted to clarify.
I mean, when we talk about acquisitions, we say the acquisition will not accelerate, but it will reduce the risk and help us reduce the risk.
So I think when we talked more about it last quarter, we said that the technical risk is almost out of the table, but the time risk will be-
Still on the table, this is a positive schedule.
Michael ciarmollet, I just-
Maybe this is the last one.
I mean, is this related to competition?
I mean, are you now behind competitors in this market?
There\'s a change if you go-to-
I know they \'ve been actively discussing market strategies, but what\'s the point of view on the dynamics of competition given the downside?
Rex GevedenI believes this has no effect on us.
We have always been very clear about our market channels.
This is absolutely the same.
We have a very clear view of how many markets we can get, which is the same.
I don\'t believe the competitive environment will change at all.
The next question comes from Ronald Epstein of the Bank of Ibuprofen Suspension Drops, the United States.
Please continue.
This is Christine Liwag. He\'s looking for Ron.
Rex, we \'ve seen that when some companies expand into different markets, they end up looking away from the core business.
Remember the cost of the missile tube and your expansion in the Canadian civilian nuclear and medical radioisotope market, what are you doing to make sure you don\'t look away from your USS.
In particular, we are at the forefront of the nation\'s largest naval cause. S.
Navy procurement since the Reagan administration?
Rex GevedenWell, so we will never look away from the business.
If this business still exists, even this year, it will bring us 80% of our revenue, about
A small part of operating income.
So, this is the star I work on every day.
I have been involved in a lot of substantive work on capital upgrades and missile management issues.
Not only are we from the street, but also from our board of directors, and of course from our entire management team, we have a high profile for the business.
I would say that our focus on this has not changed.
But I also want to say that when we have such a business, it is stable, there is a clear backlog and cash generation capacity, which is our unshirkable responsibility as an executive team, also come up with ways to develop your business.
So, in Canada, moving towards redoubling efforts towards diversifying medical radioisotopes into markets and businesses that fit the core BWXT is the right thing we should do.
But that doesn\'t mean we lack focus on our core business.
This is the gym for our portfolio, we know.
Kristine LiwagAnd can you provide background information about your missile tube business? S. Navy?
Are these businesses separate?
Did they mix up?
Can you give us an idea on whether there will be some spills on operational risk?
First of all, in order to give it some financial features, the missile management business accounts for about 3% of the total revenue of our nuclear business.
So, it\'s actually a small part of the business.
It\'s an interesting growth business for us because of its nature, but for us at the moment it\'s a small source of revenue.
This has to do with the naval reactor business, just because these components are ultimately on nuclear submarines, but in a sense our customers are different customers here, which is not relevant.
Our client is a general purpose power electric boat and then eventually NAVC, while our client on the other side is a naval reactor.
So, the different customer series and any overflow I said in the script, we have done a lot of conditions, a wide range of reasons for criticism, we can be sure, this product is the problem limited to this product line, in fact, it is limited to this particular type of welding on this particular product line.
Therefore, we are very confident that other projects or content of the Naval Reactor part of the business will not be subject to spillover effects.
Kristine LiwagAnd switches the device to medical radioisotopes, and as you meet with the FDA, you can provide more about the most important obstacle to delaying the schedule to your first expected income is
Rex GevedenI will say we-
We always wanted to introduce moly-
99 Pharma, 99 radio Pharma is a generic drug in the market and we believe that if we meet the existing product specifications and deliver basically the same drug to the market, we can avoid humans in a longer regulatory process.
In the FDA\'s way, you won\'t get an assertion in writing about the regulatory path, but, we do get confirmation of our belief, we can handle it as a generic approach and expect a faster approval schedule.
We\'re going to see what\'s going on and the FDA will have to take action on that.
But our meeting with them three weeks ago did verify our planning assumptions.
The next question comes from Josh Sullivan, who is around the harbor.
Please continue.
Josh SullivanJust is just a follower.
At the isotope.
So, what is the 2021 schedule?
Can you please talk about any contract, modification with existing client? Then, maybe you can tell us what your current customer base looks like in any form?
Obviously, what you\'re talking about is the existing portfolio and the acquired business?
Josh SullivanSorry. On the TC-
99 extended the schedule by 2021 with existing customers, if there is any modification, if you have any contract, we do not disclose any information about the supply agreement or any such agreement, so I would like to say that there is no comment on this.
The next question comes from Peter skisbiki at Alembic Global.
Please continue.
Peter\'s BIS Keaups guys.
David, I think, we have a feeling about the multiple of your income you paid for nodionne.
Can you give us a feeling of EBITDA multiples?
David Black means, about 13 years old, but, I mean, we have provided the data in Q.
It\'s about 13 years old.
Then on the expected cash flow for the fourth quarter, if you consider the full year, if we exclude the pension contributions for this quarter, do you think our free cash Net income conversion for the whole year will be close to 1 times?
David Black means there is not much damage.
I mean, obviously we \'ve put the pension into the pension and we\'re going to put it into the pension.
In this case, the fourth quarter is usually the best quarter for our cash.
So, other than that, there was no speculation, but, I think, it would be a good quarter for cash.
Pete skibyl asked me to buy one for Rex.
Does Rex, NASA or DARPA/DOD have any updates on space reactors?
Me too-
I saw something about NASA this quarter.
I think it\'s called Kilopower or KRUSTY, a small reactor.
I\'m just wondering what impact this has on you, if it could be a competitor to your design?
Rex gevedel, who works with NASA, continues to make good progress in nuclear thermal propulsion.
We have been making some fuel samples and have successfully tested them.
What I want to say is that NASA and DARPA are very interested in space reactors.
By the way, we have also seen the Army\'s interest in small reactors, micro reactors on land.
We are very optimistic about the whole market.
KRUSTY is a small power reactor from 1 to 10 KW.
So it is able to do something, for example, if you want to transfer from a radioisotope thermal generator to a fission reactor, it can power the spacecraft.
So, I don\'t think it will be competitive with our interest in nuclear thermal propulsion.
You\'re talking about 500.
Megawatt-class thermal reactors and things like this, as well as surface power generation, may be much higher than the 10 KW said.
KRUSTY is a fun and capable little reactor, but not, competing with our wishes.
We are very, very interested and excited about the potential of small reactors for military and space applications. I would say.
This is the end of our problem. and-answer session.
I want to hand over the meeting back to Sir.
Alan NIRI of any closing word.
Thank you, Nicole, for joining us this morning.
This is the end of our conference call.
A replay of this call will be posted on our website later today.
It will be available for a limited period of time.
Please call me 980 if you have further questions-365-4300. Thank you.
The meeting is now over.
Thank you
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