BWX Technologies Inc (BWXT) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Babcock & Wilcox Company third-quarter 2013 earnings conference call. At this time, all participants are in a listen-only mode.

Following the Company's prepared remarks, we will conduct a question-and-answer session, and instructions will be given at that time. I would now like to turn the call over to our host, Ms. Jenny Apker, B&W's Vice President - Treasurer and Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Welcome to the Babcock & Wilcox Company's third-quarter 2013 earnings conference call. I'm Jenny Apker Vice President - Treasurer and Investor Relations at B&W.

Joining me this morning are Jim Ferland, B&W's President and Chief Executive Officer, and Tony Colatrella, Chief Financial Officer. Many of you have already seen a copy of our press release issued last night. For those of you who have not, it is available on First Call, and on our website at Babcock.com.

During this call, certain statements we make will be forward-looking. I want to call your attention to our Safe Harbor provisions for forward-looking statements that can be found at the end of our press release. The Safe Harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements.

Our Annual Report on Form 10-K and quarterly reports on Form 10-Q, on file with the SEC, provide further detail about the risk factors related to our business. Additionally, I want to remind you that, except as required by law, B&W undertakes no obligation to update any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

Also on today's call, the Company may provide non-GAAP information regarding certain of its historical and future results, which should not be considered superior to or as a substitute for the comparable GAAP measures. B&W believes the non-GAAP measures provide meaningful insight into the Company's operational performance, and provides these measures to investors to help facilitate comparisons of operating results with prior periods, and to assist them in understanding B&W's ongoing operations. A reconciliation of these non-GAAP measures can be found in our third-quarter earnings release issued last night, and in our Company overview presentation posted on the Investor Relations Section of our website at Babcock.com.

Due to the number of participants on today's call, I would ask that you limit yourself to one question and perhaps one follow-up. You are, of course, welcome to get back in the queue. With that, I will turn the call over to Jim.

Thank you, Jenny. Good morning, everyone. I'll start my comments with our regular discussion about our third-quarter earnings and a business update, after which I will elaborate on this morning's release regarding mPower.

For the third quarter of 2013, consolidated revenues were $774.8 million, a decrease of 4.1%, compared to the third quarter of 2012. As of September 30, our backlog was approximately $4.9 billion.

Adjusted consolidated operating income, which excludes the impact of GCI restructuring costs, for the third quarter of 2013 was $86.9 million, essentially flat compared to $87 million in the third quarter of 2012. Our government business again produced strong results this quarter.

The nuclear operations group posted a $6.9 million increase in operating income, due to increased naval nuclear fuel and down blending activities, and additional income from the manufacturing of nuclear components. Operating income in our technical services group increased $6.7 million, primarily attributable to improved project performance, resulting in higher estimated award fees, and mPower operating income improved by $2 million.

Partially offsetting these increases, operating income in the nuclear energy segment decreased by $9.5 million quarter over quarter, primarily as a result of a decline in segment revenues for this period. Earnings in the power generation group decreased approximately $2.3 million in the quarter, primarily due to lower margins on construction and outage related services, as well as timing of project close-outs. Tony will discuss the segment results in more detail shortly.

In the third quarter, the Company generated $0.57 in adjusted earnings per share, excluding the GCI restructuring charges, a 24% increase compared to adjusted earnings per share in the third quarter of 2012 of $0.46.

During the quarter we repurchased nearly 0.5 million shares of common stock at a cost of $14.4 million. Through September 30, we have repurchased a total of 9 million shares at a total cost of $237 million, leaving an additional $263 million of capacity for share buybacks under our $500 million of repurchase authorizations. Over the past 12 months, between our dividend and share repurchase programs, we returned to our shareholders in excess of $273 million, or approximately 72% of the free cash flow generated since B&W became a public company in 2010.

Bookings in the third quarter were $317 million, compared to $540 million in the same period last year. In the nuclear operations segment, we de-booked more than $85 million as a result of cost reductions realized, that impacted the contract value of work in the backlog.

This is actually a positive for us, and for our government customer, as we and our customer share the benefits of successful cost reduction initiatives. For the full year, bookings in the nuclear operations segment are tracking ahead of our internal plan, reflecting continued strong bipartisan support for the US Navy sub and carrier programs.

Bookings in the power generation segment for the third quarter of 2013 were $261 million, approximately $124 million lower than for the same period last year. This decrease is attributable to a combination of factors.

Our utility customers continue to be reluctant to make capital investments, due to the uncertain regulatory environment, lower load growth, and lower electricity pricing in deregulated markets. Consequently, certain customers have delayed or canceled projects we'd expected to be working on this year and next, affecting both 2013 and 2014 revenue expectations.

Meanwhile, competition remains fairly intense. Globally, we've had success, winning several large waste to energy projects, but delays in securing project financing and regulatory approvals have impacted the start-up of certain municipal projects in Europe as well.

Even with that backdrop, there is reason for optimism. The bid pipeline remains steady at approximately $2.5 billion, and while several larger environmental projects are being delayed, we are pursuing opportunities on a large number of smaller projects. Bookings in the fourth quarter are tracking stronger, and we do expect some improvement in the new business climate in late 2014 into 2015.

While I'm on the subject of PGG, let me give you an update on the biomass project we discussed last quarter. As of last week, work on the project was approximately 95% complete.

We've begun the final testing and commissioning phase of the project, and expect the plant will be operational by mid-December, consistent with the timeline we shared with you previously. We do not expect to take any additional losses as we wrap up this project.

The claims resolution process is underway. At this point, we can not predict if we'll be able to reach a settlement of our claims before the end of the year.

Turning now to the nuclear energy segment, which is experiencing a challenging year in 2013. Over the past 12 months, we've completed several large nuclear services and equipment contracts, including the Davis-Besse replacement steam generators, which we shipped to our customer a few weeks ago.

On the services side, as we've discussed before, current activity reflects a low point in the cycle for outages in the Canadian nuclear fleet, which historically are a significant source of services revenue for B&W. Activities on these projects should begin to pick up again in the second half of 2014.

Recent decisions to shut down five large US nuclear plants have also had an impact on our business. In response to these market changes, we are taking action today to improve NE's business model and profitability.

We are seeking less on-site construction work, and instead are focusing on opportunities that call for specialty services, requiring highly engineered solutions. We are seeking and winning engineering services that utilize our unique talents in the nuclear component design, licensing, and manufacturing, leveraging B&W's core competencies as a precision components manufacturer and technology innovator.

Of note, we have already in the fourth quarter booked a pair of steam generator inspection and repair projects for outages that will start in 2014, and we are pursuing service contracts with several large US nuclear utilities. Looking to the future, we recently announced a collaboration with Lightbridge Corporation, on a test facility for fabrication of its innovative metallic nuclear fuel.

This is an example of better focusing our business development efforts on projects that match our core competencies. On the expense side of the equation, we are taking a number of actions, beyond the original GCI program, to further improve performance.

Let's move on to developments in our technical services group. On November 1, after a second round of bidding, the NNSA announced that our team, Nuclear Production Partners, was not selected as the contractor to manage and operate Pantex and Y-12 nuclear weapons sites. Obviously, we're disappointed by this decision, because we continue to believe we have assembled the best team and proposed the strongest solution for the management and operation of these two critical facilities.

We will participate in the debriefing process with NNSA within the next week, to better understand the rationale and the details behind this decision. After the debriefing, we and our partners will evaluate the alternatives, and determine what our next steps will be.

Before I turn the call to Tony, I want to speak to the announcement we made this morning regarding our search for additional investors in Generation mPower. B&W, through our world-class team of employees and partners, has pushed the mPower technology to the forefront in the global development of small modular reactors. This effort has been accelerated by significant policy and financial support from the US government.

We believe that the mPower technology can shift the paradigm for new nuclear plant development across the world. To fully realize this potential, additional investors in GMP are required to move the technology forward with speed, and provide the financial resources and depth to support the global development of this game-changing technology.

For many of you who have been following the Company, this message is not entirely new, but there are two significant changes I want to mention. First, we are now seeking investors to own the majority interest in mPower, versus bringing in a series of minority investors over the next several years. Second, in order to facilitate such a transaction, we are now willing to transfer the technology in the nuclear island to a new majority owner or owners, as opposed to holding the intellectual property at the B&W level.

Our efforts over the past nine months to bring in additional investors have generated a lot of interest, and identified a couple of very serious potential investors. Through discussions with these interested parties, we realized that sequentially adding a series of minority investors poses a number of practical challenges, and more importantly, it isn't the best way to structure GMP to ensure the long-term success of mPower in the global market.

Consequently, we have decided that now is the right time to seek a partner or partners to acquire a majority share of GMP. The process is being launched to ensure the new investor or investors group can fully participate in licensing and other preconstruction activities that must take place over the next 18 to 24 months, in order to commercialize this technology by 2022. We will continue to fund the mPower program at current levels during the search process, with the objective of keeping the program on schedule for submittal of the design certification application in late 2014.

Our plan, post-transaction, is to retain the rights to manufacture the nuclear reactor module and fuel, scope which is consistent with our core competencies. This work scope allows us to assure the continuation of US manufacturing jobs, and support the initial deployment of B&W mPower reactors in the United States. In the end, we are targeting our equity stake in the mPower program to be in the range of 15% to 20%, which better matches our long-term scope.

We expect the sales process will take six to nine months. It is our goal to close this transaction by the latter half of 2014. We will continue to provide updates as we have new information to share.

Now, Tony will discuss segment results and other financial matters.

Thanks, Jim. Revenues in the power generation segment for the third quarter of 2013 at $427 million were essentially flat, versus $426.4 million in the third quarter of 2012.

Revenues from aftermarket services increased 26.3%, versus the same quarter last year, driven by construction activity on a boiler retrofit project, and a higher level of industrial plant maintenance outage services. These increases were offset by decreases in the new build environmental business of 28.6%, and in new build steam generation systems of 10.6%, due to a decline in project activities, resulting from the completion and advancement of various projects.

Operating income in the power generation segment, including the equity income of our global joint ventures, was $38.3 million in the third quarter of 2013, compared to $40.6 million in the same period last year. This decrease in operating income is primarily due to lower margins on construction projects, reduced outage maintenance services when compared to the prior period, and lower net favorable close-outs in the new build environmental business, as compared to Q3 last year. The decrease was partially offset by lower overhead costs and a $3.1 million reduction in SG&A expenses, due to ongoing cost reduction initiatives.

Backlog in power generation was $2.2 billion at the end of the third quarter 2013, compared to $2.5 billion a year ago. Bookings in the quarter totaled $261 million, versus $386 million in the same period of 2012, reflecting lower environmental equipment orders than in the third quarter of last year, when scrubber orders were particularly strong. As Jim mentioned, the bid pipeline remained steady at approximately $2.5 billion.

The nuclear operations segment reported third quarter revenues of $282.1 million, a decrease of $2.4 million, from revenue of $284.5 million in the third quarter of 2012. This decrease was primarily attributable to lower activity in the manufacturing of nuclear components for US government programs, totaling $9.8 million, partially offset by increased revenue from naval nuclear fuel and down blending activities, totaling $7.4 million.

Nuclear operations segment operating income was $63.8 million in the third quarter of 2013, an increase of $6.9 million, compared to the same period in 2012, attributable to the increased revenue on naval nuclear fuel and down blending contracts at NFS, and improved contract performance associated with contract cost reductions related to the manufacturing of nuclear components for our US government customer. Backlog in nuclear operations was $2.5 billion at the end of the second quarter of 2013, down slightly from $2.6 billion as of September 30, 2012, primarily due to the adjustment to backlog resulting from favorable cost performance, which Jim discussed earlier in the call.

Revenues for the nuclear energy segment were $52.5 million in the third quarter of 2013, compared to $75 million in the third quarter of 2012. The decrease in revenue is primarily attributable to activity in our nuclear services and nuclear equipment businesses, reflecting the completion of several large contracts that were ongoing in the same period last year.

Nuclear energy segment operating income was essentially at breakeven level in the third quarter, versus $9.5 million in the prior-year period. This drop in the operating income is due to the year-to-year reduction in revenue and lower margins, due to a lower product mix, partially offset by favorable warranty expense.

Technical services segment revenues in the third quarter of 2013 were $25.2 million, down $0.8 million compared to $26 million in the prior year. Operating income of $18.4 million increased $6.7 million in the third quarter of 2013, compared to the same period in 2012. This increase is primarily attributable to improved contract performance, resulting in higher estimated award fees at certain government sites, and $1.8 million of lower SG&A expenses compared to the corresponding period of 2012, primarily due to lower new business bid and proposal expenses.

mPower segment operating income improved $2 million to a loss of $25.6 million in the third quarter of 2013, compared to a loss of $27.6 million in the third quarter pf last year. Research and development expenditures related to the B&W mPower development program increased by $13.5 million, offset by the recognition of $16.4 million of the Department of Energy cost-sharing award under the cooperative agreement.

There was no cost sharing award recognized in the corresponding period of 2012. We remain on track for full-year mPower spending for 2013, net of the DOE grant, of between $80 million and $85 million.

The effective tax rate for the third quarter of 2013 was approximately 30.0%, compared to 12.8% for the third quarter of 2012. The lower rate in 2012 was primarily due to the recognition of previously unrecorded tax benefits, for which the statute of limitations had expired.

For the full year 2013, we expect the effective tax rate will be in the range of 30% to 31%, which includes the recognition of the 2012 R&D tax credit, which was, as you may recall, legislatively reinstated in January of 2013, as well as several discrete items that lowered the Company's effective tax rate during the quarter and for the full year.

The Company's cash and investments position net of debt was $311.2 million at the end of the third quarter of 2013, a decrease in the quarter of $47.5 million. Uses of cash in the third quarter of 2013 included pension contributions of $25.5 million, essentially completing the Company's 2013 funding requirements, and $23.2 million related to funding our share repurchase and dividend programs.

We've been pleased by the success of our Global Competitiveness Initiative. At the beginning of the year, we estimated total cost savings from the program of between $40 million and $50 million, including $10 million to $15 million that would be realized in 2013.

Through continuing our efforts to identify additional opportunities to reduce costs and improve efficiencies, we now expect total savings from the GCI program will be in the range of $60 million to $70 million, with more than $20 million captured in the current year. To date, we have incurred $25.5 million in restructuring costs related to GCI.

We now estimate the total cost to achieve the savings under this program will not exceed $50 million, below our original guidance of up to $60 million in required spending. Some of the GCI savings will flow to the bottom line in improved operating income, while some of the realized savings will be used to increase our competitiveness and offset softer than anticipated bookings and sales in the commercial segments.

Now I'd like to address our expectations for the balance of the year. We are reaffirming 2013 guidance, while narrowing the range for adjusted earnings per share to between $2.30 and $2.40, from the previous range of $2.25 to $2.45.

Consistent with the guidance we provided during last quarter's earnings call, we expect results will be at lower half of the range, unless we achieve a successful claim resolution related to the PGG biomass project Jim discussed earlier on the call. If a claims settlement is reached during the fourth quarter, we anticipate full-year adjusted EPS will fall in the middle to top half of the range.

We now expect revenue for the year will be approximately $3.3 billion, lower than our previously-disclosed range of $3.4 billion to $3.5 billion. This decrease in expectations is the result of delay and cancellation of certain PGG project previously awarded, as well as to general softness in bookings in our two commercial businesses the past few quarters, as discussed earlier on the call.

And now let me turn the call over to Jim for some final remarks. Jim?

Thanks, Tony. As we prepare for 2014, we remain focused on our strong government businesses and our commitment to deliver the high-quality services and manufacturing output that our customer expects from us.

Although we couldn't precisely forecast the scale of the changing market conditions in our commercial businesses, our proactively implemented Global Competitiveness Initiative has allowed us to offset the majority of this impact on earnings. We will continue to remain intensely focused on driving down costs and improving margins as we move into 2014.

We are also focused on identifying new opportunities to drive organic growth. We are enhancing our business development program in our existing North American and European markets, and in selected attractive markets elsewhere in the world. Our stronger business development effort, combined with a more competitive cost structure, should allow us to capture a larger share of the PGG and N.E. markets, especially as the regulatory environment in the US becomes more clear.

We continue to evaluate acquisition targets that are consistent with our core competencies, that we expect will create meaningful cost synergies, and will provide opportunities for revenue growth. Our return hurdle remains high, and we remain very disciplined. Our goal is to increase shareholder value through a well-chosen acquisition, not to enter into a transaction just so we can say we have closed a deal.

Our decision to increase the dividend by 25%, and our commitment to continue to repurchase stock are evidence of the confidence we have that the actions we are taking will improve our performance, and support our long-term growth. Our commitment, as always, is to increase shareholder value through a balanced approach of driving organic growth, executing our acquisition strategy in a disciplined manner, and appropriately returning capital to shareholders.

That concludes our prepared remarks. I will now turn the call back over to Towanda, who will assist us in taking your questions.

(Operator Instructions)

Andrew Kaplowitz, Barclays.

Alan Fleming standing in for Andy this morning. I wanted to start with asking about your nuclear op margins. They continue to linger in the 20% range, actually a little better this quarter.

Can you talk about what you're doing there to capture margin, and what the sustainability is of those margins? Through the balance of the year and into 2014?

Happy to talk about our nuclear operations group. The margins are really driven by our ability to execute the work for our government customer at a cost below what we and the customer originally targeted.

We've been very successful in doing that the last several quarters. That is actually the reason for the debookings that we showed this quarter, that reflects those ongoing cost savings. So although we're not a big fan of debooking, in this case, it's a good thing both for us, and it's a good thing for our customer.

Over time, we continue to believe that 20%-plus margins in that business are going to be tough to achieve, although we're happy in the quarters in which we can do it. And we'd expect that range to remain in the high teens, which is I believe what we've said in the past.

Okay, Jim. And can you sustain those in the near term, or will they come down over the next several quarters?

I think you'll find that it will come down into that range over the next several quarters.

Okay. And if I can switch gears and ask you about power, as we stand here today, your 12-month backlog for power is quite a bit lower than it was at the same time last year. So how should we think about the power revenue, as we look into next year, and will you be challenged to grow our revenues in 2014?

We are clearly going to be challenged to grow PGG power revenues in 2014. Let me talk just a little bit about the environment, and then I'll see if I can be a little bit more precise in my answer to your question.

We've talked about regulatory uncertainty in the market. That continues to exist. In the short term, meaning 2013, into the front half of 2014, we are also finding that our utility customers are impacted by ASH regulations, water regulations and probably most importantly, lower than expected load growth.

So that said, we expect 2014 PGG revenue to be roughly flat relative to 2013. And even that depends on a couple of large project wins for us, end of 2013 moving into 2014.

That said, 2014 could improve if gas prices rise or the economy picks up. We do expect 2015 to be better, as CSAPR regulations move forward.

We can already see this in the bid pipeline. As we said, the bid pipeline remains relatively constant at about $2.5 billion, but we can see the environmental orders or the environmental bids coming from our customers beginning to pick up already, after being pretty stagnant for the last two or three quarters, and that's a good sign for late 2014 into 2015.

You didn't ask it, but as long as we're talking about PGG for a second, and talking a little bit about what's 2014 might look at, let me just emphasize our focus on margins. Even with a relatively flat revenue profile, we are going to continue to focus intensely on margins.

Getting in front of the cost-cutting initiative, getting in front of the marketplace for that has allowed us to hold margins, or even improve margins, in what's a pretty tough market. And we'll continue to focus on costs and margins in both of our commercial businesses as we finish 2013 and we enter 2014.

Jamie Cook, Credit Suisse.

This is Linda Yuan in for Jamie Cook. First, in nuclear energy I know you spoke about that a little in your prepared remarks, but what are you seeing there that really gives you confidence that there will be a pick up next year?

NE tends to be obviously Canadian-based, so I'm going to come back to the Canadian outage profile which is, I think, tells a good story for us, and then also based an awful lot on large projects. So a couple of very large projects have wrapped up in NE, and there's not a lot that we have currently signed to backfill that work.

Not to say there aren't a couple of things that we're actively working on and we'd like to be in a position to announce in the next few weeks. On the Canadian side, there were two scheduled outages this year, in the Canadian marketplace, which really drives the NE business for us.

And there were also no unplanned outages.

And no unplanned outages. As we move into next year there are three scheduled outages, and then four into 2015.

In addition, as we move into 2015, we also expect the OPG Darlington refurbishment project to kick off, which in the past has generated an awful lot of work for our NE business. So NE clearly has been challenged in 2013, we'll be challenged as we move into the beginning of 2014.

We do see some signs of improvement on the revenue side going forward. And I can tell you that we are intensely focused on what's the right cost structure, for that business, and we'll continue to work on that in the next few months.

Okay. That's helpful. And then switching gears, you have spoken a little bit about the soft bookings in the commercial segments. Are you seeing any change in customer behavior at the competitive landscape there, were projects just delayed, or are you starting to see any cancellations given the uncertainty?

So we've seen both, in the last year. We've seen a large number of projects delayed due to that combination of regulatory uncertainty, low load growth, low natural gas prices. We've seen a couple projects actually cancel and come off our backlog, driven by those same factors.

We do see a consistent bid pipeline. So our bid pipeline is holding steady at $2.5 billion. And we are beginning to see environmental opportunities start to emerge, when there weren't an awful lot of them six months ago, and that's a good sign for us as we move into later 2014 and 2015 in PGG.

Tahira Afzal, KeyBanc.

Nice quarter, given the demand scenario. I guess I have way too many questions on mPower, so I'll take a lot of the call in a follow-up. But Jim, can you talk to the extent you can, if you're expecting a decision to go through over the next six to nine months, so something more official by then?

Would you be looking to really bake that into your 2014 guidance in terms of R&D expenses coming down? From what I can gather notably, as you're going from 80% to 90% share, to 15% to 20% share, so if you can comment on that.

And really also I see that you have hired a financial advisor to help you with your search. What should I read into that, when you say that you have a lot of interest, yet you're hiring a financial advisor to help you with the search, is that more to really help you with the negotiations, or are you still trying to look for more partners that are viable? Thanks a lot.

Okay. So let me start a little bit with the 2014 spend question on mPower. We are continuing to debate internally exactly when we expect our spend, or at least our share of the spend on mPower to ramp down, based on the sale.

I think your baseline assumption is correct, that sometime in 2014, perhaps later in 2014, we would expect our R&D investment in mPower to decrease. In the meantime, and I mentioned it in the script, we do expect to continue at the same rate, and I think that's important. mPower has an awful lot of momentum in the marketplace.

We have a late 2014 target for submitting the design certification application, and we want to make sure we hold that, and we think that adds and create value for any new investors going forward. So we're going to hold spending for a few months.

I think it is fair to say at some point in 2014, we should be in a position to ramp spending down, and have others pick it up for us. We'll be better positioned in a month or two as this project moves forward, to decide exactly when that's going to take place in 2014.

A couple comments on hiring JPMorgan as our investment advisor, so we have had significant interest from other investors. We've found it a little bit complex to hold multiple negotiations, and it made sense to drive that all up underneath one group.

In this case, the other reason for adding JPMorgan is that we've decided to go ahead and move, in a relatively short period of time, to reduce our ownership share at mPower from roughly 80%, down to the 20% range. That means we want to make sure that we have contacted and have actively engaged all potential interested parties, now, as in the next few weeks. As opposed to in the past, we probably had a little bit more time to generate interest.

We think JPMorgan will be able to help us drive that process forward a little bit more quickly, and then we will also take advantage of their dealmaking experience, and try to help us move forward in negotiations on that front, at a little bit faster pace than we are able to do on our own.

Thank you, Jim. That was very helpful. I guess I gave JPMorgan some free ad time in that time.

And I guess as a follow-up, I've always thought that the technology portion is pretty critical and something BWC is fairly proud of. Can you elaborate, or are you in a position to elaborate on any color -- the reasons why you're looking to actually part with the technology at this point?

Sure. So a couple points. One, B&W very much plans to remain involved in the project.

We just want to focus on what we think our best value add is to mPower, which really is in the manufacturing arena, and in the fuel arena. We think we can both help in the short run and we think that's a great place to be in the long run, as we watch this technology emerge across the world.

In regard to the technology itself, we of course would like to hold onto on to it. We think it's valuable. That said, if we're trying to add a majority partner, or perhaps a combination of investors that will take majority interest, the reality is, they are not going to want to take majority interest, and compensate us fairly, if they don't have some amount of control over the core technology.

So the original idea was that B&W would hold onto the IP and then we would license it into Generation mPower. If in the long run, we expect our equity position to be in the 20% range, it probably makes more sense, and it helps us secure investors, if we're willing to transfer that technology, and ultimately give the investor group enough control that they have comfort. So that's the logic.

Bob Labick, CJS Securities.

I wanted to stay with mPower here. This is obviously a very interesting exciting development for you. Could you maybe talk a little bit about, and broadly speaking, not to put large numbers to it, but how would this entity be valued, based on what it is now, and will you be taking money out at this point?

Will it just lower your cost going forward? Or how are you looking at it in terms of -- in those terms?

Well, it's an interesting question. We clearly think there is value in an ownership percentage at mPower. That said, it's relatively difficult to put a dollar figure on it.

We clearly have a business case, and we can estimate what we think the overall venture is worth in the next 30 years, but it's a little bit difficult to translate that back into what is somebody willing to pay for the investment today? Is it still at a development stage?

We know roughly that we have $350 million or $360 million invested to date in the program, so that's probably not a bad place to at least start discussions. But we'll see what the market thinks it's worth in the next few months.

So to give a little bit more color to your question, I guess we see two potential financial upsides, if you will, from executing this transaction. One, as we discussed previously with Tahira, is the ability to decrease the amount we're spending every year to develop the technology, because there will be other partners in, that can help carry that spending. And number two, we would expect to see some cash back out of the transaction, but it's difficult for us at this time to estimate what that value is.

Okay. Great. And just for my follow-up, could you discuss how you're looking for domestic versus international partners, and what the partners will bring? In the past, you've talked often about while this is certainly a great opportunity in the United States, it's also a potentially bigger opportunity internationally, via China or India. Can you discuss how the partners you are looking to bring in the next six months, could help you get into China or India?

Sure. In the past, we talked a little bit about the potential partners bringing some sort of a core strategic scope to the project, in other words perhaps a turbine vendor or an I&C provider. I still think that's true. I think partners like that will still be interested.

In this case, given that for the right owner or set of owners, we're willing to give up majority control, I think that opens up the number of interested investors, beyond just the traditional folks that are interested in their own scope. And I think that's a good thing for us.

As far as domestic versus international, we remain very focused on the domestic value this project brings. Generating US jobs, US manufacturing. That's important to us, it's clearly important to our US government DOE partner, who is helping us fund the development on this program. So we're going to remain very focused on finding domestic partners to add to the program.

Your statements around the international marketplace that's available for mPower, we absolutely think that's true. We think we'll be building mPower reactors in the US, but we also think that mPower has a very large upside internationally, and we're always looking for entrees into those key markets.

Now, whether that entree is via the contacts and the program that we're pursuing today, or whether that involves some sort of participation in the ownership profile of mPower, we'll just have to see. In the short run there's a pretty big focus on finding good partners, and to the extent we can, domestic partners to support the program going forward.

Martin Malloy, Johnson Rice.

Could you talk a little bit about the PGG opportunities internationally? And one of your competitors spoke about the prospect list during 2014 being a lot stronger than it was during 2013. I think referring primarily to international boiler opportunities.

We continue to pursue international boiler opportunities, I would say, in selected markets. We see some upside. I'm not sure I'd characterize it as a large increase over 2013, I think it looks roughly the same year-to-year.

We're really targeting opportunities where we have a specific country or region in which we'd like to work, and then we are also targeting specific technologies, not only boiler, but we've taken a hard look at what's the best way to enter the Chinese market, for example, with our environmental upgrade equipment. We think there's an awful lot of upside at some point in China. We just need to make sure we find a smart way to partner or enter that market.

Marty, I would add that on international side, we continue to see fairly robust pipelines related to our waste to energy offering. We have a subsidiary in Europe that's had very good success over the last year in booking new work, and there's additional orders in the pipeline that we hope to win. And besides the Chinese environmental orders, which I would say is probably more of a 2015 or thereabouts story, we clearly are, as Jim indicated, looking at select international opportunities, largely on the boiler side, various sizes in other markets, both in Europe and elsewhere.

Okay. And then, could you talk a little bit about the outlook for the bidding environment for the technical services group over the next year or two?

Sure. Obviously, I talked a little bit about Y-12, Pantex, and we remain focused on that opportunity. It's our belief that the Sandia opportunity in the United States has probably pushed out, just some feedback we've seen from the DOE.

We originally had hoped we might see an RFP for that this year, if not beginning of next year, and I'm guessing that opportunity could push out into late 2014 or 2015. So we continue to work with potential partners and develop an opportunity, but it's not happening right now.

We're very focused on two other opportunities outside the United States. There's one relatively large opportunity in Canada that we're working on as we speak, and then we're also working hard to develop opportunities in the UK.

We don't have a presence in the UK today, from an actually doing work perspective. But we think there's some upside opportunities in the UK, and we're working pretty hard to chase that work.

And we do have some feet on the ground from a business development perspective in the UK as well.

Absolutely.

John Rogers, D.A. Davidson.

Couple of things. First of all, Jim, on Y-12 Pantex, could you run to the timeline there again, when we're going to -- the next steps?

Sure. We expect to have a debrief on the NNSA's award decision within the next week or so. We'll have a few days after that with our partners to digest that information, and decide whether we think a protest makes sense, or does not make sense.

If we were, after the debrief to decide to protest that decision, that would start a roughly 100-day clock, so that would take us into late first quarter 2014 for a review, and then the NNSA would have to make some sort of a decision following that. And then that would be followed by -- assuming on the downside, that we were not the winner, about a three month transition period.

So the open item in the next couple weeks is whether we think there's any logic or any reason to protest, and we just don't know that today. We have not had the debrief.

If we don't protest, we would hold onto the contract through January of 2014 anyway, because that would represent effectively the four month transition period. From now.

Okay. Perfect. That's exactly what I was looking for. And then secondly, in terms of acquisitions, you've talked about them in the past, and with the decision that you announced today on mPower, where are you in that process? And given the market environment, and your comments on technical services versus construction, and could you just give us an update on your thoughts there?

Sure. So we have certain segments of the energy marketplace that we're interested in. And not surprisingly, we're taking apart those segments, making sure we understand them, breaking apart the high-margin businesses from the mid-to lower margin businesses.

Our interest tends to be in the higher-margin businesses. And we're actively making efforts on that front to develop those opportunities.

That said, we're not in a position to announce anything until we're in a position to announce anything. We can't go ahead and give everybody an update as to exactly what we're pursuing, but I will tell you that we are actively pursuing opportunities.

Our hurdle rate remains very, very high. We're not going to do a deal unless we're sure it's better than buying back our own stock, and we're sure in 6 or 12 or 18 months, we're going to have a good story to tell about the investment as opposed to an explanation to have to give. So high hurdle, we have a lot of smart folks actively working on opportunities, and our hope in the next few months would be to have something to discuss.

Chase Jacobson, William Blair.

So another question on mPower here. When you think about the way that -- the new target for your stake, how do you make sure that the new partner doesn't take it off the path that you have gone on? And does it have any impact selling the majority stake in the technology, does it have any impact on the other businesses in your portfolio, like on the government side?

Good question. There's always a little bit of concern on our front, because we're big believers in the mPower technology, and the upside potential of reducing our ownership percentage below 51%. We probably will have to give up some amount of control. We'll see how much as negotiations and interest unfolds.

That said, no investor's going to come into mPower and invest the type of money that's required in the next four or five years, unless they're going to be very aggressive about pursuing this opportunity, and bringing the revenue and bringing the earnings in as soon as they can. So somebody might have a slightly different path, but in general it's going to have to be in line with where we're taking this technology already.

Part two of your question is, by reducing our ownership percentage, does that have any impact in any of our other businesses? We don't think so. Our long-term interest in mPower remains in manufacturing the modules, and in manufacturing the fuel.

In doing so, we're leveraging both our nuclear operations business unit and our nuclear operations facilities, as well as our nuclear energy operations and facilities, and that just makes sense for us. That's where we're good at, that's where we can add value, those tend to be higher margin products.

In the long run, we think that's the right place to focus, so we don't think we're hurting our long-term business opportunities at all, by reducing our ownership interest in mPower, to better match our long-term scope expectations in the project.

Okay. And then with regards to the Lightbridge announcement, can you give maybe just a little bit more color on what the opportunity is here? And if it does move forward in the beginning of 2014, is there some type of investment that you have to make into it, or any color on the financial impact would be helpful. Thanks.

There is not an awful lot of detail around like Lightbridge today, and I don't think it's going to have a material impact on our financials in 2014, either from an earnings perspective or from a capital investment, a CapEx perspective. Longer-term, it could well have some upside for us.

Lightbridge is a good example of leveraging a couple things. It leverages our high end engineering core competency.

This is the type of analysis and engineering work we like to be doing. It tends to be higher-margin, it tends to be very little competition to do it.

And then Lightbridge in particular, is the development of a new metallic fuel. There are very few companies in the world that have the ability to talk about both designing metallic fuel and actually manufacturing metallic fuel.

That's the upside opportunity for us, is not only the technology development, but even after the technology is developed, there are almost no other companies world that can actually do that manufacturing, and that's what we know how to do. So interesting long-term or medium-term upside opportunity for us, but the kind of work we should probably be spending time chasing.

Steven Fisher, UBS.

Just starting with mPower, just curious why, specifically, now is the right time to take this action? It doesn't sound like you have any real material acquisitions that are in the immediate pipeline, so I guess I'm just wondering how you weighed the value of doing this right now, as opposed to waiting a couple years?

A couple things. One, I would say today there's an awful lot of momentum behind mPower in the marketplace, and that's a good thing for us.

Number two, adding investors right now, assuming we close some time mid-2014 allows those investors to have a voice in two important decisions, that are going to be made in the relatively near future. One is the design certification application, the submittal of that application in late 2014, an investor will have a chance to weigh in on the quality of that application, and the direction and the timeliness.

And number two, within the next year or so, we expect to begin to enter into negotiations around long-term EPC contracts to actually deliver these units. The financial terms and the legal terms contained in those EPC agreements are a big deal, and any large investor is going to want a say in how those EPC contracts are turning out, and both of those help to drive the timeline to today.

Okay. That's helpful. And then, Q4 is typically your best quarter for nuclear ops bookings. And with all that's gone on with the government and shutdowns and budgets and sequestration, are you still expecting Q4 to be a typical big quarter of nuclear operations bookings?

The simple answer, Steve, is yes.

Okay. Very good. Thanks a lot.

Will Gabrielski, Lazard Capital Markets.

Just a quick question. As you implement GCI, and especially in PGG, are you noticing that is giving you an ability to put together a better bid? That maybe as we look out over 12 months, with a better cost structure that might help you have a higher win or capture rate as we go forward?

We actually are. We see that on two fronts. Our internal cost structure is more competitive.

There's a good thing for us. The debate is, do you flow that through to a bid, so you increase your probability of winning, or do you try to take some or most of that to the bottom line in terms of margin? And we typically end up in the middle.

The second upside is we put a lot of emphasis at the back half of the GCI program around our supply chain, and trying to drive supply chain efficiencies. And that's beginning to play out with some added flexibility and some lower costs in our bids, going forward, as well.

Okay. And then just on GCI, how far along do you think you are? If you were to look out over the next 12 months, or is it 24 months, before you really get a final tally on what type of costs you could pull out of the businesses, without having an impact on your marketability and success?

Yes. We're certainly not done. I'd say we're probably about halfway through on GCI, maybe just a little bit further but not much more than half on PGG, and maybe just a little bit less than half in the nuclear, the commercial nuclear business.

Just one other point I'll make which is, there is -- on the back end we've been saying this all along, there's some specific actions in terms of manufacturing footprint realignment. Those plans are very well understood, and the execution plans are in the early stages of being acted upon.

So they represent some large opportunities on the back end of the program, but with a fairly high degree of certainty, from our perspective, and consistent with the plan from the very beginning. Most of the upside we've been seeing is digging harder into the overhead structure, and also, quite frankly putting more emphasis on supply chain in particular, areas like procurement and the structure of the organization, and IT, which we really hadn't addressed in our initial GCI efforts.

All of which are bearing fruit.

John Rogers, D.A. Davidson.

Just following up on the GCI comments, should we think about this as essentially $5 million a quarter over the next five quarters, through 2014?

In terms of what? In terms of additional savings?

I'm sorry. In terms of expense levels. Because you said you've spent about $30 million of the $50 million?

Yes. I'd say it will be a little lumpier than that in the sense that some of the back end initiatives, with respect to manufacturing realignment, there are obviously cash and non-cash costs related to moving our footprint around, and taking advantage of those opportunities, so that would be a little more back-end loaded.

I wouldn't necessarily say it's going to be evenly distributed at $5 million a quarter. What we're comfortable saying is, we think we'll complete the program for no more than and probably less than $50 million, and we have all the details laid out.

Okay. Great. Thank you.

With no further questions in queue I would now like to turn the conference over to Ms. Jenny Apker for closing remarks.

Thank you for joining us this morning. That concludes our conference call.

A replay of this call will be available for a limited time on our website later today. Also available on our website is a Company overview, with additional information that will be shared with investors and analysts during various meetings throughout the quarter.

Thanks very much. Have a great day.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect, and have a great day.