Graham Corp (GHM) 2014 Q3 法說會逐字稿

Greetings and welcome to the Graham Corporation third-quarter fiscal year 2014 financial results conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference ever to your host, Ms. Karen Howard, Investor Relations for Graham Corporation. Thank you, ma'am. You may now begin.

Thank you, Jesse and good morning, everyone. We appreciate your participation in our third-quarter fiscal 2014 financial results conference call. You should have a copy of the news detailing Graham's results that was released earlier this morning. We also have slides associated with the commentary that we are doing here today. If you don't have the release or the slides, you can find them at the Company's website at www.graham-mfg.com.

On the call with me today, we have James Lines, our President and CEO and Jeffrey Glajch, our CFO. Jim and Jeff will review the results for the quarter, as well as our outlook and then we will open up the lines for Q&A.

As you are aware, we may make some forward-looking statements during this discussion, as well as during the Q&A. These statements apply to future events and are subject to risks and uncertainties, as well as other factors, which could cause actual results to differ materially from what is stated here today. These risks and uncertainties and other factors are provided in the earnings release, as well as with other documents filed by the Company with the Securities and Exchange Commission. You can find these documents on our website or at www.sec.gov. And with that, I'm going to turn the call over to Jim to begin. Jim?

Thank you, Karen and good morning, everyone. My introductory remarks will begin on slide 3. Our planning and specific actions taken during the past couple years were to ready the Company to double revenue across this current strengthening expansion cycle. Investments in people and equipment, including welding and machining equipment, investments in IT and expanding our facilities, provides the necessary foundation upon which we will grow and serve the strong demand we anticipate from our markets.

The key macroeconomic trends that we are watching support our belief that we can double our business. They include population growth, increasing urbanization along with increased levels of income in the emerging and developing economies and corresponding move towards consumerism, focus on reducing environmental impact of the facilities where our equipment goes. These together cause an increase in energy demand, will be increases in chemical and petrochemical products. Requirements for food and fertilizer products will increase. All of this correlates into increased long-term demand for our products.

We supplement those megatrends with recent reports that have come out from ExxonMobil with their 2014 outlook for energy, OPEC's World Oil Outlook, the American Chemistry Council's report related to the US petrochem expansion, along with and most importantly our bid pipeline and the size of our pipeline all support our planning basis to double our business across the cycle. We will remain focused on engineered-to-order products and serving the energy markets.

Moving onto slide 4. Highlights for the third quarter include backlog at quarter-end just under $115 million. This represents the diversification strategies and the success that we have had moving into new markets and acquiring new customers. An important point to note of the $115 million of backlog, approximately $70 million to $75 million of that relates to the customer segments we had last cycle. The remainder is from our market and customer expansion strategies.

Cash and cash equivalents and investments increased $9 million across the quarter to just under $64 million. This was due to the timing of accounts receivable collection. Revenue in the third quarter was $23.4 million. This was in line with our expectations and reflects the order levels last year. Net income in the quarter was $1.4 million or $0.14 per share. Comparing this to the prior period after adjusting for a nonrecurring item, income last year was $2.1 million or $0.21 per share. We are confirming our fiscal 2014 guidance and we are not changing our top-line outlook for fiscal 2015.

Moving onto slide 5. Sales in 2014, as I mentioned, were $23.4 million. Revenue reflects prior order levels three to six quarters earlier. If you look at the order rates in fiscal 2013, they average $24 million a quarter and that, of course, closely corresponds to the sales level that we saw in this most recent quarter. We do anticipate bouncing off this bottom as we move forward from here. Sales in the quarter were nicely diversified across our key markets of refining, chem/petrochem, power, our naval market and other commercial markets.

The US market remained very strong. That's, of course, due to our sales into the nuclear utilities, US petrochem and naval markets. US sales represented 62% of total sales. The Canadian market at 17% of sales in the quarter was due primarily to backlog conversion of orders we have for oilsands projects in Alberta.

An important point to make as we think about the diversification strategies that have been executed very well is, of the fiscal year-to-date revenue, roughly 25% is from markets and/or customers we were not serving or we did not have last cycle. With that, I wish to turn it over to Jeff. Jeff?

Thank you, Jim and good morning, everyone. We are on slide 7 now. As Jim mentioned, Q3 sales were $23.4 million, down 9% compared with $25.6 million in last year's third quarter. Split of sales was 62% domestic, 38% international. This compares with last year's third quarter, which was 45% domestic and 55% international. Gross margins in the quarter were down 180 basis points to 26%. EBITDA margin was 11% for Q3, down from 17% last year.

Q3's net income and EPS was $1.4 million and $0.14 per share respectively compared with $3 million and $0.30 per share last year. However, if you recall last year, we had a one-time earnout benefit related to the Energy Steel acquisition, which added $975,000 to net income in the third quarter of fiscal 2013. Excluding that benefit, last year's net income and EPS were $2.1 million and $0.21 per share respectively.

On slide 8, year-to-date sales were $76.1 million, up 3% from $74.1 million in the first nine months of last year. Year-to-date sales are 57% domestic and 43% international. Gross profit has increased 15% to $24.4 million and gross margin is 32% compared with 28.7% last year. The 330 basis point gain in gross margin was favorably impacted by year-to-date sales, as well as improved product mix.

SG&A was $13 million in the first nine months of this year, up only 2% compared with the first nine months of last year when you adjust out the previously mentioned earnout benefit. EBITDA increased by 220 basis points to 17.2% in the first nine months of fiscal 2014 primarily driven by the increase in gross profit margin. Net income has increased 29% to $7.8 million when you compare it to the adjusted basis of $6.1 million last year. EPS is $0.78 compared with $0.61 on that same basis.

On slide 9, Jim mentioned our cash position is $63.9 million, up $9 million in the third quarter and $12.2 million year-to-date. I do want to caution that the strong Q3 increase in cash flow is primarily timing of working capital and also the fact that we have spent only a small portion of the capital for the expansion project that we discussed in October.

As I mentioned during the October call, when we had approximately $55 million of cash, we expected to fund the capital expansion here in Batavia with operating cash flow that would be generated over the next few quarters and that our cash position, once the project is complete, would be at a similar level to then or $55 million. We believe that that will still be our cash position and once we are done with the capital project this coming summer. To note, we have only spent $2.1 million of our projected $6 million to $7 million of capital for this year, so there will be a large stepup in capital spending in the fourth quarter.

We continue to have a strong balance sheet with no bank debt. This will allow us to continue to utilize our cash for both internal and external growth opportunities to invest in our current business, as well as acquisition possibilities. With that, I'd like to pass it back to Jim who will complete our presentation and comment on our view for the rest of fiscal 2014. Thank you.

Thank you, Jeff. I am now on slide 11. New orders in the third quarter were $23.5 million. It is not unusual to have variation or volatility of orders quarter to quarter due to the timing of projects converting in our bid pipeline along with the size of potential orders that we may win in a given quarter. We tend to look at our trailing 12-month booking level as a better representation of the market health. If you think about our trailing 12-month order rates, they relate to a $32.5 million per-quarter average order rate. If we think about the first three quarters of fiscal 2014, the average is $35 million per quarter. Therefore, while the third quarter was off a bit at $23.5 million, we would attribute that to the timing of the pipeline, the next set of projects moving into the pipeline to place orders. We still remain very positive about our bid pipeline and as we think about the diversity of orders that came in, strong order level from the chemical/petrochemical sector at 47% of total orders.

Looking more narrowly at the US petrochem, about 30% of the total orders in the quarter we would attribute to the US petrochem expansion cycle. 29% of orders were for the power sector, including nuclear and renewable energies, 13% refining, the remainder from our other markets. A high percentage of the orders came from the US markets, principally because of the strength of the US petrochem market and of course, most of our nuclear sales and all of our naval sales are to the US customer base -- our orders, I'm sorry.

Our bid pipeline remains elevated and strong at a level that is between $800 million to $1 billion, which is more than double the aggregate value of our pipeline at the start of the last cycle in the fiscal 2004, fiscal 2005 timeframe where a number of bids that we have made were North American petrochemical markets, the global refining markets and for the power sector.

Moving onto slide 12. This is a very important slide as we think about where the business is going as we move out of where we are right now. At $115 million of backlog, just under $115 million of backlog, 40% of that is from markets and/or customers we didn't have last cycle, primarily the power market, including nuclear and the work we are doing for the naval programs and of course, along with the new customer acquisition from our traditional markets. So we are very pleased with the direction of our diversification of future sales and the strength of our backlog.

Also importantly, our backlog is more extended than it had been giving us better visibility in out years beyond fiscal 2015 into 2016 and into 2017. The $114.6 million backlog that we have, which is dispersed fairly evenly across our key markets of refining, chem/petrochem, power, naval and other markets, approximately 70% to 75% of the backlog converts within the next 12 months, another 15% to 20% will convert 12 to 14 months after that, or 12 to 14 months out from now with the remainder beyond two years from now. It is a stark change from where our business was four or five years back.

Moving onto slide 13, as we said earlier, we have confirmed our fiscal 2014 guidance. It remains unchanged. Revenue is expected to be within the range of $100 million to $110 million; gross margin for the full year, between 31% and 33%; SG&A as a percent of sales, between 16% and 17% with an effective tax rate of 33% to 34%. Also, we have not changed our revenue expectation for the coming fiscal year, fiscal 2015. With that, Jesse, please open the line for questions. Thank you.

(Operator Instructions) Jason Ursaner, CJS Securities.

Good morning. First, I had a couple of questions on the gross margin of 26%. I was wondering if maybe you could walk through some of the various puts and takes there. How should we kind of be balancing factory absorption versus -- we sort of knew that these were legacy orders that were written to lower margin and then maybe some of the short order work that you had in the first half.

From a quality of orders perspective, the pricing of the orders was probably similar. I would attribute most of the gross margin decline to the utilization or the absorption of our fixed overheads. So pricing is relatively consistent with prior quarters and reflects the revenue level and the corresponding absorption that pulled down the gross margin. Short cycle sales have held fairly constant as had their margins. So I would attribute the pullback in gross margin to utilization.

Okay. And just looking out towards next quarter and next year, my perception is the projects in backlog should be written to modestly higher gross margins just given the improving pricing environment. And you have talked about the -- because of the delivery schedule compression, you guys have utilized some outsourced manufacturing. Do you have a better sense at this point for the impact that is going to have on gross margin for those deliveries kind of relative to the fact that they had should've been written to a better margin to start with?

We haven't come out with a margin projection or guidance for fiscal 2015. It is still a bit early for that. From a qualitative or quantitative perspective, the orders being added into backlog over the last couple quarters have generally been consistent with the pricing or anticipated gross margin. We have talked about a couple of scenarios or situations where we did have some competitive pressure from international competition or an international customer or the US market -- US petrochem market. That did have an effect for a couple projects of lower pricing that we were anticipating because of that competitive pressure. But when you look at it on average, blending all the orders together, I think the average gross margin is consistent and fine as we move forward. But we will come out with a gross margin expectation for 2015 in our May, early June conference call.

Okay. And then a significant portion of the order activity is obviously being driven by the US petrochem market. A lot of those projects seem to be predicated on low natural gas prices for the foreseeable future. As you see natural gas prices rising pretty substantially this winter, I guess how does that impact any confidence you have in the pipeline of projects you see coming forward?

At this point, Jason, we haven't seen it change the attitude of our customers. I think it becomes potentially a greater concern if it moves north of $5 and stays north of $5 per million BTU. At this point, the projections are not for that to occur. And also it relates to the differential between comparable energy input from crude oil versus natural gas. All in all, we remain very optimistic even though natural gas has crept up a little bit. We don't think it is at a point where it puts these projects at risk and we haven't seen an attitude change from our customers about the viability of the projects that we have been bidding.

Okay, and just maybe last question from me. Can you maybe give any update on the submarine program for the U.S. Navy? I know you can't always discuss all aspects of it, but maybe if there is anything you can talk about there.

We do have, and we have communicated that we have a strategy to expand our offerings to the U.S. Naval Nuclear Propulsion Program, including both surface ships and submarine programs. I feel that our strategy is being executed very well and we will become over time a supplier to the submarine programs.

With respect to orders that we may or may not have secured or activity around submarine programs, there is very little we can say about that at this point in time other than I can say I am pleased with our strategy and the execution of our strategy and I expect that we will, over a period of time, realize that strategy.

Okay, great. I appreciate all the commentary. I will jump back into queue. Thanks.

You are welcome, thank you.

Chase Jacobson, William Blair.

Hi, good morning. I wanted to follow up on Jason's question about the chemical market. I know the customers obviously look a lot longer term than just what the spot price of gas is doing. But have you seen any -- over the last month and a half or so, have you seen any change in pace of how they are moving forward with those projects? Are they just slowing it down a little bit or anything like that?

That is hard to discern. What we did see was the initial movers got to the market first with placing the orders for long lead equipment, which is our type of equipment. And we saw a flurry of activity starting in June through the September ending quarter. It is not unusual that there would be a stacking up of the next coming projects that takes a month or a few quarters to get set up. So we weren't surprised that we saw a flurry of first movers and now we are looking at the positioning of the next projects. And I still anticipate that they will be coming. Nothing is being advised to us by our customers that the dynamics have changed, the pace has changed. We just haven't seen that yet.

To the contrary, we have had some discussions -- this is more antidotal, but it's perhaps directly to the question that you are asking. We have had some commentary with some customers that haven't placed orders for our equipment yet that reflect accelerated schedules because they are behind. And they want to get our equipment on order or our type of equipment on order and then it will be a very aggressive push to meet a shortened schedule. So that is encouraging. And again, that is indicative of suggesting there isn't a change at this point in time in the pace of this activity. We would attribute it more to the staging of the waves of projects.

Got it. Okay, it is helpful. Maybe can you just talk about China a little bit? That has obviously been a really good market for Graham, but I think there is some slowdown in some of the quoting and bidding activity. Can you just talk about what is going on there?

Sure, sure. That is a great question and something we have been experiencing over the last 12 to 18 months. While the bidding activity hasn't really slowed down, stepping to the plate and placing orders by our Chinese customers in the responding sector had been difficult to predict and still is difficult to predict. We do see a few projects, a handful of projects that seem to be moving along over the next six months to placing orders. Having said that, I would have said the same thing nine months ago or six months ago. So those projects are still active, they are still moving along, but we did see a pullback in new refining infrastructure investment the last 12 to 18 months. The projects are viable to us. They appear viable; they are going to materialize. It seems to be more real now as we move into calendar 2014.

But, again, our optimism that I'm conveying to you here, I probably would have conveyed the same comments six months ago or nine months ago. China is hard to protect. When they're ready to place an order, it happens in 5 to 10 days. Prior to that, there's a lot of activity bidding. So I can say our bidding activity hasn't changed. It is those last 5 or 10 days racing to a PO that seems to be stalled.

Okay, okay. And just one more question. Jeff, you commented a little bit on the cash flow. Clearly, very strong this quarter. What was better than you expected? Because I think you had said that you expected cash to be relatively flat sequentially. I noticed there were some good customer deposits this quarter despite the lower awards. So just any color you can give around the cash flow and if there was something that changed versus your expectations?

Sure, Chase, if I look at the expectations over a multi-quarter period, so over two or three quarters, really nothing has changed. It was really the timing of some of our receivables, the timing of some customer deposits, but nothing dramatic changed. My commentary last quarter, which was again we were around $55 million and I believe I had the question or maybe I proactively mentioned that while we have this large capital project, we felt like we were going to fund it with our cash flow, our operating cash flow is still what we believe. Basically what happened is we just had a cash inflow in this particular quarter, which would probably -- some of it would reverse itself normally in next quarter anyways, but then on top of that, we will have the addition of the higher level of capital spending over the next quarter or two. So it is really just timing of working capital, nothing beyond that.

Okay. I appreciate the help, guys. Thanks.

You're welcome.

Richard Ryan, Dougherty & Company.

Thanks. Jim, could you talk a little bit what you're seeing on the nuclear power side?

We are seeing bidding activity begin to pick up. Admittedly, we had seen some pullback following Fukushima and as the utilities adjusted to the outlook with respect to combined cycle power plants driven by natural gas. But we are seeing now more bidding activity, we are seeing the effect of the Fukushima regulations around safety parameters get into the RFQs, request for proposals. So we are seeing the improvement as a whole and we are seeing orders release hopefully at a more stronger pace than we had experienced the last 15 to 18 months, so I do think we are bouncing off of what I would characterize as a trough that was attributable to Fukushima and adjusting to the natural gas market.

Is that primarily domestic or are you thinking --?

That is primarily domestic. My comments, I apologize, those are primarily domestic. We have begun to begin to bid the next four reactor projects for China. And they're probably out over the next one to two years worth of opportunities. So the next wave of Chinese reactors are starting to be bid -- nuclear reactors. And there will be opportunity we believe for us there, but my comments earlier really were centered around the US market.

Can you give a sense of the kind of contracts that are in the RFQs when you look at what these utilities are looking at for Fukushima compliance? I mean what kind of order of magnitude these contracts can be in?

I would expect the average order price -- for the projects that I have line of sight to, our team has line of site to that we are talking about every week, they vary between $250,000 and maybe $2 million. And they are heat transfer equipment, they are pumping systems, they are structural members, so right in the wheelhouse of our Lapeer team. And we have a number of bids in those areas for that. So the average order price is that relative magnitude of $250,000 million to a large one might be $2 million.

Okay. And in your backlog, have you seen any pushouts or cancellations? I know you had a pretty good description of the order activity and kind of the difficulty of timing, but has anything soured in the backlog at all?

No, I would say nothing -- certainly nothing has soured that we are aware of. The backlog is of a high quality and we expect it to be converted. Timelines aren't generally pushing out other than the ordinary expected pushouts that we have communicated over the last couple of quarters. With that big surge of work that we saw commencing in June through September, we did feel that that would have a tendency to move to the right calendar-wise because of execution constraints within the supply chain whether they be the EPC or the end user or perhaps even ourselves. But so far, I don't think we are driving that. So we haven't seen anything extraordinary than what we anticipated was the moving around of backlog conversion tied to execution schedule. Some of it is out of our control. The project liability, project risk or quality of the backlog from our perspective has not changed.

Okay, good. So Jeff, you talked about the next cycle peak and I think you have indicated gross margins in that mid to upper 30% percent range. Can you give us some color what you might think on the operating margin side?

Sure, Dick, we have talked about SG&A going forward was probably going to be somewhere in the mid-teens or so. And so obviously we take that off of the gross margin number. You would look to have pretax margins pushing up in the very low 20%s. So I think that hasn't changed and certainly as we grow, there will be the need to add additional SG&A, but at the same time it probably won't grow quite at the rate that the top line will grow. So you should see a little bit of improvement there from where we are currently.

Great. Thank you.

Thank you.

Jon Braatz, Kansas City Capital.

Good morning, gentlemen. You touched earlier on China. When I look at your numbers, your sales numbers for this year so far, sales out of the Mideast are down substantially. Are you seeing the same thing in the current order flow out of the Mideast and if so, is there an issue in the Mideast that corresponds to the softness?

From a comparable period point of view, we had some very nice orders converting about a year ago for large refining projects for the Middle East. We have a very nice refining project for the Middle East that will begin to convert as we go into subsequent quarters that should begin to show that revenue mix pick up a little bit. And as we look at our bid pipeline, we have an extraordinary amount of bidding activity for refining projects in Kuwait, Oman, Saudi Arabia, petrochem in Qatar and elsewhere. So we are expecting to see the Middle East, while it can be lumpy, remain very important to us. And as we think about how it looks going forward, I am more positive about the bookings opportunities than if I were to look backward.

Right, right. So it is more of a timing issue than anything else? Nothing really has changed there. Okay. How much exposure do you have in Canada to the oil sands area?

That is a very important market for us. It is important and it typically though hasn't represented more than 5% to 10% of sales in a given period. And for how we participate in the oil sands market, which is primarily in the downstream sector called the upgraders, we have not seen more than two projects move in an 18-month period and the order value for us for those types of projects would be $4 million to $6 million. So it is very important, but in terms of a disproportionate amount of our sales mix, I don't see that changing going forward.

Okay, all right, thank you very much.

You're welcome.

Brian Rafn, Morgan Dempsey Capital Management.

Good morning, guys, I jumped on late, so bear with me. Give me a sense as you guys -- you had a very strong first half, [little as we guess]. What are your -- if you go back to the beginning of the year, your CapEx and your headcount additions, where are you kind of on track as you build towards peak sales?

Sure, actually that program to prepare for the strong demand has been executed very well. Over the last three years, we have been on a journey here to ready our business for the strong demand that we were anticipating. We have actually added 80 people to our business since December 2010 to December 2013. And they have been spread fairly equally across our direct labor and our indirects. So, year on year, it has been in the 20 people range that we have added. And as we look at how we are moving into 2015, fiscal 2015, perhaps another 10 to 15 people would be added. We will begin to taper off, we believe, as we rightsize the business for the future opportunities that we felt we would be realizing one or two years forward.

So the team actually has done a remarkable job to get our staffing level ready and from an operating perspective, I am extremely proud of how the team did that while maintaining reasonable levels of operating profit while we invested ahead of the corresponding revenue. So a long-winded answer to your question, we have added people year on year and over a three-year period, we have added 80.

Yes, that's a good answer. Do you have any bottlenecks, engineers? I hear -- especially in manufacturing -- everybody is just starved for engineers. Give me your sense if there is anything in that mix or welders or is there any specific specialty that is really tough for you guys to draft and retain?

In general, acquiring skilled labor or indirect personnel is challenging. What I have seen our management team and our human resources department do is reposition Graham, rebranded Graham, rebranded Graham as an employer of choice over the last two or three years and it has helped us immensely acquire the talent that we need because we are a stable business, we are a profitable business, we are growing, we have excellent wage packages. We help employees build a career at our Company over a long period of time. And our strategy to rebrand our Company as a different employer than a typical industrial really has ramped up our ability to acquire the talent. And while it is still challenging, Brian, I believe our team has found a way to resolve some of that constraint that I would have said was a greater constraint three or four years ago.

Yes, okay, good answer. In a parallel, you certainly added the human component. What, over the last three years, might you look -- CapEx, brick-and-mortar, the physical footprint of the plants?

If we take all the aspects of our preparedness for where we believe we're going over the next three to five years, it has been extremely thoughtful and it has us ready, which is great. It is a great feeling for us as management. We have invested significantly in productivity enhancements for our facility and new machining equipment that reduces leadtime, reduces cycle time, more modern welding equipment. We offensively thought what can we do to enable our workers to be successful and help us realize our strategies. So we've invested in their success with manufacturing equipment. We have invested to enable their productivity improvements with IT tools. And a great asset that we have unlocked is our ability to onboard these 80 new employees in a way in which we've thought about training and onboarding differently so their time to proficiency has been halved.

In the past, that first introductory into our Company to becoming a productive employee, whether it was a person in our production area or in engineering or in design and drafting, that might be a two to three-year process. Our management team has thought about that because we have to be ready to grow and they tackled that. So the time to proficiency is cut in half or better. So if I take all of this together and the pieces that we have thought about of how to ready our business, I can't be more pleased about how we are positioned to capitalize on the strong demand that we see going forward. The team has done a great job across a number of facets that had to be addressed.

Okay. You kind of partially answered my next question. A lot of time is always focused on developing in bids and quotes and how quickly can you convert them to sales and the back-and-forth. You touched on something with the new modern welding equipment. What have you seen, Jim, once you get an order, the cycle time throughput in efficiency? Do you have any day metrics that you can share on what Graham might have looked like processing a condenser or ejector order three to five years ago versus what you can do today? How quickly can you get that live order through the plant?

Sure. I'm going to address it in two ways. One, if you think about these large orders that we talk about, aside from a naval order, in rough numbers, an order to shipment cycle is 12 months. Half of that cycle is in our office, second half historically has been in our plant. With the investments that we have made in the engineering side of the business to get ready for the strong demand, we had a great opportunity to stress test our investment in our personnel. We actually have just run at about a 2X throughput capacity for six months with the order levels that we had and we cut leadtime at that 2X capacity by about 15%. So our team executed at a 2X level at about 85% of the leadtime that we used to have historically. So that has validated that we hit the mark on that, so that is very gratifying.

So if you think about over a six-month period with the order levels that we had, we just executed at about a $140 million run rate for a six-month period through our engineering team and they did so with less leadtime than we historically have seen. On the operating side, I can answer that better in about a year after we push this slug of work that we just got through our plant. The plant wasn't necessarily fully loaded as we were looking at fiscal 2013 and 2014, but as we're going into 2015, our operations will be loaded. Productivity should be sharper and improving. And I would like to hold off on answering that question for about three more quarters.

Yes, no, you have done certainly a fabulous job giving us some insight on that. You talked a little bit about your four -- your reactor projects in China. What is kind of the mindset? Do you see a difference of price, quality, value? Are the Chinese more sensitive for engineering specifications and prowess? Is it always about price? How might the Chinese be different or are they very, very similar in the power markets to other global customers?

The reactors that we have been involved in have been the Westinghouse AP1000. So the design basis and the specification requirements and quality control have been consistent whether it be a North American project or a Chinese project. The big difference though, Brian, comes down to the willingness of using local supply chain for the Chinese market versus demanding Western quality. There is very fine businesses in China that produce these products, but there is a tendency to look more locally for the more rudimentary type products and where there is a high cost of failure or a speciality in how it's being built or designed that a Western supplier might fit better. So it has really been based on what criticality there is with the product and is there a local supply chain that can serve that opportunity. In China, ideally, they would, I would believe over time, prefer to do it all locally. Right now, they're not necessarily able to that entirely.

Okay, all right. And just one closing one on the Navy side. Are you seeing any progress in additional orders for the Virginia-class attack subs? And in the carrier side with kind of the announcement of CVN-80, I think it is the Enterprise, very, very early, so the John F. Kennedy is under construction. What the -- any forward bids, quotes, lead orders, anything from the Navy on the carrier side?

Nothing really other than some initial discussions that we have had. And we have said this before, carriers, as you know well, Brian, carriers are built on a five or six-year center.

Yes.

The last carrier order we got was in December of 2009. So we would anticipate bidding activity to begin for CVN-80 and maybe orders materialize sometime in the latter part of fiscal 2015 or into fiscal 2016. We don't think the build centers is changing from five to six years and we are moving into the next carrier 80 bidding activity over the next 12 to 15 months, I would expect.

And on the submarine front, again, that's a strategic area we are trying to break into. We are restricted on what we can discuss there about our bidding activity or our order rates. I can just leave you with I am pleased with the execution of that strategy and feel over time we will realize our objectives there.

Okay. And then just one more. Are you guys going to have the analyst meeting again in September this year or is that something you're going to just do episodically?

No, no. We have talked about it, we thought that was valuable as we communicated the strategy for our Company. We are setting a date for the latter part of September. The date has been locked down; I just don't recall it exactly. I think it is the 25th of September and we will get some announcements out to the investment community and we hope to have great participation just like last time.

Yes, great, super. All right, thanks, guys. I appreciate the good job.

You got it.

Thank you.

Jason Ursaner, CJS Securities.

Thanks for taking my follow-up. And just first appreciate the commentary on utilization and leadtimes there. I thought that was really good transparency. But you talked a little earlier on the nuclear market. So I was just wondering the commentary on the domestic market, that was mainly the life extension MRO type project demand where you gave some numbers on average size investment.

Yes, that really -- as we think about the North American market, it primarily is an MRO sale, keeping the existing utilities operating and running, supporting that endeavor. Although we do have some orders that we've talked about in our backlog that are for new construction, however, most of what my commentary related to was on the MRO side.

Okay. And the two stationary plants, the Vogtle and Summer, I think you originally had $15 million of orders. Is all of that still in backlog or there has been some percent completion?

Oh no, we have converted a good percentage of that. It is probably somewhere around 50% to 60% remains.

Okay. And I think originally the size -- you had talked about maybe another $15 million to $25 million potential content out there. I know those projects seem to be hitting some challenges. But I guess is there any thoughts on additional content out there and maybe the timetable for when those projects start heading towards completion?

We have won some additional content, but it has been smallish. So we have secured additional orders for the Summer or Vogtle plants. Some of the larger work hasn't materialized yet in terms of placing orders and admittedly, there has been a couple of orders that we've -- have been a couple of orders that we have lost.

Okay. And on the spent fuel storage containers, any update there? The current CapEx plan, does that include any of that in Lapeer? I guess just overall update on what you think on that market?

We are still developing our strategy and operating model to participate in that segment of the nuclear utility business. Our strategies have not been formulated to the point where it would warrant a CapEx.

Okay. And then last on the naval nuclear, the carrier program. You mentioned the bid cycle on CVN-80. I was just wondering, on CVN-79, I thought maybe there were still a few pieces up in the air beyond the $25 million surface condenser. Are any of those still out there or it is really shifting towards looking at 80 at this point?

We are shifting our attention towards 80. Some, one or two orders have been placed for additional addressable opportunity. We were not successful on 79.

Okay. And the $25 million service condenser, just what percent of that is still in backlog versus revenue recognition?

It is about half. About half of it remains.

Okay. Great. Appreciate that. Thanks.

You are very welcome, Jason.

Thank you. There are no further questions at this time. I would now like to turn the floor back over to Mr. Lines for any concluding comments.

We thank you for your time this morning and we appreciate your questions as we discussed Q3 and our outlook as we move forward. We had some very good discussion around markets and direction of our business. We appreciated your questions and we look forward to updating you on our fourth-quarter conference call late May. Thank you.

Thank you. Ladies and gentleman, this does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation.