Q2 2019 Earnings Call
Second quarter earnings Conference call.
At this time, all participants are in 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'd now like to turn the call over to our host.
Mr. Mark craft VW X T is director of Investor Relations. Please go ahead.
Thank you Ben and good morning, everyone welcome to BW <unk> second quarter 2019 earnings call.
Joining me today are Rex Jackson, President and CEO , and David Black Senior Vice President and Chief Financial Officer.
On today's call, we will discuss certain matters that constitute forward looking statements that involve risks and uncertainties, including those described in the safe Harbor provision found in Yesterdays earnings release, and our FCC violent.
We will also provide non-GAAP financial measures, which are reconciled to GAAP measures in our quarterly materials.
Copies of these documents along with a replay of today's call are available on the investors section of our website.
And with that I will turn the call over to Rex.
Thank you Mark and good morning, everyone.
Yesterday, we reported second quarter results with solid revenue and earnings per share growth of 7%.
This reinforces our proven ability to deliver good business results on operational excellence.
As we execute against our robust robust backlog and looked at future growth through a number of strategic initiatives with about 55% of our earnings for 2019 still anticipated in the second half.
We continue to focus on strategic priorities and operational execution to deliver the balance of the year and position the company for continued growth in future years.
I will now provide a brief business update before handing the call over to David.
In the nuclear operations group, we are driving higher shop volumes across all platforms, including the new Columbia class submarine.
And so all those efforts bear fruit in the second quarter through increased production tempo and the acceleration of some long lead material.
We continue to aggressively hire qualified personnel for the multi year production ramp and are making very good progress towards those goals.
We anticipate this growth trend to continue through the year driving increased second half earnings.
Through higher volumes and materials as we exit 2019.
The energy segment is also making progress on contract proposals for the accelerated Ford class carrier.
In a separate order for long lead materials, we anticipate wrapping up those negotiations in the second half of the year.
Which will provide additional visibility in backlog for the nuclear propulsion franchise platform.
The team is also performing well.
On missile tube repairs, we have completed all repairs on the Virginia payload module tubes center about halfway through the total welding rework campaign.
Missile tube repair costs remain on track and we expect to complete the bulk of the repairs this year.
With the remainder of delivery obligations for the missile tube production extending into 2021.
At this point, we have not received any incremental orders from missile to continuous production.
As we have mentioned on prior calls in the absence of any additional orders we plan to reallocate most of that Capex to support future growth in the core Navy business.
Lastly, national Defense budget negotiations continue to reflect positive traction for KBW XT programs that to two weeks ago, the president and congressional leaders announced an agreement on a two year topline budget, which eliminated the threat of sequestration and paves the way for timely approval of a government fiscal year 2020 Appropriations Bill. This fall both Senate and house versions of the government fiscal year 2020 National Defense Authorization Act as well as the house Appropriations Bill proposed funding for long lead procurement of nuclear propulsion equipment for a third Virginia class submarine and 2020.
In the nuclear power group, the commercial power business is performing well.
Refurbishment work continues to be a growth opportunity. However, some of that future growth will be moderated by completion of the China steam generator project.
As we discussed on prior calls our recurring service work is lighter this year due to the cyclicality of scheduled outages. Despite the foregoing. The team is highly focused on execution and has delivered superb operating margins year to date.
In the medical radio isotope business, we anticipate the introduction of two new products into the market in Q3, and the 111 Oxy Quinlan in germanium 68, which should give the base isotope business respectable incremental growth into the coming year.
Importantly, and medical radioisotopes, we continue to progress toward moly 99 commercialization.
And the second quarter, we made significant strides on the final design of the manufacturing lines and our operating.
Full scale pilot plant in Lynchburg Advanced Technology Laboratory.
We have also begun facility modifications at our main plant in Ottawa and have placed long lead material orders for the moly 99 Radiopharmaceutical line.
We continue to project commercial readiness in the first quarter of 2021.
And the nuclear services group a back half weighted year continues to be driven by timing of second half.
Performance milestones across our joint ventures, similar to last year.
Over the last quarter some of the near term opportunities have shifted out or were eliminated putting incremental pressure on operating income growth for that segment. This year, which has resulted in lowering the NSG guidance to reflect our current view of 2019.
And lastly, we are investing heavily in the business for future growth, while deploying excess capital to shareholders where appropriate.
Year to date Capex remains elevated primarily supporting Navy growth.
And we anticipate capex spending to increase in the second half of 2019 as we build out the moly 99 production line.
Let me now turn the call over to David to discuss segment results guidance and other financial matters.
Thanks for act starting with segment results.
Nuclear operations group generated record revenue for the second quarter of $358 million up 7.9% year over year, driven by higher production volume and the acceleration of long lead material purchases.
Operating income for the quarter was $75 million up 12% due to higher volume in the absence of missile tube charges, we incurred in the second quarter of 2018.
The nuclear power group produced $87 million of revenue in the second quarter, a 14% increase when compared to the second quarter last year, driven by an increase in refurbishment component work and the medical radio isotope acquisition.
Partially offset by the anticipated lower volume in recurring field service activity.
Second quarter segment operating income nearly doubled versus the prior year period to $14.9 million driven by higher volume in the commercial power business, including contract improvements as well as the medical radio isotope acquisition.
Second quarter MPG operating margins were robust at 17.2%.
And lastly, the nuclear services group contributed operating income of $1.8 million in the second quarter.
Down about $1.7 million versus the second quarter of 2018.
Improve site performance was more than offset by higher bid and proposal activity and contract completions in 2018.
Moving now to total company results as Rex mentioned second quarter EPS was 62 cents up 7% from the second quarter last year.
Higher segment volume solid operating margins and lower share count were partially offset by higher interest expense and lower pension income.
The company's second quarter capital expenditures were $31 million, bringing year to date capex to $76 million up 123% versus the halfway point of 2018.
We also continued to return capital to shareholders in the second quarter through $16 million in dividend payments.
This brings total year to date capital returned to shareholders to $53 million inclusive of $20 million and share repurchases to offset dilution.
The board of directors continues the dividend trend by declaring a cash dividend of 17 cents.
Per share payable in the third quarter of 2019.
The company generated $65 million of cash from operations in the second quarter of 2019 up significantly versus the prior year period.
This resulted in an imbalance of short term investments net of restricted cash of $38 million at the end of June 2019.
Our gross debt totaled $879 million at the end of the second quarter 2019, including $400 million in senior notes $279 million in term loans and $200 million and borrowings under our revolving credit facility.
We also had $66 million in letters of credit under our credit facility and as a result have $234 million of remaining availability.
Turning now to guidance.
We are reiterating our 2019 guide.
non-GAAP earnings of about 250 per share on consolidated revenue growth of about 6%.
Our EPS guidance continues to contemplate tailwinds from higher volume and reduced share count.
While still expecting about 20 cents of EPS headwind from increased interest in research and development expenses and lower noncash Fas pension income reported in other income.
We have updated a few components of our underlying guidance to reflect our performance to date and the outlook for the remainder of the year.
In the nuclear power group, we now expect operating margins of about 14% for 2019 versus the prior guidance of 13% with 90% of our guidance either achieved to date are in backlog, we remain confident in our revised guidance for this segment.
In the nuclear services group, we are updating the operating income guidance to approximately $20 million for 2019 down from our prior guidance of about $25 billion. We believe that one of the deal. We Hanford awards is moving to the right.
Pushing an anticipated award and associated income from the contract into 2020.
In addition to deal we contracts there were a couple of commercial opportunities that did not materialize, including the decision to close the U.S. nuclear plant on three mile Island that was originally slated for service outage work.
We have slightly improved our guidance for corporate unallocated expense, which we now anticipate to be less than $20 million based on.
Focused cost management.
All other components of 2019 guidance remain unchanged.
And lastly, we continue to re or reiterate our long term non-GAAP EPS guidance of a low double digit EPS CAGR over the three to five year period from our 2017 results and with that I'll ask the operator to open the line for questions.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Bob Labick with CJS Securities. Please go ahead Sir.
Hi, Good morning, it's Pete Lucas for Bob Oh, I think you've touched on it I think you guys touched on it but how does the energy pull forward impact the cadence of earnings into H. was it more from Q3 or Q4 and also the Columbia class. It sounds like everything is proceeding on schedule. There just wanted to touch on the cadence of that for 2020.
Yeah, Pete I'll take that we we kind of Ics expect a sequential buildup of earnings from the first half and into the second half Q4 being heavily more heavily weighted in Q3 is the way we see that going in terms of the Columbia production, we're doing very well with it you can see that in our Q2 results that was.
One of our three strategic priorities for the year was to ramp successfully on the new Columbia product line.
And we've been able to we've been able to hire successfully weve been able to get that product line up and going so we were quite optimistic about it.
Great, Thanks, and I'll jump into the nuclear services group. The bids you spoke about where these new opportunities and when we you know the outcome of those.
Yes, there are two new opportunities at Hanford at the Hanford site deal we opportunities related to clean up out there one is called the central plateau cleanup contract and the other the other one is tank.
It's a waste tank remediation contract.
We.
Both of those.
One of those likely be awarded this year the other one likely into next year.
And we're competing on both of those.
And last one from me nuclear power group can you expand on the contract adjustments in the quarter and just briefly touch on the quarter there.
The contract adjustments are just normal adjustments and improvements in contracting.
One of those would have been the China steam generator projects.
That would have helped the quarter quite a bit but once again that is complete and will not be in our future. So.
But those are normal.
Finishing up the contracts and taking adjustments or improvements for those.
Great. Thank you very much I'll jump back in the queue.
Thanks, Dave.
Our next question comes from Pete Skibitski with Olympic Global. Please go ahead.
Nice quarter guys.
Thank you. Thank you.
Hi, just a chill down more on NOG in the second quarter. So it was Columbia, the biggest driver to growth and.
Yes, I'm just wondering at what point you guys are starting to ramp on Virginia block five as well.
And.
Both of those programs kind of ramped fully during the second half and into 2020 and just in terms of tailwinds or not.
Yes Pete.
I wouldn't say the biggest contributor was Columbia, it's certainly a significant contributor but we've got.
You know we have high tempo production for all three major product lines right now so Ford is going Virginia's going Colombia, Colombia is going we're working.
Because of the volume and because of the demand signal, we have mandatory overtime going at all of our plants all five of our North American and our dedicated plants.
And we've added some shift work in order to meet that demand and of course as you well know we're capitalizing for additional growth in the future. So.
Sort of an existential operational challenge for US is to deliver good results on the existing product line and to build out the factories in the meantime for additional production. So I think we're kind of walking that tight rope really well right now and we expect that momentum to carry us into 2020.
Okay. So you are at the early early stages of all three of those programs have it sounds like.
No. We're in the early stages on Colombia were just mid stride on Virginia and Ford.
Okay. Okay.
Last one for me.
Rex how many isotope program, if you're going to have.
Post. These next two when they come online and then are there are there more on the hopper ex Molly.
Yes, there are.
Pete We had was the business that we bought the former Nordion business, which is headquartered in Canada and has significant cyclotron operations in Vancouver had five existing product lines.
There is fear is one of the large ones had nice we have nice product line and strontium and three others and so when we bring the.
India Maxine online.
Along with gallium germanium product that will be seven total product lines Molly would make eight product lines and we're also working towards we have R&D activities on future therapeutic drugs likely TCM 177, and actinium to 25.
Along with an iodine 123 that we're working on that comes out and probably a couple of years. So I mean, you can see product portfolio of 10, 11, 10 11 products in the next.
And the next half dozen years.
Okay, that's great and it seemed like this was going to be higher margin unit then.
Then the balance of MPG is that.
Would you agree with that.
Yes, generally it's a higher it's a higher margin business than any of our businesses you know we have.
Minnesota value shot construction across most of our business and we have gross margins that run lets call. It in the low thirtys typically across those three business units.
The historical business units. This is a more of a commercial value chain kind of business with product development characteristics to it and so gross margins tend to run in the.
Let's call. It certainly north of 50, maybe mid Fiftys contribution margins higher than that obviously, so incremental revenues make a real difference in that business.
That's great. Thanks for all the color guys.
Thank you.
Our next question comes from David Strauss with Barclays. Please go ahead.
Hey, good morning, guys at acres on for David.
Morning.
I want to ask about nuclear power are you able to break out what.
Sort of organic growth would have been ex nordion in the quarter.
We actually haven't reported that separately historically the thing I would say is that we have said when we acquired the Naughty on business that you can think of that as a 40 or $50 million business and so you can you can sort of get the run rate from it but we're not reporting it separately.
Got it okay.
And then I guess, one other one on nuclear power sort of.
I think your guidance implies margins drop off in the second half of that thing driving that or is that is that maybe the China steam generator stuff coming off.
Once again, we had some contract adjustments here for some closed contracts, including the joined the steam generator projects. So.
Right now we are forecasting the year to come in around 14%.
Got it okay. Thank you.
Our next question comes from Ronald Epstein with Bank of America Merrill Lynch.
Hey, Thanks. Good morning can you provide an update regarding the FDA approval process for moly 99.
Sure Theres no theres no change in that we.
We expect to be submitting reference batches in the summer of 2020, and then there's there's a timeline for approval by the FDA that we anticipate to be seven or eight months in length or something like that for an accelerated approval, which we which is the path that we believe that we're on we have had a number of preliminary meetings with the FDA and we'll continue to have those as we move along but the important milestone.
Is to submit a reference batch, which was which is basically material that's been produced.
On the production equipment in the factory and then take that through an FDA approval. That's that's the key milestone for us for production.
That's helpful and maybe switching gears to the Navy.
When we look at that increasing Navy build we're seeing so manufacturers struggle with absorbing less train workers, particularly in welding and that's been resulting in a rework and higher costs.
Can you discuss where you are with your labor requirements and training plans that you have in place so that you could prevent.
Quality issues, especially as we ramp up in volume for U.S. Navy work.
Sure. There is a couple of things I would say about that one is we certainly are ramping pretty aggressively right now.
We extended over and.
And had accepted over 100 offers in the last quarter.
We're finding very highly qualified people, but we do have robust training programs and we take people through.
Sort of not in addition to sort of the classroom training that you have to go through for criticality safety and things of that nature, but we take them through pretty long on the job training program. So that when they are released into production work.
The risk of defects is or the risk of a problem is this we hope relatively low.
I would I would also say that that.
In the case of the Columbia program.
It's.
I would say, it's incrementally different from Virginia and forward not so not dramatically different from Virginia and forward in terms of the kind of technologies and materials that we use there. So theres a familiarity to it and I think therefore limited amount of risk to stumbling on that product line. So.
We're watching it very vigilantly and and believe that we are on track to do well with it.
Thank you.
Well.
Our next question comes from Robert Spingarn with Credit Suisse. Please go ahead.
Hey, good morning.
Any Robert Pursel.
Nuclear operations. There is the I guess the margin falls off in the back half just due to the lower volumes because of the acceleration into Q2 is that.
Is that why it drops below 20%.
Your question is on NRG energy.
And once again I think for NRG, we say that the high teens, there's going to be the margins except for.
The fact that you do have some pension reimbursements still for the next couple of years that will take you.
Two to 300 basis points higher.
So we haven't.
We havent claimed.
Specific.
Percentage in the future except for that.
Okay. Okay. So if all right.
We'll take that offline.
On.
Rex you talked about your progress in Remediating the missile tube.
Issues, but you made a remark there about not receiving incremental orders for additional tubes yet.
So I wanted to ask what your discussions are like with customers is there a pathway to stay in the business or the exit.
Yes, I think Rob Theres, I think theres a pathway to stay in the business, we want to do it we certainly as we've said on two or three calls now we'd want.
No.
Favorable terms, so that we could we can be profitable and it could be an interesting product line for us to discuss the tone of discussions as cooperative and favorable I believe that the ultimate client.
The Navy NAV C would like to have more than one domestic supplier at least on the common missile compartment tubes and so.
We continue to have productive discussions.
And we'll see how it comes out.
Okay, and then just looking longer term from a capex perspective.
You've talked about the 3% to 3.5% of NOG sales.
But I wanted to get an idea again on the timing of reaching that given the ramp in the Columbia ended the 2000 Twentys and then just.
Overall, what your Capex looks like long term when we factor that together.
With what you've been doing in the in the medical business.
The 3% to 3.5% is overall for the company as what we're saying is our normal capex once we get through this period of time of growth Capex.
This year, we say 225 is.
The amount of capital inside of that capital is about 50 million for.
The medic radio isotopes business, we feel that there's about 100 million more on to throw on top of that we look at this year and next year.
To be the two high capital years.
And then when we get into 21 by the end of the year you are going to be at that.
3% is the second half of the year, 3% to 3.5%. So so you've got this year next year, and then you're going to start coming down, but as far as medical radio isotopes, we feel 50.
This year and it's about 100 next year.
So so 22 is your first next two or three years for the 100, yes, gotcha, so, but but you've got something in each of these years, it's the back half of 21 that normalizes.
Yes back half at 21 winner.
Got it thank you.
Yes.
Our next question comes from Peter Arment with it.
Baird. Please go ahead.
Yeah. Thanks, Good morning Rex David.
Hey, Rex you mentioned the 50% of the.
On the missile tube that you've completed.
But you don't finish until it sounds like early 2021, just could you walk us through that process of just the timeline of where you expect to be I guess at the end of this year.
Yes, Peter.
Good morning.
Right. So there is a couple of couple of repairs that bleed over into 2020. So.
So the vast majority of the missile tube repair work is done this year were all but done by the end of this year on the missile tube repairs. We believe the 2021 reference was was to the.
The normal delivery schedule that we have for the rest of those tubes, we still have.
A number of missile tubes to deliver some of which weren't even started when this missile tube.
Well the problem occurred so that story there repairing through this year continuing with normal production through this year and then delivering missile tubes, all the way into 2021.
Okay, and then just as a quick follow up on the.
The NRG growth. This this quarter was the just the long lead items that pulled pulled into this quarter was that just unexpected or is just a timing thing.
Just trying to get some clarification there. Thanks.
It was no it was not unexpected Peter what we we put put some pretty good steam into Q2, because we really want to try to de risk the second half and so as I mentioned a bit earlier in one of the other questions. We we have some mandatory overtime running at a pretty high level.
We added some shift work, we did pull long lead materials, where where we could and so.
We put our shoulder into it to deliver that kind of result, and we'll keep up that tempo through the year, but it was really more about trying to de risk the second half.
Okay and just lastly on you mentioned if you don't.
Do any more missile tube work, you'll be reallocating that capacity.
Maybe you could just walk us through a little bit of that you have to work obviously so absorbed.
We do.
So the large components in our Navy program or made it too.
Primary plants, those are barberton, Ohio, and Mount Vernon, Indiana, very large components, there and we've got more.
More work than we have capacity right now so that that there is a building that we call.
To 19 that was refurbished.
It was a building that was built decades ago, we refurbished it for the missile tubes and has large machine tools.
Tool cribs.
Various kinds of welding equipment various kinds of things that are common to both programs and so it will be a pivot to naval reactors work large component work in that facility should that occur and and it'll offset the capex needs that we have for the overall navy growth by somewhere in the tune of maybe about $10 million and so there is some savings to be had there if we pivot towards in our work.
Appreciate it nice quarter.
Thanks.
Our next question comes from Michael come only with Suntrust. Please go ahead.
Hey, good morning, guys. Thanks for taking the questions nice quarter.
Right.
To stay on them, but just to stay on the.
The missile tubes would there be any.
Any charges or costs I mean based on what you just said it sounds like you can pretty seamlessly pivot without incurring any shortage shutdown costs, if you decide to exit the market.
Yes, Michael we believe there is.
Very low risk of stranded capital in any case, it's immaterial.
So most of that equipment is it's.
I don't want to say garden variety, but it's the kind of equipment that you use for large components such as missile tubes reactor vessels closure had those kinds of things.
So it's a pretty easy translation.
Okay and then just on the recent award I mean, Youve got the got the contract to produce.
28.
Two.
Can you just give us the background around that that award I mean, it sounds like if you guys are going to participate in this market we want to make sure your returns and margins are there so.
Anything that we should read into that to that recent award from BA on your China future.
So you know the B award is for the Virginia payload modules and so it looks like they've got the lion's share of that.
I think we've always thought our future with more around the common missile compartment.
We've.
Historically one.
At least about half of those orders and so that's really where our opportunity lies in future I believe but but you are correct in stating the fact that we're not interested in the future orders unless we do have a.
A way to make money on these orders.
Got it got it and then.
Yes, maybe David just one more housekeeping on the the NPG, we talked about the margins here, what's the margin increase.
A sole function or those contract improvements and can you quantify what they were in the quarter.
Yes, I don't think we don't think we've quantified those separately I will say that that margin.
Very robust margin, which is going to be a high hurdle for next year Q2 was primarily driven by contract improvements in the China steam generator project, a few other things there too but that China.
Steam generator project, which we've been doing for about three years is right on the verge of wrapping up.
It has put a lot of income on the bottom line. So that will go out of the business and we'll have to find ways to try to.
To try to maintain.
Try to maintain margins in future but.
But but most of it was that.
But we also have some some noridian in there because you had the new acquisition and that as Rick mentioned what.
That business and the gross margins are in that business that also helps so.
It's a mix of the two.
Got it and then just last one from me on the on the FDA update and I know you said there was no real update but you kind of set a seven to eight months.
Process, where you are on this accelerated path you believe you are on that.
Is the timeline pretty tight to get to that.
Commercialization in the.
21 time period is there is there room for any slippage if your turns out you're not on that accelerated time to ask for 121.
It's.
There's a little bit of guesswork around the regulatory timeline. If you look at the history of these accelerated approvals that kind of range anywhere from about two months to maybe nine months and so.
Maybe we'll get Lucky Lucky and get an earlier approval there might be a little bit of cushion there.
But in terms of the rest of it you know we have three primary kind of activities that are going towards.
The industrialization of the Mali product line. One is this target delivery system that we put on the reactor to move them move the Mali through the.
Through the.
Through the Candu reactors to accept the neutrons.
And Thats on track and then the other two components will go into our plant near Ottawa, Canada.
And those are the radio Chem line, which is the process the material after it's been irradiated.
That involves modification of hot sales and installation of some equipment.
As we said in the call here, we've got the full scale pilot plant running in Lynchburg right now.
Which is which is a.
An identical version of the equipment that will be.
That will be put into auto and that's running well by the way. It's a cold it's a cold chemistry process is not irradiate immaterial, but but it's identical.
And then the final thing is the radio pharmacy Radiopharmaceutical line, which is the line that we use to place the material into these generators, we've got contracts out on all the major pieces.
For example, the hot cell modifications and some other things and then we're doing plant modifications up in Ottawa. So so I would say Michael there is a lot to do.
We have not done a lot of walls and install a lot of equipment and our vendors have to deliver on time, so I worry about it I'm personally doing quarterly schedule reviews.
Detailed schedule reviews, and obviously the leaders of that project or are looking at it every day.
So keeping our on it and I think there is some risk in it but so far so good we're on track and.
Is that transition once you get the green light to production I know you've said you've got the full scale pilot do you think that can be kind of flip that switch pretty quickly to get onto a.
Full rate production.
I think so we're planning to do.
The way we have it planned at least kind of the way we model. It financially as we are expecting to see sort of crawl before we walk and walk before we run so we'll be we'll be doing a limited amount of production in the early stages.
And then let's let's call it sort of ramping up to full production capability over a period of months.
I certainly don't think we'll hit the main pull the main breaker and suddenly we're producing.
Half of the global demand or anything like that.
Got it that makes sense. Thanks, a lot guys.
Thank you Mike.
Our next question comes from Carter Copeland with millions research. Please go ahead.
Hey, good morning, Thanks for taking the time.
Marty.
Just a quick question Rex on the on the mix of business at NRG I made the comments earlier on early stages on Colombia, you seem like you're.
Coming up the curve nicely on there and you sort of highlighted mid stride on on Virginia Ford I. Just wondering as you look forward to the remainder of the year or you know into 2021, you just look at the general sort of risk retirement opportunity at NRG and if theres any kind of evolving change there as you as you transition a little bit any color there would be helpful.
Okay. So maybe.
The offer little detailed Carter before before I get to you at the heart of your question.
So when you think about what's going on in our shops and we articulate this in our investor briefing.
As we've said before that the delivery schedule for a typical Virginia is his six years give or take and.
Navy's ordering two of those per year, and so think of about 12 different shipsets going through our factories that.
Various stages of completion at any one point in time, some of them new orders and some of them on the verge of delivery.
And we have a single Columbia going through right now so that that will give you some sense of.
Of the sort of the volume comparison, and then for the forward the Navy orders to orders.
Forward.
Aircraft carrier.
Nuclear propulsion system every five years, there happened to be two of those systems on each carrier and so and those take about eight years to deliver so think of anywhere between two and four different Ford shipsets going to the factor at any one point in time, So Colombia is not a dominant feature of the production right now it's a critical feature because we're ramping up on it.
But it's just a single shipset compared to those 12 Virginia's in those let's call that those four for awards.
And in terms of any risk.
You know thats the stuff that we're kind of knocking down day by day.
We've got to.
To learn how to process that material and do it at high tempo.
As we go through it but I think as I as I opined earlier.
We are doing that in our Q2 results speak to that so we're not hitting any stumbles in the Columbia line at this point in time.
Okay. Thanks for the color and just as a quick follow up on NSG the.
The slippage versus a complete removal of some of the opportunities you envision there any color you can give us on that.
Yes, so the.
So our missed opportunities are in primarily in what we call our and E nuclear energy use services business, where.
In one case as David said in the script three mile Island plant was shut down we had a service outage scheduled for the second half for that we had another opportunity that was a swing and a miss in that business. These aren't large, but they but they tend to be significant in the scale of the NSG operating income.
And then that.
We have a we have a bit of a bit of income in our plan related to the hanford opportunities in the second half.
Not large, but it's but it is a feature of our second half and one of those two hanford opportunities.
The award timing, we believe is going to move into next year, and so that puts a little more risk and ESG in the second half and Thats. The reason, we dial back the guidance on it we're still in play for both of those.
And we're optimistic that we could win.
Certainly at least one of those.
We have that optimism, but but thats the thats the way we characterize.
The that that aspect of it.
Great. Thanks for the color guys.
Yes, Thanks Carl.
Our next question is from Josh Sullivan with Seaport Global Please go ahead.
Hi, good morning, Thanks, David Nice quarter here, Hey, Marni.
Thank you.
Just a question on the I still market can you can you talk about the current pricing dynamics in the TC 99 market and maybe just how you see that evolving as you and shine enter the market and I guess do you think that the older supply chain becomes obsolete supporting that market as you guys entered the market.
Yes. So it's an interesting question, Josh I mean, you really got to players there.
Curious and Lantheus supply North America, right now and they're supplying those from research reactors in Europe and in other places.
As you know those reactors are old.
Those research reactors typically about 50 years old and their supply discount annuities that result from unplanned.
Unplanned outages and regulatory issues and all of that you can see that reaching a little bit of havoc in the current market. So I think our entry to the market creates a.
Continuity of supply feature that will be quite attractive to radiopharmacies in that and we're kind of betting on that outcome.
As to the other entrants the other potential players I think it depends on the kind of timelines they could achieve.
Our plan is to get to market as quickly as possible and to reach high production tempo fairly early.
And we'll see what effect that has on the competitors.
Got it.
And then just one with regard to the Candu reactors are there opportunities outside of Canada. I mean are there international Candu reactors that you guys might be able to address as well over time.
Yes, there are few I mean, there is one in Romania churn of Voda Theres one in.
In Argentina, a couple in South Korea.
Couple in China. There are some can do like reactors kind of knock offs that are in India.
So yes.
That's right. So you can think about a global footprint with the Candu irradiation services capability.
And it's it's an interesting thing and we we kind of have our eye on that.
But any idea of timing or anything with those reactors coming there or is that more longer term.
No I think it's a longer term Josh we want to we want to attack this north American market, which is probably half the global market really concentrate our resources there get stable. There and then we can think about the expansion of our footprint.
Got it.
And then just one last one on you may be is the direction. The Navy is taking the programs such as the Orca.
Are there any plans to have any of those systems nuclear powered or any portion of the power supply chain to be nuclear powered just trying to get an idea of how BW X T might fit into the drone ecosystem as things evolve.
Yes, so I havent heard of any plans to nuclearize those kind of platforms, Josh I think it certainly conceivable possibility.
We are as I have said a couple of times working on a class of very compact high temperature gas reactors were calling those micro reactors.
We're concentrating on space and National security applications right now such as.
Take it forward bases off the grid or providing surface power first for space exploration.
Or to power directed energy weapons of lot of very lot of very interesting applications of compact reactors and so you could conceive of that application, but I don't know of any navy plants to do that yet I do think you can imagine.
Nuclear applications across a variety of.
Of National security problems, though and I'm quite bullish on it.
I appreciate the time thank you.
Thanks, Josh.
Our next question comes from Tate Sullivan with Maxim Group. Please go ahead.
Hi, and thank you very much on a couple of follow ups from me and you've covered a lot of it and thanks for the moly 99, and other isotope product on conversation too.
Next I will surprise, you mentioned that you're working on a single Colombia. Now then what does the higher cadence of work really to just dedicating more employees to that specific job.
Well theres that yen plus theres, the two Virginia tempo that were in that we did that a few years ago. We were not in so it's done it's the whole Navy.
355 ship building plan so there's.
There is the two virginians, there's the introduction of the Columbia and then there is the acceleration of the Ford.
Onto a four year.
Order cadence at least for this next one and possibly into the future. So it's all of that combined Tate.
I'll have a follow up but I mean, I see just the shipyard ordering plan. The other the next Columbia's 2024, and with a six year timeline does it depend on the next but budgetary Navy Navy budget round to start working on that Colombia or can you give any potential timeline on that.
Yes, so as you will know the long lead items for those Columbia ships are of the nuclear equipment as order two years in advance of when the ship is ordered so when you look at the Navy ship building schedule, that's the whole delivery schedule as a way to think about that that's when the shipyards began their work we start two years prior to that and so the reason we're working on Colombia now the first one is because the first Columbia Bode is ordered in 2021 and so the the ship that you see in 2024 gets order from us in 2022, and so on so just subtract 24 months from the ship building schedule to see when the reactor equipment is ordered and of course, yes, as always and all of our programs of this nature it depends on congressional authorization appropriation.
Thank you and then last follow up for me in sorry was it two or three years ago. You also had a chat another China boiler order that did that helped margins in the quarter are there any replacement orders for that or is the tempo every two or three years or should I not look at it that way.
There is maybe some probability of follow on orders the Chinese.
Company that we're selling those steam generators to is proposing work in the UK. For example, so it's possible that there are things out there in the future that would use our steam generator, but it's not a thing that we're counting on our planning for at this point. So you can think of that when is going out of the portfolio.
Okay. Okay. Thank you very much.
Operator, we'll take our last question.
Okay. Our last question comes from Pete Skip.
Skibinski with Olympic Global Please go ahead.
Yes, just one follow up on Noridian.
This may be too simplistic, but just going from.
Five product lines to side and just excluding Molly that's a 40% increase in product lines.
Is it reasonable to think that Noridian again acts Molly can grow double digits. The next couple of years just on the back of the new products ramping.
Yes Pete.
Of course, all those product lines don't have the same kind of volumes and so the math I would offer is that.
It depends on.
The market uptake here, but but I think these two product lines conservatively could add.
Incremental revenues in the 15% to 20% range.
I can certainly see it going above that depending on how well the market responds to it but theres certainly existential demand for these products and we'll see some growth.
Okay, great. Thank you.
Okay. Thanks.
Thanks Pete.
This concludes our question and answer session I would like to turn the conference back over to Mark Kratz for any closing remarks.
Thanks, Thank you for joining us. This morning. This concludes our second quarter 2019 conference call. If you have further questions. Please call me at 9.0 306 540 300. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.