BWX Technologies, Inc. (BWXT) Q4 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Babcock & Wilcox Company Fourth Quarter 2014 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 this time. I would now like to turn the call over to the host, Jenny Apker, B&W's Vice President, Treasurer and Investor Relations. Please go ahead. Jenny L. Apker - Treasurer & Vice President-Investor Relations: Thank you, Sandra, and good morning everyone. Welcome to the Babcock & Wilcox Company's fourth quarter 2014 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, our Senior Vice President and Chief Financial Officer. Many of you have already seen a copy of our press release, which we issued late yesterday. For those of you who have not, it's 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 provision for forward-looking statements that can be found at the end of our press releases. 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 statement 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 results and 2015 outlook to supplement the results provided in accordance with GAAP, and it 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 fourth quarter earnings release issued last night and in our company overview presentation posted on the Investor Relations website at babcock.com. Due to the numbers 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 into the queue. With that, I will turn the call over to Jim. E. James Ferland - President, Chief Executive Officer & Director: Thank you, Jenny. Good morning everyone. B&W concluded the year with a strong fourth quarter. Our Nuclear Operations group posted record revenue and operating income and our Power Generation group recorded quarter-over-quarter improvement in revenue as well as major bookings that will provide a platform for growth for the next few years. Non-GAAP operating income totaled $108 million for the period and adjusted earnings per share were $0.64 versus $0.52 in the fourth quarter of 2013. These results exceeded our fourth quarter and our full year EPS forecast in large part due to a contract adjustment with NOG's customer. This agreement provides improved allowable cost recovery on certain long term investments that we've made in support of the critical national defense programs we serve. The remainder of the positive variance came from stronger than expected operational performance from our core NOG and PGG business units. Including the impact of this contract change, the Nuclear Operations Group posted its highest quarter ever for revenue and operating income, completing another record year. Bookings in Q4 included the release of our annual award as well as new missile tube work we won through a competitive process. We will continue to seek adjacent growth opportunities like the missile tube work where we can use our precision manufacturing capabilities for other government applications. The Power Generation Group reported its strongest bookings quarter in almost three years, driven by new international coal and renewable waste energy projects awarded during the fourth quarter. We ended the year with a backlog of $2.2 billion. Further, we've announced one additional $200 million award in the UK for a renewable waste energy plant that will be booked in the first quarter of 2015. These plants will be constructed over the next two to three years. Given our superior technology and support from our expanded international business development team, we will continue to look for opportunities to expand our renewable waste energy business. PGG's bid pipeline remained strong at the end of the year at $2.6 billion. Going forward, we expect that the strength in U.S. dollar will have a limited impact on the bottom line at PGG, as most of our international contracts are denominated in the same currency as the costs are incurred and our international coal and new build projects are generally dollar denominated. Shifting to our other businesses, the Nuclear Energy segment reported its strongest annual bookings since 2010. During the quarter, we announced a long-term agreement with Bruce Power for the supply of outage services for steam generators and preheaters. We believe this business is positioned to consistently generate revenues of $150 million to $200 million per year. NE's restructuring continues on track to achieve a 10% operating margin by 2016. Fourth quarter results for this segment were impacted by a $16 million unfavorable jury verdict in a lawsuit with AREVA NP involving a dispute over potential royalties. We were surprised by and disagree with the jury verdict and believe the plaintiff's claims are without merit. Accordingly, we are pursuing a variety of post-trial remedies including, if required, an appeal to the Supreme Court of Virginia. In Technical Services, we continue efforts to rebuild our portfolio of high consequence nuclear and national security sites that we manage and operate for the U.S. government under long-term contracts. The TSG team is actively engaged in multiple bids for sites in the U.S. and UK, in addition to pursuing a major opportunity in Canada at the Chalk River National Lab. We believe our B&W led consortium is well positioned to complete for the Chalk River contract given the bid criteria and the strength of our team. Based on the Canadian government's timeline, we expect this contract will be awarded by mid-summer with the new contract commencing at the end of 2015. We also continued to pursue a number of attractive new business opportunities. However, these activities will have only a limited impact on TSG's operating results in 2015 given the long timeline for the bid review and award process. As previously discussed, the mPower program spend rate has been reduced to $15 million annually and is focused on technology development in preparation of a design certification application while we continue to pursue additional investors to support the program. Now Tony will discuss the segment results and other financial matters, after which I will share an update on our planned spin-off of the Power Generation group and our thoughts for 2015. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Thanks Jim. The Nuclear Operation segment reported record fourth quarter revenues of $343.8 million, an increase of $50.4 million compared to $293.4 million in the same quarter of 2013, primarily attributable to a contract change order that impacted existing backlog contracts. Backlog in Nuclear Operations at the end of the fourth quarter of 2014 was $2.78 billion, $408 million greater than the same period last year due to early placement – earlier placement of annual awards that were delayed last year due to the government shutdown and sequestration concerns. Nuclear Operations segment operating income was $90.4 million in the fourth quarter of 2014, which was a record, compared to $53.6 million in the prior year period. In the fourth quarter of 2014, NOG completed the negotiation and execution of an agreement with its customer that resulted in an increase to the allowable costs and the resulting contract value of its existing backlog contracts. As a result of the contract changes, revenue increased by approximately $40 million and operating income increased by approximately $20 million in the quarter, reflecting the cumulative effect on a percentage of completion basis of the change in backlog value and margin of existing contracts. We expect a small positive impact as well on 2015 sales in operating margin, but on balance the year-over-year earnings impact will be about $15 million less in 2015 versus 2014. As expected, Power Generation bookings in the fourth quarter were $557 million, significantly more than the $278 million we booked a year ago. This increase reflects a new coal-fired boiler for a project in Vietnam and the booking of a waste energy project in Scotland. Backlog in power generation exceeded $2.2 billion at yearend 2014, reflecting our continuing focus on winning targeted international and renewable waste energy projects. Revenues in the power generation segment for the fourth quarter of 2014 were $444.6 million compared to $408 million in the fourth quarter of 2013, an increase of $36.6 million. This increase reflects the addition of $52.9 million in industrial environmental revenue from the MEGTEC acquisition this past June. New build environmental revenue was $57 million in the fourth quarter of 2014 compared to $68.3 million in the prior year period, a decline of $11.3 million reflecting the completion of several large scrubber projects that were ongoing during the fourth quarter of last year and continued uncertainty regarding future environmental regulations in the U.S. Revenues in the aftermarket services business remained stable in the quarter as compared to Q4 of 2013. Operating income in the Power Generation segment, including the equity income of our global joint ventures, was $37.5 million in the fourth quarter of 2014 compared to $53.6 million for the fourth quarter of 2013. Operating margins in the quarter were 8.4% compared to 13.1% in 2013. This difference is attributable to unusually strong contract performance and favorable contract mix in the fourth quarter of 2013 coupled with lower equity income in the fourth quarter of 2014. MEGTEC's contribution to operating income was $6.1 million in the quarter excluding $4.1 million of acquisition related amortization expenses and it was essentially on plan. We expect MEGTEC amortization to peak in 2015 at $9.5 million, which will be heavily weighed in the first quarter of the year and then decline significantly in future years. Nuclear Energy segment revenues were $40.5 million in the fourth quarter of 2014 as compared to revenues of $104.7 million in the corresponding period of 2013. This reduction in revenues is primarily due to management's decision, which we've reported on before, to exit the low-margin nuclear projects business this year. Operating income decreased by $17 million to a loss of $18.6 million in the three months ended December 31, 2014 compared to a loss of $1.6 million in the fourth quarter of 2013, reflecting a $16 million charge resulting from an unfavorable jury verdict on the AREVA NP lawsuit which, as Jim indicated earlier, we intend to appeal. Nuclear Energy backlog as of December 31, 2014, was $264.9 million, an increase of $123.2 million as compared to – sorry an increase of $123.2 million from $141.8 million a year ago reflecting several key contract awards, primarily in Canada. Technical Services segment operating income decreased $10 million to $0.4 million in the quarter compared to $10.4 million in the corresponding period of 2013 due to the loss of the Pantex and Y-12 contracts and lower fee income from various sites which were impacted by the waste isolation plant drum containment issue. mPower segment operating loss improved $22.5 million to a loss of $5.2 million in the quarter compared to a loss of $27.7 million in the fourth quarter of 2013 due to the slowing of pace of development related to the restructuring of the mPower program. For the fourth quarter of 2014, the company's effective non-GAAP tax rate was approximately 34.6% as compared to 37.2% for last year's fourth quarter. The non-GAAP effective rate for the full year was 31.9%, fully in line with our expectations. As of December 31, 2014, the company's cash and investments position net of restricted cash was $325.4 million, a decrease of $35.9 million compared to $361.3 million at the end of 2013. Fourth quarter cash flow reflected a net source of cash from operating activities of approximately $160 million net of federal and state tax payments of $22 million. There was no pension funding in the quarter. For the full year 2014, we utilized approximately $193.2 million of cash and term loan capacity to fund our share repurchase and dividend programs and contributed $61.7 million to our pension and post retirement plans. We also used cash and term loan capacity in 2014 to purchase MEGTEC for $142.8 million net of cash acquired. Now, let me turn the call back over to Jim for his final comments. E. James Ferland - President, Chief Executive Officer & Director: Thanks Tony. I'd like to conclude with an update on our planned spin-off of the Power Generation business and our outlook for 2015. Let's start with the spin. On our last earnings call, we announced our intention to spin-off the Power Generation business which will be named Babcock & Wilcox Enterprises Inc. at the holding company level and will continue to operate under the traditional B&W name. We've received significant positive feedback on this decision from investors, customers, and other stakeholders. To complete the spin, we must conclude two parallel path activities. The first is obtaining SEC approval of the Form-10 registration statement and the second is separating the two companies so they can operate as standalone entities. We plan to submit the SEC Form-10 by the end of March, which will allow us to include full year 2014 results in our initial filing. Presuming our review follows a typical schedule, we should be in a position to close the transaction on schedule by mid-summer. We're also working to separate the two companies into standalone businesses. This involves splitting corporate personnel into two teams, dividing intellectual property and IT infrastructure and a host of other contractual and legal items. We don't believe this will be the critical path item to complete the spin. The cash cost associated with the spin and separation activities remains in the range of $45 million to $55 million on a after-tax basis. Now let's shift our outlook to 2015. Given that we anticipate the spin will be complete by mid-year, we're not going to give full year EPS guidance for the combined company. We will provide segment guidance today and will provide additional detail for the individual businesses during the respective road shows in roughly three months, just after our Form 10 goes effective. So for 2015, revenue for NOG is expected to be consistent with the record levels achieved in the last two years with operating margins in the high teens. TSG operating income is expected to be in the $15 million to $20 million range during 2015 reflecting the full year impact of the Y-12 Pantex contract loss and costs related to increased bid and proposal activity. NE's revenues are expected to be in the range of $150 million to $175 million with margins in the low single digits. NE's margin improvement program remains on plan to achieve a 10% operating income target for the full year of 2016. mPower will remain on plan with a spend rate targeted at $15 million per year. We expect PTG's revenue will increase approximately 15% year-over-year through a combination of core growth and a full year of MEGTEC's contributions. While we've been very successful growing our renewable waste energy business, the impact of the strong dollar will have a small impact on revenue in the year. In addition, the price of natural gas in the U.S. has dropped over a dollar in the past three months to below to $3 per MMBtu, which will have a small impact on our aftermarket service and replacement parts sales. With these uncertainties in play, we're being cautious in our revenue projections for the core business. We are projecting 8% margins net of the MEGTEC amortization, which is a 20% plus improvement over 2014. We are also being careful with our margin estimates due to low natural gas prices and a slight shift in timing of our new contracts that will cause revenues to build later in the year than originally planned. Given the expected timing of the revenues from the Power Generation business plus the loading of renewables work through the year, we would expect margins to start low and build during the year with targets to exceed 9% and perhaps 10% by Q4. We have significant positive momentum in the Power Generation business as we move into 2015. Our restructuring efforts are on track and our international growth plans are showing results. We expect these deliberate actions to drive improved performance in 2015 and an even better 2016. For B&W on a consolidated basis, we'd expect approximately 60% of our full year operating income to be in the last half of the year. This is roughly in line with what we experienced in 2014. We also expect sequentially stronger quarters as we move through 2015. Given our commitment to stand up both post-spin businesses with strong balance sheets, we're not currently planning for additional share buybacks between now and the spin. When the spin is complete in approximately four months, the new boards for each company will determine capital allocation, including the possibility of a share buyback program as part of their individual strategies to enhance shareholder value. Despite the challenges of implementing the spin, we're keeping our business unit leadership focused on executing our work, delivering high quality goods and services to our customers and driving sales growth, and furthering our drive for efficiency across our businesses. I'll close by saying that it's an exciting time at B&W. Teams from each organization are finalizing strategies that will support and enhance growth plans and investment opportunities that may not be achieved in a combined entity. I'm more convinced today than even three months ago that the spin will enhance value for our shareholders and customers for BWX Technologies and B&W Enterprises. That concludes our prepared remarks. I will now turn the call back over to Sandra who will assist us in taking your questions.

. Okay, I do have a question for you and this one comes from Jamie Cook and he's from Credit Suisse. Please go ahead. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): It's a woman, not a man but we'll let that go. Anyway, just a couple of quick questions; one, on the nuke operations business, obviously the performance in the quarter was very strong. You had a change order which you sort of addressed which enhanced margins, but can you talk about I guess you're guiding again to high teen sort of margins over the past couple of years. You've consistently been more in the low 20% range. Why aren't margins sort of structurally higher and then are there opportunity – I guess why aren't margins structurally higher? And then I guess just my other question relates to sort of the verbiage in the 10-K with regards to mPower that DOE has suspended funding. Can you talk about, obviously there would be a concern there given the level of spend that BWC has put in mPower now that the government has suspended funding, what's the probability that this is reconciled? And can you talk about sort of a timeframe to when we could see some sort of resolution? Thanks. E. James Ferland - President, Chief Executive Officer & Director: Sure, Jamie. Thanks. I'll start with energy margins and then we can talk a little bit about mPower. Obviously, a very strong quarter, great performance by our entire NOG team even without that, the contract change that we addressed, it was still a roughly like 20% plus margin business for the year, so outstanding performance. You're correct, we continue to guide to the high teens. Just as in past years, the way we drive margins a little bit higher in the NOG business is by exceeding our customers' expectations and driving down schedule and driving down cost. And when we do that well, we drive our margins up and our customer benefits significantly. It's always our goal to repeat that year-over-year and obviously we'll endeavor to do that as we move forward. It does get a little bit harder each year and that's why we're guiding to the mid to high teens. In regard to mPower, so we have the spend rate down to $15 million a year; that's B&W $15 million a year without any government match, right. So the fact that the government is no longer matching doesn't change the amount of money we spend, it just slows down a little bit the amount of work that we can get done. We're going to spend the next, I'd say few months, parallel path activities at mPower. One is working on the technology development and continuing progress toward a design cert application. And at the same time, we do continue to search for additional investors which are obviously needed to reaccelerate the program and we've had good support from the DOE and we continue to generate some interest from investors, but that's going to take us some time. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): I mean, I guess my question is just because, obviously your spend is ramped on, you're still looking for investors, if you look at floor, when you scale those, those will able to sort of fund, you know what I mean, investment; so, I mean, how do you think about whether or not that – to what degree that really puts you at a competitive disadvantage because historically mPower is viewed as further ahead, you know what I mean, relative to new scale? E. James Ferland - President, Chief Executive Officer & Director: No, fair question and I still do it; I still do view us at this point as a little bit ahead of the competitors. You know, the reality for us is when we look at the nuclear market, we made the decision to ramp down spending to match what we thought was the pace of the emerging market. If we can find some new investors, we obviously pick that up. If we're not successful in the next few months finding some new investors, I think the BWXT management team and board will have to take a look at what they think the best thing to do is with mPower. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): All right, thanks I'll get back in queue.

Thank you. We have another question for you, apologies for pronunciation. This one is from Andrew Kaplowitz from Barclays. Please go ahead.

Good job with the pronunciation. Good morning guys; nice quarter. E. James Ferland - President, Chief Executive Officer & Director: Hi, Andy. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Good morning.

So, Jim, you've talked about several international prospects and you've delivered on that, last – in the fourth quarter and now in the first quarter. But did you – have you gotten all the projects that you thought and how do we think about PGG backlog in 2015? And do you need a couple more of these to make your guidance for the year or you basically have what you need for 2015 revenue guidance? E. James Ferland - President, Chief Executive Officer & Director: Yeah, sure Andy. So we have been very successful and for the most part every large project that we have targeted and we thought we were a front runner for, we're either on track to book or we booked, so we feel pretty good about it. And that includes a couple of international coal projects which we very specifically targeted and went after as well as the renewable waste energy projects in Europe. We do not need to book any additional large projects in order to meet the revenue guidance for 2015. That said, you will note that we have mentioned that we hope to win one to two more large projects, either renewable waste energy or coal, before the end of the year and I still feel pretty good about that. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Andy, we also, obviously tracked very closely the rollout of the backlog and our book-to-bill business and also projects where we've been selected. And just to remind the audience, we generally don't book until we have full notice to proceed. And when you layer that in, we're in vastly better shaped this year than we were last year. So just to amplify what Jim said, we're in very good shape with respect to revenue at PGG this year.

Okay, that's great guys. And then just a little bit more on PGG the aftermarket business; you mentioned it was stable in the fourth quarter but you mentioned you were being little bit more cautious you know and part of that is what you see with natural gas prices. So maybe talk about your expectation for the aftermarket business in 2015 and what's the risk there given the U.S. coal market has been pretty weak here over the last couple of quarters, maybe a new – it was weak before but it seems like it's gotten even a little weaker here. E. James Ferland - President, Chief Executive Officer & Director: Yeah, I'd say we used the word we're trying to be a little bit cautious in regard to revenues and margin as impacted by the lower natural gas price in the U.S. I think cautious is the right word. We're all of one month into the year. We haven't seen a decline at this point, but we have 11 months left to go. Natural gas, the forward price curve on gas shifted down about a dollar in the last three or four months, taking natural gas to roughly $3 per MMBtu or a little bit lower. Traditionally, that's where we begin to see coal to gas switching for one, where some older coal units will come off and our utility customers will run combined cycle gas unit in their place. The second impact lower gas price has is in the deregulated market, it tends to drive down marginal electricity pricing which, in essence, means our merchant customers don't make as much money. When they don't make as much money, they tend to not spend as much money or they delay spending. So that's the worry. We haven't seen it yet. We may see some small impact in aftermarket. It could be $20 million to $30 million of revenue which would translate to a little bit more than 10% on the bottom line, so we're just trying to be cautious here.

Okay and then, Jim, just to clarify, aftermarket is still close to 50% of the revenue in PGG, correct? E. James Ferland - President, Chief Executive Officer & Director: Correct.

Okay. Thanks guys. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Welcome.

Thank you. We have another question for you. Again, apologies to pronunciation; this one's from Tahira Afzal from KeyBanc. Please go ahead.

Thank you very much and folks, congratulations. Great quarter. E. James Ferland - President, Chief Executive Officer & Director: Thanks, Tahira.

So I guess first question is really on free cash flow. Your business model is such that in execution and like a lot of EMCs it's not that much of an issue, so can you talk a bit about free cash flow? Clearly, in the past it's lagged your net income. How should we look at this going forward? Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Okay Tahira. Well, first of all, you know our free cash flow in 2014 was a little bit lower than we had originally anticipated but largely due to, and it's well documented in the 10-K, a dispute we have on a project called Prairie Island within the nuclear energy business and we have about $45 million receivable outstanding and probably enough said on that except to say that that certainly wasn't in the original plan. The other thing that's impacted the 2014 results is really the timing of costs incurred on projects that we're getting wound down, particularly in the first half of the year at PGG, and the timing of advanced billings on new contracts which we are now seeing coming in. And the combination of those two things – I say we are now seeing effectively in early 2015 – so the combination of those two things really had a dampening effect on cash flows this year. That's the bad news. The good news is that we see very big, good rebound in cash flow in 2015. Number one, the PGG advance billings that I just mentioned are starting to roll in and that should – that will help strengthen cash flow on those paid and major project bookings. They tend to – it usually comes in 30 days to 60 days after the booking is announced, decent down payment. Number two, we also have obviously, are anticipating higher earnings in 2015; and in 2015, we expect to receive some additional cash that's tied to the contract change that we discussed on the call earlier with NOG and that will be coming in a little bit later in the year. And lastly, we expect substantially lower – very limited, actually, pension funding required in 2015 as well that will also help.

That was awesome. Thank you. I guess second question is in regards to really the energy segment; clearly the naval budget outlook for the next 10 years, if not more, is pointing to a 30% plus increase in spending. A lot of the categories that you compete in on the energy side seem pretty well protected in terms of what the funding implications are for that 30% going through. Jim, you highlighted that there are opportunities to really compete on more work given your expertise level there. Could you elaborate on that? We always think of energy as more of a flattish revenue business; could you talk about the opportunities to grow that business on the top-line? E. James Ferland - President, Chief Executive Officer & Director: Absolutely Tahira, so let's just, as we always do on the energy business, just start off with the core business itself and I think you're right, there does continue to be some pressure on defense budgets in the U.S. But given the products that we make for the government, we feel really good about our backlog and our ability to continue to deliver projects and revenue and earnings at levels consistent going forward with what we've done over the past few years. So we still continue to feel good about the baseline business. The missile tube order was a nice win for us. It demonstrates our ability to compete and win in markets that are a little bit outside where we normally play. We will continue to look for missile tube type opportunities where we can leverage our manufacturing expertise and what availability we do have in some of our NOG facilities. So missile tubes to start and I'd say that that the BWXT team, as they contemplate their strategy for the next few years, is certainly looking for additional opportunities to grow that core business and I'm sure they'll give us some more detail on that in the next three or four months when they come out with their road show presentation.

Got it. Thank you, Jim.

Thank you. We have another question for you. And this one's from Bob Labick and he's from CJS Securities. Please go ahead.

Good morning. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Hi, Bob. E. James Ferland - President, Chief Executive Officer & Director: Hi, Bob.

Hi. Just wanted to just shift back to PGG for a minute; I understand the conservatism towards the natural gas and FX. Can you just remind us and talk to us little bit about the cost savings initiatives. I think you had still $30 million to $50 million in planned cost savings over the next few years. How much of that is contemplated in the 8% margin assumption next year? And how that's proceeding given all the distractions of spin and everything else? E. James Ferland - President, Chief Executive Officer & Director: Sure. Our cost saving efforts in PowerGen group remain on track. We'd expect to – we'll actually start to see some of that restructuring cost and investment ramp down as we move into 2015 compared to prior years. That said, the majority of our cost savings initiatives at this point are focused on optimizing our efficiency in our various manufacturing facilities in the U.S. and around the globe. That does take us a little bit of time and that's the reason this is pushing into early 2015. That said, we have a little bit of additional margin improvement from the cost savings program baked into the 2015 margin estimates, but I don't think we're overly dependent on that at this point. That said, as the world continues to change and our markets in particular in the U.S. continue to evolve, we're always going to be looking for ways to drive efficiency in our businesses.

Okay. Great, so then, just continuing on that thought there should be incremental margin from those savings picked through 2016 as they flow through fully and you get to implement the programs you're starting? E. James Ferland - President, Chief Executive Officer & Director: Absolutely, and we would expect, without giving any specific numbers at this point, margins in 2016 to be better than margins in 2015.

Okay. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: And again, some – the programs we're working on in 2015 that Jim referred to that will be finished, finishing up later in the year – are really mostly around manufacturing realignment and leveraging our global footprint and they just take longer. And the benefit will truly be felt or realized, if you will, in 2016, Bob.

Okay, great, thank you for that. And then just I guess shifting gears but staying with PGG a little bit, the American Energy Innovation Council, in their February 2015 report, came out with a proposal at greater U.S. budget spent on new nuclear and carbon capture for coal. Obviously, you guys are in those spaces and we talked about mPower earlier on the call. Could you just give us an update on where you are on the carbon capture and if that's still part of the small investment for you, but potential growth opportunities in the future if you're still looking at that? Or where you stand? E. James Ferland - President, Chief Executive Officer & Director: Sure, so I'm in agreement that, in the long run investing in this country and new nuclear makes an awful lot of sense as does continuing to put R&D dollars toward CCS. You know, that said, we don't – we have ramped down a lot of our R&D spending on carbon capture and storage. As you know, the FutureGen project which we were involved in and – at least the capture portion of that project was based on our technology – has been stopped at this point. And I can tell you we have zero carbon capture and storage, either revenue or margin, built into our 2015 plan or 2016 and beyond. That said, if we can find a way to leverage some government investment and continue to develop that technology, we're on board and we believe in it. We'll continue to do that, but right this minute, we don't see a near term upside from CCS.

Okay. Thanks very much.

Thank you. We have another question for you and this one is from Rob Norfleet and he's from Alembic Global Advisors. Please go ahead.

Good morning. This is Nick Chen for Rob. Congratulations on a nice quarter. E. James Ferland - President, Chief Executive Officer & Director: Thanks, Nick.

Great. Looking into technical service, does your $15 million to $20 million EBIT guide assume any contract wins or additional work in 2015? And can you just discuss what type of opportunities you're seeing in that market? E. James Ferland - President, Chief Executive Officer & Director: Sure. So our $15 million to $20 million does not include any additional contract wins that are material, even Chalk River which is kind of our largest near term opportunity. We're projecting – we think we're in good shape and we've a strong team and a strong offering for the customer – but we don't expect that decision to be made and that contract to be implemented until the very end of 2015, so it would really have an impact on 2016 going forward. We continue to see additional opportunities. We did bid Kansas City. We expect an Idaho RFP out in late 2015 and we continue to keep our eyes on Savannah River in late 2016. Those are some of the larger opportunities that are on the radar screen. Additional small-to-mid-sized opportunities, potentially, we mentioned, at the UK. There's some changes going on at Sellafield and we continue to look to expand our business a little bit beyond our traditional BOE scope and look at DoD opportunities, NASA opportunities among others.

That's great. And then also just more generally, what's your M&A outlook like for either of the two companies? E. James Ferland - President, Chief Executive Officer & Director: Sure. So right now, from an M&A perspective, honestly we're concentrating on the spin and we're concentrating on getting that done. I would tell you that both entities post-spin, even right now, are gearing up and taking a look and making sure we understand our markets and what our acquisition opportunities will look like. From a PGG perspective, we'll continue to look at the Industrial Environmental segment. We think the MEGTEC acquisition was well done. It's a great company. It's a great leadership team, it's a great group of employees and they've exceeded our baseline expectations in terms of revenue and margin. So we're happy with MEGTEC, we're happy with that segment, and we'll continue to look there. I wouldn't expect us to do anything prior to the spin.

That's great, thanks so much guys. I'll jump back into the queue now. E. James Ferland - President, Chief Executive Officer & Director: All right. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: All right.

Thank you for your question. Your next question comes from, apologies to pronunciation, this question comes from Brian Konigsberg from Vertical Research. Please go ahead.

Thank you. It's good enough. E. James Ferland - President, Chief Executive Officer & Director: Hi. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Good morning, Brian.

Yeah, so I wanted to put a finer point, I know this has been hit a couple of times, but on the PowerGen outlook. In your filings, you do talk about the backlog position and the amount set to be burned over the following year. And if we look at PowerGen – actually, maybe even nuclear ops you could address as well – but the PowerGen revenue set to burn in 2015 is up 32% versus this time last year. I know you talked about some caution around the aftermarket. I don't know, it seems like you're kind of assuming the baseline business might come under a decent amount of pressure. I mean, is that effectively what you're pointing to or is there really just some more cushion you're kind of baking into the outlook? And maybe even touch on nuclear ops because that amount set to be burned in 2015 versus what we had in late 2013 set to be burned in 2014, that's up 21%. So both those businesses seemed to be very, very well covered. I'm just curious with the guide you provided – it does seem like there should be some upside but maybe you could give a finer point on both of those businesses? E. James Ferland - President, Chief Executive Officer & Director: Sure, just as a general observation, right, we are trying to be cautious. You know we can see a couple of market dynamics moving around us, in particular exchange rates and natural gas price, and we've try to build that into our forecast to some extent. In regard to PGG backlog, you are correct. We're in pretty good shape for the year; just a couple of numbers I'll give you. Last year, in 2013, at this same time we had about 78% of our revenue target already booked into backlog and we had about 22% left to get as we moved into the year. In 2015, we're in quite a bit better position. We have about 90% of our revenue identified in backlog or traditional book and bill and only about 10% to get as we move into the year. So we feel pretty good about PGG numbers and our ability to deliver. You know, we had told people, just so you all can work your way through the numbers in regard to revenue that we were targeting a 10% to 20% revenue increase in the core business. And you'll note that in the discussion today we came out and said 15% including MEGTEC. See if I can help you a little bit with the math; in essence, if you shift back and just talk about the core business, we're now targeting say maybe an 8% growth in the core business versus 10% going forward driven by about a $40 million hit from the foreign exchange currency and maybe $30 million or $40 million potential in the aftermarket. So we feel pretty good about our numbers going into the year. If we're a little bit cautious, then so be it. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: I'd just add one other point which is that even if you add MEGTEC in, we're approaching 90% of the entire revenue for the year already either book-to-bill or where we've been selected and/or have the revenue in the backlog and with a clear sight – line of sight to it rolling out in 2015. E. James Ferland - President, Chief Executive Officer & Director: Right, and then just in regard to your NOG question, I don't have awful lot of color from a numerical standpoint to give. I can tell you that the NOG business is solid and we have an even better handle in NOG than we do in PGG as to where our revenue is coming from quarter-to-quarter. So we don't build too much risk there.

Got it. And then just maybe if you could touch on pricing in some of the new international work; is that consistent with the core business or some of those, particularly I would think on coal might be a little bit more aggressive. What are the – maybe just give us some color on what had been booked over the last couple of quarters from an international basis? E. James Ferland - President, Chief Executive Officer & Director: Sure, so we feel pretty good about the margins, both in the international coal orders that we've taken as well as the renewable waste energy projects, mostly in the UK. A little bit different approach to those. On the renewable waste energy market, we have a technology advantage, we have a proven product that we can deliver to the marketplace and we have a very good relationship with the investors and developers. So those projects, I think, are fairly priced and from a risk view are fairly balanced. As always with the larger projects, we tend to start up a little bit slow in terms of margin and revenue recognition and as we get towards the tail end of the life of that project, we often find we have opportunities to release contingency or warranty, so the margins tend to build in a little bit and you actually see that a little bit in 2015 and as we move into 2016. The international coal projects, despite what everybody says, there are an awful lots of international coal projects that are moving forward, the great majority of which we choose not to bid. We have a very competitive product from a technology perspective, leveraging our manufacturing facilities in China and in India. We think we have the ability to deliver a competitive project from a cost standpoint as well. That said, we're very targeted in our international coal opportunities. We tend to shy away from projects that are going to have multiple bidders and the winner's going to be determined solely on price and we look for projects where the customers are looking for technology, value, our name and our ability to deliver and those are the two projects that we've booked. So we still – we feel pretty good about the margins is the end result of that conversation, even on the coal projects. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: And we've been able to and will continue to, where it makes sense, to leverage our global footprint even more than we have in the past to drive more margin value in the future. E. James Ferland - President, Chief Executive Officer & Director: Yeah.

Thank you very much. E. James Ferland - President, Chief Executive Officer & Director: Thanks, Brian.

Thank you. We have another question for you and this one is from Martin Malloy from Johnson Rice. Please go ahead. Martin W. Malloy - Johnson Rice & Co. LLC: Good morning. E. James Ferland - President, Chief Executive Officer & Director: Hey, Marty. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Hey, Marty. Martin W. Malloy - Johnson Rice & Co. LLC: And the win rate has – or the bookings have picked up quite a bit on PGG. How much of it is tied to technology that you all have and how much is maybe tied to having a more competitive cost structure with the opening of the India plant? And maybe, I guess, you did provide some outlook for 2015; is there anything else you can talk about in terms of recent potential bidding opportunities direction? E. James Ferland - President, Chief Executive Officer & Director: Sure. Sure, Marty, so let me touch on those. We think that we have three competitive advantages and we think we're starting – we're doing a little bit better job of leveraging those recently and moving forward. One, clearly, technology and I mentioned waste to energy; we do think we have some of the best technology in the marketplace in regard to waste to energy. Cost, we're becoming more and more cost competitive as we stand up, for example, our India JV and we begin to leverage not only manufacturing but engineering into that environment. And the other one I'd mention that you did not is, I call it, business development. You could call it relationships in the international marketplace. An awful lot of these projects, even though we think we have a technology advantage and we're at least competitive in terms of cost, a lot of it comes down to relationships, trust your ability to deliver on schedule, on budget and that's where the investment we've made in our expanded international business development team is beginning to get some traction, right. Better relationships, not only with customers but also with partners; quite often the large projects, particularly in Asia, we only provide the boiler, somebody else has to provide the turbine and somebody else has to do all the EPC construction work. And the more we can combine up with partners in advance, the stronger the offering to the customer. Therefore, the better the relationships we have with all those partners, the better position we'll be in the markets we choose to participate. So we feel pretty good on all three fronts. Just to comment on bid pipeline, bid pipeline is roughly $2.6 billion at the end of Q4 2014. It's down a little bit from Q3; it's down about $300 million. Bid pipeline was at $2.9, but that's actually good news for two reasons. One, we've signed lot of large contracts, right. The good news is when you sign a large contract it goes into backlog. The bad news is it comes out of the pipeline. In addition to that, I mentioned carbon capture and storage in the FutureGen project. That's about a $230 million project that was in the pipeline that we've taken out as a result of that project kind of going into stasis. So the fact that the bid pipeline is still $2.6 billion after FutureGen came out and after we signed a whole bunch of very large contracts I think speaks well for the opportunities in the future for us. Martin W. Malloy - Johnson Rice & Co. LLC: Great. And I was wondering on NOG, if you could maybe discuss the outlook for how you might ramp up on the Ohio-class replacement. You won some early design work, the missile tube; when – how should we think about that in terms of ramping up through the end of this decade? E. James Ferland - President, Chief Executive Officer & Director: I think you just said it. I think we do expect Ohio replacement to ramp up through the rest of the decade. We're doing some small advance work on it now. In the end, and I understand there are a variety of budget pressures in Washington, but this country needs to replace its Trident missile fleet and I think it's extended the lifetime of those existing subs about as long as it can. We really do need an Ohio replacement Program and I think both sides of the aisle recognize that in Washington and you can begin to see some signs of them working together to make sure that that program is funded. So I think it will continue to be a discussion point. We feel real – we feel good and positive about Ohio replacement and you will see it start to build in as we head into the backend of this decade. Martin W. Malloy - Johnson Rice & Co. LLC: Thank you.

Thank you. We have another question for you and this comes from Paul Dircks from William Blair. Please go ahead. Paul A. Dircks - William Blair & Co. LLC: My questions have been answered, thank you. E. James Ferland - President, Chief Executive Officer & Director: The best question yet. Thank you.

Thank you. In that case we have no more questions so I'm going to hand back to Jenny Apker for closing remarks. Jenny L. Apker - Treasurer & Vice President-Investor Relations: 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 beginning 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. Have a great day.

Thank you. That concludes your conference call for today. You may now disconnect. Thank you for joining and enjoy the rest of your day.