BWX Technologies, Inc. (BWXT) Q1 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to Babcock & Wilcox Company First Quarter 2015 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 like to now turn the call over to the host, Ms. Jenny Apker, B&W's Vice President, Treasurer and Investor Relations. Please go ahead. Jenny L. Apker - Treasurer & Vice President-Investor Relations: Thank you, Mark, and good morning everyone. Welcome to the Babcock & Wilcox Company's first quarter 2015 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 who will talk about our first quarter earnings. Many of you have already seen a copy of our press release, issued late yesterday. For those of you who have not, it is available on First Call and on our website at www.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 contents 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 provides 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 first-quarter earnings release which we issued last night, and in our company overview presentation which is posted on the Investor Relations section of our website, again at www.babcock.com. Due to the number of participants on today's call I would ask that you limit yourself to one question and perhaps one follow up. You are of course welcome to get back into the queue. With that, I will now turn the call over to Jim. E. James Ferland - President, Chief Executive Officer & Director: Thanks, Jenny. Good morning, everyone. This morning we'll discuss our first quarter earnings and Thanks Jenny. Good morning everyone. This morning we will discuss our first-quarter earnings and provide an update on the progress of the planned tax-free spin of our Power Generation business to our shareholders. Starting with the quarter. Our first-quarter results represent a strong start to 2015, particularly in our two core business segments, Power Generation and Nuclear Operations. Consolidated revenues for the quarter were $730.6 million an increase of 10.4% compared to the prior-year first quarter. And adjusted earnings per share were $0.47 versus $0.42 in the first quarter of 2014. Non-GAAP operating income totaled $78.4 million for the period, which is a 39% increase over the first quarter of 2014. Our backlog stands at $5.7 billion, 13.5% higher than March of last year. This represents a consistently strong backlog in Nuclear Operations with substantial increases in Power Generation due to new international boiler awards and in nuclear energy with the additional Canadian refurbishment and service work. Our Nuclear Operations segment again delivered strong revenue and operating income. Our component manufacturing and naval nuclear fuel fabrication sub-segments, including Nuclear Fuel Services were on or ahead of target for the quarter. Consistent execution across the entire business and a commitment to quality and continuous improvement allow us to deliver value for customers and consistent solid returns for our shareholders. The nuclear energy segment faced some challenges in the quarter. In part due to the timing of utility outages in Canada and the US operations. Our overall strategy for the business segment remains unchanged. Restructuring is progressing on plan, and we continue to expect full-year margins to be in the low single-digit while we look to achieve 10% margins in the 2016 timeframe. The Technical Services Group is operating at our new expected run rate given our current contract mix. Although operating income for the quarter was below our full-year run rate, TSG remains on target to deliver $15 million to $20 million of operating income for the year. This quarter was particularly impacted by increased business development expenses. The pipeline for this business is strong and we are bidding on several promising opportunities that we believe will contribute to solid growth of this segment in 2016. The Power Generation Group produced a particularly strong first quarter with both revenue and operating income up significantly compared to Q1 of last year. This is due to the addition of MEGTEC, increased service projects volume in the US, solid project execution, and the benefits of our cost reduction programs. We continue to be pleased with the MEGTEC acquisition as the management team is delivering value through strong operations and capitalizing on secular growth in MEGTEC's worldwide markets. International bookings were exceptionally strong again this quarter with two additional renewable waste-to-energy plant awards, which included long-term operations and management contracts and a large environmental booking in the US. Our backlog in PGG increased by $598 million compared to the first quarter of 2014. This is despite an $86 million reduction in reported backlog value due to a strengthening of the US dollar. We continue to pursue additional international opportunities for new renewable and coal boilers, and could see one to two additional bookings later this year. We remain laser focus on our margin improvement program in PGG in an effort to lower costs and further variabilize our business structure. These efforts will not stop when the current projects complete as we need to stay ahead of what's going to be a challenging coal market for years to come. By remaining aggressive on this front we believe we can deliver superior results over time, even in a challenging marketplace. A recent example of the success of this program is our new partnership with Magotteaux that we announced in April. As a part of the manufacturing consolidation effort, we're in the final stages of closing our 1940s era foundry operation in Ohio where we produced heavy coal pulverizer parts for our customers. The project started as an effort to reduce our cost and lower our fixed overhead while maintaining product quality. Our new partnership with Magotteaux not only accomplish these objectives, but also allowed us to combine B&W's pulverizer technology with Magotteaux's advanced wear materials resulting in new and improved product offerings to our current customers, and access to new markets that were previously not available to us. In the coming months, we will continue to evaluate the competitiveness of our manufacturing facilities and product lines to find opportunities that enable B&W to better serve our customers, improve our competitiveness, and drive shareholder value. Let me turn it over to Tony who will discuss the segment results and other financial matters after which I'll provide up update on the progress to date on the planned spinoff of the Power Generation business. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Thanks Jim. The Nuclear Operations segment reported strong first quarter revenues of $284.4 million, very close to the exceptionally strong rate we incurred last year of $286.2 million. Nuclear Operation's segment operating income in the quarter totaled $68 million, an increase of 14.3% compared to $59.5 million in the prior-year period, primarily due to improvements in our naval nuclear fuel and downblending business as well as benefit from the settlement of a property related insurance claim. Backlog in Nuclear Operations at the end of the first quarter of 2015 it was over $2.8 billion, essentially unchanged from the same period last year. Nuclear Energy Segment revenues were $33.0 million in the first quarter of 2015 compared to revenues of $47.8 million in the corresponding period of 2014. This decrease in revenues in the quarter was primarily due to the timing of maintenance outages largely in the Canadian nuclear market and, as anticipated, reduce volume in our equipment business. Operating income in the quarter decreased by $4.2 million compared to the first quarter of 2014, primarily the result of lower volume and margin mix. Despite a challenging quarter for the Nuclear Energy Segment our backlog position has strengthened significantly, and there are a number of additional opportunities in the pipeline. Backlog at the end of the first quarter of 2015 was $236.2 million, an increase of $63.4 million or approximately 37%, compared to $172.8 million a year ago. This increase is net of roughly an $18 million reduction in the value of NE's backlog in the quarter due to foreign exchange impacts. Technical Service's operating income decreased $13.2 million to $1.6 million, compared to $14.8 million in the corresponding period of 2014, primarily due to the loss of the Pantex and Y12 contracts, and increased business development costs related to bid and proposal work, as Jim mentioned earlier. Note that that we are no longer reporting mPower as a separate segment due to the size of this program with an annual spend rate of approximately $15 million per year. However the restructuring program we promised has been achieved. In the quarter mPower spending was reduced to $5.2 million compared to $26.7 million in the first quarter of 2014, a decrease of $21.5 million year over year. We continue to search for investors to accelerate the development of this technology. Revenues in the Power Generation segment for the first quarter of 2015 were $397.2 million, compared to $312.1 million in the first quarter of 2014, an increase of $85.1 million or 27.3%. This increase includes $41 million from the MEGTEC acquisition and a $37 million increase in revenue from aftermarket, primarily related to service projects. Power Generation bookings in the first quarter were $730.7 million, an increase of $511.4 million versus Q1 of 2014, reflecting two major renewable waste-to-energy plant bookings, which include multiyear multisite -- sorry -- multiyear site maintenance and operations contracts and strong aftermarket service and construction bookings for U.S. utility customers. Backlog at the end of the period was roughly $2.6 billion. Operating income in the Power Generation segment was $23.0 million in the quarter, compared to $10.5 million for the first quarter of 2014, primarily due to higher volume and favorable contract performance. MEGTEC's contribution to operating income was $0.6 million in the quarter, net of $3.7 million of amortization expense relates to intangibles, which are typically frontend loaded in the first year post acquisition as required by U.S. GAAP. For the first quarter of 2015 the company's effective tax rate was approximately 32.7%, as compared to 24.5% for last year's first quarter. In 2014 we benefited from a favorable ruling that allowed us to amend prior year tax returns to exclude distributions from certain joint ventures from domestic taxable income. The company's cash and investment position net of restricted cash as of March 31, 2015, was $293.1 million, a decrease of $32.3 million compared to $325.4 million at the end of 2014. We have focused considerable attention on improving cash flow and are very pleased that operating cash flow was positive for the first quarter. Historically we have reported a large operating cash usage in the first quarter due to seasonal cash requirements. First quarter cash flow reflected a net increase of cash from operating activities of $5 million, versus a net usage of $114 million in the prior year quarter, primarily due to stronger operating earnings, reduced mPower spending, and significantly improved cash flow at PGG, which benefited from advanced payments on new contract awards and timing of costs incurred on new build steam generation projects. Now I'll hand the call back over to Jim for an update on our planned spinoff of the Power Generation segment. E. James Ferland - President, Chief Executive Officer & Director: Thanks, Tony. Let's talk about the remainder of 2015 before discussing the spinoff. Given the planned separation of the Power Generation business later this year, we provided guidance last quarter for 2015 on a segment, rather than a consolidated basis. We're on track to deliver those results in each business. Our original guidance was for 40% of B&W's consolidated operating income to come in the first half of 2015, with a strong back half of the year delivering the remaining 60% of expected earnings. Given the strong first quarter we now expect approximately 45% of our operating income to be in the first half of the year with the remaining 55% of our full year operating income to be in the last half, excluding the one-time spinoff costs. We're not altering expectations for the full year, as timing of some projects helped us in Q1. And it's too early in the year for us to project any upside to full year results. We're on track to complete the spinoff of the Power Generation business by mid-summer, in line with our original timeline. We've received confirmation from the Nuclear Regulatory Commission that the spinoff will not require NRC consent. We've responded to two rounds of comments from the SEC on our Form 10 application filed in February, and we filed two revisions to our Form 10 to address the SEC's questions. We're pleased that this process is progressing smoothly and on plan. From a regulatory perspective once we clear the SEC review process we'll be ready to go. With two strong balance sheets, solid backlogs, and seasoned management teams, we're looking forward to introducing you to BWX Technologies and Babcock & Wilcox Enterprises in the coming weeks. Both companies have clear strategies to drive growth and increase shareholder value, as independent public companies that are focused on their respective end markets. We look forward to speaking with you in the coming weeks at our Investor Day in New York or during one of our non-deal road shows. Let me wrap up with this. The quarter demonstrates the quality and character of the Babcock & Wilcox Company and more importantly of our employees and leadership team. Even as we prepare for the spinoff of the Power Generation segment, which is no small task, we remain focused on execution in our core operations. Our businesses are running well, we are delivering for our customers, and we're creating value for our shareholders. The spin is the next logical step to give our two companies the flexibility, agility, focus and resources to optimize their own strategic plans to create shareholder value. That concludes our prepared remarks. I will now turn the call back over to Mark who will assist us in taking your questions.

Thank you. Your first question comes from the line of Brian Konigsberg, Vertical Research Partners. Please proceed.

Yes. Hi. Good morning. E. James Ferland - President, Chief Executive Officer & Director: Good morning, Brian.

Maybe starting with the guidance a little bit, so I understand you're reiterating the full year. But specifically, just looking at Power Gen you're up 27% year-over-year in the first quarter, I think about 14% ex-MEGTEC. You're guiding the full year 15% total. When you look at the backlog, I believe the deliverable backlog for 2015 is up over 100% for the remainder of 2015 versus this time last year. I know there were some timing issues in the first quarter, but maybe you could speak to what you're expecting for the rest of the year as to why that 15% is still a valid number? E. James Ferland - President, Chief Executive Officer & Director: Sure, Brian. So, you're right, we are very happy with Power Gen's performance in Q1. Both on the revenue side we got the benefit of MEGTEC in the quarter, but we also generated a lot of revenue growth off our aftermarket service projects business. And we're happy with project execution as well for the quarter. We indicated before that we expect both volume in terms of revenue and operating income for Power Gen to build during the year. We still expect that to be the case. Given the strength of Q1, perhaps Q2 might look a little bit more like Q1, but we expect Q3 and Q4 to be quite a bit stronger, both on the revenue line and on the operating income line. All that said, it is early in the year and for now we're going to hold guidance and we're going to continue to pursue new opportunities and look for ways to drive the bottom line. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: I'd just add one other point Jim. The back half of last year we started to see a turn in the business and so the comps against prior-year will be a little more challenging as we get later in the year. But that said, we feel very confident that, that 15% growth rate is achievable for the business.

Great. And secondly on Nuclear Operations, so very strong quarter even when you back out the benefit from the insurance settlement in the quarter, still looking around maybe 23% or so. You guided to the high teens, execution at that business remains still very, very strong. Maybe you can just give us an update on how you see that progression to the remainder of the year? Do you see that grinding lower for one reason or another, or do you think that you have the opportunity to sustain that level of profitability? Thanks. E. James Ferland - President, Chief Executive Officer & Director: So NOG did have a very strong quarter in terms of execution, and we're going to endeavor to do the same as we conclude the last three quarters of the year and into the future. That said, I think that the runway – run rate for Q1 was a little higher than we'd expect to see for the rest of the year. We think it would trend down slightly over time. So we're continuing to guide to the high teens, and if performance can create some opportunity for us we'll try to take advantage of that.

Thank you very much.

Your next question comes from the line of Bob Labick, CJS Securities. Please proceed.

Good morning. This is Robert Majek filling in for Bob Labick. E. James Ferland - President, Chief Executive Officer & Director: Good morning. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Good morning.

Given the strong book-to-bill in PGG, can you discuss the project lifecycle, and in particular margins in early projects versus at the end? E. James Ferland - President, Chief Executive Officer & Director: Sure. You know we are happy with the backlog obviously, primarily driven by, at least in Q1, a couple of large waste-to- energy plants, renewable plants in the U.K. Those projects we book them in Q1. Obviously there's no revenue for those projects in Q1. We'd expect it slowly ramp up as we approach the end of the year for those new projects and then build as we move into 2016. And the reality is margin does much the same. The margin on the initial revenue out of those projects will be relatively low. As we move through the project and assuming that we are successful as the projects move toward the end, it gives us an opportunity to claim some of the contingency money that we have built into the project expense side of the equation, and we'd expect margins to perhaps rise. So we start out slow, and revenue builds and potentially margin builds over what's roughly an 18 – a 1.5 year to 2.5 year time horizon.

That's great. And can you discuss the traction on cross-selling with MEGTEC? E. James Ferland - President, Chief Executive Officer & Director: Yes, so we are making some progress on that front. You know we like MEGTEC standalone performance. We are beginning to see some of our technology move from Power Generation group into MEGTEC. Probably the best example of that is some of the baghouse technology. It's a particulate cleanup technology, and that's a technology that we have. We are very, very good at putting those rather large installations on coal plants. It's a piece of technology that was not in the portfolio for MEGTEC. And that's one were transitioning into MEGTEC now. And we believe that – actually we have a handful of projects online to bid in the coming couple of quarters, leveraging that PGG technology into the MEGTEC industrial environmental workplace. So we're looking for more opportunities, but I'd say we are on track to slightly ahead in our revenue synergy projections.

Thank you.

Your next question comes from the line of Tahira Afzal, KeyBanc. Please proceed.

Hey, Jim, congratulations on the great quarter. E. James Ferland - President, Chief Executive Officer & Director: Thanks, Tahira

I guess first question. Jim, you're a utilities guy as well. You've probably started to see a lot of the utilities this earnings season firm up their coal retirement plans. And really this year in terms of retirement seems to be shaping up to maybe around 11 gigawatts or so was as the last what – it seems it fades away into the next few years. So would love to get your thoughts. Your apprehension to really raise guidance, is it partly baked on maybe more of a fall out on the coal retirement side, on the maintenance side? Or do you think the step down we saw last year really bakes a lot of that in? E. James Ferland - President, Chief Executive Officer & Director: Yes. Thanks, Tahira. For sure we like everybody else can see the challenge that's coming on the coal front in North America. One of our three strategic pillars as we move forward in PGG is recognizing the challenge that exists in the North American coal market and being proactive in taking out costs and reducing our fixed overhead, so we stay ahead of that challenge. That said we had a really solid Q1 in aftermarket service projects. So I think a little bit of what we're seeing is an awful lot of the units here that are going to come offline tend to be the older units. They haven't run as much. And I think the reality is that a lot of utilities could see this coming, and they stepped down spending on some of those older units over the last couple of years. We could certainly see that in our own numbers in 2013 and 2014. So I'm not expecting a large drop as some of those older units come offline. That said we absolutely recognize the longer-term challenge that exists in the North American coal market. And I think we're doing a good job to date at least of staying in front of that. We're dedicated to the market. We think that we can be a great provider for our customer for many years to come. But we also have to recognize that the size of that market could decrease over time, meaning we need to reduce our cost base so we stay in front of that. And we need to take advantage of all these other growth opportunities we have around the world to further diversify and balance our portfolio. I think we're in a pretty good place so far.

Got it okay, Jim. And then really on that last comment of yours, Japan is – seems to be now commencing with construction of nine coal power plants. And it seems they have 31 more that are proposed. I know internationally maybe the scope of work is a little different for yourselves, but is that an opportunity for yourselves? Or is – as we look outside of the U.S. is it more sort of biomass, et cetera, still going forward? E. James Ferland - President, Chief Executive Officer & Director: We see a little bit of opportunity in both. We've obviously got – we've had a lot of success on renewable biomass waste-to-energy in Europe. And we're looking to expand that model outside Europe over time. I think we'll get some traction on that front. In regard to new coal, right, we did book a couple over the last year or so, which is great. One in the Dominican Republic; one in Vietnam. I would say we continue to see opportunities worldwide on that front. But they're going to tend to be smaller for us. Right? We're looking for niche opportunities where we can provide true value to our customer. We're unlikely to be successful in a large open market bid, where we're competing against a whole bunch of international competitors. So you've seen us as we've – the two projects we were successful on were more sole-source targeted opportunities for us. In regard to the opportunities for example in Japan, honestly, probably a relatively tough market for us to penetrate. There are an awful lot – there's a lot of indigenous technology and supply in Japan. And unless a unique situation comes up, that probably wouldn't be a place we'd spend a lot of time and effort.

Got it, Jim. Thanks. That was helpful and congrats again. E. James Ferland - President, Chief Executive Officer & Director: Thanks.

Your next question comes from the line of Jamie Cook, Credit Suisse. Please proceed. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Hi. Good morning. Can you hear me? E. James Ferland - President, Chief Executive Officer & Director: Hey, Jamie. Sure. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Hi, Jamie. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Oh. Hey congratulations on a nice quarter. I guess a couple questions. The bookings in PGG have been fairly impressive. Can you talk about the competitive dynamics and how the margins or the profitability of the orders that you booked impact margins longer term? And are the international wins, the margins there, are they comparable to what would be in the U.S.? My second question relates to TSG. I know there are some awards, Idaho Savannah River or Chalk River prospects out there. Can you talk about the timing of those projects and your ability to get one of those? And then I guess just my last question. The first quarter was a little better than you thought. You talked about timing of projects. Just how much – could you talk about on an EPS basis – or how much better the first quarter was relative to your expectations? I'm just trying to get a sense of the degree of conservatism in your numbers. Thanks. E. James Ferland - President, Chief Executive Officer & Director: Sure. Thanks, Jamie. So let's start off with a discussion on our international projects and, in particular, margins. So we have been successful in targeted markets – particularly, the renewables side. In regard to margins, we find that, although the margin will start out slow at the beginning of a project, we would expect by the end of the project to have margins roughly in line with the margin percentages that we've targeted, as we get into 2016. Those should be high-single digits, potential for double-digit margins in those projects, if we wrap them up cleanly, and execute the way we should. History would say that that's true. And when we look at our performance to date on those projects, we continue to feel pretty good about them from a margin perspective. In regard to TSG. Yeah, we do have an awful lot of bidding going on, which is a good thing for that business. I think it bodes well for that business as we move into 2016 and 2017. In the near term, Chalk River in Canada is the biggest project. It's in bid-stage right now. We've submitted our bid. We'd hope to hear something in the next few months, perhaps in 2015, and we continue to feel really good about that project. That project is large enough it has the potential to turn TSG and put it back on the upward path, and so that's one to keep our eyes on as we move through the next few months. Idaho's out for bid. We bid Kansas City. Those are two others to watch for in the coming year or so. And in the longer run, we still see opportunities like Savannah River when we look out two to three years in the future. So I think there's a lot more upside than downside in TSG, and I know that the new BWXT management team brings an awful lot of expertise in this area, and that will be one of the areas that they focus on as they look to growth post spin. Third question, timing of Q1. I did mention that we're happy with Q1. It was a really good Q1 for us, a little bit of it was due to timing, and that's one of the reason we are hesitant to say too much about full year earnings. You know I would say it was a driver, it wasn't the only driver in the good quarter. It might have been worth a couple of cents to us. But even without the timing it was a good quarter across the board in our two big businesses NOG and PGG. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: And Jamie, just a couple of other quick points - Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Okay. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: -- Jamie, real quick the – I'd say the quarter itself was very strong, but we are early in the year and it's just a little bit too early for us to feel that it's time to declare any upside. We'll see how the next quarter goes. And the other point I think we should -- just to clarify is, the booked margins on those international projects are very much in line with our -- what we have experienced historically. Jamie L. Cook - Credit Suisse Securities (USA) LLC (Broker): Okay. Congrats. Thanks. E. James Ferland - President, Chief Executive Officer & Director: Thanks Jamie

Your next question comes from Steven Fisher, UBS. Please proceed.

Hi. This is Cleve Rueckert on for Steve. I think most of the, sort of, key questions have been touched on. But you know there's been some discussion recently about growth in the diesel electric market for submarines. I'm just wondering if that impacts your business at all, and how you would strategically react to maybe a pickup in diesel submarine construction? E. James Ferland - President, Chief Executive Officer & Director: Yeah. So, I've read many of the same articles you have on that front. The reality is I don't see any impact on our business from that market picking up. Right? We know who our customer is on our side, and that's our only customer. And that's who we're focused on. As other countries around the world perhaps ramp up their diesel electric fleets over time, you know could that perhaps cause the U.S. government to consider its posture in regard to the number of submarines or carriers it might want. It could. It could, and it would probably result in some upside, but in the near term, no, I don't really see any impact on our business from the diesel electric pickup around the world.

Okay, thanks. And then just as a follow-up, nuclear energy, how do you see that business progressing over the next year or two? And I guess what needs to happen for you to hit your guidance for this year and for 2016? E. James Ferland - President, Chief Executive Officer & Director: Yup. So I was not pleased with the results in any – for Q1 for sure. We need – some additional costs we need to take out. We did have some timing work against us in NE, where we had some projects, particularly, in Canada push out into Q2, Q3. We've taken a hard look at the business and continue to believe that full-year NE will be low-single digits. Tony mentioned in his discussion that backlog is up in NE, and so I think there's a lot more upside to come in the business, and I think 10% is a realistic target for them as they move into 2016. But Q1 was not exemplary for us, and I think we'll do better the back half of the year.

Okay, thanks very much.

Your next question comes from Anna Kaminskaya, Bank of America Maryland (sic) [Merrill Lynch] (34:55). Please proceed.

Hi, guys. Great quarter. Most of my questions have been answered, but maybe just wanted to touch quickly on the aftermarket business in Power Gen. I think you sounded more cautious at the end of February or early March on the business. So what do you think drove the upside? And is that when you talk about timing of project, is that what got pushed from the second half into the first half of the year? E. James Ferland - President, Chief Executive Officer & Director: Yes, Anna, for the both part, yes. It's the aftermarket business that the timing moves around a little bit, and some of those projects that we saw for the Q2, Q3, Q4 did move back into Q1. For us, it's a little bit hard to predict the timing on the aftermarket business. Sometimes those projects are bid and we plan for them, other times some utilities have put off some large maintenance work, and as a result, they end up calling us pretty quickly for us to come in and do some work for them on the repair side. So, again, the business is a little bit hard to predict quarter-to-quarter. You know over a longer period of time, it's a very stable business for us, so long as we stay ahead on the cost side.

And so how is it trending for the second quarter? What should I expect for the growth? Or at least what is baked into your guidance for the second quarter in aftermarket? E. James Ferland - President, Chief Executive Officer & Director: You know, we'd – over the balance of the year, we'd expect aftermarket to remain relatively steady. Again, difficult to predict exactly. You know, it's a big component of our business going forward between the aftermarket service projects and parts. So that's the back bone of the business. And we are looking to maintain revenue as much as we can in a tough market and drive margins. And I think Q1 demonstrates we are doing a pretty good job of that so far.

And then just on the difference in margin between your new equipment and aftermarket. You're probably the only company I know that report similar margins between those two businesses. Is it something structural, or what can you do to enhance aftermarket margins over time? Thank you. E. James Ferland - President, Chief Executive Officer & Director: Yes, I would agree with your observation. And when I look at that, I see opportunity. I think that the new equipment business margins will probably remain stable and maybe we can drive them up a little bit. Aftermarket, I think it's a fair question, right? We should be able to do better over time. And that's what we are looking to do by driving down our costs where we can, minimizing our fixed-price footprint and looking for ways to keep quality up and drive cost down. The Magotteaux alliance is a great example of that, shutting down a 1940s era foundry which was not very competitive. We are going to end up with a lower price product and a higher quality product and perhaps access to more customers. And over time, to your question, that should help us improve margins in that business.

Okay. Thank you very much.

Your next question comes from the line of Adam Thalhimer, BB&T Capital Markets. Please proceed. Adam Robert Thalhimer - BB&T Capital Markets: Hey, good morning. Congrats on a nice quarter. E. James Ferland - President, Chief Executive Officer & Director: Thank you. Adam Robert Thalhimer - BB&T Capital Markets: I wanted to -- international awards you expect potentially for the remainder of the year, where are those geographically? E. James Ferland - President, Chief Executive Officer & Director: Most likely they will be somewhere in Europe waste-to-energy renewable related. We're always looking for the unique one-off opportunity in the coal sector, usually in Southeast Asia, and we will continue to look for those opportunities. But more likely than not if we can capture one or two before the end of the year, it's going to be waste-to-energy in Europe. Adam Robert Thalhimer - BB&T Capital Markets: Got it. And then can you give a little more color on the demand environment for MEGTEC. You seemed happy with the performance in the quarter. Just maybe flesh out kind of what the opportunities are on that side of the business? E. James Ferland - President, Chief Executive Officer & Director: You know, one of the things we like about the MEGTEC Industrial Environmental as compared to North American coal, for example, it is a slowly growing business naturally. I'd say mid-single digits would be the natural growth rate worldwide for Industrial Environmental. The key for us is leveraging our technology in the Power Gen business moving it into MEGTEC and then expanding MEGTEC worldwide, right? We still have a very low market share in what's a very fragmented business. We just see a lot of opportunity in that sector to grow organically and perhaps to grow via acquisition. So we feel good about it. It's nice to be in naturally growing market with one of our businesses. Adam Robert Thalhimer - BB&T Capital Markets: Okay. Thank you.

Your next question comes from the line of Chase Jacobson, William Blair. Please proceed. Chase A. Jacobson - William Blair & Co. LLC: Hey, good morning. Nice quarter. E. James Ferland - President, Chief Executive Officer & Director: Thanks. Good morning, Chase. Chase A. Jacobson - William Blair & Co. LLC: I just I had one question on Power. Jim, you mentioned in your prepared comments about potential for more cost savings or product line rationalization. I was wondering if you could give any more color as to what you're referring to there on the Power side of the business? E. James Ferland - President, Chief Executive Officer & Director: Sure. We don't have any specific numbers or targets on that front for additional cost opportunities looking forward. More the message is, and it's more of a cultural change we're driving inside the company, is we know we need to consistently improve. And one of the ways to do that is to look to ways to optimize our own cost structure, find the right external partnerships to enter into, like Magotteaux. So really the message is when we finish GCI and then we finish the current driving margins program, it's not the end. Right? We recognize the long-term challenge that exists in the North American coal market. And in order for us to be successful and create value for our shareholders and remain a top supplier for our customers, we know we need to stay aggressive on that front, and we plan to is really the message. Chase A. Jacobson - William Blair & Co. LLC: Okay. And then on the capital structure ahead of the spin, the balance sheet has remained pretty steady over the last few quarters. I assume that you're sticking with the plan that Power Gen will be essentially debt free. Are there any opportunities to leverage the size of the consolidated BWC in terms of taking on more debt or just changing the capital structure at all ahead of the spin rather than after the spin? E. James Ferland - President, Chief Executive Officer & Director: We've looked at that. And I don't think we plan on moving down that front. We're pretty close to the spin at this point. We're moving along very smoothly with the SEC. And at this point the sooner we can get the spin done the better for both sides. We're ready to go. So I wouldn't expect us to do anything else on the balance sheet in regard to debt, pre-spin. And what each company decides to do post-spin, I think we'll be pretty well prepared to have that discussion when we get to Investor Day, which could be just a few weeks away. Chase A. Jacobson - William Blair & Co. LLC: Okay. Thanks a lot.

Your next question comes from the line of John Rogers, D.A. Davids (sic) [Davidson] (42:41). Please proceed. John Bergstrom Rogers - D. A. Davidson & Co.: Hi. Good morning and congratulations as well on the quarter. E. James Ferland - President, Chief Executive Officer & Director: Good morning. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Thanks, John. John Bergstrom Rogers - D. A. Davidson & Co.: Just a couple of follow-up things. First of all in terms of your – in the Power Generation business competition for some of these international prospects, has the currency impact changed your positioning there? Or how competitive you are for this? E. James Ferland - President, Chief Executive Officer & Director: Not so much. The reality is particularly on waste-to-energy in Europe, because we do a pretty good job of matching the cost side to the revenue side. Another way to say that is to say that we tend to do the manufacturing in roughly the same currencies in which were picking up the revenue on the project. So we haven't really found a competitive advantage or disadvantage in the foreign exchange changes. I think the question might become more relevant over time, if we can really take advantage of the opportunity to do a lot of the manufacturing and engineering in our new Indian facility. Right? That could play for or against us over time. But right now it hasn't really hurt or helped us. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: John, most of the engineering and the manufacturing on these European renewables projects, waste-to-energy projects, is really localized. So we really aren't exposed at all in that regard. So the only exposure at all would be on the margin, very minimal impact, just because of the translation of earnings when you have a stronger dollar... John Bergstrom Rogers - D. A. Davidson & Co.: Sure. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: ...and a slightly weaker euro, and obviously that can change too. John Bergstrom Rogers - D. A. Davidson & Co.: Okay. Okay, but I appreciate your comment that you're comfortable margins are consistent with what you've seen so far on that work. E. James Ferland - President, Chief Executive Officer & Director: Yeah. We're very comfortable. John Bergstrom Rogers - D. A. Davidson & Co.: Okay. And then just secondly, can you just give us a quick update on where we are in terms of expected restructuring and spin costs over the next couple of quarters? Or in the next I guess quarter and a half? E. James Ferland - President, Chief Executive Officer & Director: Right. So again we remain on track from a restructuring perspective, both in the results that we're seeing and the cost to implement that we've given out before. So I think we remain very much within those ranges. Spin costs I believe we said $45 million to $55 million after tax for spin cost. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Still there. E. James Ferland - President, Chief Executive Officer & Director: I think we're in the range. We might be at the high end of the range, but we're still in that range. John Bergstrom Rogers - D. A. Davidson & Co.: Okay. Great. Thank you.

Your next question comes from the line of Martin Malloy, Johnson Rice. Please proceed. 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: Marty. Martin W. Malloy - Johnson Rice & Co. LLC: I just want to ask about the India manufacturing facility. It has been up and running for a while now. Can you talk about if you're pleased with the productivity there? And how that's maybe helping you offer competitive bids on some of the international solid fuel opportunities? E. James Ferland - President, Chief Executive Officer & Director: Sure. So to your point we are up and running there. We have three projects right now in that facility, two in manufacturing and one we're still accumulating steel and pipe. And we're getting ready to move into manufacturing. So far so good. Manufacturing productivity has been on our expectation. We knew we were going to have a couple of challenges just coordinating engineering and sourcing, and we've moved through those relatively smoothly. So we're pretty happy with the initial ramp-up of the Indian facility, recognizing that it's all non-Indian work that's in there today. I think the real test will be as we move forward in the Indian market if and when we win a couple of large projects that will be the real test for that facility. Ballpark, we probably have that facility running at a third, or no more than half capacity today. So we're testing it, but we're not really testing it yet. So, time will tell. That said, we feel pretty good about it so far. Martin W. Malloy - Johnson Rice & Co. LLC: Okay. And then on the Ohio Class Replacement Program, can you talk about if there's anything new there, and maybe what milestones we should look for in the future in terms of potential awards from the government? E. James Ferland - President, Chief Executive Officer & Director: Sure. So, Ohio Replacement, really nothing new. We continue to do some long lead work for the government, as we've indicated previously. We feel good about the program. We continue to watch and see how Congress is going to deal with the funding challenge that exists. I'm convinced that they'll figure out a way to work their way through the funding challenge on Ohio Replacement. It's a critical platform for the country going forward. It absolutely has to be funded. Exactly what mechanism they choose over the next two or three years will be interesting to see. But we're confident that it will be funded and we'll see some more significant work coming in over the next two or three years. Martin W. Malloy - Johnson Rice & Co. LLC: Thank you. Congratulations on the quarter. E. James Ferland - President, Chief Executive Officer & Director: Thanks. Anthony S. Colatrella - Chief Financial Officer & Senior Vice President: Thanks.

Your next question comes from the line of Tahira Afzal, KeyBanc. Please proceed.

Hi folks. A bit of a bizarre follow-up, but I threw it out there. Utility analysts seem to be in a buzz about this new Tesla battery. I would love to get any kind of initial thoughts you have on how that could potentially change the power generation dynamics in the U.S.? And if there's a play for you, or a potential impact five years, six years down the road? E. James Ferland - President, Chief Executive Officer & Director: Sure. I would agree there's been a lot of press around Tesla, and car batteries turning into home batteries or large-scale storage for electricity. So a couple of thoughts. One is the ability to efficiently store electricity over time will change the dynamic of the industry. There's no doubt. I'm not sure that the battery from Tesla will have a material impact in the next three years, four years, or five years. It's an interesting idea. There's a lot yet to come together both on the cost side, and there's a lot of structural changes that need to be made to the electric side in order for that to be effective. For example, you need time of use electricity pricing in order for the whole concept of charging at night and discharging during the day to work. Not very many regions in the United States have that today. So an awful lot of changes need to move into the market, and there are a lot of different technologies. Battery storage could be one. There are a variety of other technologies that folks are taking look at, and we're looking at them too, because it could change the market over time. In the end for our more traditional coal business, we recognize the fundamental challenge that exist. I think we're in front of it. And I'm not sure the timing of storage into that market changes that profile for us too much.

Got it okay. And could this eventually be – I know you hope to post the spinoff, Jim, grow BWC, or rather the balanced (50:11) side of the business. And I'm just wondering, I mean, are you looking it seems at opportunities such as this, do they play an important part on where you place your M&A dollars? E. James Ferland - President, Chief Executive Officer & Director: I would say we look at it. We continue to like the Industrial Environmental segment. We've had a lot of success with MEGTEC. It's a nice diversity play for us, so we'll look there. That said, we have a lot of expertise in the energy markets. We know the customers very, very well, and we understand the dynamics of the market. You know, I doubt we're going to build a $5 billion battery plant like Tesla, but I think your point's very valid. We do continue to look at emerging technologies like that. And we think that with our strong technology base, our great R&D teams, and our knowledge of the markets and knowledge of the customers, we could play in that arena over time. And I think we'll continue to look for opportunities on that front.

Got it. Thank you very much, Jim. E. James Ferland - President, Chief Executive Officer & Director: Thanks, Tahira.

Thank you. No further questions. I would now like to turn the call over to Jenny Apker for closing remarks. Jenny L. Apker - Treasurer & Vice President-Investor Relations: Thank you all 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. Thanks again. Talk to you soon.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. All have a good day.