BWX Technologies Inc (BWXT) Q4 2018 Earnings Conference Call Transcript
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BWX Technologies Inc (NYSE: BWXT)
Q4 2018 Earnings Conference Call
Feb. 26, 2019, 8:30 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by and welcome to BWX Technologies Inc Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions). Following the Company's prepared remarks, we will conduct a question-and-answer session and instructions will be given at that time. Please note this event is being recorded. I would now like to turn the call over to our host, Mr. Alan Nethery, BWXT's Vice President and Chief Investor Relations Officer. Please go ahead.
M. Alan Nethery -- Vice President and Chief Investor Relations Officer
Thank you, Nicole, and good morning, everyone. Welcome to BWXT's Fourth Quarter 2018 Earnings Call. Joining me today are Rex Geveden, President and CEO, and David Black, Senior Vice President and Chief Financial Officer. As always, please understand that certain matters discussed on today's call constitute forward-looking statements and involve risks and uncertainties, including those described in the Safe Harbor provision found in yesterday's earnings release and our SEC filings . On today's call, we will also provide non-GAAP financial measures, which are reconciled to GAAP measures in our quarterly materials. Copies of these documents, along with the replay of this call are available on the Investor section of our website.
And with that, I'll now turn the call over to Rex.
Rex D. Geveden -- Chief Executive Officer, President
Thank you, Alan and good morning, everyone. We had an exceptionally strong finish to 2018 with robust fourth quarter performance, driving record results for both the quarter and the year. Fourth quarter revenue was up 11% with earnings at $0.74 per share, resulting in new high water marks for the year with earnings of (ph) $2.39 per share on revenues of $1.8 billion.
2018 was another stride forward in our ambitious growth plans and I am proud of the team's performance and response to some operational challenges that surfaced during the year. The Nuclear Operations Group or NOG delivered strong margins despite reserves for missile tubes. Nuclear Fuel Services, an NOG subsidiary was awarded a $505 million contract for downblending highly enriched uranium, the largest single contract in the history of that business. And we exited the year with accelerating growth.
The Nuclear Power Group, NPG delivered organic revenue growth in excess of 20% along with strong margins resulting in records on multiple fronts, including a year end backlog of over $800 million. Finally, with a high focus on execution and cost control, the Nuclear Services Group delivered more than $20 million in operating income, a significant improvement over last year's result.
Throughout the year, we made several strategic moves, including the acquisition of a medical radioisotopes business and the announcement of our intentions to commercialize moly 99 radioisotope production. We also took actions on pension and our balance sheet that will create some near-term earnings per share headwinds, however, we have firm conviction that these decisions better position the Company for the future.
The pension actions derisk the balance sheet for future liabilities and the long-term fixed debt we issued in 2018 reduces our exposure to interest rate risk. And lastly in 2018, we returned more than $0.25 billion (ph) of cash to shareholders through dividends and repurchases, while continuing to invest appropriately for future organic growth.
BWXT enters 2019, well positioned for continued revenue and earnings growth as we progress toward the achievement of our long-term guidance. We expect 2019 earnings per share of about $2.50 on revenue growth of about 6%.
I'm also pleased that we successfully negotiated terms on the next multiyear pricing agreement for the nuclear naval propulsion program with a contract value of about $2.1 billion. Of this approximately $1.7 billion will be primarily for manufacturing reactors for Virginia-class and Columbia-class submarines. Once definitized, we forecast consolidated BWXT backlog in excess of $4.5 billion. This work is the centerpiece of our National Nuclear Security portfolio and reflects our position as the trusted supplier of these critical components well into the latter half of the next decade. In addition to the $2.1 billion agreement, we've been requested to propose nuclear components for the second carrier in the Navy's two Ford-class carrier acquisition and we anticipate reaching terms by this summer. And lastly, we continue to execute missile tube welding repairs, our cost and schedule are on track with the majority of repairs scheduled to be complete by mid-year.
Let me now turn the call over to David to discuss segment results, guidance and other financial metrics.
David S. Black -- Chief Financial Officer, Senior Vice President
Thanks, Rex. Nuclear Operations Group generated revenue of $350 million for the fourth quarter of 2018, up 13% year-over-year driven by accelerated revenue through favorable estimated completion EAC changes that included increased future volume assumptions that benefited backlog contracts, and higher volume in naval nuclear fuel and downblending services.
Operating income for the quarter was a record $91.1 million as a result of lower costs and favorable EAC changes. Full year NOG revenue topped $1.3 billion, up 3.7% year-over-year with operating income of $271 million, resulting in strong operating margins of 20.6% despite the negative impact from missile tube reserves. Excluding the $29.2 million of missile tube reserves, NOG margins would have been 190 basis points higher at 22.5%.
The Nuclear Power Group produced $98.2 million of revenue in the fourth quarter of 2018, a 16% increase from the fourth quarter of 2017, and marking six consecutive quarters of year-over-year organic growth. Higher fourth quarter results were driven by increases in field services, fuel handling, and component design and manufacturing in the medical radioisotope acquisition.
Segment operating income was up 44% to $13.6 million compared to the prior year period and was driven by an increase in volume as well as the medical radioisotope acquisition.
Full year NPG revenue was also a record at $366 million, a 28% increase compared with 2017. And in organic basis excluding $19.5 million related to the medical radioisotope acquisition, segment revenue was up 21%. Full year NPG operating income was $52.3 million resulting in record operating margins of 14.3%. And lastly, the Nuclear Services Group contributed operating income of $9.2 million in the fourth quarter significantly higher than the prior year period as a result of improved operational performance at various DOE sites and good cost control.
NSG completed the year with $20.4 million of operating income, up 44% despite the continued push out of the Savannah River liquid waste protest resolution. The Company's fourth quarter capital expenditures were up 3% to $49 million, compared with the fourth quarter of 2017 with an additional $30 million of CapEx not included at year-end due to equipment delivery late in the quarter. Full year 2018 capital expenditures were $109 million, up 13% versus 2017.
At the end of 2018, the Company's cash and short-term investments position net of restricted cash was $33.5 million. Fourth quarter cash flow from operating activities generated $177.7 million more than double the $77.1 million generated in the fourth quarter of 2017.
We returned $168 million in cash to shareholders in the fourth quarter, including $152 million of share repurchases and $16 million of dividend. This resulted in a total of $279 million of cash returned to shareholders in 2018.
At the end of the fourth quarter, the Company had gross debt of $777 million, including $400 million in senior notes, $277 million in terms loans and $100 million in borrowings under our credit facility. We also had $63.5 million in letters of credit under our credit facility and as a result have $336.5 million of remaining availability.
On February 22, our Board increased the quarterly dividend 6%, and declared a cash dividend of $0.17 per share payable in the first quarter of 2019.
Turning now to guidance. We have initiated our formal 2019 guidance with another year of top and bottom line growth. We expect non-GAAP EPS at about $2.50 and strong consolidated revenue growth of about 6%. Our EPS guidance contemplates tailwinds from operations, driven by higher volume and reduced share count. We also are factoring in about $0.20 of EPS headwind for increased interest expense and lower non-cash CAS (ph) pension income reported in the Other segment.
In NOG, we expect revenue growth of about 6% with sustained margins in the high teens with continued upside potential from CAS pension reimbursements. In NPG, we expect revenue to be about flat as recurring service outages cycle lower in 2019, but are offset by a full-year revenue from the medical isotopes acquisition. Segment margins are expected to be about 13% for the year. And lastly, we expect NSG to contribute about $25 million in operating income as the growth cycle continues.
Other 2019 guidance items include about 1% of revenue for Other segment operating expense primarily for R&D. About $20 million in unallocated corporate expense and about $22 million in CAS (ph) pension income reported in other. We finished 2018 with an effective non-GAAP tax rate of 23.6% and expect 2019 to be similar in a range of 23% to 24%.
We're guiding to about $225 million in capital expenditures for 2019, including the previously referenced $30 million coming from capital received late in 2018. The remaining $195 million is split with approximately $120 million for Navy, $50 million for isotopes and the remaining balance for other segments and corporate. Given our current outlook, we believe 2019 will be a peak for capital expenditures. In 2020, we see capital expenditures coming down below $150 million and then returning to maintenance capital levels in 2021 at about 3.5% of revenue. As mentioned in our press release, we continue to reiterate our long-term guidance of low double-digit EPS CAGR over the three to five years following the $2.05, we delivered in 2017.
Our guidance continues to reflect robust organic growth opportunities and balance sheet capacity as well as some changes to the pension outlook over the next several years. In late 2017 and again in 2018, we annuitize portions of the pension. This action derisk future volatility surrounding pension liabilities but also remove pension assets. In addition, discount rates have moved up creating additional pressure on pension income reported in other. Based on our guidance, we see pension income being about $0.07 headwind in 2019.
We also made $118 million in voluntary pension contributions in 2018 to take advantage of changing tax law. Our updated actuarial studies now forecast recoverable CAS pension income primarily reported in NOG to remain at similar levels compared to prior years and we anticipate that continuing through the end of 2023. As a result of the 2018 voluntary contributions, we continue to anticipate not to have to make any material cash infusions into the pension for the next three years until 2022.
A summary of our financials, along with a dedicated pension slide can be found in today's earnings presentation and the investor briefing on our website.
And with that, I'll hand the call back over to Rex for some closing remarks.
Rex D. Geveden -- Chief Executive Officer, President
Thank you, David. Our strategic focus for 2019 includes ramping up component production of the Columbia Class submarine while completing the pricing agreement for another Ford-class carrier, continuing to industrialize our radioisotope technology and capitalizing for future organic growth opportunities. We are well on our way to receiving contracts for the multiyear pricing agreement we announced earlier this month. The transition to Columbia production marks the successful conclusion of 45 years of development, production and refueling work for the Ohio Class submarine. With this effort behind us, full attention is on the new Columbia class product line.
We also remain focused on bringing our proprietary radioisotope technology to market as medical radioisotopes become the first major product line addition to BWXT and more than 25 years. Over the past couple of years, we've seen exciting growth in our commercial nuclear power business. That segment ended the year up 28% again topping our original estimates. This segment continues to demonstrate strength in a growing Canadian market driven by the refurbishment of a large portion of the CANDU nuclear reactor fleet.
In 2018, refurbishment and new build work represented about 40% of our revenues and our record backlog showcases a large portion of the component work we have been awarded for future refurbishment content. Moving forward, we expect to see more competitive opportunities for project work and fewer bids for large component work in the Canadian refurbishment market. To that end, we intend to direct our efforts to opportunities that will yield high returns and remain core to our business.
Accordingly, we will continue to be highly selective about which future opportunities we pursue in this market. As we grow closer to the peak of the Canadian nuclear power refurbishment activity, medical radioisotopes will drive more management attention and become a larger part of the story of our commercial nuclear business. I am pleased to report that integration of the acquisition is going very well. We see upside in the legacy business lines and we remain laser focused on commercializing moly 99 production. In the past several months, we've made strides on all fronts, including the design and prototyping of the target delivery system. As I speak, our team in Canada is modifying the OPG reactor in Darlington to accept hardware for iradiating BWXT targets in the future.
And lastly for 2019, we plan to capitalize the organic growth, we have already discussed. We believe the best use of capital this year is to invest in our core businesses, most especially our franchise platform and nuclear naval propulsion. And we fully expect these investments to produce exciting growth for our Company and shareholders.
And with that, we will open the line for questions. Operator?
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Bob Labick of CJS. Please go ahead.
Bob Labick -- CJS Securities -- Analyst
Good morning, congratulations on a nice bounce back quarter.
Rex D. Geveden -- Chief Executive Officer, President
Good morning, Bob.
Bob Labick -- CJS Securities -- Analyst
Good morning. Start with an easy one and then I'll go into a little more in depth one. But could you talk about of the 26% margin in NOG, which is obviously very high, how much could we consider as abnormal maybe relating to large EAC true-ups or what not. And how much is kind of normalized margin for NOG in the quarter?
David S. Black -- Chief Financial Officer, Senior Vice President
Bob, as we mentioned in the script that some of the cost in the fourth quarter we curtailed and also we had one-time adjustments as you mentioned. What we will go back to as the fact that what we say for NOG for now and to the future is that our margin should be in the high teens with room for improvement for the CAS pension reimbursements. What that has done historically has taken us to the 20%, 21% sometimes low 22% with the pension and that will continue.
Bob Labick -- CJS Securities -- Analyst
Okay. Great. And then just moving on, you just had some new slides in your investor deck as it relates to NPG and thank you for the kind of clarity on the ramp of the outages. Can you talk a little bit about, it's pretty steep ramp of outages in 2020 versus 2019, walk us through what it means for you. Do you have the capacity, personnel et cetera. How does that kind of play out over the next two years?
Rex D. Geveden -- Chief Executive Officer, President
So sort of two things to talk about there, Bob. One is that there's -- there the normal outage field services related to outages that have to do with regularly scheduled maintenance in the CANDU fleet and we participate in that market and do quite well in that market. As you know from our comments, we were actually swinging down in 2019 on field service outages down about 30 million (ph), 40 million (ph), but that swings back positive in 2020. That's part of it. And then there are outages related to the refurbishment activity itself where the reactors will go down for two, three years, give or take for component replacement and so forth.
So where we participate in that is we have, we are component supplier in that market and so all of that activity around the replacement steam generators, for example, we are manufacturing all those replacement steam generators replacing the feeder tubes at the Darlington side. We are manufacturing a lot of the refurbishment waste containers and so and in primary -- and primary coolant loop, pumps, pump motors. So we've done very well in winning the component work. The project work related to the refurbishment outages will be -- has -- some of that has been competed and will be competed in the future. We are a small player in that frankly. We generally don't get involved in engineering procurement and construction projects in that market and so we won't be a large player there. So I think, you've seen our growth manifest in the appropriate way. We have won a very significant fraction of that component work and that's ongoing in our plans.
Bob Labick -- CJS Securities -- Analyst
Okay, great, thanks for that color. Last one, I'll get back in queue. Just can you talk a little bit about the timing of the Columbia revenues as it relates to kind of coming into '19 and 2020. Should it be smooth out over -- the seven years or so that it takes or is there a difference between '19, '20 and going forward. Just give us a sense not the numbers but just directionally size of '19 versus '20.
Rex D. Geveden -- Chief Executive Officer, President
Yes, I think what we've, the way we've characterized that in the past, Bob, is that we -- you see a little bit of a pop on the front end, which would occur toward Q4 of this year that has to do with long lead materials and then it's -- it's kind of a pretty steady revenue from that production and revenue from that point forward until toward the end of the delivery and then it turns up a little bit there. So and that production as we've characterized that as sort of a seven year-ish kind of a production. So that's how it works.
Bob Labick -- CJS Securities -- Analyst
Super. Thanks very much.
Operator
Our next question comes from Peter Arment of Baird. Please go ahead.
Peter Arment -- Robert W. Baird & Co -- Analyst
Yes, thanks. Good morning, Rex, David.
David S. Black -- Chief Financial Officer, Senior Vice President
Good morning.
Peter Arment -- Robert W. Baird & Co -- Analyst
David, I wonder, if I can just circle back to the comment around the -- the NOG margin in the fourth quarter. The EAC adjustment, it's not. I think for the year, you ended up about $46 million in EAC adjustments in NOG versus $35 million last year. But the step-up in Q4 was pretty significant. Can you just give us a little more color around the cost containment?
David S. Black -- Chief Financial Officer, Senior Vice President
Around the curtailment of cost in the fourth quarter?
Peter Arment -- Robert W. Baird & Co -- Analyst
Yes.
David S. Black -- Chief Financial Officer, Senior Vice President
Yes, I mean -- I -- we don't have the exact numbers to provide you for the curtailment of costs, but there are certain level in cost that we went through and looked in the business to to evaluate to see if we could curtail those costs at least in the fourth quarter, knowing that we had some room to make up and try to get to the year, we wanted to get to. So that is part of that as well as that change in EAC from year-over-year that allowed us to get to that quarter. But no details on that.
Peter Arment -- Robert W. Baird & Co -- Analyst
Okay and then just maybe unrelated on CapEx. So thanks for the color on the peak year, but the -- the incremental I guess around is the medical isotopes spending is that above your expectations prior to when you had planned Nordion, I think the original expectations were that this -- they were -- you were coming with a -- an already set up processing facility.
David S. Black -- Chief Financial Officer, Senior Vice President
What we knew when we -- we changed our capital outlook when we bought Nordion. So we dropped $100 million, but we knew that we still had to -- when we got the facilities, we would still have to facilitize that facility in order to be ready for production. So there is a production lines and other things that have to be put in there. So these capital numbers are in our mind just shifted in time and then laid out a little differently than what the original was.
Rex D. Geveden -- Chief Executive Officer, President
I will add to that Peter.
Peter Arment -- Robert W. Baird & Co -- Analyst
Okay. I'll jump back --
Rex D. Geveden -- Chief Executive Officer, President
Yes, Peter understand -- that's -- it's in line with our expectations from the beginning.
Peter Arment -- Robert W. Baird & Co -- Analyst
Thanks, Rex.
Operator
Our next question comes from David Strauss of Barclays. Please go ahead.
Matthew Akers -- Barclays Bank PLC -- Analyst
Hey, good morning, guys, this is Matt Akers on for David. I wanted to ask, quickly on Virginia-class. One of the shipbuilders, this quarter was talking about some challenges, sort of as they -- they move through the various blocks of ships there. Is there -- and I know you guys are a couple of years ahead, but it's -- is that something you guys are impacted by at all or are you not affected there?
Rex D. Geveden -- Chief Executive Officer, President
Good morning, Matt. No we -- we are not impacted by that. The way this -- our contract with the Navy works is that we deliver to the Navy and the Navy provides the reactors, and associated equipment, it's government furnished equipment to the shipyards. So those reactors go to Electric Boat and go to Huntington Ingalls and doesn't impact our production schedule.
Matthew Akers -- Barclays Bank PLC -- Analyst
Okay. Got it. And I guess, Dave you gave some color on the CapEx debt balancing (ph). Thanks for that, that's helpful. I guess, how do you think about overall free cash flow conversion of net income for the business, kind of once we get out to I think, you said, 2021 as when we get back to maintenance CapEx level.
David S. Black -- Chief Financial Officer, Senior Vice President
I mean free cash flow is going to improve obviously, between now and then because we're got two years of still stealthy capital in 2019 and 2020 as we've prepared the remarks for you here. So I think, in 2021, '22, then we'll be -- be getting back to periods of time of free cash flow that is higher and capital allocation, then that will be changing and different at that point in time.
And once again, we're -- we've hopefully, we have a balanced capital allocation approach where we still have these organic things we're going through now, but we're also looking at acquisitions and repurchasing shares. We have 185 million of shares authorization to repurchase. At this point in time, I'd say that we're in -- going to be in the market for dilution, we've said that every year. And after that, we'll be opportunistic, but we have the availability to do things, one with the free cash flow returns.
Matthew Akers -- Barclays Bank PLC -- Analyst
Got it. Okay, thank you.
Operator
Our next question comes from Pete Skibitski of Alembic Global. Please go ahead.
Pete Skibitski -- Alembic Global -- Analyst
Good morning, guys.
David S. Black -- Chief Financial Officer, Senior Vice President
Good morning, Pete.
Pete Skibitski -- Alembic Global -- Analyst
I have a question on the margin guiding to NPG for 2019, the 13%. I thought maybe we have some margin tailwind there just because I thought the Nordion was kind of a higher margin business. Fundamentally a legacy NPG business. Can you talk through kind of the puts and takes there, I don't know if it's just all deal amortization that's -- that we headwind to '19 but maybe just give us some color on what's driving the pointers on '19?
Rex D. Geveden -- Chief Executive Officer, President
I'll take that one, Pete, thanks for the question. Yes. So as we said the -- the revenue related to service outages is cycling down in 2019. The replacement revenue for that is largely the radioisotope acquisition, and that is a higher gross margin business and has different performance characteristics from the base Canadian business. But we do have significant amortization of intangibles in those numbers.
And so subtracting those intangibles, yes, a better picture but with those included, it's -- the replacement revenue isn't as high margin.
Pete Skibitski -- Alembic Global -- Analyst
Got it. Okay, it sounds good. And then Rex, last one, anything new in the -- the nuclear space world, that's interesting?
Rex D. Geveden -- Chief Executive Officer, President
Yes, there is actually a lot going on there, Pete. We talk a lot about our Navy nuclear franchise platform and that's clearly the centerpiece of our business, but what we've been seeing over the past two or three years is a very interesting sort of future demand signal, let me call it from various components of the government. So we see interest from places like DARPA, continuing interest from NASA, Department of Energy is very interested in classes of reactors that we're kind of calling compact reactors or micro reactors for various applications including off grid applications, space applications, defense and security applications.
And so, we're actually quite impressed with what we see there and we see some future markets and maybe the opportunity to replicate our franchise platform into different markets such as space and Army and Navy, and maybe other things. So there's a lot going on there. We haven't disclose much about it yet, but we are building some -- building some new businesses around those requirements.
Pete Skibitski -- Alembic Global -- Analyst
Sounds great. Thanks, guys.
Operator
Our next question comes from Ronald Epstein of Bank of America Merrill Lynch. Please go ahead.
Kristine Liwag -- Bank of America Merrill Lynch -- Analyst
Hi, good morning, guys. It's Kristine Liwag for Ron. From our conversations with some --
David S. Black -- Chief Financial Officer, Senior Vice President
Good morning, Kristine.
Kristine Liwag -- Bank of America Merrill Lynch -- Analyst
Hey, guys. From our conversations with some industry players, it seems like the Navy is worried that you've encountered issues in the missile tubes which was viewed as a lower technological risk product, especially as we go into the Columbia-class, which is going to be a more technologically advanced product. Can you talk about how the fallout or maybe what -- the conversations you've had with the US Navy has been after the issues of the missile tubes. And in terms of planning and of risk, how that's changed after the missile tube issues have been encountered?
Rex D. Geveden -- Chief Executive Officer, President
Yes. Thanks, Kristine. I see those as very disconnected issue. So it hasn't impacted our nuclear reactors work in any way whatsoever. In the particular case of missile tubes, we are working through a very, very challenging self-imposed inspection requirement using ultrasonic inspection techniques to very, very high standard and it's very, very difficult to make volumetric welds to that standard.
And the problem is not unique to BWXT. It certainly has manifested itself in other parts of the supply chain. So -- and we are recovering from that very nicely. So I don't see that as a -- as a -- having any relationship to our Navy work.
Kristine Liwag -- Bank of America Merrill Lynch -- Analyst
Great. And then on the NPG segment, you're guiding to flat revenue outlook for the full year. It looks like where you've got three lower outages in '19 for the recurring market, for the Canadian commercial nuclear power. But you've also got about three new starts in terms of a nonrecurring refurbishment market. Is it fair to say that those are the two moving pieces that get you to flat growth for the segment for '19?
Rex D. Geveden -- Chief Executive Officer, President
I think that's a fair way to put it. Most of the -- the flatness has to do with the down cycle in our traditional services market. There just aren't as many outages in 2019. And as we've said, those swing back positive in 2020. So that's really what's driving it.
Kristine Liwag -- Bank of America Merrill Lynch -- Analyst
And is there any risk or risk to the upside that you would see more than seven outages or is this number, pretty much firm for the year?
Rex D. Geveden -- Chief Executive Officer, President
Yes, I don't think that's going to change.
Kristine Liwag -- Bank of America Merrill Lynch -- Analyst
Great, thank you.
Rex D. Geveden -- Chief Executive Officer, President
Welcome.
Operator
Our next question comes from Mike Ciarmoli of SunTrust. Please go ahead.
George Peacock -- SunTrust -- Analyst
Hey good afternoon -- good morning. This is George Peacock (ph) on for Mike Ciarmoli. I just wanted to get a status on what the current FDA approval is for some of the medical radioisotopes, do you have any update there? And what stage you are in the equipment design?
Rex D. Geveden -- Chief Executive Officer, President
So nothing new there. I think we reported in the last quarter that we had another engagement with the FDA and it was positive from our perspective. So we're on a normal tempo with FDA review and we don't see any changes in that. From the standpoint of equipment design, we're moving along with the sort of three major areas for equipment design and one is the target delivery system that goes into the reactor we are progressing along that path. And then there are two parts that are related to our production facilities in Kanata up near Ottawa, Ontario and in Kanata, we are putting in what's called the radiochemical processing line, where we process the chemicals through hot cells and then the third piece is, the second piece in Kanata, the third piece, overall, is the radio farm line where we load the generators with our material. And all of that is progressing and we're satisfied with progress.
George Peacock -- SunTrust -- Analyst
Excellent. And you -- I mean, you made a small adjustment to the management reserve for the missile tube rework. It seems like a large percentage of that may be completed in 2019. Can you give any commentary on the percent completion of the work during the calendar year?
Rex D. Geveden -- Chief Executive Officer, President
Yes, so there was no adjustment to the missile tube reserves. I think what you might be seeing there is the difference between the 29 something million and the $32.5 million, it has to do with.
George Peacock -- SunTrust -- Analyst
Right.
Rex D. Geveden -- Chief Executive Officer, President
Yeah. That -- the reserve number didn't change, the balance, the difference between the $29 million and the $32.5 million has to do with the fact that we took profit zero in the current contracts -- for the production contracts. And in terms of progress, as we said, we're progressing more or less according to our schedule and cost plans and we're sort of only 15% into these missile tube repairs. But I am well pleased with the progress that we're making.
George Peacock -- SunTrust -- Analyst
And I think just wrapping up, you said something very insightful about the new businesses there, you're working on. There seems to be a significant push to minimize the fuel supply chain with forward operating locations for the Army. Are these new businesses related to that kind of push toward reducing that fuel supply chain? And I'm talking about diesel fuel.
Rex D. Geveden -- Chief Executive Officer, President
Yes, so that's part of it. That is part of it -- George -- the. It's a well-known number but about 50% of in-theater casualties have to do with the logistics and a lot of diesel drivers are getting killed to put it in blunter terms. And so, yeah, I think the Army is interested in that kind of an application. I don't believe that will be the first application of remote nuclear power. I think you might see domestic bases go off the grid before you saw that. But there are lots of applications, right, there off grid applications, there are remote power applications for other things like operating radars, there are opportunities to power directed energy weapons for some of the advanced threats that we see whether those are in space or whether those are terrestrially based. And you can imagine nuclear applications for boosting satellite through our satellite defense. There are so many -- so many very challenging national security problems for which compact nuclear reactors are the only feasible solution and that's the tip of demand that we're starting to see and I think, it's pretty exciting for the future of our business.
George Peacock -- SunTrust -- Analyst
Very exciting. You may want to toss disaster recovery into that bucket too. Thank you very much and great quarter.
Rex D. Geveden -- Chief Executive Officer, President
Yes, thank you, George.
Operator
Our next question comes from Josh Sullivan of Seaport Global. Please go ahead.
Josh Sullivan -- Seaport Global -- Analyst
Good morning.
David S. Black -- Chief Financial Officer, Senior Vice President
Good morning, Josh.
Josh Sullivan -- Seaport Global -- Analyst
Can you just update us on the thought process along the missile tube opportunity. Is this a business you believe you want to be in long-term. And I guess, how are the next round of missile tube contract negotiations going at this point?
Rex D. Geveden -- Chief Executive Officer, President
Yes. Thank you, Josh. Well, nothing has been awarded in the continuous production phase. All those discussions are ongoing. And I think whether we would participate in the future, certainly depends upon what kind of contract terms we could get. The business hasn't been especially kind to us so far and so, we'll just have to evaluate and see what we want to do with it going forward.
Josh Sullivan -- Seaport Global -- Analyst
Okay, fair enough. And then just can you give us your thoughts on the overall defense budget over the next three to five years, how should building help the Columbia funding or positions just the various budget scenarios that might -- outcome over here -- next three years or so.
Rex D. Geveden -- Chief Executive Officer, President
Yes, sure, Josh. I mean, who knows what will happen of course but from our perspective, if you look at the product lines within nuclear operations, we have obviously the Ford-class aircraft carrier, the Virginia fast attack submarines and then we've got strategic boat with the Columbia submarine, and those are all programs of record. Those are all authorized and appropriated programs and so I -- I think -- and by the way, stated to be very high priority programs for the Navy and for the Department of Defense and so I feel pretty safe with our portfolio. There are questions about whether the nation could afford to get through a 350 ship Navy or not, but if there is any budget curtailment. I do believe these programs have been generally well protected. So I'm quite bullish on keeping our portfolio at the current acquisition tempo.
Josh Sullivan -- Seaport Global -- Analyst
Great, thank you.
Rex D. Geveden -- Chief Executive Officer, President
Thanks, Josh.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Alan Nethery for any closing remarks.
M. Alan Nethery -- Vice President and Chief Investor Relations Officer
Thank you, Nicole and thank you for joining us this morning. That concludes our conference call. If you have further questions, please call me at 980-365-4300. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Duration: 38 minutes
Call participants:
M. Alan Nethery -- Vice President and Chief Investor Relations Officer
Rex D. Geveden -- Chief Executive Officer, President
David S. Black -- Chief Financial Officer, Senior Vice President
Bob Labick -- CJS Securities -- Analyst
Peter Arment -- Robert W. Baird & Co -- Analyst
Matthew Akers -- Barclays Bank PLC -- Analyst
Pete Skibitski -- Alembic Global -- Analyst
Kristine Liwag -- Bank of America Merrill Lynch -- Analyst
George Peacock -- SunTrust -- Analyst
Josh Sullivan -- Seaport Global -- Analyst
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