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Nordion (NYSE:NDZ)

Q3 2013 Earnings Call

September 05, 2013 10:00 am ET

Executives

Ana Raman - Director of Investor Relations

Steve M. West - Chief Executive Officer, Director and Member of Technology Committee

G. Peter Dans - Chief Financial Officer and Senior Vice President

Analysts

David Krempa - Morningstar Inc., Research Division

Neil Maruoka - Canaccord Genuity, Research Division

Douglas Miehm - RBC Capital Markets, LLC, Research Division

Alan Ridgeway - Paradigm Capital, Inc., Research Division

Varun Choyah - CIBC World Markets Inc., Research Division

Operator

Good morning, ladies and gentlemen. Welcome to the Nordion Third Quarter Results Conference Call. [Operator Instructions] I would now like to turn the meeting over to Ms. Ana Raman, Investor Relations. Please go ahead, Ms. Raman.

Ana Raman

Thanks, Melanie. Good morning and welcome to Nordion's Third Quarter Fiscal 2013 Earnings Call and Webcast. On the call this morning are our Chief Executive Officer, Steve West; and our Chief Financial Officer, Peter Dans. The format for our call will be that Steve and Peter will provide their perspectives on the quarter, and then we'll open up the line for questions from analysts. Slides have been posted to accompany this webcast.

As per Slide 2, which contains our caution on forward-looking statements, please note today's comments do and our responses to questions may contain forward-looking statements within the meaning of applicable securities laws. These include statements about our financial performance, our agreements with AECL, the proceeds from the sale of our Targeted Therapies business, our strategic review, our defined benefit pension plan and the estimated future deficit and funding and our internal investigation.

We indicate forward-looking statements by using words such as expect, plan, estimate, will, intend, believe, continue and similar expressions. All forward-looking statements reflect our current views and information with respect to future events and are subject to risks, uncertainties and assumptions we have made, and we do not assume any obligation to update them except as required by law.

Many risk factors could cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements. These factors are described in Nordion's quarterly and year-end news release and annual filings, which are available on SEDAR, EDGAR and the company's website.

Turning to Slide 3. All amounts mentioned are in U.S. dollars, except when otherwise noted. And though results have been prepared under U.S. GAAP, we have included certain non-GAAP measures. These include adjusted net income and adjusted earnings per share. These non-GAAP measures exclude certain items and are intended by management to provide investors with a meaningful consistent comparison of the company's core operating earnings results. This information should be considered as a supplement to and not a substitute for the corresponding financial measures prepared in accordance with GAAP. More information regarding our non-GAAP measures as well as a reconciliation between the non-GAAP measures and corresponding GAAP financial measures is available in our third quarter news release that was issued this morning before markets opened. You can find it on our website at nordion.com.

With that, I'll turn it over to Steve.

Steve M. West

Thank you, Ana. Good morning, everyone, and thank you for joining us today. Over the past few months, Nordion has made considerable progress across a number of key areas: executing on opportunities, reducing uncertainty and clearing the path for our future. Now we continue to focus on the day-to-day execution of our business, which resulted in a solid third quarter. Recently, we entered into a key settlement with AECL and solidified our supply agreement for medical isotopes until 2016 and for waste management until 2026. And we made significant progress on our strategic review, closing the sale of our Targeted Therapies business to BTG in July.

Peter and I will discuss each of these items during this call. At this point, I will begin with a review of our third quarter results and then elaborate on our business and our strategic progress. If you would, please turn to Slide 5.

Nordion delivered solid third quarter results across the company's operations. Consolidated revenue of approximately $71.7 million increased 7% from Q3 of 2012, while consolidated segment earnings of $19.6 million were down 5% from the same period last year, but with sterilization and Medical Isotopes experiencing year-over-year gains. Lower Targeted Therapies earnings, however, more than offset the increases due to higher TheraSphere investment during the quarter and the divestiture of the business to BTG, which was on July 13.

So moving to Sterilization Technologies, which is on Slide 6. Sterilization Technologies revenue increased 14% to $36.5 million this quarter compared with the same period last year. Our Cobalt revenue was up $3.5 million or 11% to $35.4 million as a result of strong sales volumes, due to quarterly variability in the timing of cobalt-60 shipments to our customers.

Sterilization-Other revenue increased by $0.9 million, which was largely due to an increase in production irradiator refurbishments during this quarter.

We have revised our fiscal 2013 revenue expectations for our sterilization business to be up slightly versus our initial forecast of relatively flat revenue compared with fiscal 2012. Having said that, we do expect fourth quarter sterilization revenue to be substantially lower quarter-over-quarter and year-over-year, as we were able to meet our customer demands to deliver cobalt earlier in this fiscal year.

Nordion continues to strengthen its relationship with customers as well as its reputation as an expert in gamma sterilization, which we believe supports our market-leading position, both now and in the long term.

So please turn now to Slide 7 for our summary on Medical Isotopes. Medical Isotopes revenue increased 9% to $24 million compared with third quarter fiscal 2012, primarily driven by an increase in reactor isotope revenue. The gain in reactor isotopes revenue was mainly due to an increase in sales volume, which was the result of the shutdown of our -- of the primary reactor in Europe that supplies some of our customers. And this reactor resumed production in June. Cyclotron revenue increased by 4% due to the resumption of Strontium-82 sales in April. We had initially stopped the production of Strontium-82 in May of 2012.

Contract Manufacturing revenue was up 10% versus Q3 of last year due to the initiation of a TheraSphere manufacturing under our Manufacturing and Support Agreement with BTG in July.

As disclosed previously, we entered into the -- this agreement in connection with the sale of the Targeted Therapies business to BTG. TheraSphere manufacturing contributed revenues of $0.7 million in our third quarter.

Bexxar currently represents the balance of the revenue in our contract manufacturing line. GlaxoSmithKline, the owner of Bexxar, recently notified Nordion of its intent to discontinue the manufacture of this product as of February 20 in 2014. We plan to manufacture Bexxar for GSK until that date.

Based on the additional orders we received during the European reactor shutdown, we have revised our fiscal 2013 Medical Isotopes revenue outlook to reflect and expect a decline now of 7% compared with fiscal 2012 versus our initial forecast of a 20% revenue reduction, and this excludes the impact of the TheraSphere contract manufacturing.

Please turn to Slide 8. So subsequent to our third quarter, we announced a comprehensive settlement with our medical isotopes supplier, Atomic Energy of Canada Limited, to resolve the outstanding claims between the 2 parties relating to the MAPLE facility.

We view this as a positive event for 3 key reasons. First, it provides closure and clarity on the outstanding MAPLE project-related losses. Second, it has a direct positive impact for the company in terms of cash position. As a result of the settlement, we received a $15 million cash payment from AECL. We were released from paying any of AECL's arbitration-related costs, and we have achieved legal cost savings. Third, the settlement provides certainty regarding these matters, better positioning Nordion to focus on the business moving forward, including continued efforts to find credible partners and alternate sources of long-term medical isotopes supply.

With the resolution of outstanding liabilities with AECL, we believe we are better positioned to focus on the future of our Medical Isotope business. As part of the settlement agreement and as previously announced, we signed an amended and restated medical isotopes supply agreement from AECL, with the term ending October 31, 2016. Now in addition, Nordion entered into an agreement to continue waste disposal services from AECL until October 31, 2026.

Our priority has been and continues to be securing a long-term, sustainable and economically feasible supply relationship that aligns with our critical time frame. A resolution with AECL has cleared the way for Nordion to now have more meaningful discussions with credible partners, and we are actively working towards this objective.

Early in our third quarter, we announced our agreement to sell the Targeted Therapies business to BTG, and we subsequently closed that transaction in July. The transition of the business unit is progressing well. And as mentioned earlier, the Manufacturing and Support Agreement for the manufacture of TheraSphere on behalf of BTG has been initiated. Sale process and transition has been demanding on our employees, and I would like to take this opportunity to thank our employees who have been vital to the success of this transaction and the continuing transition. Thank you, everyone.

Now as previously disclosed, BTG acquired Targeted Therapies for approximately $200 million. Net cash proceeds after taxes, deal fees and costs were approximately $190 million. At the time of the completion of the sale of the Targeted Therapies business to BTG, we indicated that we would provide an update around this time on the use of the net cash proceeds from the sale.

After considering potential methods of distributing the net cash proceeds from the sale to shareholders, considering overall tax implication to shareholders and considering the progress of the strategic review, we have decided to retain the net cash proceeds on our balance sheet. The strategic review process is ongoing, and we continue to evaluate opportunities.

Overall, I am pleased with the progress Nordion made in its third quarter, as well as in recent weeks. We intend to continue to operate our sterilization and our Medical Isotopes businesses with efficiency and with focus.

I'd now like to pass the call over to Peter Dans, our CFO, who will discuss our financial results.

G. Peter Dans

Thanks, Steve, and good morning, everyone. I'll start on Slide 10. Nordion achieved revenue of $71.7 million in our third fiscal quarter, up 7% compared to revenue of $67.1 million in the same period last year.

GAAP net income was $180.4 million, up significantly compared to the previous year due to the gain on sale of the Targeted Therapies business. On an adjusted basis, we have net income of $12.6 million or $0.20 earnings per share, down from $15.5 million of adjusted net income in the third quarter of 2012 or $0.25 per share.

Significant adjusting items included the pretax gain on the sale of Targeted Therapies of approximately $189 million, the impairment of assets associated with the Targeted Therapies sale of approximately $29 million and the reversal of litigation accruals related to the AECL arbitration costs of approximately $25 million.

Gross margin percentages this past quarter remained at 55%, consistent with Q3 of fiscal 2012.

On a consolidated basis -- segment basis, earnings were down 5% to $19.6 million from $20.6 million in the third quarter of fiscal 2012. Higher revenue and segment earnings contributed from Sterilization Technologies and Medical Isotopes were more than offset by lower Targeted Therapies earnings due to increased investments in TheraSphere. We also incurred increased pension expense and higher annual incentive costs.

Now turning to Slide 11. We had approximately $282 million of cash and cash equivalents on our balance sheet as of July 31, up $200.4 million from previous quarter, primarily due to the addition of proceeds from the sale of Targeted Therapies.

Upon the close of sale of our Targeted Therapies business to BTG, we received initial proceeds of $200.7 million in cash, which included $0.7 million in net working capital adjustment. Net of taxes and transaction costs, we realized cash proceeds of about $190 million from the sale, and recorded an after-tax gain of approximately $182 million from the sale.

We utilized capital losses to offset taxes on approximately 1/4 of the gain on the sale, and used approximately $11 million of our deferred tax asset to offset federal cash taxes on the remainder of the gain on sale.

Our net deferred tax asset as of July 31 was $41.2 million, which we expect to utilize to offset future cash taxes on income from our operations. In addition, we reported an asset impairment of approximately $29 million. As of July 31, we had an asset group with a carrying value of $38.4 million, used in the production of Targeted Therapies and Medical Isotope products. We identified impairment indicators following the completion of the sale of Targeted Therapies that significantly changed previously estimated cash flows supporting this group of assets.

Please turn to Slide 12. Subsequent to our third fiscal quarter, we entered into a comprehensive settlement with AECL to resolve the outstanding claims between both parties relating to the MAPLE facilities. In Q3, we released $24.6 million in accruals related to the AECL matters and reduced our accrued liabilities by the same amount. We received AECL's CAD 15 million cash payment in August, and expect to record a gain in our fourth quarter. In our third quarter, Nordion made cash contributions of $2.5 million to meet solvency funding requirements and strengthen the financial position of our defined-benefit pension plan. As part of our capital allocation plans, we currently intend to make cash contributions until December 2013 to meet our annual funding -- pension funding requirements.

That cash contributions allow the pension plan to benefit from earning a return on cash invested through the plan.

During the third quarter, we incurred $1.2 million costs related to our internal investigation, which was significantly lower than the $4.5 million in our second quarter and the $4.1 million we spent in our first quarter of this year. The decline in costs reflects, in part, the progress made thus far on the investigation.

While we currently estimate the investigation and remediation costs to be approximately $11 million in fiscal 2013, $1 million lower than our update provided in Q2, we also recognize that there are a number of factors beyond our control, including actions of regulators and enforcement agencies, which could increase these costs.

We've made good progress in the third quarter in working through certain contingent liabilities and strengthening our financial position. We believe we are managing our cash levels prudently, considering the requirements of our business beyond doing a strategic review and valuing our shareholders.

This concludes my financial review. Melanie, we can now open the lines for questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from David Krempa of Morningstar.

David Krempa - Morningstar Inc., Research Division

Just a couple of quick questions. Can you talk about what your thought process was and why you didn't do a buyback with the cash and why you'd rather let it sit? And then secondly, will any of the corporate expense go away with the sale of TheraSphere? Or should we plan on that staying the same?

G. Peter Dans

Thanks, Dave. So I'll take those. So again, with the -- looking at doing a buyback, we did look at a variety of options for returning cash to shareholders. And as Steve mentioned, we looked at the implications of that from a tax perspective and also considered where we were at in terms of our strategic review and made the decision, really, based on those factors. In terms of the second question, from a corporate cost perspective, as we said last quarter, with the divestiture of Targeted Therapies, we wouldn't see a reduction in G&A initially from that. We do plan, following the completion of the Transition Services Agreement, to assess the requirements of the business at that point in time, and take the appropriate actions to adjust our cost structure.

Operator

The following question is from Neil Maruoka of Canaccord Genuity.

Neil Maruoka - Canaccord Genuity, Research Division

Do you anticipate a scenario where the strategic review could result in the use of cash to a purchase of asset or an acquisition of a business? And is it fair to say that any potential return of capital is pending the outcome of the strategic review?

Steve M. West

Good morning, Neil. I'll take that one. So I'm just going to reiterate a little bit what Peter said in that we looked at what were the potential ways to return the net cash proceeds to shareholders and we looked at the overall implications for shareholders of those various methodologies, and we also looked at where we were in our strategic review. And we came to a conclusion that at this current time, it was best to retain the cash on the balance sheet. In terms of other potential uses of that cash, as you're alluding to, we have no other plans for the allocation or the use of these cash proceeds at this time. And we will continue with our strategic review and make assessments during that process.

Neil Maruoka - Canaccord Genuity, Research Division

Okay. And just as a follow-up, I'll ask the same question I did last quarter. But after another 3 months of the strategic review, do you continue to believe there are multiple potential buyers out there for the sterilization business?

Steve M. West

Well, we're not talking about potential buyers, and thank you for following up again on your previous question. But we've executed on our strategic review in terms of the sale of the Targeted Therapies business, and that was definitely part of the process. As for the remaining elements of the business and our 2 business units plus our corporate overlay, we're going to look at all the options, and we're continuing to do that. And when we have something that we can discuss more publicly, we will do so. But at this moment in time, we're really not in a position to make any further comment.

Operator

The following question is from Douglas of RBC Capital Markets.

Douglas Miehm - RBC Capital Markets, LLC, Research Division

Just continuing on with that thought. Can you -- Peter, can you walk through the specific tax implications of a dividend to shareholders as it relates to the company, and also whether or not there's any specific implications of a buyback we may be unaware of as well?

G. Peter Dans

Yes. Doug, so from a tax perspective, individual shareholders will have individual tax consequences. From a dividend perspective, as you're aware, both in Canada and the U.S., generally dividends are taxable as dividend income to shareholders. As well, there may be withholding tax in Canada for U.S. shareholders. Similarly, things such as buybacks do have various tax implications, both in Canada and the U.S. where our shareholders are from. So those are some of the factors that we looked at as we went through with the buyback. There's other considerations that we look at such as liquidity of our shares, et cetera.

Douglas Miehm - RBC Capital Markets, LLC, Research Division

Okay. And when you're looking at your strategic opportunities here, if you were to go out and buy something, what type of hurdle rates would the company consider as rates that you need to exceed to make something work?

Steve M. West

Doug, it's Steve here, and I'll take that. At this moment in time, as we progress the strategic review, I want to be absolutely clear that we don't have any plans of any further allocation of cash, and I think that's how we'll leave it.

Operator

[Operator Instructions] The following question is from Alan Ridgeway of Paradigm Capital.

Alan Ridgeway - Paradigm Capital, Inc., Research Division

I just want to make sure that I'm understanding the AECL agreement and settlement completely correct. So the supply agreement goes through to October 2016 and then you have the waste management services agreement through to 2026. Are there any cash costs to you guys with the services agreement? Or is that just a situation where AECL is obligated to manage the waste? Could you just walk us through that?

G. Peter Dans

So in terms of waste, when you look at the period up to 2016, there's no material change from where we're at today. Again, beyond 2016, where we're only in a waste situation, there will be certain costs associated with sending waste to AECL during that period.

Steve M. West

They're relatively small. And the reason that we called this out is because the current supply agreement, Alan, with AECL, obviously, is predominantly reactor isotope and molybdenum agreement. But activities at Chalk River that involve Nordion go beyond that, and so we do have processing waste. I have indicated that we are now in a position where we believe we can have meaningful conversations around other supply options for reactor isotopes, which has implications in terms of continuing to process, and therefore, requirement to have a viable waste stream capability. And that's why we have that contract with AECL.

Alan Ridgeway - Paradigm Capital, Inc., Research Division

Okay. So just as a follow-up to that, is there a situation, if there's -- if nothing comes to pass from these conversations with additional suppliers, whereby there could be a negative cash drain on the company when the NRU contract is up?

G. Peter Dans

Alan, maybe just clarify, in terms of negative, are you meaning from a waste clean-up?

Alan Ridgeway - Paradigm Capital, Inc., Research Division

From a cost to you for managing the waste beyond 2016, would that piece of the business be a negative drag going forward beyond that?

G. Peter Dans

No. We would -- it would be part of the cost of the other portions of our business. So it would just be absorbed into those parts of the business.

Steve M. West

Yes. The thing about this, Alan, as Peter has pointed out, we do other things besides process moly. And whether it's in our current other activities in Medical Isotopes or whether it's in Sterilization Technologies, we always have a process waste stream. And therefore, there is a requirement for us to be able to transport that waste to Chalk River Laboratories and for them to process it. So it's effectively a continuing operational requirement to be able to have a waste stream capability, supported by the other elements of the business.

Operator

The following question is from Neil Maruoka of Canaccord Genuity.

Neil Maruoka - Canaccord Genuity, Research Division

Just one question on the sterilization business. To date, we've seen no sale of GammaFIT, and I know it has a very long sales cycle. But how does the sales funnel look? And when do you anticipate booking your first order?

Steve M. West

I'll take that, Neil. Thank you for that question, and thank you for your persistence on GammaFIT. I mean, probably I understand, it may sound a bit like a broken record but it is a long sales cycle. It's generally up to 24 months, and we launched GammaFIT in 2012. So that's part of the explanation. And GammaFIT also is positioned to new customers, not really existing customers. So it's a -- in terms of the selling cycle process, it's both new technology and new customers. But we are still optimistic that there's an opportunity. The general economic slowdown has affected all our production irradiator sales. And of course, launching a new one at that particular time, we actually felt was going to give us a better portfolio which to work with. We do believe that GammaFIT is well suited for companies entering into the gamma industry with a lower cost base. As you know, I've spoken previously about our view that in the longer term, Asia will offer some growth opportunities for our customers, and therefore, us. And so we certainly continue to work with potential customers both with GammaFIT, as well as with our standard production irradiators. And I'm optimistic that at some point, we will get back on track in terms of production irradiator sales.

Operator

The following question is from Varun Choyah of CIBC World Markets.

Varun Choyah - CIBC World Markets Inc., Research Division

With regards to looking at alternate sources of medical isotopes supply, can you talk a little bit more on that and how discussions are trending here?

Steve M. West

Thank you for your question because as I alluded to earlier in the call, since we made the settlement with AECL, we believe we're in a much better position now to have appropriate discussions with what I characterize as credible potential partners. And maybe an analogy that I would draw is that if you're married and you're going through an ugly divorce, there aren't too many people that want to date you. So we kind of finalized the settlement terms, and now I think we're open for dating. And I think that's basically where we're at. So we've been working on this for some time, but being able to move ahead now with not having an exclusive arrangement with AECL, which is obviously, which is one of the issues that we had. It was too way exclusive and being able now to, I think, free up conversations, we -- it's got to have both technical and economic feasibility. And those are the things that we're exploring with a variety of potential partners right now. Other than that, I really can't give you much color because of the commercial confidential nature and competitive elements of that. What I can say is we're making progress.

Varun Choyah - CIBC World Markets Inc., Research Division

Okay. So if you were to procure a supplier from, I guess, LEU targets, would you have to like upgrade your processing facility? And would that be something meaningful in the upgrade there?

Steve M. West

That's a pretty technical question, but I'll do my best to deal with it. Yes, so first of all, I probably should have made it clear that our view is that for a credible source of supply, it has to be non-ATU based, LEU. So that is definitely a factor. We're no different to anybody else who's going -- who's looking at long-term LEU. It requires changes in chemistry. It requires changes primarily perhaps in target dissolution. It requires changes in waste stream management. And those are the things that we would be evaluating with potential partners around the feasibility of such a supply. And currently to date, we should remind ourselves that still, by far, the majority of molybdenum that is on the world market is heavily enriched uranium based. And everybody is working towards a low-enriched technology base.

Varun Choyah - CIBC World Markets Inc., Research Division

With regards to the internal investigation, would that like conclude at the end of the year? Or would that spill over -- would costs spill over like next year and you have to incur costs there?

G. Peter Dans

I -- so I'll take that one. So in terms of the internal investigation, we did provide an update that the cost estimate for the remainder of the year is $11 million, which is just about $1 million spending in the next quarter. Again, in terms of the actual investigation, there are a number of factors that really will affect the timing and the cost, which primarily relate to the activities related to the regulator and enforcement agencies. So it's hard to predict when the costs will end and the level of spending going forward. But we'll continue to provide updates on that.

Operator

The following question is from Douglas of RBC Capital Markets.

Douglas Miehm - RBC Capital Markets, LLC, Research Division

Just a quick follow-up. As it stands right now, given the relationship with AECL, is there anything preventing someone that -- let's say, they do get interested in forming a relationship, however, they want to take it one step further. Are there any regulatory items or anything else that would prevent someone from potentially acquiring the company at this point?

Steve M. West

Doug, I'll take that. It's a bit of a hypothetical question, so a hypothetical answer. So I think if I think about that in terms of the sort of the landscape for medical isotope manufacturing, we have a situation here in Canada with a very defined, finite endpoint in terms of NRU under its current ownership by the government of Canada in terms of producing molybdenum. So I mean, it is clear. And our contract with AECL is clear that their supply capability only runs through to October 31, 2016. So that, by itself, has a fairly limited lifespan definition. If anybody other than Nordion and AECL -- wish to partner with AECL, that would be a major economic factor. And I think there are other factors in terms of proximity, startup costs. I find it hard to be able to justify off the top of my head, hypothetically speaking of course, that there would be a business case for entering into the market and setting up a processing capability with Atomic Energy of Canada. But...

Douglas Miehm - RBC Capital Markets, LLC, Research Division

No, I think you -- I'm sorry, maybe I wasn't clear. I was thinking if buying Nordion and recognizing that the most valuable asset is the Sterilization business, and I'd say that Medical Isotope at this point is probably a very small proportion of the overall asset value.

Steve M. West

I see. Well, in terms of value of the company, I mean, I think as we've highlighted, our view about our Medical Isotope business is that we still have a very strong brand, very strong recognition, very strong capability, a lot of history and some very good customer relationships. And we definitely see that as sort of an intangible asset. And that's frankly, why we continue to believe that we should maintain our progress on finding credible sources of supply that go beyond 2016 to maintain the -- our position in the marketplace.

Operator

[Operator Instructions] The following question is from Alan Ridgeway of Paradigm Capital.

Alan Ridgeway - Paradigm Capital, Inc., Research Division

Just a quick question about the sterilization business. One of the points of the 2013 outlook is to maintain your leading position and, obviously, continue to generate high margins. Is there anything going on in the sterilization market that is pressuring your market position in any way or market share in any way at this point in time?

Steve M. West

Nothing, Alan, that I would characterize as being any different to the current market dynamics that we would be aware of. As you know, we have structured multiyear agreements with our key customers, and they continue to provide us with an opportunity to provide leading services to our client base. There was a significant shift in the marketplace a few years ago when China was able to produce low cobalt. But at this moment in time, there's nothing that I think we're aware of regarding any general changes in the market. And as far as our results this year are concerned, they've been pretty close to our expectations. And through customer timing, perhaps, we've been able to deliver a little more cobalt than we'd originally anticipated.

Alan Ridgeway - Paradigm Capital, Inc., Research Division

Okay. And just if I remember correctly, the Chinese supply is largely or completely kept within the country. Is that still the case?

Steve M. West

That's absolutely the case. There's a greater demand than domestic capability, and some of our largest customers are in China. But the local supply definitely stays local at this moment in time.

Alan Ridgeway - Paradigm Capital, Inc., Research Division

Okay. Is that supply growing at all in China?

Steve M. West

No, it's capped. It's based on 2 CANDU reactors.

Operator

Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. West.

Steve M. West

Thank you, Melanie. Well, we've covered several topics on our call this morning. And what I'd like to leave everyone with today is the thought that we are continuing on our path forward. We are working to reduce complexity, and we're working to reduce uncertainty. And we remain focused on day-to-day execution of our business plan and also we're focused on the progress of our strategic review. I'd like to thank everybody for joining us on the call today, and we'll be talking to you at the next quarter. Thank you very much. Thank you, Melanie.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.

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