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PMFG (NASDAQ:PMFG)

Q2 2014 Earnings Call

February 06, 2014 9:30 am ET

Executives

Shawn Severson

Peter J. Burlage - Chief Executive Officer, President and Director

Ronald L. McCrummen - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Sean K.F. Hannan - Needham & Company, LLC, Research Division

Josh Berman

Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

David Peter Cohen - Minerva Advisors LLC

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 PMFG Earnings Call. My name is Stephanie, and I will be your coordinator for today. [Operator Instructions] I would now like to turn the call over to the host of today, Mr. Shawn Severson of The Blueshirt Group. Please proceed.

Shawn Severson

The financial results for the 3- and 6-month period ended December 28, 2013. On the call with me today are Peter Burlage, President and CEO; and Ron McCrummen, Chief Financial Officer. Peter and Ron will be reviewing the quarter and also provide an update on the company's strategy and outlook. Following our prepared remarks, we will open up the call for questions. This call is being webcast along with our earnings presentation on our website at peerlessmfg.com. The presentation material can be accessed through the Investor Relations section of our website under the Events Calendar tab. The webcast will be posted at peerlessmfg.com for replay approximately 2 hours following the end of this call.

The replay will stay on the site for on-demand review over the next several months. Before we get started I need to review our Safe Harbor Statement with you. Any statements in the call regarding our business that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and our future results could differ materially from the forward-looking statements made today. Statements that include the words anticipate, expect, believe, intend or similar statements of a future or forward-looking nature identify forward-looking statements. Our actual results may be affected by many important factors, including risks and uncertainties identified in our press release and in our SEC filings. You should not place undue reliance on these statements. Forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the company's actual results to differ materially from those indicated in these statements. Important information regarding factors that may affect the company's future performance are included in the public reports that the company files with the Securities and Exchange Commission, including information in Item 1.A Risk Factors or Part I of our Annual Report on Form 10-K for the fiscal year ended June 29, 2013, and Part 2 of our 10-Q for the period ended December 28, 2013 --

The company undertakes no obligation to publicly update or revise any forward-looking statements, except to the extent required by law. The inclusion of any statement on this conference call does not constitute the admission by the company or any other person that the events or circumstances described in such statement are material. And with that, I'd like to turn the call over to Peter to begin the discussion.

Peter J. Burlage

Thank you, Shawn. Good morning, everyone. Let's begin with Slide 4, covering the financial and strategic highlights for the quarter.

Revenue in the quarter decreased $1.8 million to $29.6 million or 5.8% from $31.5 million in last year's second quarter. Improved revenue in our Environmental Systems segment was more than offset by the decline in the Process Products segment. Revenue from the Process Products segment was negatively impacted in the second quarter of fiscal 2014 by sluggish demand in EMEA and the Americas, as well as customer-driven delays on certain projects currently in backlog.

Just like the short-term revenue disruptions, our bookings were strong in the quarter and demonstrate the underlying activity in our business. New project awards or net bookings were $29.8 million compared to $27.7 million in the prior year. Year-to-date bookings of $72.2 million represents a 37% increase over the prior year first half bookings of $52.4 million.

Our backlog increased $9.8 million year-over-year to end at $97.7 million compared to $87.9 million last year and $97.5 million at the end of the first quarter. Approximately 90% of our current backlog is scheduled to trade in the next 4 quarters.

Our gross profit in the second quarter decreased $3.4 million to $8.1 million and as a percentage of revenue, decreased to 27.4% from 36.7% last year. The margin decrease resulted from lower revenue, one-time costs and inefficiencies related to the transition of our new manufacturing facility and cost overruns on certain projects completed in the quarter.

The operating loss in the quarter was $1.6 million, compared to the operating income of $0.9 million in the same period last year.

On a non-GAAP basis, the net loss per share in the quarter was $0.13 compared to a net income per share of $0.02 in the prior year.

Moving on to our reported segments and starting with our Process Products segment on Slide 5. Segment revenue of $24.3 million in the second quarter decreased from $28.5 million in the prior year. The Process Products segment revenue was negatively impacted by sluggish demand in EMEA and the Americas, as well as customer-driven delays on certain projects currently in the backlog. Process Products net bookings totaled $26.6 million in the second quarter compared to $24.5 million in the prior year.

Moving on to Slide 6. The Environmental Systems segment posted a revenue of $5.4 million in the second quarter and was up 80% compared to $3 million in the prior year. The higher revenue reflects the increase in bookings throughout fiscal 2013, which is carried on in fiscal 2014.

Environmental Systems net bookings was $3.2 million, on par with the prior year. Subsequent to the end of this quarter, we issued a press release announcing approximately $6.3 million of incremental Environmental Systems bookings. Bookings in the Environmental Systems segment will continue to be lumpy as we move through the year.

Moving on to Slide 7 through 9, I would like to provide update on the industry conditions, management changes and our outlook for fiscal 2014. Additions in the first half of our fiscal year continued to be challenging and was compounded by project delays and the lumpy spending across our customer base due in part to the steps necessary to maximize growth and improve profitability, earlier this week our Board of Directors approved the following realignment of our resources within our organization.

John Conroy, Vice President of Engineering and Product Development, has been promoted to Executive Vice President of our Americas Process Products Operation. John and his team will have direct reporting responsibility of all sales, engineering, manufacturing and project management resources within the Americas. Tim Shippy, Director of Environmental Systems, has been promoted to Global Leader of our Environmental Systems operation. Jeff Hudson was -- has been hired to serve as the Management Director for the company's EMEA operations. Jeff, who was previously with Clyde Bergemann Power Group, will be based in our offices in the United Kingdom. These 3 gentlemen, along with David Taylor, our Vice President of Asia-Pacific, will report directly to me and be the accountable parties for the global operations of PMFG.

Historically, the natural gas industry has accounted for 60% to 80% of our consolidated revenue, which is a key strategic driver to our company. Our opportunities across the natural gas value chain span from production wells across the midstream segment and through to the consumption, including power generation facilities. We continue to believe the demand for natural gas will have a positive long-term impact on our business. The global investments in natural gas infrastructure and power generation are forecasted in the trillions over the coming years and despite the choppy environment we have experienced in the recent quarters, we expect this to be a major driver in our long-term growth.

I also would like to note that we are making good progress in expanding our presence in the nuclear power market. Our year-to-date bookings in nuclear power generation exceeds 10% of our total booking, and we expect that percentage to increase as we proceed through the fiscal year and into fiscal year 2015. Our test projects tied to the joint development agreement announced earlier this year are producing good initial results, and we expect to expand the scope in the future.

Year-to-date bookings through December in our Environmental Systems segment were approximately 50% higher than a year ago. This momentum continued into January, with the announcement of the additional Environmental Systems projects, and I continue to be very optimistic about the demand prospect of our SCR equipment on the back of strong global pollution control market led by the domestic natural gas power generation. Although most market participants, including ourselves, expected more activity on this front over the last 12 months, we believe the growth will come. The combination of economic expansion, fuel switching in favor of natural gas, tighter air pollution control regulations and the retiring of some aged inefficient coal units will positively impact this sector. The FERC regions of ERCOT and PJM will be the early market drivers as generating margins are the lowest in these 2 regions.

Moving on to the outlook for our -- the remainder of our fiscal 2014. While we believe revenue in the third and fourth quarter will be meaningfully higher than in the first 2 quarters of the fiscal year, we now expect revenue growth for the full year to be 3% to 6% overall in fiscal 2013, with consolidated gross margins for the full year to be more in line with our historical range of 30% to 32%. Given the lower-than-expected revenue, the profit expectations we will seek to scale back our operating costs, however, our planned investment in Research and Development and investments in our Nuclear segment will drive our operating costs higher than the prior year.

I will now turn it over to Ron for a more detailed review of the financial results in the quarter.

Ronald L. McCrummen

Thank you, Peter, and good morning, everyone. The following comments are a summary of our financial highlights for the second quarter fiscal 2014.

Beginning with Slide 11. Consolidated revenue in the second quarter of fiscal 2014 was $29.6 million, a decrease of $1.8 million or 5.8% from the same period last year, as higher revenue in the Environmental Systems segment was more than offset by lower revenue in our Process Products segment.

Consolidated gross margins decreased to 27.4% of revenue from 36.7% last year as one-time costs and inefficiencies related to transition of our manufacturing facilities, as well as costs for overruns for certain projects drove the lower margins in the quarter. Operating expenses in the quarter decreased $1 million over the prior year. The decrease in operating expenses primarily relate to lower sales commissions and other selling-related expenses in the quarter.

The operating loss in the quarter was $1.6 million compared to operating income of $0.9 million in the same period last year. On a non-GAAP basis, the net loss per share in the quarter was $0.13 per share compared to net income per share of $0.02 in the prior year period.

Moving on to the segments. In the Process Products segment, as shown on Slide 12, revenue of $24.3 million in the second quarter decreased from $28.5 million in the same period last year. The decline reflects sluggish demand in EMEA and Americas, as well as customer-driven delays on certain projects currently in backlog. Approximately $15 million of projects in backlog during the most recent quarter was subject to customer-driven delays, which negatively impacted the revenue in the quarter. The delays were for a variety of reasons: uncertainties around material content; project designs; welding and fabrication procedures; and delays in the customers' larger project. By the end of January, all but $2.5 million of those projects were approved by a customer for fabrication. We expect the balance of those projects to restart before the end of the third quarter and do not expect any of them to be canceled by the customer. These customer-driven delays significantly impacted the segment revenue in the quarter. The segment's operating income as a percentage of revenue totaled 5.2% compared to 16.5% in the prior year.

The decline in operating income was due to the lower revenue and lower relative gross profit. Included in fiscal 2014 cost of goods sold is approximately $471,000 of non-recurring restructuring costs related to the closure of a manufacturing plant in Texas and the relocation of a fabrication activity to our other plants in Texas. The segment operating income during the second quarter of fiscal 2014 was also negatively impacted by approximately $1 million of cost overruns on certain projects completed in the quarter and to a lesser extent, the slower-than-planned ramp up of the manufacturing facilities in Denton, Texas and Zhenjiang, China.

The noted cost overruns relate to 3 domestic projects within the Process Products segment. While each project contributed positively to gross margin, they did so with substantially lower-than-anticipated profit margins. Delays in the resolution, a critical design in fabrication procedures on one of the projects led to a need to expedite the fabrication process. The disruption of completing the project on accelerated timetable, combined with the facility transitions which were already in motion resulted in inefficiencies in our fabrication process and in unanticipated expediting cost on all 3 of the noted projects. The backlog in the segment totaled $71.8 million at the end of December.

Moving on to the Environmental Systems segment. Revenue in the quarter was $5.4 million, as shown on Slide 13, and represents an 80% increase when compared to the prior year. Revenue in the quarter reflects the timing of incurring project-related costs. Segment operating income dollars and operating income percentage increased from 17% to 25.4% on the higher revenue and leveraging of fixed sales marketing and engineering costs.

Net Environmental Systems bookings totaled $3.2 million in the second quarter of fiscal 2014. As discussed, I'll remind you that the quarterly bookings in this reporting segment will continue to be very lumpy as there are generally fewer opportunities but larger in size, meaning quarter-to-quarter volatility is likely. However, the quote activity trend is strong and points to continued solid performance in fiscal 2014 and '15. The Environmental Systems backlog was $25.9 million at the end of December.

Turning now to the balance sheet and cash flows on Slides 14 and 15. Our cash and cash equivalents were $61.7 million as of December 28, 2013. During the 6 months ended December 28, 2013, cash used in operating activities was $0.9 million compared to cash provided by operating activities of $10.4 million for the 6 months ended December 29, 2012.

Cash used in investing activities was $8.4 million for the 6-month ended December 28, 2013 compared to cash used in investing activities of $3.8 million for the 6 months ended December 29, 2012. Those cash investing activities primarily relate to the construction of our facilities in Texas and in China.

With that, I'll turn the call back over to Peter before we open it up for questions.

Peter J. Burlage

Thanks, Ron. I'm clearly disappointed in our first half results and we are moving quickly to adjust our management structure and activities to improve performance going forward. Despite the short-term headwind, I am -- remain optimistic about our future. We continue to execute our longer-term plan and although the short-term volatility is frustrating for all of us, we believe the company is well positioned going forward. Key drivers of our strategy, including the previously announced expansion of our nuclear products portfolio; leveraging the long-term growth of our global natural gas value chain; exploring new markets for our technology, such as petrochemicals and coal-to-oil; and leveraging our very strong balance sheet to make strategic acquisitions.

Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Sean Hannan with Needham.

Sean K.F. Hannan - Needham & Company, LLC, Research Division

I wanted to see perhaps if you could expand a little bit on the decline in EMEA and the Americas and those delays. And I know you provided a little bit of color, but in terms of the Process Products, if you can provide a little bit more detail, that will be helpful? And also, the degree of what has come back, I think you had alluded to, that $2.5 million kind of approved and now expected as we concluded January. And if we can just get a little bit more comfort with that.

Peter J. Burlage

Okay. And so the -- I'll start with the EMEA region, the major projects that we have in that region that were on hold were projects that were destined for North Africa. Obviously, those geopolitical markets over there are difficult to move business forward on because of the changes and everything that's going on in that region. Subsequent to that group, they have released, and we're moving forward on all, except for one of those jobs. I think it's still left to be released. That one is, moving forward, is having difficulty getting visas and things for people to travel out of those countries to visit fabricators themselves to keep the project moving. We do not expect any cancellations or anything on any of those jobs. It's just a very slow process. It's not like that all, except for one of them, is moving forward, and that one is waiting for people to be able to leave country to do final inspections -- or to do inspections and release to next stages of construction. Domestically, part of the biggest area of hold was on -- from nuclear projects, is sort of traditional whistle job. It takes a while for them to get through their design. There was some modifications they wanted to do the design in order to make a change. You have to do -- the customer ends up doing a full finite element analysis on the entire reactor housing in order to figure out whether a design can be changed and that basically puts the job on hold until that work was done. Subsequent, we've been released on that. I don't if there's been -- those are the major projects. I don't think we had any other projects that were of any real big value that was on hold, but the nuclear ones are moving forward now.

Sean K.F. Hannan - Needham & Company, LLC, Research Division

Okay. And then in terms of your growth expectations for the year, it's a -- it's pretty good ratchet down and clearly, coming through this quarter, we understand the impact there. When did you sense that you'd have to pull down your expectations for the year as sharply? Number one. And then number two, how do you assess or mitigate the risk of being able to now sustain or achieve that growth target without a -- without further complications where we have to take a step back again?

Peter J. Burlage

Predominantly, it's the slow bookings through the quarter. The projects, as we said here today, we handle that large environmental projects that we had expected to happen in the third quarter and actually was expected to happen near the beginning of the third quarter, didn't arrive until January. As a result of that, there's very little revenue that went up in this fiscal year. That shifted a good chunk of revenue into the next fiscal year. Subsequent to that, even projects in EMEA, as well as some other large nuclear jobs that were expected to be released in that last quarter -- we will get the orders, we know we've got the orders, the orders are coming, it hasn't been released us yet and they are moving that revenue, basically, out the back-end of the year. So it's a timing factor for us on the revenue that we expected to have in this fiscal year in that back half of the fourth quarter. We need to book that revenue in the third quarter to get all that revenue into our -- I'm sorry, get into our second quarter in order to get it into our fourth quarter, to complete the job, as it is now that work is coming in later, coming in the expectation now in this third quarter to receive those orders. And as a result of that, that will -- with the life cycle of those projects that have moved the revenue out.

Ronald L. McCrummen

I think the other comment, Shawn, is the design phase for -- when we're doing more nuclear projects and environmental, it tends to be longer than what we're doing when we do a typical process product. So as those bookings increase, it clearly extends out the revenue recognition period. So that's a -- the timing of when those come in are absolutely critical.

Sean K.F. Hannan - Needham & Company, LLC, Research Division

Yes, yes, understood, okay. This is the last question, and I'll jump back in the queue. The realignments that you're doing, and as we look at kind of the OpEx or just basically kind of the cost portion of the equation, you're going to have a little bit of upward pressure tied to some of the investments you have to make related to nuclear. What about in terms of additional cost controls or something, perhaps a little bit more formalized to manage the cost levels and general profitability? Is there any additional color you can provide around that or thoughts perhaps going forward?

Ronald L. McCrummen

I'll tell you, we're not anticipating a significant layoff of personnel. When you look at our expenses and look at the operating; expenses, so much of it is fixed in nature and very heavily weighted toward people. So there are costs that we can control that are variable that we can scale back or defer until future periods.

Peter J. Burlage

Small in value.

Ronald L. McCrummen

But it's just difficult to move meaningfully in a 6-month window, but there is a -- you can tighten it up a little bit. You can pull back on some of the anticipated hirings, et cetera, so to kind of just mitigate the cost impact.

Operator

[Operator Instructions] Your next question comes from the line of Josh Berman with William Blair.

Josh Berman

So a couple of things. Specific to the second half of the year, did you lower your revenue and gross margin expectations? I mean, obviously, the full year guidance was reduced, but I don't know how much of that was related to this past quarter versus the second half of the year.

Ronald L. McCrummen

Yes, it's -- I guess, as we were looking throughout the -- or preparing the forecast, the guidance that we published back in August of last year, we anticipated the second half of the year to be better than the first, and I think that's going to play out. We are looking for the revenue to be meaningfully higher in Q3 and Q4. Obviously, we're working our way out of 2 quarters that were less than what our expectations were. So it's going to bring down our overall view of the full fiscal year, just the -- but we are anticipating those -- the back half -- the back 2 quarters to be meaningfully higher than the first 2. And you see it, right? Our backlog today were about $13 million higher than what we were at the end of the fiscal year. The bulk of plants that we've got here in the states are now running double shifts, trying to catch up. The China facility is now -- the work is flowing through there. They're clearly fully staffed and pushing through some great projects there, so it gives us a lot more confidence towards the back half of the year.

Josh Berman

So I mean that relative to your outlook from last quarter, has that shifted at all? Or is that pretty much the same versus when we spoke last quarter?

Peter J. Burlage

The last, are you referring to the revenue margin or...

Josh Berman

No. Like in the revenue outlook for the second half, did that change since last quarter's call?

Peter J. Burlage

Revenue outlook in the second half. I don't think it's -- it's not significantly changed. I mean, maybe $1 million or so, a couple of million today. It's not -- the second half of the year hasn't materially changed in what the revenue -- total revenue are going to be.

Ronald L. McCrummen

Yes, I think you try to parse it out. I could do it on a project by project -- there are certain projects. For example, the projects that we just announced, we announced $8.5 million of revenue in January -- or I'm sorry, of bookings in January. When we were sitting here a quarter ago and anticipating that to land on the quarter, well, and clearly we thought more of that revenue was going to lean on this fiscal year. So some of that will slide forward. But there's other projects that will slide in the -- some will slide out, some will slide in, but it's a...

Peter J. Burlage

The net is up a couple million dollars, probably less than what we originally anticipated and most of that is just because of later starting on the PLC revenue recognition process. That large -- those large environmental orders we just announced, they'll go through about a 3-month engineering cycle before we even begin the procurement process and the -- and then -- so that gets us into the fourth quarter before we even start the procurement process. So now instead of having received those materials and started fabricating on that equipment by the end of the year, we're probably just going to be receiving some of the materials and maybe get started on some of the fabrications. So the revenue expectations for that work for the fiscal year is going to be -- has been slid out a little bit, and just an example of those larger jobs. The nuclear jobs are similar to that. Now there's some nuclear work that, where their orders were expected to be released, both here in the states, as well as in China at an earlier -- in the last quarter. They will happen this coming quarter, but that revenue is just being postponed slightly. So we're shifting it out. Our manufacturing facilities, as Ron mentioned, we're running more shifts as a facility, which means we're increasing our throughput and our Process Products segment predominantly. That's the sector that we can turn. So we are able to shorten our lead time on our Process Products work and improve some performance. So that is helping level that revenue out a little bit by -- when Ron talked about pulling stuff in, that means that we are able to do that by increasing our throughput through our manufacturing facilities to do that with.

Josh Berman

Got it. And in the new Texas facility, you mentioned some slower-than-expected ramp up that affected gross profit in the quarter. Has that been fully ramped as of today? Or is there still more to go with that?

Ronald L. McCrummen

So from a headcount perspective, I would say, we are essentially fully ramped up. So we -- as Peter said, we've got 2 shifts running now in both of the U.S. facilities. And we've worked all the inefficiencies out now. And I think that plays in to kind of our margin expectations. I'm not as bullish, I think, as at I was a quarter ago while we've got a lot of people, we're going through a -- you're bringing up a learning curve pretty steeply. So we've added a significant number of welders to our facilities over the last 6 months and it really -- it takes time to get them up to where they really are a truly efficient team.

Operator

Your next question comes from the line of Rick D'Auteuil with Columbia Management.

Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

As a long-time owner here, I'm kind of scratching my head as to the nature of the issues that we're hearing. Isn't it systemic in your business that you get lumpiness and delays and customer setbacks? And I guess, why are we -- does it feel like this is more than normal? I think that's just systemic in your business, isn't it?

Peter J. Burlage

There's some systemic aspect to that of our business, that is correct. I think the couple the delays that we had in EMEA, specifically, we're certainly beyond what is typical in the business. So there are more geopolitical related for that particular unit. For the domestic aspect of it, I want to talk about those nuclear projects. Those delays depend on the magnitude of the changes to the duration of the delay. This one, certainly, was not expected. It was a design change that came in from the customer, and that was a significant impact. As far as the problems we had on the job, this was a very complex unit that we had a performance issues with regards to being able to produce the product and it created a significant amount of rework and delays in that work, which added a little bit of a bullwhip effect to the other workload to the shop.

Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

I mean it's concerning to hear that you don't have enough revenue or sort of justify our overhead here and then on the other hand, have execution issues on specific complicated jobs. I mean, should we be -- shouldn't that be factored in to your pricing when you get you get a complicated job, build in a fudge factor for problems, but...

Peter J. Burlage

You're correct. That job did have costs built into it for it, but the magnitude, obviously, was larger than we anticipated and it did have a significant impact in the -- to the delay in the job and then that created significant expediting cost overruns.

Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

What does the new business pipeline look like?

Peter J. Burlage

The new business pipeline is -- I'll just sort of break it down by geographic region. The Asia-Pacific region has been pretty constant over the last 2 quarters. It is not growing at the rate we saw a year ago. It is still growing, that pipeline of business we've got there. And that's driven partially because there is some of those new markets that we announced some orders in earlier this quarter in that coal to liquids, coal to gas type applications in the chemical -- petrochemical market. In the EMEA, Middle East, that we've had strong bookings in the last quarter for OEM customers in Germany and throughout that region, in Europe, that is. The Middle East market, we've had a pretty strong backlog of projects that are larger in size for separation for oil -- 3-phase separation of type activities. We've seen some -- the opportunities there in the Middle East region have grown significantly over the last 6 months. Americas, the sweet -- the bright spot is in the Environmental segment. The segment has seen an increase bookings, as well as increased quotation activity. The Process Products side of the Americas, domestically, is not growing. It's more stagnant. Latin America is off significantly. There is not a lot of projects going on in Latin America. And in Canada, which has predominantly been for oil sands, that market is sluggish this year because of its lack of exporting capabilities. They are still buying, just not at the rate of projects that we've had in the past. So the pipeline activity, like I said, Environmental is strong, nuclear has got some significant opportunities building in that pipeline, but it is a slower-progressing pipeline. And then the EMEA region has seen, finally, some return of active proposal that are in the close phases of being awarded.

Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

I mean, I hear ups and downs there, I don't hear that we're about to come into a wave of stronger demand like I think you guys sort of were leading us to a year ago with the Nuclear in China and also the upgrade cycle with the Westinghouse plant.

Peter J. Burlage

That -- so on the nuclear side, I mean, that process, I think, the China ones are still -- the orders are coming. They're coming at a constant pace. They're not coming at an accelerated pace. That, certainly, has not gone through a rapid -- and that's partially driven through -- where China's focused a little bit on their energy plan is changing slightly. But they are still moving those jobs forward. We have a consistent plan as to which ones are coming and when they're coming, with some proximity of -- their win is within a half-year, plus minus, type of range. But the U.S. market, that new product development and the new large projects, I mean we're -- our proposal activity in the Nuclear side is up substantially here in the United States with both separators of steam dryers, as well as steam separators. The timing of those projects will be over the next year or better.

Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

And those -- we had once thought those would be very good margins, and we once thought that once you got over the learning curve and with the new facility, that those will be margin accretive, too, but we're still backing down, watching margins go the other way. Is the -- what's the competitive pricing environment?

Peter J. Burlage

The competitive pricing environment for nuclear, specifically, is not that as -- there's 2 factors. So the competitive pricing on steam dryers is very minimal. It's more cost control, inflation control that our customers are trying to help keep in check from what they've purchased the previous one at. On the primary separators, that is a little more of a competitive manufacturing nature. That is a product line that usually sees a few points less margin than what our -- the dryers have because the dryers have our intellectual property in them. Well, it's a little bit kind of -- again, that steam separator business for the nuclear industry is a new market, and that's the industry that we're going after. Traditionally, we have only provided steam dryers in that market. The separators are a new product manufacturing capability that we have as a result of this new facility that we've built.

Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

And what about the learning curve? That's for GE only? Or is that also Westinghouse?

Peter J. Burlage

No, it's for both. But it's certainly -- there's certainly a stronger focal point with GE than it is over Westinghouse, but it is for both customers.

Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

And the opportunity there, is that -- I think it is -- are we going to struggle with margins on that, Pete? I know it's lower margins for the steam dryers, but...

Peter J. Burlage

No. Yes, no, no. It's a little bit lower margin in steam dryers, but we are not going to struggle with margins with that. The margins -- the problems we had with margins in this period were for our more traditional process products in the gas industry. This was a 10,000 PSI vessels with units in it. So the difficulty came in the ability to fabricate something that's 7.5 inches thick with very stringent code requirements and very stringent asset and corrosive requirements in it. It was not a nuclear job that caused the erosion of margin this period. It was predominantly in our more traditional Process Products on a very complex application.

Richard G. D'Auteuil - Columbia Funds Series Trust I - Columbia Small Cap Core Fund

I know you guys -- maybe you're sub-optimal on revenues, given your expense structure. It feels like as patient investors, we've been waiting for the cycle to come your way, and it's been frustrating. And I know you guys have continued to want to keep your cash for acquisitions, but to the extent that the market is saying there's not much value here. I would suggest that you, at least, protect shareholders to some extent with some modest buyback activity. I know that hasn't been in your DNA, but we'd like it to be part of your DNA.

Peter J. Burlage

I appreciate the information, and we'll take that in consideration and discuss that with the board.

Operator

Your next question comes from the line of David Cohen with Minerva Advisors.

David Peter Cohen - Minerva Advisors LLC

Well, first of all, I'd like to applaud Rick for his gentleness. My tendency would be to be a little less gentle right now. And I guess the thing that I find most disturbing -- I think from the inside, it may be a little hard to see -- to understand how your shareholders perceive this constant string of things going wrong and deferred turns in the cycle. Some of that is outside your control, and I think some of it is inside your control. But the thing that I find most disturbing in your remarks is the idea that you would be thinking about using cash, which at this point is a good chunk of the value of the company, for an acquisition at a time when, to at least this outsider, it feels like the basic business is not really under control. And to me, the idea that you would make the business even more complex by buying some other business that you don't yet understand, as well as the one that doesn't seem under control right now is deeply troubling. And while I -- really, I very much agree with Rick that there -- that serious thought should be given to a buyback. More to the point, I really would look for you guys to basically step back from the idea that you're going to consider making acquisitions right now, because I think it would be a huge mistake. So if you have any comments, I'd appreciate them.

Peter J. Burlage

I think the only one I'll share with that, I mean, with any acquisition targets we're looking at, it is stuff that is right in line with what we are currently doing. It's not looking to add a lot of complexity to the business, more adding additional product capability within the same industries that we currently serve. But I -- other than that, I appreciate the comments and the input.

Ronald L. McCrummen

But I think -- I'd echo what Peter's comments on the -- our conversations internally and with our Board of Directors as we think about strategic opportunities and the pipeline of what might be out there. It does narrow the field of what we're willing to look at. It really has to be a -- which has caused some of the delays, it's a -- that we passed on a number of things that we said, "Look that's just not -- it needs too much management attention; it needs turnaround, it needs more R&D." Those are not good investments for us at this time. So we have to be very selective, but I don't think that means we have to stay on the sidelines forever.

Operator

At this time, we have no more question in queue.

Peter J. Burlage

Well, thank you, everyone, for participating with us today in this call. We look forward to spending some time with you at our next call for our third quarter results. I appreciate your time and I appreciate your involvement. Thank you.

Operator

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

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