Earnings Call Transcript - BWXT Q3 2020

Operator, Operator

Ladies and gentlemen, welcome to BWX Technologies third quarter earnings conference call. At this time, all participants are in a listen-only mode. Following the company’s prepared remarks, we will conduct a question and answer session, and instructions will be given at that time. Please note the call is being recorded. If you require Operator assistance, please press star then zero. I would now like to turn the call over to our host, Mr. Mark Kratz, BWXT’s Director of Investor Relations. Please go ahead.

Mark Kratz, Director of Investor Relations

Thank you, Drew. Good morning and welcome to BWXT’s third quarter 2020 earnings call. Joining me today are Rex Geveden, President and Chief Executive Officer, and David Black, Senior Vice President and Chief Financial Officer. On today’s call, we will discuss certain matters that constitute forward-looking statements and involve risks and uncertainties, including those described in the Safe Harbor provisions found in this morning’s earnings release and our SEC filings. We will also provide non-GAAP financial measures which are reconciled to GAAP measures in the quarterly material. Copies of these documents along with today’s earnings presentation are available on the Investors section of our website. With that, Rex, I will turn the call over to you.

Rex Geveden, President and Chief Executive Officer

Thank you, Mark, and good morning everyone. Earlier today, we reported another solid quarter with non-GAAP earnings per share of $0.79 on 3% revenue growth. These results maintained the exceptional business performance year to date with earnings per share up 20% on 12% revenue growth. Year to date, free cash flow was flat despite investing nearly 50% more capital in what is still projected to be the peak investment year to enable attractive future organic growth. In addition to strong performance to date, we are seeing positive signs in Canada both for commercial nuclear power and the medical isotopes business. Solid third quarter results were boosted by outperformance from the nuclear power group where revenues were driven 28% higher as nuclear power service outage volume returned, as well as incremental demand for commercial nuclear fuel. Although the medical isotopes business was still down for the quarter, the rate of decline is improving and appears to be showing signs of a quicker recovery than we had anticipated. This positive momentum gives us optimism and we expect the trend to continue as we finish the year. As I outlined on the last call, we were evaluating opportunities to offset the headwinds related to COVID’s impact on outage schedules and the general medical isotope demand. To that end, in the third quarter, we qualified for Canadian government reimbursements to offset year-to-date negative COVID financial pressures, which allowed us to maintain a full workforce to take advantage of opportunities as the market returns to normal in the coming quarters. This third quarter benefit was a boost to profitability that we are not expecting to recur in the fourth quarter, and we have adjusted the NPG margin guidance back to more normal annualized levels. The nuclear operations group also delivered solid results in the quarter as we continue to see the benefits from a full year of Columbia class production as well as higher material production, largely driven by the accelerated Ford class aircraft carrier procurement. Although slightly down in the third quarter compared with the prior year, NOG is well positioned to complete an exceptional year, and we have also updated segment guidance to reflect higher associated revenues. In the area of contracts, we continue to make progress on the next multi-year pricing agreement, which will include orders for 2021 and 2022 and encompass the next Columbia class nuclear propulsion system. We anticipate completing negotiations over the next few months, which will add to the robust backlog and position the business for long-term growth. The Navy’s new 30-year shipbuilding plan is likely to be published in early 2021 in concert with the president’s 2022 budget request, which may be a little later than normal should there be a change in administration. We don’t anticipate large near-term updates to the nuclear fleet but are encouraged overall by Secretary Esper’s recent comments on the unpublished shipbuilding plan, calling the submarine fleet the top priority including Columbia procurement and incremental build rates for the fast-attack submarines, despite the possibility for a smaller nuclear-powered large carrier fleet. So the Navy franchise remains on a positive trajectory while we continue to make progress on new business opportunities. Commercialization of the moly-99 product line remains on track and is expected in mid-2022. Most recently, we completed full integrated factory acceptance testing of the radiopharmacy hot sale line and have received the first of those at our facility in Kanata. We have completed a large portion of the facility modifications and look to finish the radiochemistry and radiopharmacy lines early next year. The target delivery system is also making good progress as we review the reactor modification with Ontario Power Generation and the Canadian nuclear regulator. We anticipate a public hearing next year before license amendment enables us to install the equipment onto one of the CANDU reactors at the Darlington site. In the meantime, the BWXT irradiation infrastructure at the Missouri University research reactor is now operational. In addition to medical isotopes, we remain actively engaged with an attractive opportunity set in the nuclear services group. As we await the re-award of the Hanford tanks contract, the DOE pipeline for other bidding opportunities is target-rich as we anticipate DOE awarding four major contracts in 2021. As I mentioned on the last call, these opportunities include Pantex and Y-12 as well as clean-up contracts at Savannah River, Idaho, and Oak Ridge. Lastly, we remain engaged in advanced reactor development work and are looking at several future opportunities as government interest in terrestrial and space applications continues to rise for the unique solutions we offer to the market. We believe that the company’s substantial fuel capabilities and advanced manufacturing abilities position us well in this emerging market of the nuclear technology industry. With that, I will turn the call over to David to discuss quarterly results and updated guidance details.

David Black, Senior Vice President and Chief Financial Officer

Thanks, Rex. Starting with total company results on Slide 4 of the earnings presentation, third quarter and year-to-date revenues were up 3% and 12% respectively, and as Rex mentioned, in the third quarter were driven primarily from a resurgence in the nuclear power group. Strong operational execution resulted in third quarter earnings per share about flat at a record $0.79, with year-to-date earnings of $2.29 per share, up 20% when compared with the same period in 2019. Year-to-date operating margins expanded 20 basis points to 17.7%, so earnings growth was predominantly driven by segment operations, which is depicted on Slide 5 of the presentation. Operating segments drove $0.26 of improvement and new debt structuring and prudent use of cash drove $0.03 of improvement through lower interest costs. We also realized $0.08 of EPS improvement through higher pension and other income. Our year-to-date cash generation from operations has been robust at $148 million, up 63% versus the prior year period. This strong cash generation has allowed us to continue to invest heavily in the capital expansion of our businesses while maintaining lower borrowings. Moving to the third quarter segment results on Slide 6, nuclear operations group revenue was down 2% to $387 million. Higher down blending and naval nuclear fuel production volume was more than offset by lower long lead material production that was accelerated into the first half of this year. NOG operating income was $68.5 million, down from the prior year primarily due to fewer positive adjustments to backlog contracts than were received in the third quarter last year. This resulted in a 17.7% operating margin for the segment in the third quarter of 2020. The nuclear power group generated strong revenue in the third quarter at $108 million, up 28% compared with the third quarter last year, primarily driven by higher field service activity and higher fuel and fuel handling services, partially offset by lower component manufacturing volume. The Laker Energy acquisition also contributed to inorganic growth, but the segment was still up over 14% on an organic basis for the quarter. The NPG segment also secured $16.6 million in Canadian government COVID-19 relief to offset year-to-date business impacts and resulted in third quarter non-GAAP operating income of $29.7 million and operating margins of 27.5%. The nuclear services group delivered operating income of $7.6 million in the third quarter, up $2 million versus the prior year period as a result of lower costs. Turning now to year-to-date results on Slide 7, the nuclear operations group year-to-date revenues were up 15% and operating income was up 8%. Year-to-date NOG margins remain strong at 20.1% and slightly lower than year-to-date margins last year due to fewer favorable adjustments to backlog contracts. Year-to-date nuclear power group revenues are now positive, up 3%, and segment margins are now at 15.4% as year-to-date business impacts from COVID-19 were offset by the Canadian government reimbursements we recorded in the third quarter. Lastly, the nuclear service group is continuing to trend positive despite delays to the Hanford Tanks clean-up contract. Year-to-date operating income was up about $10 million, more than double the same period last year through a combination of better utilization, higher site performance, and improved cost control. As Rex mentioned, we are increasing our 2020 guidance for a second time this year, shown on Slide 8. Segment performance and a slightly more positive view on the balance of the year leads us to increase non-GAAP EPS guidance to about $3 on higher consolidated revenue growth of about 9%. NOG has had exceptional performance year-to-date, benefiting from a full year of Columbia as well as more volume from the accelerated carrier procurement we contracted for at the end of 2019. We now expect NOG segment revenue to be up more than 10% this year. We have also revised the NPG segment guidance to reflect our view on the recovery of the commercial businesses impacted by COVID-19. We now anticipate revenue to be up slightly versus last year. NPG segment margins are now expected to be about 14% since the Canadian government reimbursements are offsetting the negative impacts from the pandemic. We expect minimal impact from that program over the remainder of the year. All other components of 2020 guidance remain consistent with our prior outlook, and we have updated the guidance bridge on Slide 9 to reflect the change driven primarily from upside in operation. Lastly, I would like to conclude with some remarks on our long-term EPS guidance. With this year’s EPS guidance increase to about $3 from an original target of $2.80, we may have the opportunity to achieve the long-term guidance we set forth in 2017 in the first year of our previously announced performance period of 2020 to 2022, as noted in our earnings release. As you will recall, we became a new standalone company five years ago and that guidance was given at the time to provide a simple guidepost of the long-term growth trends, but not necessarily indicative of any one year’s performance goals. That guidance has served us well and if and when it is achieved, we anticipate initiating new ambitious targets on financial metrics that will allow all constituents to see our organization’s ability to maintain healthy growth and profitability over the long term. With that, I’ll turn the call back over to Rex for some closing remarks.

Rex Geveden, President and Chief Executive Officer

Thank you, David. Let me finish by providing color on 2021 and some thoughts on BWXT’s growth as we move forward. As 2021 begins to take shape, our early view is that we anticipate another solid year resulting in earnings consistent with the current analyst EPS consensus. While year-over-year earnings growth is more modest, the robust performance year-to-date and expected growth next year still continue to reconcile well with our goal of managing the growth of the company over a multi-year time horizon. The nuclear operations group has fully ramped up on the first Columbia, and we are having exceptional performance on that program for the Navy customer, and we anticipate another order in the next multi-year pricing agreement. We also had an exceptional year of aircraft carriers, benefiting from the acceleration of the Ford class, and believe this program will continue for decades as the U.S.’ main force projection asset. These drivers give us a stable foundation in 2021 from which to grow. In the nuclear power group, we anticipate COVID-19 impacts to gradually diminish. Accordingly, we are forecasting modest growth given some unknowns. Lastly, I mentioned the robust DOE pipeline, the many opportunities for which we hope to compete successfully will drive us towards a more sizeable operating income business line, a vision we have shared with you in the past. 2021 also serves as a pivotal year as we largely wrap up the capital investments for the Navy franchise, which will set us up for sustained longer-term growth we believe exists in that business. We will also complete the build-out of the moly-99 product line and transition to commercialization. We anticipate closing out a strong year and look forward to providing more detailed guidance on 2021 in February. I want to conclude my remarks by summarizing the progress we have made as an independent public company in the past five years, how we are thinking about the next half-decade, and the particular challenges we are overcoming this year. Since the spin, the company has established a strong growth trend with substantial revenue growth and margin expansion each successive year, and although the performance has not been without challenges, our ability to tackle problems and maintain focus on execution have resulted in earnings per share more than doubling over that period. We drove attractive and balanced capital deployment over that time frame with three successful acquisitions and set forth on two major capital investment campaigns to enable future organic growth, all the while returning excess capital to shareholders through dividends and share buybacks. Looking forward, we feel the company is well positioned for continued growth and to deliver robust returns for long-term shareholders. I couldn’t close my remarks without thanking the employees at BWXT for their efforts this year during this unprecedented pandemic, with their perseverance speaking volumes about the BWXT culture. The health and safety of our employees remains our top priority. Because of them and the policies and procedures we put in place, our plants have remained open and have been running at near full capacity since the pandemic hit in late March. My gratitude goes out for their continued commitment to delivering for our customers and our shareholders. With that, I will ask the Operator to open the line for questions.

Operator, Operator

The first question comes from Robert Spingarn of Credit Suisse. Please go ahead.

Robert Spingarn, Analyst

Hi, good morning.

Rex Geveden, President and Chief Executive Officer

Morning, Rob.

Robert Spingarn, Analyst

Rex, you just talked about the long term, so I have a couple of high-level, longer-term questions that I thought I’d ask. The long-term submarine build schedules include this large payload class sub that’s been discussed post Columbia, I guess it’s based on Columbia, but for conventional weapons maybe about 15 years from now. While that’s far out, a bunch of us use DCFs, long-term DCFs to value the stock, and I’m just curious what, if anything, you’ve heard about that program and what its mission profile and level of budget priority might be.

Rex Geveden, President and Chief Executive Officer

Good morning, Rob. We are aware of the program currently referred to as SSNX, pending a class name. There are ongoing discussions and analyses regarding that program. It is intended to follow the Virginia-class fast attack submarine and is expected to be introduced in the late 2030s. We anticipate it will be a larger submarine, likely comparable in size to the Columbia-class, but further details are not available at this time. We are actively collaborating with our Navy customer to define its specifications and plan for production.

Robert Spingarn, Analyst

If it were based on Columbia, would your work package be very similar despite the fact that it would be different types of weapons - cruise missiles, hypersonics? Would that affect you at all?

Rex Geveden, President and Chief Executive Officer

It would affect us mainly regarding the scale of the nuclear propulsion system. The Columbia class nuclear propulsion system requires a larger volume for fuel and components in our production facilities, which I believe is advantageous for the business.

Robert Spingarn, Analyst

Okay, and then the other one is also kind of high-level, but I wanted to get your thoughts regarding any new opportunities that might open up with a potential Biden administration, if they win, just given the environmentally positive impacts of safe nuclear power. Should we be looking for you to benefit from any green-focused infrastructure building, and if so, would you raise the R&D level from where we are today?

Rex Geveden, President and Chief Executive Officer

Rob, we haven’t targeted commercial nuclear power because of the business case that’s typically associated with those applications. Instead, what we’ve tried to focus on are new businesses in the space and defense micro reactor area that are related primarily to national security and space needs. The view there is that there’s a class of problems in those markets for which a compact nuclear reactor is, as I always say, either the preferred solution or the only solution, things like getting a crew to Mars and back quickly, things like fission surface power on the moon, things like being able to move assets in space very rapidly, high-value assets and defend them, and things like directed energy weapon power for terrestrial applications. In those cases, you’ve got more priority on mission success than you do on price, so it’s less of a business case issue for the customer in that case. That’s where we’ve chosen to make our investments and put our R&D, so that’s how we see it. I’m hopeful about a resurgence in commercial nuclear power, but we aren’t betting on that outcome.

Robert Spingarn, Analyst

Okay, thanks Rex. Appreciate that.

Rex Geveden, President and Chief Executive Officer

Thank you.

Operator, Operator

The next question comes from Pete Skibitski of Alembic Global. Please go ahead.

Pete Skibitski, Analyst

Hey, good morning Rex and David and Mark. Rex, just maybe adding some color on this new shipbuilding plan that Secretary Esper has been talking about, I think maybe you were hinting that we might see some additional funding in the fiscal ’22 five-year plan, but maybe more so weighted towards the out years, so maybe you could speak to that. Then can you guys give us maybe a ballpark on the amount of incremental capex that you might need if maybe we go to three Virginias a year or four Virginias a year? Just wondering if you could give us some color on that.

Rex Geveden, President and Chief Executive Officer

Yes, sure Pete. We obviously haven’t seen that shipbuilding plan yet, but we heard Esper’s comments and we’ve seen other comments on it. In the previous shipbuilding plan, there were 48 fast attack submarines, and then in the prior one, actually the current one, the current shipbuilding plan went to 66. Esper said that he was looking at something like 70 to 80 fast attack submarines in the fleet, so there’s incremental improvement on that and that’s obviously good for us. He also of course talked about going to a three Virginia procurement tempo. When we last discussed any capital needs around that, what we said was if there was a single year of a third Virginia, we could probably accommodate that without any additional build-out. We haven’t evaluated a permanent three Virginia tempo and we certainly haven’t discussed any capital needs around that, but we would have to invest in that case. The other thing that he talked about, of course, was priority of the Columbia product line, which is good, and then talked about maybe possibly configuring the carrier fleet differently with some smaller class carriers and perhaps fewer large class aircraft carriers. It just remains to be seen how all that would impact the business, but in general, I think that shipbuilding plan, should it come to pass, is favorable to our business.

Pete Skibitski, Analyst

That’s great. Just one follow-up from me, just on the issue of Congress adding some money for a second Virginia, or at least a reactor, a second reactor in the fiscal ’21 budget. We’re under the CR right now. I’m just wondering if we get an actual appropriations bill signed off by the end of the calendar year, how do we think about how that impacts you guys from a timing perspective?

Rex Geveden, President and Chief Executive Officer

We certainly have plenty of backlog, Pete, so I think the timing of that appropriation doesn’t create too much financial sensitivity in our business.

Pete Skibitski, Analyst

Okay, thanks. Thanks so much, guys.

Rex Geveden, President and Chief Executive Officer

Thank you.

Operator, Operator

The next question comes from Bob Labick of CJS Securities. Please go ahead.

Bob Labick, Analyst

Good morning. I would like to ask a question about NSG. Rex, at the end of your comments, you mentioned the possibility of four projects being awarded next year, which involves a lot of moving parts. Could you provide an update on what has transpired at Hanford, as well as the status of the other projects? Among these, how many are you already involved with, and how many represent new opportunities? I would appreciate a summary regarding the NSG developments.

Rex Geveden, President and Chief Executive Officer

Thank you for the question, Bob. The situation with the Hanford tanks is that the DOE is currently undertaking an internal corrective action and anticipates re-awarding it in the near future. We are optimistic about our chances there, having submitted a strong proposal and now waiting for the outcome, which is in the DOE's hands. Regarding Pantex and Y-12, that's a significant opportunity, but we are not the current contractor. We were the prime contractor at that site for many years, from 1995 to 2014. As for the Savannah River liquid waste project, we are not the incumbent either, but it represents a considerable opportunity that aligns well with our expertise in nuclear and environmental remediation, particularly in nuclear operations. The Idaho clean-up contract would also be new for us, although we have previously worked in that complex on environmental remediation related to mixed waste treatment. Lastly, for the Oak Ridge clean-up contract, there is an incumbent contractor, and it would be a new opportunity for us as well.

Bob Labick, Analyst

Okay, great. Moving on to NPG and the non-moly isotopes, you mentioned the trends of elective procedures returning. Can you share what the impact has been and your thoughts on how long it might take to return to the pre-COVID levels you had anticipated?

Rex Geveden, President and Chief Executive Officer

Sure, so Q2 was the low point for us, and we experienced revenue losses that are consistent with the things you might have heard from other medical isotope companies, so somewhere in the range of 25% to 50%, so it was a very challenging quarter for us. Q3 for us has been year-over-year negative, but pretty close to flat year-over-year, so that’s why we feel encouraged. It feels like we went through an inflection point, Bob, and are on our way back to growth again. The other thing to keep in mind there is those elective procedures that were delayed are not permanently lost business. We fully expect those procedures to be done at some point, and so I think there’s a bit of latent demand in the market around that. We’re seeing hopeful signs right now and I’m pretty encouraged about it.

Bob Labick, Analyst

Okay, super. Last one and then I’ll jump back in queue, you obviously gave capex guidance again this year and mentioned this is the peak spending. Can you talk just a little bit about capital expenditures going forward, the M&A environment? Are you even able to go out and start doing due diligence, or how are you thinking about that over the next few years?

David Black, Senior Vice President and Chief Financial Officer

As far as capital, what we’ve said is this year will be our peak year, next year will be slightly lower in ’21, and then in ’22 toward the end of the year, we will be getting to maintenance capital - that’s without these other things, the third Virginia thing being talked about, that’s what our plan is. As far as M&A, we are still acquisitive. Our M&A team, led by Rob, there are active things they’re looking at, as they are always. We feel that if we find something, we will be able to do the due diligence and perform what we need to perform on any interesting projects we find, so we don’t see any problems there.

Bob Labick, Analyst

Okay, super. Thanks so much.

Operator, Operator

The next question comes from Carter Copeland of Melius Research. Please go ahead.

Carter Copeland, Analyst

Hey, good morning gentlemen.

Rex Geveden, President and Chief Executive Officer

Morning.

Carter Copeland, Analyst

Rex, that latent demand you talked about in the medical isotopes, is that something that comes back in ’21, in your view, or is it too hard to call in terms of how long you expect to recover that?

Rex Geveden, President and Chief Executive Officer

Well, we hope it comes back in ’21 based on the trends that we’re seeing. We’re being a bit cautious about how we project that business in ’21, obviously because of the unknowns around COVID, but we’ve seen a pretty nice bounce back already.

David Black, Senior Vice President and Chief Financial Officer

This quarter, while it is smaller year-over-year, we maintain that the margins and revenues of NOG will fluctuate from quarter to quarter, and even year over year in comparisons. We remain optimistic about NOG, as we believe revenue will increase slightly now, likely exceeding a 10% gain. However, margins are expected to stay in the high teens, with potential for improvement related to the CAS pension reimbursement. We are not worried about this lower margin quarter, as we anticipate meeting our guidance by year-end. Regarding the blending details compared to others, these are all part of our completion estimates and positive contract outlooks, and we won't delve into specific dollar amounts.

Carter Copeland, Analyst

All right, no problem. Then just one last one, Rex, with respect to the moly-99 remaining milestones, can you just give us a sense with respect to what milestones lay ahead versus what you’ve gone through in the rearview mirror, how that informs your confidence level around the targets and around the effort holistically? Thanks.

Rex Geveden, President and Chief Executive Officer

We’ve previously discussed four main work streams for the moly project: the radiochem line, the radiopharm line, the target delivery system, and a significant construction project. For the radiochem line, we've procured a unique hot sale and are integrating that line while modifying some existing hot sales. The radiopharm line is being built in Italy by a contractor, and we just completed functional acceptance testing on the integrated hot sales, with six of them running end-to-end. They will be shipped to us soon, and I’m optimistic about radiochemistry. We plan to conduct cold runs in that line early next year. We’re also feeling positive about the radiopharmacy line now that the functional test is complete and we’re about to receive the hot sales for our facility in Kanata. For the target delivery system, we’re in a mature stage, currently working with the regulator to get the design approved for installation on a reactor. Construction is progressing very well, with significant changes made to the facility. That covers the major work streams. Looking ahead, we need to integrate everything, conduct cold runs with unirradiated material, and then enter a validation phase next year. During that time, we’ll exercise all the equipment to produce a viable product and submit a reference batch to the FDA, awaiting their approval. We anticipate submitting that reference batch next year and then closely tracking the FDA's decision, with hopes to begin production shortly thereafter in 2022.

Carter Copeland, Analyst

That’s great, thank you for the color.

Rex Geveden, President and Chief Executive Officer

Thank you.

Operator, Operator

The next question comes from Michael Ciarmoli of SunTrust. Please go ahead.

Michael Ciarmoli, Analyst

Hey, thanks for taking the question here. David, just back to the energy margins, that was the lowest margin you’ve put up as a standalone company. Anything else you can give us there? I know you maintain the low teens with the FAS-CAS benefit, but even any color going into the fourth quarter? You can get to the low end of the EPS range at a 17% margin, 18%, so can you maybe give us a better sense of what’s happening there and why we should continue to have confidence in that when you’ve been historically doing 20%, 19% - 20% plus, so maybe any more color you can give us there?

David Black, Senior Vice President and Chief Financial Officer

No, I believe that if you analyze the quarters, we lack consistency. Last year, we experienced one quarter at 18%, several in the 20s, and one at 19%. So, yes, for this quarter, the 17% is approximately 0.7, close to 18%. While it's lower than in the past, each year and quarter varies in terms of EACs and contract improvements, so we are not worried at all. We expect to maintain margins in the high teens, with potential for improvement in the pension. This trend is expected to continue into the future.

Michael Ciarmoli, Analyst

Is pricing getting more challenging? Is it becoming more challenging to squeeze out EACs as maybe your customer and you guys are just working towards more efficient pricing?

David Black, Senior Vice President and Chief Financial Officer

It continues. As we improve these contracts and manage costs, finding new methods to enhance profitability becomes increasingly challenging. We need to maintain our Six Sigma and lean programs to identify opportunities, but it becomes tougher each year. Nevertheless, we believe we can still achieve what we need from these facilities to realize the savings necessary to meet our margin targets.

Michael Ciarmoli, Analyst

Is the down blending and the ramp-up in TRISO creating a challenge for margins, or how can we differentiate the other activities from the core Navy propulsion?

David Black, Senior Vice President and Chief Financial Officer

Currently, we indicate that we earn approximately a 15% fee, which corresponds to a 13% margin on that work. For most fixed price incentive contracts, we focus on managing costs to benefit both our customers and ourselves. We do not disclose specifics about other business types within that area; instead, we discuss it generally, so I'll stop here.

Michael Ciarmoli, Analyst

Okay. I guess last one and I’ll jump back in the queue, absent the COVID $16.6 million, it seems like there wouldn’t have really been any scope for an EPS guidance increase. That seemed to drive the bulk of the upside. Do I have that correct? I know you called out some operations, but that was a pretty big chunk to the bottom line in the quarter and for the full year. Any other puts and takes outside that reimbursement?

David Black, Senior Vice President and Chief Financial Officer

No, if you look at it, it was a reduction in cost that offset other expenses, so there was no revenue associated with that. It’s simply an offset of cost, so we believe it’s business as usual. The margins, when you exclude that, remain very good for that business.

Michael Ciarmoli, Analyst

Got it, okay. Cool, I’ll jump back in the queue. Thanks, guys.

Operator, Operator

The next question comes from Matthew Akers of Barclays. Please go ahead.

Matthew Akers, Analyst

Good morning, everyone. Thank you for the question. I would like to know about the revenue trends for Columbia moving forward, now that the first ship is fully operational. Should we expect a significant increase in revenue with the arrival of the second ship, or will revenue continue to rise steadily from this point? Any insights you can provide would be appreciated.

Rex Geveden, President and Chief Executive Officer

Yes, Matthew, we’ve sort of walked up the ramp on Columbia, so it’s steady state until the next order comes, and the next order comes, as we said in the script, in the next pricing agreement with our customer, which will cover ’21 and ’22, so there’s a Columbia in that pricing agreement and there’s four Virginias in there, so that’s how you can think of it. We ramp up early on long lead materials, we reach sort of a peak and then flatten until the next one comes, so that’s an approximate way to think about it.

Matthew Akers, Analyst

Okay, thanks. Then can you comment a little bit more about nuclear power, some of the commercial businesses in the quarter? It looks like you saw a pretty good rebound and maybe some field service activity. Can you just comment on what you’re seeing there, and more specifically is there sort of a pent-up demand - I think Q2 was a little bit slower, and maybe kind of what you’re seeing into the fourth quarter at this point.

David Black, Senior Vice President and Chief Financial Officer

Yes, we initially estimated five service outages in the first half of the year and two in the second half. However, due to COVID-related delays, that changed to three in the first half and four expected in the second half. We have been experiencing these outages in the third quarter and continuing into the fourth quarter. One of those outages wrapped up in the third quarter, while three are extending from the third quarter into the fourth quarter. As a result, we observed a significant increase in our field services business during the latter half of the year. We are also maintaining a solid pace with component revenues and deliveries for the steam generators being supplied to Bruce Unit No. 6, making it a strong quarter for NPG.

Matthew Akers, Analyst

Great, thanks guys.

David Black, Senior Vice President and Chief Financial Officer

Thank you.

Operator, Operator

The next question comes from Peter Arment of Baird. Please go ahead.

Peter Arment, Analyst

Good morning Rex, David. Rex, I just want to clarify your comments about a continuing resolution. If we see a more extended continuing resolution into the spring, as some speculate might happen, what changes could that bring? Do you have any sensitivity on how an extended CR would influence your outlook for 2021?

Rex Geveden, President and Chief Executive Officer

Well, you know, Peter, that typically how those CRs work is you get funded through some fraction of last year’s appropriation, 95% or whatever that number is, and so I think if we were under a protracted CR, I think it would be mostly business as usual for us.

Peter Arment, Analyst

Okay, that’s helpful. Regarding the long lead offset related to the growth from Columbia, will this continue to be a challenge, and how should we view the revenue profile considering the impact it had this year?

David Black, Senior Vice President and Chief Financial Officer

On the Columbia itself, you’re asking if the long lead material that we recognized so far is going to be a headwind to the future?

Peter Arment, Analyst

Yes, as we go into ’21, just because you did obviously see a significant bump from it earlier in the year.

David Black, Senior Vice President and Chief Financial Officer

Yes, so like Rex said, we have already ramped up on the Columbia, so it is in there, so that means if there’s long lead material involved, it’s in the process. So until we get to 2022 when the second Columbia comes in, it will be pretty much steady-state for that program.

Rex Geveden, President and Chief Executive Officer

Thanks, Peter.

Operator, Operator

The next question comes from Ron Epstein of Bank of America. Please go ahead.

Ron Epstein, Analyst

Yes, good morning everyone. I have a quick question. There seems to be more discussion about the potential for a third Virginia class. What are your thoughts on this, and have you noticed any early actions from the Navy regarding what support you might need to provide?

Rex Geveden, President and Chief Executive Officer

Yes Ron, we are having some discussions with our customer about that possibility. A lot of it depends on election dynamics and appropriators, so we aren’t allocating any capital to that yet. However, if the outcome is favorable, it could certainly bring a lot of new volume for our business.

Ron Epstein, Analyst

Got it, and then maybe just a follow-on question along the same vein, Secretary Esper outlined this vision for a 550 ship Navy, and ultimately who knows if we actually get there; but if we move in that direction, what other opportunities do you think there are for BWX in that kind of environment?

Rex Geveden, President and Chief Executive Officer

The primary ones are the ones that we discussed earlier, which is an expansion of the fast-attack fleet and then the follow-on vehicle, which we expect to be a larger vessel. The fast-attack fleet goes from 66 to somewhere between 70 and 80 - I think that’s very favorable for us. Then I think the other variable here is around what those aircraft carrier configurations are. There’s been this discussion around the smaller carrier combined with the large carriers, what is the propulsion system for those smaller carriers. If it’s nuclear, that’s an interesting opportunity. I don’t know if that’s likely, but it’s an interesting opportunity for us. And then Columbia continues on its normal trajectory, so I think the primary opportunity is in the fast-attack class with possibly some interesting upside in carriers.

Ron Epstein, Analyst

Great, thank you very much.

Rex Geveden, President and Chief Executive Officer

Thank you.

Operator, Operator

We have a follow-up from Michael Ciarmoli of SunTrust. Please go ahead.

Michael Ciarmoli, Analyst

Thanks for following up. Rex, considering that this year is expected to be the last significant year for capital expenditures, how do you plan to approach capital deployment in the future? Specifically, could you discuss the dividend and dividend payout ratio, while reflecting on the previous defense downturn and sequestration? It would be helpful if you could clarify our priorities regarding capital deployment.

Rex Geveden, President and Chief Executive Officer

Sure. Next year will still involve significant capital investment to complete the expansions in NOG and continue the moly project, making 2022 a heavy capex year. However, these capital deployment efforts are expected to wrap up by the end of 2022, positioning us for a strong cash-generating period for the company, depending on other opportunities. We will consider what this means for capital allocation, but our focus might shift toward long-term cash generation. That said, we have a robust balance sheet, and if an appealing opportunity arises through M&A or otherwise, we believe we can capitalize on it. David, would you like to discuss dividends?

David Black, Senior Vice President and Chief Financial Officer

The dividend will be reviewed annually, and we plan to increase it at a rate similar to our peers, which we expect to continue in the future.

Michael Ciarmoli, Analyst

Got it, thanks guys.

Operator, Operator

This concludes our question and answer session. I would like to turn the conference back over to Mark Kratz for any closing remarks.

Mark Kratz, Director of Investor Relations

Thanks again Drew, and that concludes BWXT’s third quarter 2020 conference call. If you have further questions, please call me at 980-365-4300. Thank you for joining us this morning.

Operator, Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.