BWX Technologies Inc (BWXT) 2020 Q3 法說會逐字稿

Ladies and gentlemen, welcome to BWX Technologies Third Quarter Earnings Conference Call. (Operator Instructions) Please note, the call is being recorded. (Operator Instructions)

I would now like to turn the call over to our host, Mr. Mark Kratz, BWXT's Director of Investor Relations. Please go ahead.

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 provision 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 materials. Copies of these documents, along with today's earnings presentation, are available on the Investors section of our website.

With that, Rex, I will call over to you.

Thank you, Mark, and good morning, everyone. Earlier today, we reported another solid quarter with non-GAAP earnings share of $0.79 on 3% revenue growth. These results maintain the exceptional business performance year-to-date with earnings per share up 20% on 12% revenue growth. Year-to-date free cash flow is flat despite investing nearly 50% more capital. And 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 of 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 multiyear 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 ship building 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 cell 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 a license amendment enables us to install the equipment on to 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 reaward of the Hanford Tank's contract. The DOE pipeline for other bidding opportunities is target-rich as we anticipate DOE awarding 4 major contracts in 2021. As I mentioned on the last call, these opportunities include Pantex and Y-12 as well as cleanup contracts at Savannah River, Idaho and Oak Ridge.

And lastly, we remain engaged in advanced reactor development work and are looking at several future opportunities as government interest in terrestrial and space application 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.

And with that, I will call -- turn the call over to David to discuss quarter results and updated guidance details.

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 in 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 we 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. Nuclear Operations Group year-to-date revenues were up 15% and operating income was up 8%. Year-to-date, NOG margins remained 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 reimbursement we recorded in the third quarter. And lastly, the Nuclear Service Group is continuing to trend positive despite delays to the Hanford Tank's cleanup contract. Year-to-date operating income is 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 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 operations. Lastly, I would like to conclude with some remarks on our long-term EPS guidance. With this year's EPS guidance increased 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 stand-alone company 5 years ago, and that guidance was given at the time to provide a simple guidepost of a 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.

And with that, I'll turn the call back over to Rex for some closing remarks.

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 multiyear 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 multiyear pricing agreement. We also had an exceptional year of performance on 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.

And lastly, I mentioned the robust DOE pipeline. The many opportunities for which we hope to compete successfully will drive us toward a more sizable 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, exist 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 5 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 in 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 3 successful acquisitions and set forth on 2 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. And 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 plans 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.

And with that, I will ask the operator to open the line for questions.

(Operator Instructions) The first question comes from Robert Spingarn of Crédit Suisse.

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 Colombia, I guess it's based on Colombia, but for conventional weapons, maybe about 15 years from now. So 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.

Sure. Rob, we certainly do hear about that program. It has the moniker SSN(X) until it gets a class name, and there's some thought discussion and analysis going on in that program right now. It would be the follow-on to the Virginia fast attack submarine, and it would feather in sometime in the 20 -- maybe probably in the late 2030s. And we do expect it will be a larger type of submarine, probably in the size class of the Columbia. But there's not much more detail than that at this point. But we certainly are working with our Navy customer on what that would look like and how we can take it into production.

If it were based on Colombia, 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?

It would affect us only in the sense of the sort of this, let me call it, the scale of the nuclear propulsion system. Columbia-Class-scale nuclear propulsion system is obviously larger volume for fuel and for components in our production facilities. And so I think that's good for the business.

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 bid on administration, if they win, just given the environmentally positive impacts of safe nuclear power. So 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?

So Rob, we haven't targeted commercial nuclear power because of the business case that's typically associated to those applications. Instead, what we've tried to focus on are new businesses in the space and defense microreactor area that are related to primarily to national security and space needs. And the view there is that there is 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. Things like directed energy weapon power from -- 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. And that's where we've chosen to make our investments and put our R&D. And 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.

Next question comes from Pete Skibitski of Olympic Global.

Rex, just maybe adding some color on this new ship building 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 5-year plan, but maybe more so weighted towards the out years. So maybe you could speak to that. And then can you guys give us maybe a ballpark on the amount of incremental CapEx that you might need, maybe we go to 3 Virginias a year or 4 Virginias a year. Just wondering if you could give us some color on that.

Yes, sure, Pete. So we obviously haven't seen that ship building plan yet, but we heard Esper's comments, and we've seen other comments on it. In the shipbuilding, the previous ship building 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. You also, of course, talk about going to a 3 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 3 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. And it just remains to be seen how all that would impact the business. But in general, I think that, that ship building plan, should it come to pass, is favorable to our business.

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

We certainly have plenty of backlog, Pete. So I think it's -- the timing of that appropriation doesn't create too much financial sensitivity in our business.

The next question comes from Bob Labick of CJS Securities.

I wanted to ask a question about NSG. Rex, I think at the end, you mentioned potentially 4 projects to be awarded next year. So lots of moving parts. I was hoping you could kind of give us an update on what happened -- what's going on at Hanford. And then the other projects out of all of them, how many are you incumbent? Or are they all new potential wins? Just a kind of summary around the NSG moving parts?

Yes. Sure, Bob. Thank you for the question. So what happened with the Hanford Tanks is that the DOE is conducting an internal corrective action right now, and they expect to reaward it some time, hopefully in the near future. We feel good about our prospects there. We wrote a winning proposal. Obviously, and we're standing by for that outcome, and that's up to the DOE. So I won't make further comment on that.

The other one is Pantex and Y-12 is a large opportunity. We are not presently incumbent on that, although we were the prime contractor on that side for a long number of years from '95 to 2014, I believe.

The Savannah River liquid waste, we are also not incumbent on that, but it's a very significant opportunity and fits right into our capabilities around nuclear environmental remediation and nuclear operations, in particular. Idaho cleanup contract would also be a new one for us, although we have been in that complex in the past doing environmental remediation work on the mixed waste treatment contract in the past.

And then the other one is... what's the fourth one there? Oak Ridge. Yes. Oak Ridge cleanup contract, there is an incumbent there. It's not us. And so that one would also be a new opportunity.

Okay. Great. And then jumping to NPG, the non-moly isotope. You talked a little bit about the trends of electric procedures returning. Can you just give us a sense of like what the impact has been? And how -- what you're thinking now, how long it takes to get back to levels at pre COVID that you had expected before?

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. And sort of the other thing to keep in mind there is that those elective procedures that were delayed or not permanently lost business. We fully expect those procedures to be done at some point. And so I think there's a bit of sort of a bit of latent demand in the market around that. So we're seeing hopeful signs right now. I'm pretty encouraged about it.

Okay, super. And then last one, and I'll jump back in queue. You obviously gave CapEx guidance again this year and mentioned this is the peak spending. And can you talk just a little bit about capital expenditures going forward, the M&A environment? And is it even -- are you able to go out and start doing due diligence? Or how are you thinking about that in the next -- over the next few years?

Oh, yes. So as far as capital, what we said is this year will be our peak year. Next year, it will be slightly lower. In '21 and then in '22, towards the end of the year, we will be getting to maintenance capital. That's without these other things, the third Virginian things being talked about, that's what our plan is.

As far as M&A, we are still acquisitive. Our M&A team, being -- 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.

The next question comes from Carter Copeland of Melius Research.

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?

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.

Okay. And David, on the NOG performance, I wonder if you might just give us a little bit more color on the segment level EACs and the impact there year-over-year and maybe just a better sense on how much the down blending mix benefit was just maybe even in rough terms?

So NOG this quarter, obviously, year-over-year, it's smaller, but we've always said on NOG that your margins, your revenues are going to be different year over -- or quarter-over-quarter. Even year-over-year when you do a comparison on a quarter. We still feel very strongly with NOG, as we talked about here. We feel the revenue in NOG is going to go up slightly now versus up about 10%, it's going to be greater than 10%. But once again, the margins themselves will continue to be in the high teens with room for improvement on the CAS pension reimbursement. So this low quarter of margins is something that doesn't concern us because we feel when we get to the year, we'll still meet our guidance.

And as far as the details on the down blending versus others, it's all part of our year estimates of completion and positives on the contracts, and we don't get into individual dollar values there.

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

Sure, Carter. So we talked in the past about sort of 4 major work streams on that moly project. There's the radiochem line, the radiopharm line, the target delivery system and then a pretty major construction project around all of that. What we're seeing is the radiochem line -- we procured a unique hot sell for that one and are integrating that line, modifying some existing hot cells. The radiopharm line, we commented on in the script, but that one's being built in Italy by a contractor, and we just completed the functional acceptance testing on those hot cells all integrated. So 6 of them end-to-end running together.

And they'll be shipped to us pretty shortly. So I feel very good about radiochemistry. We'll have a -- we'll be running cold runs in the radiochemistry line early next year. The radiopharmacy line, we feel quite good about now with the completion of that functional test and the imminent receipt of those hot cells to integrate into our facility in Kanata. So that's 2 of them.

On the target delivery system, that one's quite mature. We're just working with the regulator on getting the design approved and getting the go-ahead to install it on a reactor. So the progress there is very good. And then the construction is coming along remarkably well. It's -- we've made pretty significant changes to that facility out there, and it seems to be coming together. So those are the kind of the major work streams.

Now what's ahead of us is we've got to integrate all that stuff. We have to do so-called cold runs with unirradiated material. And then we go through a period called a period called validation next year, where we're exercising all of that equipment together to produce a viable product. And then we submit a reference batch to the FDA and await their approval. So we will submit that reference batch sometime next year. And then sort of watch the clock for approval from the FDA and then hopefully get into production as soon as possible after that in 2022.

The next question comes from Michael Ciarmoli of SunTrust.

So David, just back to the NOG margins. I mean that was the lowest margin you put up as a stand-alone company. Anything else you can kind of give us there? And I know you kind of maintain low teens with the FAS/CAS benefit. But I mean, any -- even any color going into the fourth quarter? I mean, you can get to the low end of the EPS range at a 17% margin, 18%. So just can you maybe give us a better sense of what's happening there and why we should continue to have confidence in that -- I mean, you've kind of been historically doing 20%, 19%, 20% plus. So maybe any more color you can give us there?

I mean, no. I mean, I think once again, if you look quarter-to-quarter, we do not have consistency. I think if you look at last year, we had one quarter in 18%. There was a couple in the 20s and one in 19%. So yes, this is -- for a quarter, the 17% is probably 0.7%, it's almost 18%. It's lower than past. But once again, when you look at each year and each quarter and how your EACs and your improvements to the contracts fall, they're going to be different every quarter. And they're not consistent how they fall in. So we are not concerned at all. We will still have margins in the high teens with room for improvement for the pension. I mean, it continues to go that way, and we'll continue into the future.

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

It continues. As we -- I mean, obviously, as we continue to improve these contracts improve on the cost, it's always difficult to find new ways to improve and earn money. So we have to have our Six Sigma, our lean programs out there continuing to find, but it is harder every year. But we still feel, at this point in time we can get what we need to out of these facilities in order to get the savings we need to get to these margins.

Is down blending and even the ramp-up in TRISO -- is TRISO a little bit of a headwind now on margins? Or even how did we parse out kind of the other activities in there versus the core maybe propulsion?

So right now, all we say in the NOG business is that roughly, we receive a 15% view, which is the 13% margin on network. And then we -- and the majority of that, if it's fixed price incentive contracts, we go after the cost and tries to do better for both the customer and us. And we don't talk individually that about the other types of business in there. We just talk about it under that realm. So I'll leave it at that.

Okay. And then I guess last one and I'll jump back in the queue. I mean, absent the COVID, $16.6 million. It seems like there wouldn't have really been any scope for an EPS guidance increase. I mean that seemed to drive the bulk of the upside. Do I have that correct? I mean, 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?

No. I mean if you look at it. And remember, as we talked about it, it was a reduction in costs. So it offset costs. So there was no revenue for the . It's an offset of cost. So we feel that it's a business as usual. The margins underneath that when you take it out are still very good margins for that business.

The next question comes from Matthew Akers of Barclays.

I was wondering if you could possibly comment on the kind of the cadence of Colombia revenue from this point forward now that you're fully ramped on the first ship. I mean, should we think of that as kind of do we sort of wait until there's another step-up kind of when we get to the second ship? Or does revenue continue to sort of trend higher from this point? Or any kind of commentary you can share there?

Yes. We've -- Matthew, we've sort of walked up the ramp on Colombia. So it's kind of steady state until the next order comes and the next order comes, as we said in the script and 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 4 Virginias in there. And so that's how you can think of it. We ramp up early on long lead materials to reach sort of a peak and then flatten until the next one comes. So that's an approximate way to think about it.

Okay. And then I guess, could you comment a little bit more about nuclear power, some of the commercial businesses in the quarter. Looks like you saw a pretty good rebound and maybe some field service activity. Can you just comment on what you're seeing there, more specifically, was 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?

Yes. We originally forecasted 5 service outages in the first half and 2 in the second half, as you may know, and then because of COVID-related delays, that changed, so that there were 3 in the first half and then 4 forecasted in the second half. And we go through -- we've been going through those outages in Q3 and into Q4. One of those completed in Q3. And 3 of those go across the boundary from Q3 and into Q4. So we did see a pretty sizable pickup in our field services business in the second half of the year. And we continue to maintain a pretty good tempo around component revenues and component deliveries with the steam generators that we're delivering to the Bruce unit 6. So altogether, a good strong quarter for NPG.

The next question comes from Peter Arment of Baird.

Rex, just a clarification, I guess, on your comments regarding continuing resolution. If we do get like more of an extended continuing resolution out into the spring as some think might happen if we get a who knows what's going to happen tomorrow, but just given the changes that could -- any sensitivity on how an extended CR would impact your thinking for '21?

Well, Peter, that typically how those CRs work as you get funded to 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.

Okay. That's helpful. And then just on the long lead kind of offset in terms of NOG growth you're seeing from Colombia. Is that going to continue to be a headwind? And how do we think about just a little bit kind of asking about the revenue profile there, just given the impact it had this year?

On the Colombia itself, you're asking if the longly material that we recognize so far is going to be a headwind to the future?

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

Yes. So like Rex said, we have already ramped up on the Colombia, so it is in there. So that means if there's longly 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.

The next question comes from Ron Epstein of Bank of America.

Just a quick one. I mean, there's been, I think, increased discussion around the possibility of a third Virginia class. What's your perspective on that? And have you seen any early movements by the Navy in terms of what you guys would be needed to do -- would need to do to support that?

Yes, Ron, we are having some discussions with our customer around that possibility. I would say a lot of that depends upon -- obviously, it depends upon election dynamics and appropriators and things like that. So but we aren't allocating any capital to that yet. But and a favorable outcome there, it's certainly a lot of new volume for our business.

Got it. Got it. And then maybe just a follow-on question along in 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?

So 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 60 -- 66 to somewhere between 70 and 80. I think that's very favorable for us. And then I think the other variable here is around what that -- 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 Colombia continues on its normal trajectory. So I think the primary opportunity is in the fast attack class with possibly some interesting upside in carriers.

And we have a follow-up from Michael Ciarmoli of SunTrust.

Rex, how are you thinking about with this year being sort of the last heavy year for CapEx, how are you thinking about capital deployment going forward? And maybe even specifically, the dividend and dividend payout ratio and thinking kind of back to the last defense downturn and sequestration, kind of the playbook that was used. Just maybe if you can level set us on capital deployment priorities.

Sure. So as a reminder, next year is still a pretty heavy capital period for finishing up the expansions and NOG and also to finish to continue on the moly project. So still a heavy CapEx year in 2022. Having said that, these 2 capital deployment campaigns are wrapping up by the end of 2023 -- sorry, end of 2022. And so we should be entering a pretty heavy cash-generating period for the company, depending on other opportunities. And so we'll be thinking about what that implies for the -- for capital allocation, but I think we might be focusing on cash generation for the longer term. Having said that, we have plenty of balance sheet capacity, and it's an interesting opportunity comes through M&A or otherwise, we certainly can take advantage of it.

In terms of dividends, you want to address dividend, David?

The dividend as usual. We feel that we look at it each year, and we'll take it up. We average the increase about the same as our peers on that case. So that will continue in the future.

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

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.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.