Q3 2020 BWX Technologies Inc Earnings Call
Ladies and gentlemen walk once you beat all the U.S. technologies third quarter earnings Conference call.
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 your host Mr. Mark Crotch.
He told me you execute director of Investor Relations. Please go ahead.
Thank you Andrew Good morning, and welcome to BW <unk> third quarter 2020 earnings call joining.
Joining me today are Rex Jackson, 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 balance in this morning's earnings release, and our FCC Island.
We will also provide non-GAAP financial measures, which are reconciled to GAAP measures in the quarterly materials costs.
These are these documents along with todays earnings presentation are available on the investors section of our website.
With that I will turn the call over to you.
Thank you Mark and good morning, everyone earlier today, we reported another solid quarter with non-GAAP earnings per share of 79 cents a month.
On 3% revenue growth these.
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 and what is still projected to be the peak investment year to enable attractive future organic growth and.
In addition to strong performance to date and 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 a nuclear power group, where revenues were driven 28% higher that's nuclear power service outage volume return 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 are.
Had anticipated this.
This positive momentum gives us optimism and we expect that trend to continue as we finished the year.
Outlined on the last call.
We were evaluating opportunities to offset the headwinds related to covert genpact 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 cobot 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.
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 level.
The nuclear operations group also delivered solid results in the quarter as.
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 poor clad poor Ford class aircraft carrier procurement, although slightly down in the third quarter compared with the prior year energy is well positioned to complete an exceptional year and we have also updated segment guidance.
To reflect higher associated revenues.
[music].
In the area of contracts, we continued to make progress on the next multiyear pricing agreement, which will include orders for 2021, and 2022 and accomplish 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 a long.
Term growth.
The Navy's new 30 year.
Shipbuilding plan.
It 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.
We don't anticipate large near term updates to the nuclear fleet, but are encouraged overall by secretary Naspers recent comments on the unpublished shipbuilding plan, calling the submarine fleet, the top priority, including Columbia procurement and incremental build rates for the past 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 other radio pharmacy Hot cell line and have received received the first of those at our facility in Canada.
We have completed a large portion of the facility modifications and looked to punish the radio chemistry and write off Radiopharmacy lines. Early next year [laughter]. 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 onto one of the Candu reactors at the Darlington site in the meantime, the BW X T 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 at the Hanford tanks contract. The deal we pipeline for other bidding opportunities is target rich as we anticipate deal we awarding for major contracts in 2021.
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 applications continues to rise for the unique solutions, we offer to the market.
We believe that the company substantial fuel capabilities and advanced manufacturing abilities position us well in this emerging market.
Oh, the nuclear technology industry.
And with that I would call turn the call over to David to discuss quarter results and updated guidance details.
Thanks Rex so.
Starting with total company results on slide four 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 a flat at a record 79 cents with year to date earnings of 229 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 five of the presentation.
Operating segments drove 26 cents, an improvement and new debt structuring and prudent use of cash drove three cents of improvement through lower interest costs. We.
We also realized they sense of bps 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 six.
Nuclear operations group revenue was down 2% to $387 million higher downblending enable nuclear fuel production volume was more than offset by lower long lead material production that was accelerated into the first half of this year.
Energy operating income was $68.5 billion 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 a few handling services, partially offset by lower component manufacturing value.
The Laker energy acquisition also contributed to in organic growth, but the segment was still up over 14% on an organic basis for the quarter.
The LPG segment also secured $16.6 million in Canadian government Cobot, 19 relief to offset year to date business impacts and resulted in third quarter non-GAAP operating income of $29.7 million, an operating margins of 27.5% the.
Nuclear services group delivered operating income of $7.6 million in the third quarter of.
$2 million versus the prior year period, as a result of lower cost.
Turning now to year to date results on slide seven.
Nuclear operations group year to date revenues were up 15% and operating income was up 8% year to date energy 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 impact 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 hampered takes cleanup contract year to date operating income was up about.
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 eight.
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%.
NRG 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 NRG segment revenue to be up more than 10% this year.
We have also revised the MPG segment guidance to reflect our view of the recovery of the commercial businesses impacted by COVID-19, we now anticipate revenue to be up slightly versus last year. MPG segment margins are now expected to be about 14% since the Canadian government reimbursements are offsetting the net.
Getting impacts from the pandemic.
We expect minimal impact from that program over the remainder of the year.
All other components, a 2020 guidance remain consistent with our prior outlook and we have updated the guidance bridge on slide nine 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 in that original target up to 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 when that guidance was given at the time to provide a simple guidepost of a long term growth trends, but not necessarily indicative indicative of any one year's performance.
Goals that guidance has served us well and if and when it is it is achieved we anticipate initiating new ambitious targets and financial metrics that will allow all constituents to see our organizations 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 VW expertise growth as we move forward.
Past 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 has fully ramped up on the first Colombia, 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 performance on aircraft carriers benefiting from the acceleration of the Ford class and believe this program will continue for decades as the U.S. His main force projection asset.
These drivers give us a stable foundation in 2021 from which to grow.
And 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 deal pipeline the many opportunities for which we hope to compete successfully will drive us toward a more sizable operating income business line.
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've made as an independent public company in the past five years, how we're thinking about the next half decade and in 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.
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 timeframe 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.
And I couldn't close my remarks without thanking the employees that BW X team for their efforts this year or during this unprecedented pandemic with their perseverance speaking volumes about the BW XT 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 and with that I will ask the operator to open the line for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then too.
This time, we will pause momentarily to assemble our roster.
The first question comes from Robert Spingarn of Credit Suisse. Please go ahead.
Hi, good morning.
Wow.
You don't Rex you just talked about the long term so I've a couple of high level longer term questions 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 Colombia, but for conventional weapons, maybe about 15 years from now so while that's far out.
A bunch of us use Dcs long term dcs to value the stock and I'm just curious what if anything you've heard about that program on what its mission profile.
And level of budget priorities might be.
Sure Good morning, Rob.
We certainly do hear about that program and has the moniker S S and X until it gets a class name.
And there are some thought discussion and analysis going on on that program right now it would be the follow on to the Virginia fast attack submarine.
And it would feather in some time in the 20, maybe probably in the late 2000 Thirtys.
And.
We do expect it will be a larger type of submarine probably enough 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 B B very similar.
Despite the fact that it would be a different types of weapons cruise missiles, hypersonics that would that affect you at all.
I 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 in our.
Production facilities, and so I think thats 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 the potential Biden administration, if they win.
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 that's typically associated to those applications. Instead, what we've tried to focus on our.
New businesses in this in and the space and defense micro reactor area that are related to primarily to national security in space needs and the view there is that there is a class of problems.
In that in those markets for which.
Compact nuclear reactor is.
As I always say either of the preferred solution or the only solution things like getting accrue to Mars and back quickly.
Things like vision 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 four for terrestrial applications and those cases, you've got more priority on mission success than you do on price. So it's less 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 and so thats, how we see it I'm hopeful about a resurgence in commercial nuclear power, but we aren't betting on that outcome.
Okay. Thanks Rex appreciate that thank you.
The next question comes from the mid speed of Alembic Global. Please go ahead.
Hi, good morning, Rexon, David or Mark.
How many.
Just maybe.
Maybe adding some color on this new shipbuilding plan that secretary aspergers been talking about.
I think maybe you were hinting that we've.
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 and then can you guys give us maybe a ballpark on the amount of incremental capex that you might need. It 50 now when we go to three bridging this year or for Virgin is here just wondering if you could if you could give us some color.
I'm not.
Yes, sure Pete So so we obviously haven't seen that shipbuilding plan, yet, but we heard esports comments and we've seen other comments on it.
In the ship building 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.
As per said that.
That he was looking at something like 70 to 80 fast attack submarines.
In the fleet. So there's there's incremental improvement on that that's obviously good for US you also of course talk 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 a.
We haven't evaluated to permanent three.
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 I 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 that would impact the business, but in general I think that shipbuilding plan should it come to pass is favorable to our busy.
Yes.
That's great that's great just one follow up for me.
Just on the issue of.
Congrats adding somebody for a second Virginia or at least a reactor second reactor in the fiscal 21 budget or under the CR right now I'm just wondering if we get an actual approach spill signed off by the end of the calendar year.
Do we think about how that impacts you guys from a from a timing perspective.
We certainly have plenty of backlog Pete So I think it's the timing of that appropriation.
Does it create too much financial sensitivity in our business.
Okay. Okay. Thanks, Thanks, so much guys. Thank you.
The next question comes from populated CJS Securities. Please go ahead.
Good morning I.
I wanted to ask question about NSG or actually I think at the end you mentioned potentially for 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 you know all of them. How many are you incumbent or are they all new potential wins just to kinda. So.
Summary around the NSG moving parts.
Yes sure Bob Thank you for the question.
So what happened with the Hanford tanks is that the deal we is.
Conducting an internal corrective action right now and they expect to re awarded sometime 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 and that's up to the deal. We saw want me further comment on that the other ones Pantex and Y 12 is a large opportunity we are not presently incumbent on that although we weren't 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 on that in that complex in the past doing environmental environmental remediation work on the mixed waste treatment contract in the past.
And then the other one is.
Let's start with the fourth one there is oak ridge Oakridge cleanup contract there isn't a comment there it's not us and so that one so that when it would also be a new opportunity.
Okay great.
And then jumping to MPG the.
Non moms Molly isotopes, you talked a little bit about the trends of electro procedures. Returning can you just give us a sense of like what the impact has been and how you know what you're thinking now how long it takes to get back to levels that pre koby that you had expected before.
Sure. So Q2 was the low point for us and we experienced.
Revenue losses that are consistent with things you might have heard from other medical isotope company. So somewhere in the range of 25% to 50%. So it was a very challenging quarter for us Q.
Q3 for us has been year over year negative, but but pretty close to pretty close to flat year over year. So that's why we feel encouraged it feels like we went through an inflection point Bob.
Bob and.
And are on our way back to growth again in any at sort of the other thing to keep in mind there is.
That those elective procedures that were delayed or not permanently lost business. We explore the expected those procedures to be done at some point and so I think there is a bit of.
So 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 then last one and I'll jump back in queue.
You, obviously gave capex guidance again this year in mentioned this is the peak spending.
You talk just a little bit about capital expenditures going forward the M&A environment.
Is that even you are you able to go out and start doing due diligence or how are you thinking about that in the next few 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 be slightly lower.
In 21 and that 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 are looking 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.
Okay Super Thanks, so much.
The next question comes from Carter Copeland of Moly.
Middle East Research. Please go ahead.
Hey, good morning, gentlemen.
Morning, Warnaco Rex the that latent demand you talked about in the medical isotopes is that something that comes back in 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 trends that we're seeing we're being a bit cautious about how we project that business and 21, obviously because of the unknowns around co bid, but we've seen we've seen a pretty nice bounce back already.
Okay.
And David on the the NRG performance I Wonder if you might just give us a little bit more color on the.
The segment level EA season, the impact there year over year, and maybe just a better sense on how much the downblending mix benefit was just maybe even in rough terms. Thanks.
So energy this quarter obviously.
Year over year, it's smaller, but we've always seven LG that youre. Your margins your revenues are going to be different year over quarter over quarter, even year over year. When you do a comparison on a quarter, we still feel very strongly with NRG as we talked about here, we feel the revenue and I know GE.
Yeah.
It's going to go up slightly now versus you know versus about 10, it's going to be greater than 10.
Once again the margins themselves will continue to be in the high teens with room for improvement on the Kaz pension reimbursement. So this low quarter of margins.
It's something that doesn't concern us because we feel when we get to the year will still meet our guidance.
And as far as the.
The details on the the Downblending versus others. Its all part of our ear estimates at 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 Mali 99.
Remaining milestones just can you just give us a sense with respect to what milestones lay ahead versus what you have kind of gone through in the rear view mirror.
How that informs your confidence level around the targets and around the the effort and a kind of holistic way. Thanks.
Sure Carter so no.
We've talked in the past about sort of four major work streams on that Molly project. There is the radio Caroline the radio farm line the target delivery system, and then a pretty major construction project around all of that.
What we're seeing is the radio Caroline.
We ordered we procured a unique cost sell for that one and are integrating that line modifying some existing hot cells.
The radio farm line, we commented on in the script, but.
That one is being built in Italy by a contractor and we just completed the functional acceptance testing on those hot sales all integrated so six of them end to end running running together.
And that will be shipped to us pretty shortly.
So I feel very good about radio chemistry, we'll have a we'll be running cold runs in the radio chemistry line early next year. The radio pharmacy line, we feel quite good about now with the completion of that functional test and.
And the eminent receipt of those hot sales to integrate into our facility in Canada. So that's two 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.
So 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 whats ahead of US is we've got to integrate all that stuff. We have to do so called cold runs with 100 radiated material.
And then we go through a period cold 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 what's the clock for approval from the FDA and then hopefully get into production soon.
As soon as possible after that in 2022.
That's great. Thank you for the color. Thanks.
Thank you.
The next question comes from Michael Ciarmoli of Suntrust. Please go.
Hey.
Good morning Bill.
Thanks for taking the question here.
So David just back to the the energy margins I mean that was the lowest margin.
Put up as a Standalone company and anything else you can kind of give us there and I know you you kind of maintained.
Key swing with Fas Cas benefit, but I mean, any given any color going into the fourth quarter. I mean, you can get to the low end of the EPS range of 17% margin, 18%. So.
Just can maybe give us a better sense of whats happening there why we should continue to have confidence in that 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 we had one quarter and 18%. There was you know a couple in the Twentys and one in 19.
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 EEI sees and your improvements to the contracts fall they are going to be different every quarter.
And they are not consistent how they fall and 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 will continue into the future.
This is pricing getting more challenging I mean is it becoming more challenging to squeeze out key agencies 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 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 yes. 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 it.
Dow blending and even the ramp up in price. So it's it's Trey so a little bit of a headwind now on margins or or even how to how do we parse out kind of the other activities in there versus the core Navy propulsion.
So right now all we say in the energy business is that.
Roughly we receive a 15% fee, which is the 13% margin on that work and then we.
On the majority of that if its.
Fixed price incentive contracts, we go after the cost and try to do better for both the customer and us.
And we don't talk individually that about the other types of.
Business in there if we just talk about it under that round.
So.
I'll leave it at that.
Okay, and then I guess last one I'll jump back in the queue I mean absent the.
Cope it's $16.6 million. It seems like you know that there wouldn't have really been any scope for a for our EPS guidance increase I mean, that's going 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.
On the bottom line in the quarter and for the full year.
Any other any other puts and takes outside data that that reimbursement no.
No I mean, if you look at it and remember as we talked about it it was a reduction in cost. So it offset cost. So there was no revenue flat as an offset of costs. So we feel that it's business as usual the margins underneath that when you take it out are still very good margins for that business.
Got it okay ill jump back in the queue. Thanks, guys.
Thanks, Mike.
The next question comes from Matthew acres of Barclays. Please go ahead.
Hey, good morning, guys. Thanks for the question.
I was wondering if you could possibly comment on the kind of the cadence Oh.
Columbia revenues from that or another you're fully ramped on the first ship I mean should we think of that as well.
Yes, do we sort of wait until there is another step up and get to the second Shepherd's revenue continued to sort of trend higher.
Point or any other comments Daryl.
Yes weve.
Matthew we've sort of walk up the ramp on Colombia, So it's kind of steady state until the next order comes 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 is a columbia in that pricing agreement and there's four Virginia's in there.
And so thats, how you can think of it we ramp up early on long lead material to reach sort of a peak and then flatten until the next one comes.
So thats it thats, an approximate way to think about.
Okay. Thanks, and then I guess I guess.
Could you talk a little bit more about.
Nuclear power or some of the commercial businesses in the quarter.
Looks like you saw pretty good rebound.
Service activity.
Comment on what you're seeing there.
The.
This sort of a pent up demand I think Q2 is a little bit slower and maybe kind of what you're seeing in the fourth quarter at this point.
Yes, we originally forecasted five service outages in the first half and two in the second half as you may know.
And then because of cobot related delays that change so that there were three in the first half and then for forecasted in the second half.
And we're going through.
We've been going through those outages in Q3 and into Q4, one of those completed in Q3 and and three of those go across the boundary from Q3 and into Q4. So we did see a upper.
A pretty sizeable pickup in our field services business.
In the second half of the year and we continued we continue to maintain a pretty good tempo around component revenues in component deliveries with the steam generators that were delivering to the Bruce unit number six or so adult altogether, a good strong quarter for MPG.
Great. Thanks, guys.
Thank you thanks.
The next question comes from Peter Arment with Baird. Please go ahead.
Good morning, Rex Devin funding.
Finding Rex just a clarification I guess on your comments regarding a continuing resolution if if we do get like more of an extended continuing resolution out into the spring is some some think might happen if we get it.
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 you know 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.
I think it would be mostly business as usual for us okay.
Okay. That's that's that's helpful and then just on.
The long lead kind of offer.
Offset in terms of energy growth.
You are seeing from Colombia is that going to continue to be a headwind 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 Columbia, South you're asking if the long lead material.
That we recognize so for so far it's going to be a headwind to the future. Yeah. As we go into 21, just because you did obviously see a significant bump from it earlier in the year, yes off one.
Like Rex that we have already ramped up on the Columbia. So it is in there so.
So that means you know theres 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.
Okay. That's helpful. Thanks, very much guys.
Thanks Peter.
The next question comes from Ron Epstein of Bank of America. Please go ahead.
Hey, good morning, guys running around Hey, Ron just a 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 have you seen any early movements by the Navy in terms of what you guys would be needed to do we need to do to support that.
Yeah, Ron we are having some discussions with our customer around that possibility.
I would say a lot of that depends upon obviously depends upon election dynamics and appropriators and things like that so we.
We aren't allocating any capital to that yet but in.
And you know in a favorable outcome there, it's certainly a lot of new volume for our business.
Got it got it and then and then maybe just a follow on question along the same vein.
Secretary Asper outline. This this vision for 550 ship, maybe and ultimately who knows if we actually get there, but if we move in that direction.
What other opportunities do you think there are four VW Acs and 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 larger vessel.
The fast.
Fast attack fleet goes from 60 66 to somewhere between 70, and 80, I think thats very favorable for us.
And then I think the other variable here is around what that those aircraft carrier configurations are there.
Theres been this discussion around the smaller carrier combined with large carriers.
What is the propulsion system for those smaller carriers of its nuclear that's an interesting opportunity.
I don't know if that's if thats likely but it's an interesting opportunity for us.
Yes, and then Colombia continues on its normal trajectory. So I think the primary opportunities in the fast attack class with.
Possibly some interesting upside and carriers.
Great. Thank you very much.
Thank you.
And we have a follow up from Michael Ciarmoli of Suntrust. Please go ahead.
Hey, Thanks for taking the follow up.
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 you know the dividend the 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 still a pretty heavy heavy capital period for finishing up.
The expansions in energy.
And also to finish.
Two to come.
Continue on the Mali project, so still heavy capex year, and 2022, having said that these two capital deployment campaigns are wrapping up by the end of 2023.
Sorry in 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 the.
For capital allocation.
But I think we might be focusing on cash generation.
For for the longer term, having said that we.
We have plenty of balance sheet capacity and if an interesting opportunity comes through M&A or otherwise, we can take advantage of it.
In terms of Divatex like that.
Dress dividend.
The dividend as usual, we feel that you know we look at it each year and.
We'll take it up we averaged the increase about the same as our peers on that case so.
That will continue in the future.
Got it thanks guys.
Thanks.
This concludes our question and answer session I would like to turn the conference back over to Mark craft spray closing remarks.
Thanks, Andrew and that concludes speedily Estes third quarter 2020 conference call. If you have further questions. Please call me at 19 0365 4300. Thank you for joining us this morning.
On France has now concluded. Thank you for attending today's presentation you may now disconnect.
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