Centrus Energy Corp (LEU) 2015 Q4 法說會逐字稿

Greetings and welcome to the Centrus Energy fourth-quarter 2015 earnings call. At this time all participants are in a listen-only mode. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Don Hatcher, Director, Investor Relations for Centrus Energy. Thank you. You may begin.

Thank you, Melissa. Good morning and thank you for joining us. Today's call will cover the fourth-quarter and full-year results for 2015 that ended December 31. Here today for the call are Dan Poneman, President and Chief Executive Officer; Steve Greene, Senior Vice President, Chief Financial Officer, and Treasurer; and John Dorrian, Controller and Chief Accounting Officer.

Before turning the call over to Dan, I'd like to welcome all our callers as well as those listening to our webcast. This conference call follows our earnings news release issued yesterday afternoon. We expect to file our annual report on Form 10-K later today. All of our news releases and SEC filings, including our 10-K, 10-Qs, and 8-Ks are available on our website. A replay of this call will also be available later this morning on the Centrus website.

I'd like to remind everyone that certain of the information that we may discuss on this call today may be considered forward-looking information that involves risks and uncertainty, including assumptions about the future performance of Centrus. Our actual results may differ materially from those in our forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements is contained in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q.

Finally, the forward-looking information provided today is time-sensitive and is accurate only as of today, March 22, 2016, unless otherwise noted. This call is the property of Centrus Energy. Any redistribution, retransmission, or rebroadcast of this call in any form without the express written consent of Centrus is strictly prohibited.

Thank you for your participation. And now I'll turn the call over to Dan Poneman.

Good morning, and thank you, Don; and thank you, everyone on the line, for joining us. I would like to begin by offering some insight into where Centrus has been and where the Company is headed. Then I'll turn it over to our Chief Financial Officer, Steve Greene, who is going to dive a little deeper into the financials.

We have come a long way over the past year, and our results for 2015 reflect the ongoing transformation of Centrus as we implement our plan to become the world's most diversified supplier of nuclear fuel and nuclear fuel services. We produced a gross profit of $69 million, an improvement of $110 million over last year's performance and $164 million over our 2013 performance.

We ended 2015 with a cash balance of $234 million, above our guidance for the year. We've won significant new sales contracts, extended and diversified our supply base, and positioned Centrus to begin growing again. We also successfully concluded negotiations over our Russian supply agreement -- a top priority since the day I arrived at Centrus. We've recruited a new senior management team and have embraced a customer-first approach, focused on expanding our LEU business and growing into new business lines.

Of course we are continuing to face formidable challenges as we have emerged from bankruptcy in the midst of a deep and long downturn in the market, but I continue to believe that we are well positioned for future success. Our path forward focuses on three key priorities: first, growing our fuel supply business, which we expect will be our largest business segment for at least the next several years and was responsible for approximately 85% of our revenue last year. The cornerstone of those efforts is our revised Russian Supply Agreement with TENEX, which gives us significantly more flexibility and will also extend our guaranteed source of supply for our customers through 2026 and perhaps beyond.

Since we are no longer burdened by the high fixed cost of a production facility or by significant capital and interest expenditures, we can use today's low market prices to our advantage. We've been able to obtain additional supply, both short-term and long-term, that enables us to offer competitive pricing to our customers. As a result, we've been winning business and booking new sales.

Second, we are leveraging our cutting-edge technical capabilities and long-standing customer relationships to develop strategic business partnerships across the nuclear industry. The scientific, engineering, and manufacturing expertise we have in place in Oak Ridge represents a major strength for our Company. And we believe that can open up new doors and new possibilities for Centrus in the years ahead.

Third, over the long-term as the market recovers, we are committed to providing new enrichment capacity. Last month we announced that we successfully completed a three-year demonstration of our advanced centrifuge technology in Piketon, Ohio, which the US Department of Energy has described as -- and I quote -- the most technically advanced and lowest-risk option, close quote, for restoring America's domestic uranium enrichment capability.

While the completion of that demonstration effort reduces our contract services revenue and has forced us to demobilize our Ohio facility, we are going to continue to maintain and improve the technology. The Department of Energy's Oak Ridge National Laboratory has said that they will continue to fund our ongoing work in Tennessee this year to advance the technology for national security and energy security purposes. While, in our judgment, the current market does not support the construction of a new commercial-scale enrichment plant based on this or any other technology -- and won't for several years to come -- we remain committed over the long-term to deploying a new enrichment capability when the market does recover.

In sum, we believe this is been a transformative year and that we're taking good progress toward our goals. By its nature this is a long-term business, with few transactions and uneven delivery and payment schedules. That is why many of the steps we are taking may not pay visible dividends in the short-term. They will take a while to be reflected in our bottom line, but I'm confident in the strategy we have adopted and in the team we have put in place to execute and to drive shareholder value.

And with that I will turn the floor over to Steve Greene. Steve?

Thank you, Dan; and good morning, everyone. As we mentioned on our Q3 call in November, we expected to have a strong fourth quarter, and we've delivered on those results. I'll briefly run through the numbers and then discuss some of the drivers of our performance.

In 2015 we generated total revenues of $418.2 million, with $355.4 million of that coming from the LEU business. While total revenue was slightly below our previous guidance due to the delay in establishing a contract for our ongoing work in Tennessee, which we are working to complete soon, we surpassed our revenue expectations for the LEU business.

The volume of SWU sales declined by 41% compared to 2014, which reflects the reality that we've transitioned into a smaller company following the shutdown in 2013 of the enrichment plant we operated in Paducah as well as the successful completion of the Megatons to Megawatts program. As of the end of 2015 our LEU business had a $2.3 billion long-term order book, which extends more than a decade.

Although our sales volumes are lower than they were a few years ago, we believe this sales order book is a stable source of cash flow and liquidity for the Company. Over the course of 2015 we made significant deliveries from the order book while also adding new long-term sales contracts. Although we see limited uncommitted demand for LEU prior to the end of the decade based on current market conditions, we continue to seek and make additional sales, including sales for near-term delivery. Earlier this month, for example, we announced approximately $165 million in new sales contracts that have been signed over the last nine months with deliveries through 2022. Some of those contracts are not included in the end-of-year order book total.

Cost of sales for the LEU segment declined $203.7 million or 42% in 2015 due to lower sales volume and the decline in direct charges of $97.7 million. Excluding direct charges, cost of sales per SWU declined 1% year over year.

We had a gross profit of $68.9 million in 2015, and our gross margin was 16.5%. These are substantive increases from 2014 and reflect a decline in direct charges and higher prices billed to customers.

Advanced technology costs totaled $33 million for 2015, a decline of $28.3 million compared to 2014, reflecting the transition to the contract with Oak Ridge National Lab in 2014. Work outside that contract and certain demobilization and maintenance costs are reflected in the advanced technology costs, as is work we performed in anticipation of reaching a successor agreement with Oak Ridge National Lab and an increase to the accrued liability for D&D for the Ohio facilities based on updated cost projections.

Sales, general, and administrative expense held steady for the year. While benefits and overhead allocated to SG&A increased due to our post-emergence cost structure, these were offset by reductions in salary and benefits due to lower staffing levels and lower incentive compensation. We are keenly focused on reducing SG&A going forward and expect to continue to decrease our costs as we complete our transition to a smaller company.

We reported a net loss of $187.4 million in 2015, which included a non-cash impairment charge of $137.2 million for the carrying value of the excess reorganization value that resulted from our reorganization. We tested the excess reorganization value for impairment in the fourth quarter in accordance with our accounting policies, and due to the market values of the Company's debt and equity, it was determined to be fully impaired.

Our 2015 net loss compares to a net income of $297.8 million in 2014, when we had net reorganization gains of over $425 million. Obviously, without those impacts resulting from the reorganization, 2015 would have represented an improvement.

Turning to cash, we reported a cash balance of $234 million at year-end compared to the $218.8 million at the end the prior year -- which, as Dan mentioned earlier, was ahead of our expectations. The Company also had accounts payable under SWU purchase agreements of $85.4 million at year-end. Net cash flow provided by operating activities for the full year was $8.5 million. The sources and uses of cash flow in the year were in line with our expectations.

Before I turn to call back to Dan for brief closing remarks, I'd like to review our outlook for 2016. Total revenue for the full year is expected to be in the range of $275 million to $300 million. We delivered about 2 million SWU in 2015 and anticipate delivering about the same amount in 2016. The decline in anticipated total revenue compared to 2015 reflects the specific contracts under which we expect to deliver, opportunistic transactions that occurred in 2015 but are not predictable, and a smaller size of our anticipated contract with Oak Ridge National Lab. In addition, we anticipate our end-of-year cash balance to be in the range of $200 million to $250 million.

I will now turn the call back to Dan.

Thanks, Steve. I would like to close today by reemphasizing our commitment to the ongoing transformation of Centrus. Our new management team is an experienced and highly focused group who are intent on working hard every day toward our objective of becoming the world's most diversified supplier of nuclear fuel and services.

Looking forward, our near-term efforts remain directed on growing our fuel supply business and leveraging our technical capabilities and customer relationships to develop strategic business partnerships across the industry. Longer-term, as the market recovers, we are committed to deploying an advanced uranium enrichment capability.

We appreciate your interest in Centrus and look forward to communicating our continued progress throughout the year. With that, I will now turn the floor over to the operator for any questions. Thanks.

(Operator Instructions)

I don't believe there's any questions coming in, so we're going to close out our call now and thank everyone for their time and their participation. And as always, we appreciate your support.

Thank you all.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.