Centrus Energy Corp (LEU) 2017 Q3 法說會逐字稿

Greetings, and welcome to the Centrus Energy Corp. Third Quarter 2017 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Don Hatcher, Director of Investor Relations for Centrus Energy Corp. Please, go ahead.

Thank you, Kevin. Good morning, and thank you for joining us. Today's call will cover the results for the third quarter 2017 that ended September 30.

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 quarterly report on Form 10-Q on Monday, as the Securities and Exchange Commission is closed today in observance of Veterans Day. 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 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 risk 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, November 10, 2017, unless otherwise noted.

This call is the property of Centrus Energy. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Centrus is strictly prohibited.

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

Thank you, Don, and thank you to everyone joining us today. First, as we prepare to celebrate Veterans Day tomorrow, I want to take a minute to express my sincere thanks for the many men and women at Centrus and around the country who have worn the uniform of The United States and have kept our country safe.

We are particularly proud to have so many veterans in Centrus, including some of our senior leaders and managers. Whenever I visit our technical and engineering teams in Oak Ridge or in Piketon, I'm always impressed by the dedication of our veterans and the support from their families. All of us at Centrus are so proud of them, and I want them to know how much we and the rest of our nation honor their service, not only to our company but to our country.

Thanks to the talent and hard work of our employees, this has been a very productive period for the company. We have revenues of $50.3 million this quarter, and a gross profit of $11.6 million. We continue to expect that more than half of our annual revenue will come in the fourth quarter, and are on track to meet our annual guidance, $200 million to $225 million in total revenues, including $175 million to $200 million in the LEU segment. In a moment, I'll ask Steve Greene to take a deeper dive into the numbers. But before he does that, I'd like to highlight just a few of the things we have accomplished over the past few months to strengthen our company for the long term.

While we expect to face an oversupplied market for this foreseeable future, our sales team has been identifying customers with open demand and turning that demand into new contracts. In September, we announced a new round of fuel supply contracts, with customers totaling $70 billion with deliveries through 2025. Because we're the world's most diversified supplier of enriched uranium and because we have aligned cost structure, we can offer our customers a long-term fuel supply that is both reliable and affordable. That gives us a competitive advantage and the ability to continue winning the sales. When considering our path back to production to meet that future demand, we continue to advance our state-of-the-art uranium enrichment technology. Last month, we announced a $16 million follow-on contract with Oak Ridge National Laboratory to continue our development and testing work on U.S. gas centrifuge uranium enrichment technology.

Centrus is the leading U.S. company in developing the next generation of enrichment technology, and we are using this time, while commercial markets is slow, to prepare for a return to production. Our work for Oak Ridge National Laboratory will ensure that the American Centrifuge machine is ready to meet national security needs in the future, in addition to its potential to enrich for commercial fuel. We're also honored to welcome Energy Secretary, Rick Perry, when he toured our American Centrifuge facility in Ohio in September. It was a great visit, and the Secretary had a good chance to meet with the people who have been working on enrichment in Piketon for decades. In many cases our employees are second or third generation on this site. The Department of Energy has identified a domestic uranium enrichment capability as a long-term national security requirement. While it is up to the U.S. Government and the Congress to decide time line, our company and our technology is ready to deploy when the nation needs it.

In the meantime, we are making good progress in the D&D of the demonstration cascade in Piketon. We expect that work to be mostly complete by year-end on schedule and within budget.

Our expertise in enrichment nuclear fuel and advanced manufacturing will also add value to the emerging advanced reactor market. Many of these innovative designs for next-generation reactors will require different types of nuclear fuel that does not exist commercially today. Together, our technical expertise and our advanced manufacturing facility put us in a unique position to support these companies with engineering, manufacturing and fuel design services.

In September, we announced an MOU with X-energy, a pioneering advanced reactor and fuel company. Our work will focus on the fuel side of their business, with the ultimate goal of deploying a fuel fabrication facility to manufacture TRISO fuel for the X-energy reactor and other innovative designs.

The advanced reactor market is still in its early stages and will take many years to reach the deployment stage. But we believe we can be a strong partner for X-energy and other innovative companies as they develop and eventually commercialize their technologies.

We see both near-term and long-term opportunities in this sector. In the near term, this is an opportunity to expand our business by providing technical services as advanced reactor developers prove out their technology. If they succeed in deploying these new reactors, it will create long-term opportunity for Centrus as a fuel supplier as well as a component supplier to the reactors themselves.

For more detail on the financials, I now will turn the call over to Steve Greene.

Thank you, Dan, and good morning to our listeners. Our total revenue this quarter was $50.3 million, of which $43.5 million was for our LEU segment. Our revenue was higher this quarter compared to the corresponding period in 2016, but lower for the year-to-date compared to last year. Both variances reflect changes in volume compared to the prior period due to the particular contract under which SWU were sold during the period. As always, we remind our investors that our quarter-to-quarter results can be highly variable and that our annual results are the best indicators of our financial performance.

We continue to expect to generate more than 50% of 2017 revenue in the fourth quarter, and we are reiterating our guidance for total revenue for the year of $200 million to $225 million, including $175 million to $200 million in the LEU segment. Cost of sales were up for the quarter to $38.7 million on higher sales volume that was moderated by a decline in the average cost of sales for SWU. Cost of sales for the 9-month period declined consistent with the lower volumes for that period. Centrus recorded a gross profit for the quarter of $11.6 million, reflecting increases in the average SWU sales price and SWU sales volume and a decline in the average SWU cost.

Advanced technology licenses and decommissioning costs, which consist of American Centrifuge expenses that are outside of the company's contracts with Oak Ridge National Lab, were $4.5 million for the quarter. For the 9-month period, costs declined $23.6 million or 61% to $15 million due to lower costs for the D&D at the Piketon demonstration cascade this period and a $15 million charge in the prior period to increase the accrued D&D liability.

The accrued liability stands at $15.6 million as of September 30, down from $38.6 million at the end of 2016. As Dan mentioned, we expect the D&D to be mostly completed by year-end.

SG&A expenses increased slightly for the quarter, but are down $1.5 million for the 9-month period compared to the prior year, which included an $800,000 loss related to the remeasurement of pension obligations.

We recorded a net loss of $8.5 million for the third quarter, down from a $41.3 million net loss in 2016, mostly due to the improvement in gross profit, a decline in interest expense and reduced charges to the expense to maintain and demobilize the Piketon facility.

For the 9 months, we recorded a net loss of $23.3 million, an improvement of $35.5 million from 2016 period due to lower advanced technology licensing and decommissioning costs, gains on the early extinguishment of debt and lower interest expense, offset by the decline in gross profit and higher special charges for workforce restructuring and advisory costs.

In closing, I'll reiterate that we're on track to generate more than half our revenue in the fourth quarter and that we continue to believe our results will be within our guidance range on both cash and revenue, subject always to the caveats outlined in the Outlook section of our quarterly SEC filing.

Thank you for listening today, and I'll turn the call back to Dan.

Thank you, Steve. I will conclude our call today by saying that we see many opportunities opening up for Centrus based on the hard work we've done over the past 2 years to rightsize the company, to strengthen our balance sheet and to leverage our niche expertise. While the traditional market Centrus has served is still going through a difficult period, we see good opportunities for growth in our current business and in areas that we complement our current offerings. We are also encouraged by the actions and words of the U.S. government. Secretary Perry and his team are working hard to support the U.S. nuclear industry as it competes globally against state-run company and at home in markets that do not adequately value nuclear energy's role in providing clean and reliable electricity. The bottom line is that nuclear energy will continue to play a key role in our energy future. The employees at Centrus are working hard everyday to make sure that we will be there to support today's reactors and those yet to come.

Operator, we're happy to take any questions at this time.

(Operator Instructions) Our first question today is coming from [Rich Howard] from [Boiling Point Resources].

To the extent appropriate, would you discuss the Department of Defense's tritium situation? Are they still accessing tritium through Paducah LEU? And what time line lies ahead?

Thanks, Rich. Good to hear your voice. So obviously, they are in the government and we are not in the government. The clear long-term need for our nuclear arsenal is to have replenishment of its tritium stores. As you know, tritium has a half-life, I think, 12.5 years. And then the question has always been, at what pace is that going to need to be replaced now? The new administration is conducting a major Nuclear Posture Review. And my understanding is that, that process is not complete. And the requirements -- and of course, as you indicate by your question, Rich, the requirements will be product of that Nuclear Posture Review in which the Defense Department would essentially be the recipient of any additional increments that would come out of the review or decrements for that matter. But it will be the responsibility of the U.S. Department of Energy to actually produce the tritium that would have to go to satisfy any of those requirements. But the bottom line is, until the administration finishes its Nuclear Posture Review, I don't think we will have any update on what the tritium requirements are going to be. And the current time that the program of record underway at the U.S. Department of Energy has got the Energy Department doing a number of things to stretch out their tritium supplies in the midterm. And so I think you're going to have to see that policy in the life of whatever comes out of the Nuclear Posture Review.

(Operator Instructions) If there are no further questions, I'll turn the floor back over to management for any further or closing comments.

Thank you, Kevin. This will conclude the Centrus' third quarter call. I want to extend a thank you to our listeners and investors who are on the line. And we look forward to speaking with you again in the future. Thank you, and have a great day.

Thank you. It does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.