Centrus Energy Corp (LEU) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Centrus Energy Corporation's Fourth Quarter and Full Year 2017 Earnings 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. Thank you. You may begin.

Thank you, Donna. Good morning, and thank you for joining us. Today's call will cover the results for the fourth quarter and full year 2017 that ended December 31st.

Here today for the call are Dan Poneman, President and Chief Executive Officer; Steve Greene, Senior Vice President, Chief Financial Officer and Treasurer; Marian Davis, Vice President, Finance and Accounting; 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 this afternoon. All 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 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, March 15, 2018, unless otherwise noted.

This call is the property of Centrus Energy. Any transcription, 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.

Thank you, Don, and thank you to everyone listening today. We knew going into the 2017 would be a pivotal year for us. One, that would require executing on several major initiatives critical to our future success. And I'm pleased to report that our employees exceeded our expectations.

Let me start with the Q results. Centrus earned an income of $12.2 million for the year on revenue of $218.4 million, and we ended 2017 with a cash balance of $208.8 million, in line with our guidance for the year. Steve Greene will have more details on the financial results in a minute. But first, I want to highlight some of our other achievements.

One of the major challenges we faced coming into the year was restructuring our long-term debt that was due in 2019. By completing a private exchange for the notes earlier in the year, we were able to reduce the outstanding principal by more than half and extend the maturity to 2027, giving us more flexibility to use our cash on hand to grow the business.

Next, our sales team has been very active in a market with few near-term opportunities. And to their credit, they were able to capture a large percentage of the competitive fuel procurement that took place in the global market this year. We announced $70 million in new sales contract in September, and our long-term order book stood at $1.3 billion at the end of the year. While down slightly from last year, the contracts we are signing today are at lower prices than our legacy contracts that are rolling off. So we are doing well on maintaining our volume of sales in terms of separate work units or SWU and increasing our customer base because we are buying as well as selling, we can also benefit from the oil prices to the extent that they reduce our cost of sales moving forward.

Maintaining and growing our core business is a key part of our strategy for long-term success. But we know that we must diversify our business beyond just sales of enriched uranium. While market conditions do not support deploying the American Centrifuge technology in a commercial plant in the near term, we believe that one of our highest priorities must be keeping incredibly talented group of scientists, engineers and manufacturing specialists engaged and productive. To that end, we've re-purposed parts of our Tennessee operations to support work for others in the energy, defense and other high consequence industries.

This year saw the first fruits of that effort led by the signing of an MOU with a leading advanced reactor developer, X-energy to support their advanced nuclear fuel development efforts. This will provide an excellent opportunity for us to leverage our 440,000 square-foot technology and manufacturing center in Oak Ridge, Tennessee to support a new and exciting sector of our industry while broadening our service offerings and retaining key talent.

We are talking with a number of additional potential customers for similar services and capabilities with a view to contributing further to the development of next-generation nuclear reactors and fuels. At the same time, we are continuing to advance state-of-the-art uranium enrichment technology at our Oak Ridge facilities. Much of this work is focused on improving the AC100 machines for potential future use by the U.S. government for national security purposes. To that end, we signed a $16 million contract with Oak Ridge National Laboratory in October. Our centrifuge experts continue to develop and test improvements for the machine. We believe these efforts and others will position us to deploy a new production facility with a world-class technology when the market will support that in the years ahead.

After we completed our full scale demonstration of the AC100 technology in 2016, we began the decontamination and decommissioning of the demonstration cascade last year. That effort is nearly complete. All the machines and plant equipment have been removed and sent for disposal. We have a few more limited tasks to wrap up, but we expect to return the demonstration facility licensed to NRC in summer, which will mark the official end of the D&D project. Our incredible team in Piketon and we are so proud of them, has done a great job in that effort that we were able to save more than $5 million from our baseline for the D&D project.

This past year, we have also focused sharply on working more efficiently. To that end, we have implemented new business management and IT systems so that we can operate at lower cost and with a smaller staff, while still delivering the reliable, on-time supply that our customers have come to expect from us for decades. These new systems will help us cut costs and better manage the enterprise for years to come.

As we look back at 2017, I am proud of what our company and our employees have accomplished. Now as we look forward to 2018 and beyond, I believe we are well positioned to diversify and to grow. Our industry still faces formidable challenges, but the steps we have taken over the past 3 years have put us in a much better position to succeed.

In that connection, before I turn the call over to Steve Greene, I want to take a minute to introduce Marian Davis, our Vice President of Finance and Accounting, who will be assuming the role of CFO in April. Marian has served as the company's Chief Audit Executive since 2011 and had served in many senior financial roles at other companies prior to joining us. She has a wealth of financial experience and her knowledge of the company will allow her to assume the role of CFO seamlessly as Steve transitions to his new role as a Senior Vice President of Corporate Development and Strategy, leading our strategic initiatives going forward.

In my judgment, this organizational adjustment will strengthen the ability of our management team to support of our ambitious efforts for the coming years.

Thank you, Dan. I appreciate the vote of confidence you and the board have given me. And I'm excited to assume this new role next month. Until then, Steve and I will be working closely to ensure a smooth transition. I look forward to speaking with our investors on future calls.

Thanks so much Marian. That's great. And now, more details on the financials. I'm turning the call over to Steve Greene. Steve?

Thank you, and good morning to everyone. As Dan mentioned, we had a successful year, and I'm pleased with our results on the debt early in 2017, with our financial results and with the progress we made to reduce our costs and move to a leaner, more flexible business model.

As we anticipated in prior quarters, we generated more than half our revenue for the year in the fourth quarter. And for the full year, we generated revenue of $218.4 million, coming in at the higher end of our guidance.

Revenue was down year-over-year mostly due to lower SWU sales volumes and a smaller contract for our work in Oak Ridge. We expect revenue to decline in 2018 as well, primarily resulting from lower average prices as more sales are made under more recent lower-priced contracts.

Cost of sales for enrichment and uranium were down $98 million or 42% for the year on lower SWU sales volume and decline in the average cost per SWU. Legacy costs related to benefits for our retirees, which are primarily charged directly to cost of sales, experienced a net gain due to favorable returns on our pension investments.

Since 2014, we have elected the accounting option to recognize gains and losses related to our investment -- to our retirement plan immediately in the income statement to provide transparency regarding the impacts of changes in plan assets and benefit obligations. We recorded a gross profit of $56.8 million for the year, reflecting the net gains related to our retirement plans and the margins earned on SWU sales.

Advanced technology license and decommissioning costs, which consist of American Centrifuge expenses that are outside of the company's contracts with Oak Ridge National Lab, were $15.7 million for the year, a decline of $32.2 million from 2016, when we had increased our accrual for D&D of the Piketon demonstration cascade. Since most of that work is complete now, the accrued liability stands at $1.0 million as of December 31, 2017, down from $38.6 million at the end of 2016. As Dan mentioned, we expect to end the demonstration facility license in summer and transition into a facility maintenance mode through the end of the lease in June 2019.

SG&A expenses decreased 7% for the year on lower consulting costs and gains from the performance of benefit plans that are charged to SG&A. Special charges were $9.5 million for the year, mostly related to costs for our business realignment efforts and employee termination costs.

We generated a net income of $12.2 million for the year, which reflects the decline in advanced technology costs, gains on the remeasurement of retirement plan obligations, gains from the early extinguishment of debt and the associated decline in interest expenses, partially offset by the increase in special charges.

For 2018, we expect total revenue between $175 million and $200 million, which we anticipate will continue to be mostly generated in the fourth quarter. We expect to end 2018 with a cash balance of $100 million to $125 million. The expected use of cash is primarily a function of the expected timing of supply purchases as well as an increase in net cash payments for post retirement benefits.

As always, this guidance is subject to the factors described in the Outlook section of our SEC filings, specifically the annual report on Form 10-K that we expect to file later today.

That ends my financial update. I'd also like to welcome Marian to the role of CFO and to express my thanks to the team that's worked with and supported me in this role for several years. I look forward to new challenges and I leave you in good hands.

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

Thanks so much of Steve. You have been an invaluable resource to me and to the company as CFO, and I look forward to continuing to work closely with you in your new role.

It has now been 3 years since I accepted the challenge to lead this company out of bankruptcy. It was clear at the time that the task would not be easy in an industry already facing serious headwinds and dominated by state-owned enterprises. But I believed then as I believe today that the United States needs a domestic uranium enrichment capability in order to protect and defend our energy security and management security interest.

Since that day, we have faced even more challenges, but we've also developed and seized opportunities to advance those goals. To be sure, there is still a long row to hoe, but our team knows our mission and it is intensely dedicated to achieving it.

I am proud of what they've accomplished in 2017 from sourcing new supply, to improving our balance sheet, to opening up new areas of business. This is an incredible group of people to work with every day, and I cannot wait to see what the year ahead brings us.

Thank you for your support of Centrus and our mission. We have a critical role to play for this country and for the world, and I think we are now on the right track for the long-term success that will support that position.

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

(Operator Instructions) Our first question is coming from Joe Farricielli of Odeon Capital Group.

Two questions. One, I see the forecasting for 2018 year-end cash. Just wondering if you could provide any guidance throughout the year. What do you think the trough is? And if you have -- or thoughts about entering into the revolver that you are allowed to incur that debt for expansion business? I didn't know if the X-energy project would require you to use that facility.

This is Steve. Yes, thanks for the question. So we're not -- we have not and we won't, I don't think give guidance for cash levels throughout the year. Obviously, that's something that we pay close attention to and manage for our obligation. With regard to X-energy, I don't anticipate that, that's going to require significant cash outflows. So I would not anticipate that we would need to have any financing for that.

(Operator Instructions) At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Thank you, Donna. This will conclude Centrus' fourth quarter 2017 investor call. I want to extend a thank you to our listeners online and our investors who called in, and we look forward to speaking with you again next quarter.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.