Centrus Energy Corp (LEU) 2018 Q2 法說會逐字稿

Greetings, and welcome to the Centrus Energy Corporation's Second Quarter 2018 Quarterly Earnings 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, Mr. Hatcher. You may begin.

Thank you, Devon. Good morning, and thank you for joining. Today's call will cover the results for the second quarter of 2018 that ended June 30.

Here today for the call are Dan Poneman, President and Chief Executive Officer; Marian Davis, 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 this afternoon. 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 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, August 09, 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. This has been a tough period for the nuclear industry and that is reflected in our quarterly results. That having been said, we've made progress in a number of important areas in ways that will bear fruit in the future in support of our efforts to grow and expand our business.

We generated $39.4 million in revenues this quarter and are on track to meet our annual guidance for revenues and end of year cash balance. We are reiterating that guidance today. We expect nearly half of our 2018 revenues in the fourth quarter.

As we've discussed on prior calls, our order book consists almost entirely of long-term contracts with deliveries in multiple years. Some of those contracts were signed several years ago when prices were considerably higher, while other contracts reflect business we have won more recently. Because the deliveries we made during the second quarter came disproportionately from newer, lower-priced contracts, we posted a gross loss for the quarter.

It's also important to note that lower market prices also drive down the cost of obtaining our supply. Because cost of sales per unit are calculated based on a rolling average of our diverse mix of primary and secondary suppliers, that reduction in supply cost does not show up in our bottom line right away. But beginning in 2019 and over the next few years, we expect to realize reductions in our supply costs.

While the overall nuclear fuel market is still oversupplied and facing significant pressure here in the U.S. and abroad, our sales team has been working hard for every opportunity in the market and we are capturing many of these opportunities.

When I came to Centrus 3 years ago, I promised to realign our focus on putting the customer first. The LEU sales team has embraced this mantra and their efforts are paying off. Not only have we been winning additional business with long-term customers, but we have also been making new sales to first-time customers and winning back customers we have not done business with in many years.

In addition, we're working with existing customers to ensure that we maintain our long-term relationships while they work through their own challenges. We know that their success is critical to our success, so we are always thinking about how to find win-win solutions for both sides in the long term.

While the bulk of our revenues continue to be generated by sales of nuclear fuel, we've also been working to diversify and expand into complementary markets in the nuclear field and related industries.

Several years ago, we built out our flagship technical facility, the Technology and Manufacturing Center in Oak Ridge, Tennessee, so that we could design, engineer and manufacture advanced centrifuges. And while that technical work continues with the support of our contract with Oak Ridge National Laboratory, we're now putting those technical capabilities and know-how to work on behalf of a range of other government and private sector customers.

For example, our team in Tennessee is working under contract with X Energy, a pioneering reactor technology and fuel company, to support the design of a facility to produce the next generation of nuclear fuel.

We have capabilities and expertise suitable not only for the advanced nuclear industry, but also for aerospace, defense, chemicals, energy and advanced manufacturing applications. While there are no guarantees, and I'm not here to make predictions, I will say that we're working very hard to leverage our technical strength. And we view this as a key growth opportunity over the next few years.

In addition, we've been greatly encouraged by the focus the U.S. government is giving to the need for domestic enrichment technology to meet future national security and energy security needs. With some time before deployment, our team is taking the opportunity to further strengthen the technology by lowering manufacturing costs and improving reliability.

To make sure we have the right organization in place to support these efforts, we continue to focus on ensuring that we align the cost structure of the company with our long-term strategic goals. The road to profitability requires us to be as lean and efficient as possible without sacrificing our unique capabilities and the workforce necessary to support our long-term objectives.

For more details on the quarterly financial results I will now turn the call over to our CFO, Marian Davis.

Thank you, Dan, and good morning to everyone on the call.

For the quarter, our revenues were $39.4 million, a slight decrease from the second quarter of 2017. For the 6 months, our revenues were $75.1 million, an increase of $23.9 million compared to the same period in 2017. We expect nearly half of our revenues for the year will be generated in the fourth quarter.

As we regularly remind listeners on the call, our revenues tend to vary significantly from quarter to quarter based on the timing of when we make our deliveries and the prices under those particular contracts. With most customers signed to multiyear contracts with annual purchase commitments, we recommend investors focus on our annual guidance rather than on any one quarter.

We had a gross loss of $10.7 million this quarter, an increased loss of $6 million over the same period in 2017. This quarter's results reflect the transition in pricing seen in recent years in the nuclear fuel market, where market prices for SWU and uranium have declined significantly, leading to lower prices in our new sales contracts.

While we expect our cost of supply to show similar reductions in the future as these lower market prices influence the purchase prices in our supply contracts, we are currently working through a transition period where newer sales contracts are being filled with inventory at costs that reflect prior average purchase costs that are higher than current market pricing. We expect this situation to improve over the rest of the year and into 2019, but for now we're dealing with the effects of these costs in the rolling average of our inventory costs.

We noted in the earnings release yesterday that we have signed a new contract with a customer that is going through a Chapter 11 proceeding. This contract replaces the previous contract that had been listed at risk when we disclosed our order book in previous quarters. The new contract, which is still subject to court approval, represents a reduction in anticipated revenue in future quarters. The order book will be approximately $1.1 billion after giving effect to the new contract.

We continue to reaffirm our annual guidance of total revenue in a range of $175 million to $200 million.

Advanced technology licensing -- license and decommissioning costs, which consists of American centrifuge expenses that are outside of the company's contracts with Oak Ridge National Laboratory, increased $1 million for the quarter. These costs are now primarily related to the termination of the NRC license and the DoE lease for the American Centrifuge Facility in Piketon, Ohio, which we expect to continue through June 2019.

With the D&D work at Piketon substantially complete, most costs at the facility are now being charged to expense rather than the accrued D&D liability and include a greater allocation of facility costs at the site following the relocation of certain corporate functions to an offsite facility.

SG&A expenses held steady this quarter compared to last year and were down 5% for the 6-month period compared to 2017. We continue to reduce our costs and are working to align the cost structure of the company with our current business.

For the bottom line, we recorded a net loss of $26.1 million for the quarter. In the same quarter of 2017, we had a net loss of $22.4 million.

We expect to end 2018 with a cash balance of $100 million to $125 million. I want to remind listeners that the increased use of cash during the year is primarily a function of the expected timing of supply purchases as well as an increase in net payments for postretirement 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 filed in March and the 10-Q we will file later this afternoon.

With that, I'll turn the call back over to Dan.

Thank you, Marian. I will conclude our remarks by noting that while the industry continues to face challenges on many fronts, we're working hard to position Centrus to capitalize on the opportunities being created by these challenges, whether by providing a reliable fuel supply to existing facility customers, developing the fuel supply for the next generation of reactor technologies or supporting the national security needs of the United States.

We are excited about the work we're doing and expect to see new pathways to growth develop in the coming year. Thank you for your support of our mission and our efforts to ensure the United States continues to be a leader in this industry.

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

(Operator Instructions) There appear to be no questions at this time. I'd like to turn the floor back over to management for closing comments.

Since there are no questions at this time, this will conclude Centrus's Second Quarter 2018 Investor Call.

I want to extend a thank you to all our listeners, and we look forward to speaking with you again in the future.