Centrus Energy Corp (LEU) 2019 Q3 法說會逐字稿

Greetings, and welcome to the Centrus Energy Third Quarter 2019 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Dan Leistikow, Vice President, Corporate Communications for Centrus Energy. Thank you. You may begin.

Good morning. Thank you for joining us. Today's call will cover the results for the third quarter of 2019 ended September 30.

Here today for the call are Dan Poneman, President and Chief Executive Officer; Phil Strawbridge, Senior Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer; and John Dorrian, Controller and Chief Accounting Officer.

Before turning the call over to Dan, I'd like to welcome you -- I'd like to welcome all of our callers as well as those listening to our webcast.

This conference call follows our earnings news release issued yesterday. We expect to file our quarterly report on Form 10-Q 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 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. It is accurate only as of today, November 8, 2019, 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 expressed written consent of Centrus is strictly prohibited.

Thank you for your participation, and I will now turn the call over to Dan Poneman.

Thank you, Dan, and thank you to those joining us today.

Let me begin by welcoming our new CFO, Philip Strawbridge. Philip brings extensive C-suite experience in the nuclear industry and will play a major role in the years ahead as we work to grow and diversify our company. We are honored and delighted to welcome him to our team.

Philip's arrival was just one of many good things that happened during a very strong third quarter for Centrus. We generated $104.7 million in revenues and net income of $22.8 million. As you may recall, based on developments during the second quarter, we upgraded our 2019 revenue guidance to be in a range between $205 million and $230 million, an increase of $70 million on the high end.

I'm pleased to report that we remain on track to meet that new target. We'll have year-over-year revenue growth and stronger margins in 2019 compared to 2018. You can see those improving margins reflected in the numbers we've reported throughout the year, driven by significant reductions in cost of our supply. Most importantly, we continue to expect to return to profitability next year.

At the end of the quarter, we fully repaid $27.5 million in notes that came due on September 30. That note repayment marks another milestone in our effort to reduce, restructure and retire our debt. We began 2016 with $247.6 million of long-term debt, all of which was set to mature on September 30, 2019. We've now reduced the face value of that debt to $74.3 million, a reduction of more than 70%. We've also extended the maturity of the remaining debt until 2027.

Even after the September debt repayment and the other steps we have taken, we are still on track to end the year with a strong cash balance of $105 million to $125 million so that we have liquidity and the ability to make strategic investments in the company's future.

We also recently announced the successful completion of a decontamination and decommissioning project in Oak Ridge, Tennessee for the U.S. Department of Energy. Centrus was able to complete the $15 million project on time and on budget in just 1 year. This success demonstrates our broad technical capabilities and reflects our strategy of diversifying the business by offering advanced engineering, manufacturing and D&D services.

Finally, this week, we were pleased to announce that we've reached agreement with the U.S. Department of Energy on our 3-year contract to demonstrate production of high-assay low-enriched uranium or HALEU. We are deploying a cascade of our AC-100M centrifuges at our facility in Piketon, Ohio to demonstrate the first-ever commercial production of this advanced nuclear fuel. While HALEU is not commercially available today, it may be needed in the future to power both the existing fleet of reactors and a new generation of reactors around the world. While the contract includes a significant cost share requirement, we view this demonstration as a strategic investment that will position Centrus as a global leader in the emerging market for higher assay fuels. This work is critical to ensuring that the United States has a reliable, long-term domestic source to support commercial and military projects to deploy advanced reactors that will need this new form of nuclear fuel. With it, Centrus is taking an important step toward resumption of uranium enrichment, which will support both segments of our business in the future.

With that, let me turn the call over to Philip who'll run through some more of the numbers with you. Philip?

Thank you, Dan, and good morning, everyone. This quarter, we generated $104.7 million in total revenue. It's a 207% increase from the third quarter of 2018.

As you know, the vast majority of our revenue in the LEU segment comes from long-term contracts where the customer has annual purchase commitments, but has the discretion to take delivery at any point during that year. These tend to be very large orders, and we don't recognize revenue until we physically make delivery. That means that there can be a lot of variability from quarter-to-quarter.

So far this year, for example, we had $38.7 million in first quarter revenue, $10.6 million in the second quarter and now $104.7 million in the third quarter. That kind of variation is normal for our business. What matters is the full year revenue number. And as Dan noted, we remain on track to meet our annual guidance, which will be an improvement over our 2018 revenue.

In the second quarter, we updated our guidance and now expect total revenue to be in the range of $205 million to $230 million, reflecting the now finalized contract with the Department of Energy and additional sales in our LEU segment. Based on cost estimates that are currently under review for the 3-year HALEU program, Centrus expects to recognize a contract loss in the fourth quarter of 2019 in the approximate range of $17 million to $22 million.

We had a gross profit of $35.5 million, which was an improvement of $27.7 million from the third quarter of 2018, reflecting lower supply cost per unit and better margins in our LEU segment.

SG&A expenses continued to decline. In the first 9 months of the year, our SG&A costs were down more than 18% compared to the same period last year, a savings of $5.2 million.

We have also reduced our advanced technology costs which were $1.3 million during the quarter. That's a savings of $4.5 million or 78% compared to the third quarter of 2018.

For the bottom line, we recorded a net income of $22.8 million for the third quarter compared to a net loss of $7.8 million for the third quarter of 2018. That's largely driven by a decline in our cost of sales for nuclear fuel along with the reduction in advanced technology costs.

We had a cash and cash equivalents balance of $77.2 million at September 30 and believe that this balance will grow to a range of between $105 million to $125 million by year-end, achieving the updated annual guidance we gave in the second quarter. As always, this guidance is subject to factors described in the Outlook section of our SEC filings and specifically the annual report on Form 10-K filed in April and the 10-Q which we plan to file later today.

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

Thank you, Philip. Let me close by noting that we are seeing a number of positive signs in the market for enrichment. We have locked in long-term sources of supply that are lowering our cost of sales at a time when market prices are rebounding. Enrichment prices fell for almost 8 years after the Fukushima incident and bottomed out in August of 2018. Since then, the market has been steadily recovering. Spot prices are up more than 30%. Long-term prices are up more than 20%. When prices were still falling, many utilities were hesitant to make new purchases because they wanted to wait until the bottom. Now that prices seem to be trending upward, fuel buyers are looking to book long-term contracts. We believe we're well positioned to supply many of those contracts.

I want to express my great appreciation to our employees for making the success happen and to our investors for the long-term support of our company and our mission.

And with that, operator, we would be happy to take any questions at this time.

(Operator Instructions) This concludes our question-and-answer session. I'll now turn the floor back to Mr. Leistikow for any final comments.

Okay. Since there are no questions at this time, this will conclude our third quarter 2019 investor call. I want to thank -- extend a thank you to our listeners. We look forward to speaking with you again in the future.

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