Lightbridge Corp (LTBR) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Lightbridge 2017 First Quarter Earnings and Business Update Call. (Operator Instructions)

At this time, it is my pleasure to turn the floor over to David Waldman, Investor Relations. Sir, the floor is yours.

Thank you, Julie, and good morning, and welcome to Lightbridge's First Quarter 2017 Business Update Conference Call. The company's first quarter business update press release was distributed after the market closed yesterday and can be viewed on the Investor Relations page of the Lightbridge website at www.ltbridge.com. If anyone has questions after the call, you may contact Crescendo Communications, the Investor Relations firm for the company, at (855) 379-9900. Seth Grae, our Chief Executive Officer, will lead today's call. In addition, the following executives are available to answer your questions. Linda Zwobota, Chief Financial Officer; Jim Malone, Chief Nuclear Fuel Development Officer; Andrey Mushakov, Lightbridge's Executive Vice President for International Nuclear Operations; Jon Johnson, Senior Vice President and Nuclear Regulatory Expert; and Jonathan Baguette, Vice President and Deputy Nuclear Quality Assurance Manager.

Today's presentation includes forward-looking statements about the company's competitive position and product and service offerings. During the course of today's call, words such as expect, anticipate, believe and intend will be used in our discussion of goals or events in the future. This presentation is based on our current expectations and involve certain risks and uncertainties that may cause actual results to differ significantly from such estimates. These and other risks are set forth in more detail in Lightbridge's filings with the Securities and Change Commission. Lightbridge does not assume any obligation to update or revise any such forward-looking statements whether as a result of new developments or otherwise. You can participate in today's call in 2 ways: First, you may submit questions for management in writing to ir@ltbridge.com. If you've already submitted a question, we thank you. You can submit them at any time during the prepared remarks or during the Q&A period. Second, after the prepared remarks, telephone lines will be opened for live questions.

Now, here is Lightbridge's CEO, Seth Grae. Please go ahead, sir.

Thank you, David, and good morning, everybody. This quarter, we continued to make progress toward commercial development of our proprietary next-generation nuclear fuel. It's only been a bit over a month since our last conference call. We'll keep the opening remarks brief to get your questions. We appreciate the continued support from AREVA in moving the process forward toward establishment of a formal joint venture between our 2 companies. AREVA is an ideal partner, with extensive industry knowledge and expertise in nuclear fuel assembly design, licensing and fabrication. AREVA also brings an established global customer base, including many of the leading nuclear operators in the United States, Europe and Asia.

The term sheet signed with AREVA covers fuel assemblies for most types of light water reactors, including pressurized water reactors, boiling water reactors, small modular reactors and research reactors. We expect to formalize the joint venture with AREVA to develop, manufacture and commercialize fuel assemblies based on our fuel technology in the coming months. Although it may seem from the outside that this process is moving slowly, we have actually made tremendous progress and have expanded beyond the initial scope of the project. In fact, we believe the current scenario will be more profitable for Lightbridge than the straight licensing arrangement we had originally envisioned.

We're also moving forward in finalizing plans for irradiation testing of our nuclear fuel samples at the Halden reactor in Norway. At the same time, we are working closely with a leading U.S. nuclear utility to establish an end user agreement for the first use of Lightbridge-designed nuclear fuel in a commercial reactor in the United States. This utility is an addition to the one with which we signed a letter of intent in November of last year. To date, we have received numerous patents covering our metallic nuclear fuel rod design, and we have very broad intellectual property protection in all key markets, including the United States, Canada, China, Japan, South Korea, Russia, European Union member countries and elsewhere around the world. Securing our intellectual property rights is an important step in advancing our global strategy.

Our nuclear technology has gained significant attention within the industry. We presented the Lightbridge fuel at a number of important industry events, including our recent presentation at Idaho National Laboratory's GAIN Fuel Safety Research Workshop.

I'll now turn the call over to Linda Zwobota, who is Lightbridge's Chief Financial Officer, to summarize the company's financial results for the quarter. Linda?

Thanks, Seth. As of March 31, 2017, we had approximately $5.3 million in cash and restricted cash compared to approximately $3.7 million in cash and restricted cash as of December 31, 2016. The $1.6 million increase in cash and equivalents resulted from the sale of approximately $2.8 million of our common stock during the quarter ended March 31, 2017, offset by net cash used in operating activities of approximately $1.2 million.

We had approximately $4.9 million in working capital as of March 31, 2017, as compared to working capital of approximately $3.4 million as of December 31, 2016. Stockholders' equity as of March 31, 2017, was approximately $7 million compared to stockholders' equity of approximately $5.6 million as of December 31, 2016. We have no debt or debt credit lines, and we have financed our operations to date through the sale of our common stock and our consulting revenue.

For the first quarter ended March 31, 2017, our net loss attributable to common shareholders was approximately $1.8 million or a loss of $0.20 per share on revenue of $0.1 million. In the same quarter of 2016, the net loss available to common shareholders was $0.2 million or loss per share of $0.09 per share on revenue of $0.2 million.

The net loss available to common shareholders for the 3 months ended March 31, 2016, of $0.3 million, included warrant revaluation income of approximately $1.3 million, which is a noncash item. All warrants are now classified as equity on our balance sheet. All revenue was generated from consulting services. Our main business is developing our nuclear fuel, and we may continue to provide some consulting services in the future but we have shifted the focus and resources of the company to the fuel division and away from consulting.

Stock-based compensation expense for the quarters ended March 31, 2017 and 2016 was approximately $0.2 million. This concludes my summary. I will be available for your questions during the next segment of today's presentation. Seth, back to you.

Thank you, Linda. Let's open the call to your questions. In addition to asking live questions by telephone, you can also submit questions in writing to ir@ltbridge.com. We will pause while the operator, Jen, reviews the procedure for asking live questions.

(Operator Instructions)

While we're polling for questions, let me start with some questions that were submitted in advance or during the call. Our first question is Lightbridge concerned with the timeline of negotiations with AREVA. And can you explain why the deal is taking as long as it has to finalize?

Well, what I think, first of all, is that the deal has been changing in some ways from the initial concept that we think are better for Lightbridge and Lightbridge's investors than a straight licensing deal; to have a 50-50 JV with AREVA. What we're trying to do is more expansive. We'll also fold again now direct work with 2 utilities, leading toward end user agreements. We're not just trying to have qualifying fuel in a reactor in Norway. We're actually bringing toward contracting fuel in commercial reactors in the United States. What we're putting together is a contractual package to bring our fuel to the global market. Now there is a lot of steps within that. And we and AREVA and utilities need to be confident in the NRC licensing and the data that will be generated. Jonathan Baguette is here with us and on this call, who is the Deputy Quality Assurance Manager, who also makes sure that all of the data generated everywhere will be usable for licensing. We're dealing with the largest nuclear supplier company in the world with AREVA. We have a tremendous commitment from their company in level of what they're doing with us, both here at the United States and at headquarters in France, in Paris, as well as their fuel division headquarters in Lyon, France. And with that, I'll just ask Jim Malone, who has been leading the work with AREVA, to comment.

Seth, I agree that the mission, if you will, has changed substantially in our favor because of the approach of using a joint venture company to approach the market versus simply licensing the product to AREVA as a fuel fabricator. We now have them as a partner, and their skills and our intellectual property match very well together. If it is indicated to take a little bit more time than we would like. That is because of the change in the relationship, which is going to benefit the shareholders in the long run.

All right. Can I also -- while we talk about our announcements coming within month, I think, it's probably fair to say we expect the next major announcement to come within about 1 month. So I mean this is not something that I think you'll have to wait all that much longer for some major developments.

Great. Thank you. Our next question and then we'll open it up for some live calls -- the latest proxy includes request to authorize the sale of shares in excess of 20%. What was the rationale for this authorization and is the company planning to raise capital?

Well, no, no immediate plans. First of all, we are required to obtain shareholder approval prior to any issuance of our common stock equal to 20% or above 20% of the shares outstanding. However, this does not mean that we actually will raise any capital. We're interested in financing flexibility. In fact, we have no immediate plans to raise capital. The rationale for this request, in trying to maximize financial flexibility, is that we want to do this in advance of what we believe will be the most major milestones in the history of this company and potential very significant strategic transactions with major entities in our industry this year. And we want to utilize this authorization if and only if following one or more significant events, we believe that there are terms that we could use to bring value to the investors in the company. And we want to have the ability to pounce and not wait months for an authorization after that point. So that's why we're doing it.

Thank you. We'll now take a moment and open up the lines. Operator?

Thank you. Our first live question comes from James Anderson, a private investor.

On the Lightbridge website, you document preliminary agreements with various parties since inception, anticipating fabrication and commercializing your fuel. Forward-looking statements over the years have fore-tolled of fabrication, demonstration and commercialization planned to occurred by dates that have already passed. The proposed JV with AREVA is a promising one, but investors have already waited a long time for similar agreements to move beyond letters of interest, memorandums of understanding and term sheets in the coming months into something binding and rewarding. These vague and often repeated phrases make us wonder if the finish line is perpetually out of reach. Therefore, can you provide more specific dates regarding Norway, AREVA and the U.S. Utility? And one other related question is, there's also some legislation H.R. 590 and other things coming through the pipeline, do you anticipate those would help you accelerate your timelines?

Thank you for the question, James. First of all, I'll say that one of the things we've dealt with is a remarkably changing nuclear power industry. And there are a lot of companies in this industry that aren't here anymore or there are about not to be here anymore. Or if they survive, including some of the biggest ones in the industry in this country and some other places will be in very reduced and different forms. And I think 2 of the biggest causes of changes in the industry that I've talked about on previous calls are the collapse of natural gas prices, which has just put tremendous pressure on nuclear power, making the economics of reactors just crucial to the existence of individual reactors, to utilities and to the industry in some countries. And the second is Fukushima. Making safety and the focus on safety, the issue. And what a lot of other companies that are no longer here focused on were other points -- other than economics of the existing fleet and safety. And we had technology that focused in other areas on reducing amounts of waste, on long-term toxicity of waste. We still bring those benefits, but we changed. And we invented a metallic fuel that provides what the industry now and as we see it going forward will need. And we did fabrication, testing in the past that leads to what we have today. We did fabrication in Russia. We did testing. We finished that sort of just in time before political relations fell apart to the point where we probably couldn't do that today. And it all helped get us to where we are today. So had we sort of felt we were in a straitjacket to meet a thorium-based fuel time frame or other things we were looking at. We might have congratulated ourselves on meeting a time frame for a product the industry doesn't want to use. And instead, we, in-house, were able to invent this technology, working very closely with utilities, telling us exactly what they need for the future. And those utilities are Duke, Exelon, Dominion and Southern Company. And with the pull of interest of those utilities in this product, we attracted multiple fuel fabricators, and we chose AREVA as one we wanted to go with first, and fortunately, have been able to bring that very much along. And even within this process, there have been delays. We thought by the end of last year, we would have the joint venture with AREVA. And here we are in May of this year and haven't finalized yet. But as we said before, the work has actually been ongoing. There is a lot happening under the agreements we've already signed. And we are very close to making some major announcements that relate directly to this fuel to bring unique economic and safety advantages to this industry that we think nobody else can or will be able to do. As for H.R. 590 and other legislation here in the Washington, D.C. area, we're very close to keeping tabs on these issues, including through the Nuclear Energy Institute, of which Lightbridge is a member and is a very active one. Nuclear Energy institute is very actively involved. We follow what they do, we sometimes attend meetings on Capitol Hill. What I would say is that I don't think H.R. 590 would accelerate our time frames. What I will say is that, I think, it makes -- and other legislation being proposed -- I think it makes it more interesting for AREVA and for the utilities on funding that they might be able to ascertain for their work in the project going forward from the government and, perhaps, we with our joint venture with AREVA could obtain. I'll also say that we're very confident in our time frame now more than ever because of buy-in from AREVA, from utilities that we're working on. And not just in the near term dates, but the long-term dates of actually bringing the fuel to market and everything needed to bring commercial fuel to the market. So I know that's a little bit of a meandering response, but I think we're in the best place we've ever been right now and are very close to some major announcements.

Thank you. Our next -- we're going to read another question that was submitted in advance. Will the fuel be tested for a worst-case scenario in the near term? Do you need to complete this testing prior to a commercial contract? And would this testing prove the ability of the fuel design to preclude an explosion scenario in such an event?

Well, I mean, what I say, first of all, is, particularly, since Fukushima Regulatory Agencies like the NRC here in the U.S. and others around the world have been looking at what they call beyond-design-basis testing or severe accident testing -- the kind you referenced in the question. And we are planning to do this type of testing and analysis. And I'll ask Jim, then Jon to comment. Jim, again, is leading this particular work. And Jon, who ran these areas in many respects for the U.S. Nuclear Regulatory Commission before he was with Lightbridge. But Jim, why don't you start?

With respect to the fuel at -- being tested in severe conditions or what I prefer to call the torture test for the fuel, we will be testing the fuel for its ability to withstand severe accidents. There is a facility in Idaho, at the Idaho National Laboratory, that I was at earlier just last week called a TREAT facility and that's for transient examination of fuel. And it actually takes fuel and the reactor system at TREAT is capable of basically melting the fuel no matter what kind it is and determining what happens. And the real key is how long it takes for fuel to get into trouble -- to lose what we call coolable geometry. And we believe our fuel is among the best, and there is some industry concurrence to that fact building at the moment, due to the fact that some of the competing fuels have not shown their ability to extend coolable geometry for a very long period of time. So the torture test that I mentioned is also tied back to the reference to the fuel explosion at Fukushima. I need to clarify that for you. The event at Fukushima was a zirconium-steam reaction where the cladding on that fuel reacted with the steam to release hydrogen -- the H2O in the steam -- the hydrogen was released and the hydrogen is what was detonated by a spark in the system. So it's a -- we don't want to say it's a fuel explosion, it's rather a hydrogen event -- rapid burn of hydrogen resulting in the explosions that were related to Fukushima, not the fuel. But we will be testing for that also.

And Jon was the Deputy Director of Reactor Regulation at the NRC. Every nuclear regulator in the country reported to John. So Jon?

Yes. One of the processes the NRC will use for using test -- tests of the new fuel is really a phased testing. There is a provision in the -- each utility's tech specs for allowing lead test assemblies to be inserted in nonlimiting locations in the core. And so our test program will be a comprehensive test program that will go over a number of years. But the initial parameters of this fuel are fairly well known. We're using uranium and zirconium, and these materials are well known to the NRC as well as the industry and AREVA. Certainly, our composition is a little different, but we are sure that the reactivity, addition accidents, the loss of coolant accidents -- we have some information that gives us confidence that the NRC will approve the insertion of individual rods or lead test assemblies. And then while we're doing the testing in Halden, we will also be getting some information from the testing in the operating reactor. And the combination of all these tests will give confidence that the fuel design will meet all the NRC requirements.

Thank you, Jon. Thanks, Jim.

Thank you. A related question. If the fuel runs much cooler, will that result in lower fuel burn up and thus more resulted waste product?

Jim?

The short answer is no to that question. The fuel does run cooler. It runs cooler because it's got so much more heat transfer area. So the, if you will, the heat flux, excuse the technical term, but it looks very similar to the existing fuel and -- but it's reduced per unit of area. So we have an advantage there that allows the fuel to run cooler, while still delivering the same amount of energy or greater coolant in the reactor, which is the source of the steam. So it's a pretty straightforward process. I don't think there is anything more to say about it.

Great. Thank you. Our next question. There are other competing advanced fuels such as the DOE's accident tolerant fuels research and development project conducted by the Advanced Fuels Campaign that seeks to develop nuclear fuels that can resist the generation of hydrogen and fuel melting that characterized the Fukushima accident. Why is Lightbridge not participating in this program? Did Lightbridge attempt to participate and is Lightbridge monitoring the technologies proposed by this program? What advantages do Lightbridge's fuel have relative to these fuel concepts?

Well, I'll first say that we're working increasingly closely with the Department of Energy. And we've been at DOE headquarters recently. Jim was just last week at Idaho National Laboratories at the GAIN Conference, dealing specifically with these issues. I will say that, again, that we believe that our fuel is the most superior technology for bringing new safety benefits to reactors and probably the only one that could bring these types of benefits. And certainly, the only one that could bring these types of benefits not only without an economic penalty, but, in fact, with a significant economic advantage to the utilities. Jim, do you want describe last week at Idaho?

Yes, last week at Idaho, the GAIN project, that DOE sponsored: A fuel safety workshop, and Lightbridge was invited to participate in that workshop along with the existing advanced technology or accident tolerant fuels. Over the last several months, we've seen a change in the approach. First, addressing the question as to whether or not we participate in the accident tolerant fuels program, the answer is no, we do not. We considered it early on, and we're not looked upon favorably by the advisers to DOE at the utilities because there's zirconium in the fuel, and they are overreacting to the fact that we have zirconium and zirconium was part of the problem at Fukushima. However, the community recently has invited Lightbridge to participate along with the Nuclear Energy Institute and the Electric Power Research Institute in all of the events and meetings related to accident-tolerant fuel. I spoke at the meeting in Idaho and referred to the Lightbridge fuel as what was an ugly duckling is now suddenly turning into a swan in the eyes of the community. We are included now in all of the meetings and have actually been asked by (inaudible) and NEI jointly what can they do to help us move the fuel forward? So I think that's significant and it's a big change from where we were.

Great. Thank you. At this point, I'll turn the call back. Operator, if you can re-prompt again the instructions, then we'll return to any remaining questions submitted electronically.

(Operator Instructions)

So in the meantime, our next question is can our fuel rods be used in the China National Nuclear Corporation's third-generation ACP100 reactor? This is their first small reactor to be built for commercial purposes.

Yes. Our fuel could be used in all water-cooled reactors, which includes all light water reactors, which includes all pressurized water reactors. The ACP100 is a pressurized water reactor design, a small PWR. So our fuel could be used in that reactor.

Great. Thank you. That concludes our questions. I will turn the call back over to you, Seth.

Thank you very much, David. I just want to mention one last point. At Lightbridge, we've been very privileged to be involved with the United Arab Emirates Nuclear Power Program. And a couple of days ago, construction was completed on the first of the 4 reactors being built there. Barakah 1 construction was completed. And we think that's a very significant milestone for the UAE, and we congratulate our friends and colleagues in the UAE. And I want to thank everybody for joining the call. I'd like to thank all our investors. We look forward to providing future updates. We expect you'll be hearing from us in the coming weeks. And in the meantime, our lines are always open at ir@ltbridge.com and a telephone #1 (855) 379-9900. Thank you, everybody, and goodbye.

Thank you. This does conclude today's teleconference. With thank you for your participation. You may disconnect your lines at this time, and have a great day.