Q4 2019 Earnings Call

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Greetings and welcome to the Centrus energy fourth quarter 2019 earnings call.

This time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

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.

Oh, good morning, and Ah. Thank you for joining US today's call will cover results for the fourth quarter and the full year 2019 ended December 31st.

Here today for the call or Dan Coleman, President and Chief Executive Officer, Philip Strawbridge, Senior Vice President Chief Financial Officer, Chief administrative officer, and Treasurer, and John Dorian Controller, and Chief Accounting Officer.

Before I turn the call over to Dan home and I'd like to welcome all of our colors as well as those listening to our what drought.

This conference call follows our earnings news release issued yesterday.

We expect to power annual report on form 10-K later today all of our news releases <unk> SEC filings, including our 10-K 10-Q's, an 8-K are available on our website. A replay of this call will also be available later this morning on the Centrus website I would like to remind everyone that certain of the information that we may discuss on this call today maybe can.

That are forward looking information that involves risks and uncertainty, including assumptions about the future performance of central.

Our actual results may differ materially from Bose and are forward looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in are forward looking statements contained in our filings with the FCC, including our annual report on on form 10-K, and quarterly reports on form 10-Q.

Finally, the forward looking information provided stays time sensitive and is accurate only as of today March 26, 2020, unless otherwise notice.

This call the property of Centrus energy and any transcription redistribution retransmission or rebroadcast of this call in any form without the expressed written consent from Suntrust is strictly prohibited. Thank you for your participation and I'll now turn the call over today in Parliament.

Thank you Dan and thank you everyone on the call today I.

I hope that all of you and your family and friends are saying safe and healthy during what is a very stressful time for people in our country and the world over.

Before we begin let me say a few words about the Corona virus. This is an issue that we are all intensely focused on throughout our organization the health and safety of our employees is are Paramount concern.

We've been encouraged our team to telework to the maximum extent possible, including for this phone call.

We're taking a series of other steps to protect those employees, who are not able to telework, which includes a portion of our workforce at our secure facilities in Tennessee at Ohio.

From a business standpoint, we are fortunate to the vast majority of our revenue is tied to long term contracts with large entities like electrical utilities and the U.S. government.

We expect that we will continue to make our fuel deliveries to our utility customers here in the United States and around the world.

We're also continue our work under our three year 115 billion dollar contract with the U.S. Department of energy to deploy a demonstration cascade of centrifuges in Ohio.

However, we expect that there will be impacts on cost and schedule for that project. We're working closely with deal, we and our continuing to make progress on the Celebrex.

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With that let me turn into our financial results from 2019.

I'm pleased to report that it was a very strong year for Centrus.

The price reset provision in our largest supply contract took effect on January Onest, 2019, which has significantly reduce our cost of sales in our El you segment.

Prices in the enrichment market fell by 75% between 2011 and late 2018, and since then have rebounded 35% from the low point.

The price adjustment to kick in at the beginning of 2019, better aligns our contract with market conditions.

As a result, we have better margins in 2019, and we'll continue to benefit from the lower price structure in the years to come.

At the end of third quarter right on schedule, we fully repaid $27.5 billion and notes of came due on September thirtyth.

That note repayment marked another milestone in our efforts to reduce restructure and retire our debt.

We also successfully completed the decontamination and decommissioning of view each case 1600 facility at the East, Tennessee Technology Park.

Demonstrating our dnbi capabilities and extending our track record of delivering projects on time and on budgets.

In October we finalized the three year hundred 15 million dollar contract I mentioned earlier with the U.S. Department of energy can demonstrate production of high assay low enriched uranium or hailu as we call it and advanced nuclear fuel that will be needed in the future Qatar both existing fleet of reactors.

The new generation of reactors around the world.

We are deploying a cascade of our a C 100 and machines at our facility and Piketon, Ohio demonstrate the capability to produce a small quantity is ha l. you.

Well the contract includes a significant cost share requirement. We view this demonstration of the strategic investment that will position centers to return to the commercial enrichment market and established a company as a global leader in the emerging markets for higher assets fuels.

Thanks in part to the Halo contract, we've seen significant growth potential and our technology technical solutions segment.

Our overall performance in 2019 also saw improvement with lower cost of sale and reduced overhead for the full year centric is reporting a net loss of $16.5 billion in 2019, a significant improvement over 2018.

In fact, we're not for the last few accrued in the fourth quarter to reflect the investment we intend to make and the cost shared halo contract over the next three years, we actually would have posted a small net profit in 2019.

[noise] as you may recall pay some developments during the second quarter, we upgraded our 2019 revenue guidance to be in rate in a range between $205 million and $230 million I'm pleased to report that we met that target with total revenues of $209.7 million. This includes.

Separative work units and uranium revenue of $169.4 million any cash balance of $130.7 million at year end.

We also ended the year order books, and our El you segment valued at $1 billion as of December 31st 2019.

Looking at Twentytwenty, we're in a strong position with our new lower cost structure and the revenues, we expect to generate from our existing contracts in both business segments.

However, one variable we cannot control is the global economy, which is now a source of considerable uncertainty.

For example, the recent decline in the stock market, coupled with the feds decision to lower interest rates will affect our pension assets and liabilities, which in turn gets reflected in our bottom line as actuarial changes to the non operating components of net periodic benefit expense.

Of course this is only March a lot can happen between now and December 31st the economy could get better it could get worse.

These are factors beyond our ability to control or predict.

Given the period of global economic volatility that we have now entered we're just not comfortable making it prediction one way or another with respect to overall profitability.

In addition to uncertainties surrounding the Corona virus pandemic and the global economy U.S. Department of Commerce is seeking a significant extension of the Russian suspension agreement potentially extending limits on imports of Russian nuclear fuel past the scheduled exploration of those limits at the end of this year.

We're working with U.S. government industry stakeholders, and others or is that any potential extension includes sufficient quota to allow all existing U.S. contracts with the Russian suppliers emerged uranium, including our own supply contracts to be fully implemented.

Now for more details on the quarterly and 2019 full year financial results I will turn the call over to Philip.

Thank you Dan good morning, everyone on the call.

For the fourth quarter 2019, we had total revenue of 55.7 million and for the full year, we had revenue of 209.7 million.

Including 169.4 million familiar you segment.

Revenue from the L., you segment increased 5 million or 3% over 2019.

Which was primarily driven by higher uranium sales.

The volume of uranium sales increased 29% over 2018, the average uranium price build a customer increased 5%.

Our technical solutions segment revenue increased 41% over 2018 as centrists began work on the Halo contract.

Cost of sales for the technical solutions segment is up 35.4 million compared to 2018.

That reflects a larger book of business as well as an accrued contract loss of 18.3 million related to future expenditures under the costs your contract in the fourth quarter 2019.

Cost of sales really you segment declined to 69.1 million or 37% in 2019 compared to 2018.

Primarily reflecting a decline in the average cost of sales per SWU and the changes in SWU and uranium sales volumes.

Syntricity anticipates as average cost of sales per smoothed the decline again into 2020.

Primarily due to the lower pricing in the new supply contracts.

And pricing provisions of the existing contracts.

We continue to see a reduction in selling general and administrative expenses as DNA.

Where we recorded the decrease of 16% for 2019 from 2018 as part of our efforts to adjust the company size and footprint Demetra current business.

For the year, we reported a net loss of 16.5 million compared to a net loss of 104.1 million in 2018.

As Dan mentioned, a lot could change between now and we ended the year.

While the company believes that our long term sales contracts in our order book.

And.

Our long term supply contracts or a source of stability the impacts that cobot 19 pandemic may have on our customers suppliers in operations are still very uncertain. Consequently, as Dan mentioned, we're not providing guidance on the Companys financial results for 2020 at this time now I'll turn the call back over to do.

Dan.

Thank you fill up.

In closing today I.

I would like to see a few words about nuclear industry and our unique role in the industry future.

There have been many exciting announcements in the advanced nuclear space recently with new small modular reactor designs advancing through the nuclear regulatory commission licensing process and others moving toward the saying.

Many of these new reactors are designed to ride hailing fuels.

Which allow them to produce more power more efficiently and that is an important market that we are targeting for our future growth.

Beyond the commercial industry. The U.S. Department of Defense recently announced selections for project Palay.

Which aims to develop deployed and demonstrate a prototype micro reactor for military use within the next three years.

One of the requirements for that program is that the reactor must use hailu fuel.

There are still significant challenges facing nuclear power, but industry and the U.S. government are working together to address those challenges as a public governments experts and other organizations increasingly recognized that nuclear energy has a pivotal role to play in mitigating the worst effects of climate change significantly.

In the last Congress to longer pass and signed into law was wide bipartisan support to promote the deployment of advanced nuclear power reactors and to enhance the efficiency of our regulatory processes, where that strong legislative back in U.S. Department of energy has recently published a request for proposals under the newly established advanced reactor.

Demonstration program.

Secretary Danbury, yet and his team have exercised farsighted leadership that has begun to restore the United States. The global leadership. It traditionally enjoyed for many years and which is crucial to our nation's national security energy security.

Economic security and nonproliferation objectives.

At centers, we have always recognize the important role nuclear power has to play and providing safe clean reliable and affordable energy and in advancing Americas energy security and National Security interest. We believe that we have a great opportunity to fuel the future with advanced generation nuclear reactors that can provide clean and safe powerful.

People around the world for many years to come.

Operator with that we would be happy to take any questions at this time.

Thank you at this time will be conducting a question and answer session.

If he'd like to ask the question. Please press star one on your telephone keypad a confirmation total indicate your line is in a question can you.

You May proceed start to if he'd like to remove your question from the Kim for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

Well. Thank you please limit yourself to one question each.

One moment, please Willie poll for questions.

Once again, it's star one to ask a question at this time.

Thank you it seems that there are no questions at this time I'll turn the floor back to Mr. last account for any final comments.

Thank you. So there are no questions. At this time this will conclude our fourth quarter and full year 2019, investor call I want to thank.

All of our listeners for joining us today, and we look forward to speaking with you again soon.

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

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