Q2 2020 Centrus Energy Corp Earnings Call

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Greetings and welcome to these Centrus energy second quarter, Twentytwenty Guy and he school.

At this time, all participants are in listen only mode.

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[noise]. Good morning, Thank you for joining us on today's call will cover the results for the second quarter 2020 ended June Thirtyth.

Here today for the call our again, Pondimin, President and Chief Executive Officer filled Strobridge Senior Vice President Chief Financial Officer, Chief administrative officer, and Treasurer, and John Dorian Controller, and Chief Accounting Officer.

Before turning the call over to Dan Palmer and I'd like to welcome all of our cars as well as those listening to our webcast. This conference call follows our earnings news release issued yesterday.

Back to file our quarterly report on form 10-Q later today.

All of our news releases and I see see filings, including our 10-K 10-Q's and eight case are available on our website. A replay of this call will also be available later this morning on the Centrus web site.

I'd like to remind everyone that certain of the information we may discuss on this call today, maybe considered forward looking information that involves risks and uncertainties, including a assumptions about the future performance of Centrus or 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 FCC, including our annual report on form 10-K quarterly reports on form 10-Q. Finally, the forward looking information provided today is time sensitive.

Accurate only.

Only as of today, there's 50 2020, unless otherwise noted this call is the property Centrus energy any transcription redistribution retransmission or rebroadcast recall in any form without the expressed written consent of Suntrust is strictly prohibited.

Thank you for your participation and I will now turn the call over to dampen.

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

As we discussed on our last call even as the Cobot 19 pandemic has strains of water economy.

Interest is fortunate to the vast majority of our revenue is tied to stable long term contracts large entities like electrical utilities and the U.S. government.

We have not had any interruptions and our nuclear fuel deliveries to our customers in the United States and around the World. We expect it will continue making those deliveries as planned in the month and years that.

The health and safety of our employees is our highest priority.

We are taking all necessary steps to protect including through extensive telework wherever possible.

A portion of our workforce at our secure facility in Tennessee, and Ohio are unable to Telo.

So weve implemented temperature checks strict social distancing measures mass requirements when in close proximity and increased deep cleaning to protect those employees.

We also recognize that expanded telework requires us to take additional measures to protect against potential vulnerabilities in our systems and communications and we have done that.

This was another strong quarter for sensors that only in the bottom line results, but also in terms of the progress we are making in executing our strategic plan to grow and diversify our business.

That was reported $75.7 million in total revenue and net income of $33.7 billion for the second quarter.

That's strong result was primarily driven by a settlement of a claim we made any customers bankruptcy proceedings.

It's a significant improvement over the second quarter of 2019, when we saw net loss of $15.6 million.

As always however, I do want to caution that our revenues and results tend to vary considerably from quarter to quarter.

Our long term customers in utility sector have annual purchase commitments not quarterly 'cause it but they could take delivery of that annual can limited whatever point in the year, they choose and that's when we recognize that revenue.

And some quarters, we have more deliveries than in others and the price you know those deliveries can vary quite a bit.

We continue to focus on reducing our supply cost price reset provision that went into effect at the beginning of last year and our largest supply contract has lowered the average unit cost we pay for enrichment.

That's been a significant driver in two consecutive quarters of positive net income.

We ended the quarter, maintaining a long term order book in our L. E U segment valued at approximately $1 billion, which includes approximately $300 million in deferred revenue.

Let me say few words about the Russian suspension agreement or our S.A. as we call it which they trade agreement between the United States and the Russian Federation that currently limits imports of nuclear fuel from Russia to about 20% of U.S. market.

Those limits were scheduled to expire at the end of 22 what.

As we discussed on our last call. The U.S. Department of Commerce is conducting and administrative review of the ROI say.

We import enriched uranium from Russia under our largest supply contract, which runs through the Lake 20, Twentys. So we could potentially be effective depending upon the outcome of the preceding.

One of the core issues in the administrative review is whether the R.S.A. should be terminated early and early termination would restart a decade old trade investigation that could impose very high duties on imported Russian enriched uranium.

As described in the 10-Q, if duties are imposed on Russian uranium it would be commercially impractical for centrus to continue importing rushing to enrich dream, which could result in significant adverse financial consequences for the company.

As an alternative to opposing duties the department speaking a significant extension of the our assays, including agreeing with the Russian Federation to extend the import limits pastor schedule exploration at the end of 2020, if the Commerce Department and the Russian Federation degree to extend the IRS say as we.

I hope they do there will be no investigation, which will avoid the risk of duties.

Even if you are as David said to the key issue is how existing contracts was American companies will be haddon, including Centrus supply contract and many other contracts. The U.S. utilities has signed directly with the Russian supplier.

And whether the quota will be set at a level that allows for all of those existing contracts to be out currently we have a quota allocation from a Russian supplier that allows us to so most of our purchases in the United States.

That allocation expires at the end of Twentytwenty when the import limits, we're set to expire.

Our position has been that under any extension of the our assayed beyond twentytwenty all existing contracts with American companies.

Including Centrus contract should be grandfathered and protected by allocating sufficient quota to those contracts to ensure that imports can continue under that.

Negotiations are confidential in a letter to Congress. This June however, the department of Commerce stated that during the hours a negotiation. The department was seeking to protect the commercial interest of U.S. parties, whose contracts for post twentytwenty imports were already in place.

At the time that negotiations over the potential extension began in early 2019.

Our supply contract was in place long before that date in fact, we cited way back in 2011, you. Therefore asked that our contract <unk>, who did above those that covers is working to protect.

We've been working on contingencies to mitigate the near term impact if the parties are unable to reach such an agreement that being said failure to reach such an agreement on that extension, which severely impact the entire U.S. nuclear industry and not just centrus.

Thus, we believe that isn't everyone's interest to reach an agreement on an extension and pretax existing contracts and we're hopeful that agreement can be reached soon.

Now, let me turn to our census, technical solutions segment, where are incredibly talented team has been making steady progress on the three year 115 billion dollar contract. We have placed with the U.S. department of energy.

Under that contract we are building a cascade of centrifuges that will demonstrate production of a next generation nuclear fuel cold high assay low enriched uranium or hailu as we call it.

Hey, Lou is uranium that had been enriched so that the concentration on the physical isotope uranium to 35 is up to nearly 20% compared to the 4% to 5% concentration that is typically used in existing nuclear reactors the higher concentra.

Ratio of uranium to 35 in Halo allows for smaller fuel course, better fuel utilization reduced volumes of waste and a variety of other advantages that will bring better performance, even stronger proliferation resistance and improved economics to the next generation of advanced reactors.

Around the world.

Those attributes are so attracted to the industry that a number of companies are now working to develop healive based fuels for our existing fleet of reactors as well.

And in addition to a commercial potential of Halo. The U.S. Department of Defense has also want a program called project Palay that aims to demonstrate a halo fueled mobile micro reactor that could easily be transported employed at remote bases are used to assist with disaster.

Response.

The problem for the nuclear industry is that despite the great promise of halal isn't commercially available today from western suppliers and without an assured Americans who was a pay route it will be a significant challenge for American reaction developers to market. These next generation reactors at home.

Or abroad.

That is precisely the problem we are working to so as part of our contract with the U.S. Department of energy, we have already submitted our applications. The U.S. nuclear regulatory commission to become the only American facility licensed to enrich uranium up to 20% and the NRC has now accepted or.

Asian and launched its formal review of that application.

Construction activities are on track.

Schedule and on budget, we have not experienced delays as a result is a pandemic, but we can't loved to possibility in the future and as I said at the outset protecting the health and safety of our employees as our Paramount concern.

We will continue to work with the U.S. department of energy to minimize any impact to the cost or schedule of the program as we move forward.

The demonstration should be completed in early 2022, and could then transition to commercial production.

While the fuel requirements of advanced reactor designs vary quite a bit the demonstration cascade will have enough capacity to support one to three small reactors and most importantly, we can expand that.

Cascade and modular fashion as demand for Halo that spans the facility and Piketon, Ohio is large enough to accommodate thousands of centrifuges, if necessary enough to support a fleet of dozens or even a hundreds reactors if the market goes in that direction.

We're also uniquely position with the only deployment ready U.S. enrichment technology that is suitable for national security missions.

Under longstanding U.S. policy binding nonproliferation trees, they use a foreign origin uranium or foreign enrichment technology for National security purposes is prohibited which means that in American technology like the one we have developed will ultimately be needed to meet America's long term.

Our national security requirements for enriched uranium.

Those requirements are currently met from the existing stockpile of highly enriched uranium leftover from the Cold War.

But the U.S. Department of energy has said that a new domestic enrichment capability will be eventually required for emissions like maintaining the tritium supply needed to support our nuclear to churn and fueling our nuclear Navy.

Centrus stands ready to meet those requirements, whether they need arises.

Now for more details on a quarterly financial results I will turn the call over to Philip.

Thank you Dan and good morning, everyone on the call as Dan mentioned for the second quarter 2020, we had total revenue.

75.7 million, including 63.4 million from the L. you segment.

The only use segment revenue includes 32.4 million collective from claims filed bankruptcy court.

Excluding those proceeds revenue from L. you segment increased by 26.2 million in second quarter compared to the same quarter last year.

That variation reflects the dynamic Dan discussed a moment ago.

Races in volumes can vary significantly from quarter to quarter, depending on how our customers choose to time their annual purchase commitments.

Over the course of the year.

Cost of sales for the L. Your segment increased 11.2 million in the second quarter 2020 compared to the same period in 2019.

Our technical solutions segment revenue in cost of sales increased by 4.3 million and 5.8 million respectively compared to the same quarter in 2019.

This reflects the mix of technical solutions work performed in each of the periods, including work performed under the Hailu contract discussed above the current period.

Now I'd like to talk about our S unit costs. This quarter, our total lifts DNA was up compared to the same quarter last year.

However that was primarily driven by a $2 million write off of capitalized costs that had accrued over the past several quarters associated with their capital structure.

In addition, we incurred about 800000 stock based incentive compensation expense related to the significant increase in our stock price.

We also incurred $1.2 million in a six month year to date pursuing the settlement that we talked about that we secured and bankruptcy court.

We will continue to look at opryland opportunities to reduce our history in a cost as we have over the last several years.

As far as cash we ended the second quarter 2020, with a consolidated cash balance of 119.3 million.

Because operating results and cash flows vary from quarter to quarter.

Results for this or any other quarter not necessarily indicative of the results that may be expected for the year as we've indicated when we filed our 10-K, we like many other companies, we're not providing annual earnings guidance now I'll turn it back over to Dan.

Thanks, Phil.

Before we close I would like to highlight some other interesting developments in nuclear energy.

In addition to project pay like which I mentioned earlier the U.S. Department of energy is now taking applications for the advanced reactor demonstration program and plans to fund the deployment of two first of the kind of advanced reactors in the next five to seven years laying the groundwork for that.

Potential commercialization of those reactor designs.

This program reflects the strong commitment of the department of energy and a bipartisan coalition in other words to the future of the advanced nuclear industry and the belief that America can and should lead the transition to the next generation of reactors. Many of these new designs will require will require.

Healing and Centrus is proud to be on the vanguard of that effort.

This is a pivotal moment for America's nuclear future, our energy security National security and climate objectives, and I'll be powerfully advanced by the successful deployment of advanced generation nuclear reactors.

All of us et cetera are excited to be part of this moment.

Into this great venture that holds so much promise for our generation and for those that follow.

Operator, we'd be happy to entertain any questions at this time. Thank you.

Thank you very Mexico.

Ladies and gentlemen.

At this time, we will conducting a question about sufficient.

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Thank you so theres no questions. At this time. This will conclude Centrus is a second quarter 2020, investor call I want to extend the thank you to our listeners when we look forward to speaking with you again next quarter.

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Ladies gentlemen, this concludes todays conference. Thank you for your participation you may now disconnect your lines at this time.