Q1 2022 Centrus Energy Corp Earnings Call

Greetings and welcome to the Center's energy first quarter 2022 earnings conference call. At 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.

Now I'd like to turn the call over to Dan <unk>, Vice President of corporate Communications. Thank you you may begin.

Okay.

Good morning, and thank you all for joining US today's call will cover the results for the first quarter of 2022 ended March 31 today, we have Dan <unk>, President and Chief Executive Officer, Philip Strawbridge, Senior Vice President and Chief Financial Officer, Chief administrative officer and Treasurer.

Kevin Harold Controller, and Chief Accounting Officer.

Before turning the call over to Dan Paterson 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 report for the first quarter of 2022 on Form 10-Q later today all of our news releases and SEC filings, including our 10, Ks 10, Qs and 8-K.

These are available on our website a replay of this call will also be available later this morning on the Suntrust website, I would like to remind everyone that certain of the information. 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 Suntrust.

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 accurate only as of today may six two.

Unless otherwise noticed this.

This call is the property of central synergy any transcription redistribution retransmission or rebroadcast of the call in any form without the expressed written consent of Suntrust is strictly prohibited.

Thank you all for your participation and I'll now turn the call over to Dan Palmer.

Yeah.

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

The first quarter of 2022 has been a time of dramatic change for the nuclear fuel market, which presents challenges as well as unique opportunities and strong tailwind for our business.

Since we reported our fourth quarter earnings in early March the crisis in Ukraine has dominated our thoughts transformed global relations and underlines the importance of energy security in our own country as well as the nations around the world.

<unk> prices has catalyzed a marketplace that is now deeply aware of the urgent need for a robust national program to invest in domestic uranium enrichment capacity to reduce and eventually eliminate our dependence on foreign state owned enterprises for nuclear fuel supply.

Even before the February 24th vision, there was a rising sense of urgency and growing bipartisan support in Washington for major investments to establish domestic production of high assay low enriched uranium or heyward.

As you know centers has been leading the effort to deploy and demonstrate Haley production capability with the first and only NRC license production facility is nearing completion and Pike in Ohio.

The events of February 24 have not only underlies the urgency of feed for the United States to develop a domestic source of Hayward for the next generation of reactors, but also the Brookfield importance to expand and diversify the sources of production of low enriched uranium R. L. EU for our existing fleet of reactors.

We believe centers has an indispensable role to play in establishing this required robust resilient self sufficient domestic enrichment market.

As you know the United States and other governments have imposed an escalating number of trade sanctions on imports of Russian oil and other commodities as well as sanctions on the Russian banks and individuals to date. These measures have not significantly affected our existing supply agreement, but of course, we are monitoring the situations there.

Felipe.

So many people have understandably focused on the headwinds and uncertainty around Russian suppliers of uranium enrichment, the larger and longer term story as it relates to the significant tailwind. This crisis has created.

And has catalyzed to restore U S domestic enrichment capabilities the need for prompt and vigorous action is clear to those in both public and private sectors and centers is ready to answer the call.

And of course, the only NRC license and currently deployable U S based technology to enrich uranium is held by centrists and we're focused intently on expanding from demonstration scale to commercial scale production.

Our NRC license doesn't just cover Halo. It also allows for production of Leds for the existing fleet of reactors and our technology has already been demonstrated for <unk> production as part of a previous program that wrapped up in 2016.

The facility in place in Ohio has plenty of room to accommodate large scale production of both hey, Luke and L. U for current and future reactor needs. Therefore, I am pleased to tell you that we have begun actively exploring the opportunity to expand our commercialization efforts to include the deployment of early you enrichment alongside.

Halo virtual impact, which would bring cost synergies, while increasing revenue opportunities.

The United States has a long and proud history of this market, having pioneered uranium enrichment and dominated the global commercial market for decades over time, however, the United States seeded that lead to foreign state owned enterprises to the point, where we have both from first to last place in the world among commercial and Richards.

It is long past due to remedy that situation.

Since February 24th we have been hearing calls to restore a U S based capacity to enrich uranium to support National security and energy security to invigorate efforts to combat climate change and to provide thousands of great clean energy jobs for American workers, while restoring U S competitiveness in the global and.

Richmond market.

And centers is ready to lead that effort.

Not only are we positioned to bring behavior to market faster than any other player. But we have also the only proven U S technology that is deployment ready and that can meet U S national security requirements for enriched uranium.

Over the last few months, we have achieved some important milestones in our Halo demonstration efforts. In fact, we recently completed conceptual design for a commercial scale Halo Cascade and for the support systems that we will use to load the cascade with feed material and withdraw the end product that is an important step forward in.

Our commercialization efforts.

As we reported on our last call the department experienced a delay in its own supply chain for the hidden storage cylinders. It was going to provide without which we could not launch the operational phase of the demonstration.

With our three year contracts expiring before operations could begin the department announced a decision to move the operation of Phase two a new competitively awarded contract that is expected to support a longer period of demonstration and Hayley production than would have been possible under the original contract.

The Department has not released the solicitation for the new contract yet, but in the meantime, it has incrementally extended funding under the existing contract and exercised an option to extend its term we look forward to submitting our proposal for the next round of funding as soon as it becomes available.

With more on our financials for the quarter I'll turn the call over to <unk>.

Yeah.

Thank you Dan good morning, everyone.

As we've mentioned before our revenues and margins vary significantly from quarter to quarter based on the timing of customer deliveries.

So it's not surprising or unusual to have a great quarter like we did in the fourth quarter of 2021 to be followed by a more subdued quarter like the one we saw in the first quarter of 2022.

And whether the quarter has been great. Our subdued we say the same thing in each and every earnings call because of the Lumpiness in our revenue recognition what matters. Most is the annual not quarterly performance.

There are two factors to play and play here first nearly all of our customers are under multi year purchase contracts that come with an annual purchase obligation not a quarterly obligation.

Net customer, then chooses which quarter to take their delivery and we booked in revenue in that quarter.

The prices in our sales contracts vary significantly based on when they were signed.

Pushed prices price indicators for enrichment peaked around $165 per swoop pre Fukushima.

Then turnaround and declined to below $40 by late 2019, and then we began a slow but steady rise.

To around $60 per submitted prior to the Ukraine invasion.

So we have contracts and our order book that were signed up and down the price curve.

In any quarter, we can have a lot of deliveries are very few and those deliveries can be relatively high price a relatively lower price in the first three months of this year, we had fewer deliveries that's exactly what we expected for the quarter for.

For the quarter. Our overall gross profit was $6 3 million down from $11 7 million in the first quarter of 2021.

We continue to focus on driving down overhead expenses, achieving a reduction of almost 10% in SG&A compared to the first quarter of 2021.

Overall for the quarter, we had a net loss of about $400000.

For the three months ended March 31, our total revenue was $35 3 million split roughly between.

Our two business segments evenly.

Evenly.

And we use segment the volume of <unk> sold declined and average prices in the deliveries declined compared to the same quarter in 2021.

There was also a decline in our unit cost per Smith and.

In addition to swoop, we had a $4 $9 million of uranium sale. During the first quarter of this year, whereas we didn't have any range sales in the first quarter of 2021.

Overall, we earned a gross profit of $2 9 million or <unk> segment for the quarter.

And our centrist technical solutions segment, our revenues increased by about $100000. Our cost of sales declined by $4 3 million compared to the first quarter 2021 due in part to a $1 $6 million refund from the daily and some of our costs.

As a result, we had a gross profit of $3 4 million in the first three months of this year compared to a loss in that segment of about $1 million.

Q1 of 2021.

Combining the two segments, we earned a gross profit of $6 3 million.

On our last earnings call, we reported a tremendous improvement in the funding status of our legacy pension plan as you'll recall, we reduced our net pension liability to just $23 million by the end of 2021, which was an improvement of more than $100 million compared to our $124 million liability at the end of 'twenty two.

'twenty.

That was primarily driven by the strong growth in our pension assets.

Combined with the impact of the $43 million settlement, we secured last year with U S government that reduced our long term liabilities for pension and postretirement benefits.

The good news is that even though equity markets declined significantly in the first quarter of 2022, the losses in our pension assets were more than offset by the impact of rising interest rates, which further reduced our pension liability.

The net result was continued improvement with our net pension liability declined to $19 6 million as of March 31 2022.

We're in a strong financial position going forward with a cash balance of $168 5 million and a healthy balance sheet as we had as we end of the quarter. Our long term order book was valued at about $1 billion.

With that let me turn things back over to Dan.

Thank you Philip.

Before we get to your questions. Let me just talk a moment.

About the broader landscape and the nexus between the commercial enrichment market and America's national interests.

I've been a strong advocate for robust U S investments in domestic uranium enrichment capacity for many years long before I took on this job indeed.

Some are entered for John glad My home State Senator from Ohio, Great National Hero I worked out a bill called the nuclear fuel Assurance Act with 1976, which was aimed at ensuring that the United States had sufficient enriched uranium product.

Even back debt to meet its needs.

For decades America's ability to promote the peaceful use of clean civilian nuclear power around the world along with our ability to enforce the highest standards of nuclear safety security and Nonproliferation was directly tied to the fact that the United States was the largest global supplier commercial uranium enriched.

Right.

When the last of America's Cold War era enrichment plant shutdown in 2013, a huge source of global influence was lost nations that once relied on the United States to provide their energy security no longer could.

We have gone from the world's largest exporter to the world's largest input.

Now the world is turning to a new generation of advanced reactors powered by high assay low enriched uranium.

Brand, new kind of fuel that is harder to produce and for which the only NRC licenses held by Sentras. If we wanted to take ownership of our own energy security and reclaim our global influence it's time to make a strategic national investment to establish an American supplier L U and heyward.

We're happy to take your questions operator.

Yeah.

Thank you we will now be conducting a question and answer session. He would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, we ask that you. Please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.

Our first question will come from the line of Rob Brown with Lake Street Capital markets. Please proceed with your questions.

Good morning, gentlemen.

Good morning, Rob I, just wanted to follow up following up on your comments about a U S supply effort and things have changed a lot recently.

Sort of the latest thinking on how that could develop.

How does that sort of play out and how you know what sort of the timing.

At this point and in terms of some of their thinking.

Okay.

Great question, Rob if theres really it's really been building.

For a number of bus you saw.

In the effort to pass to build back better legislation. The house passed version had $500 million identified to support our Hayward availability and that Bill did not cross the finish line as you know, but there was a lot of interested and focused our attention to that.

In the set of discussions followed and in fact as one reads. The press right now there's a continuing dialogue about aspects of that legislation that could be salvaged too.

Support who deploy it at the same time as I said in my remarks, there is a whole new urgency that had been added to the discussion and I would say there is active and robust discussion involving both the administration and Congress about how to address the new challenges that have been presented by this.

Unprecedented sort of upheaval in the market.

Timing, it's being looked at right now.

I never know exactly when things are going to pass the Congresses I suppose nobody does perhaps but I would say, it's all being dressed as a matter of urgency.

Okay, great great. Thank you and then.

In terms of the current swoon market are you seeing utilities make any changes in terms of mitigating the risk of Russia is there any sort of changes in the market.

Has pricing changed in the west.

Thank you.

Well I'm sure you've seen.

Another great question I'm sure you've seen that prices has had unprecedented rise in the last couple of months and I'm sure. This is why.

We have not had any changes and no orders have been canceled of course, we are always in regular communication with our customers about their needs and the timing of deliveries, but we're also in discussions with others in the industry in the nuclear Energy Institute has been playing an active role as are all of them.

And the industry are facing the same set of new factors.

Okay. Thank you I'll turn it over.

Thank you there are no further questions at this time I'd like to turn the call back over to Dan last account for any closing comments.

Thank you operator, this will conclude our investor call for the first quarter of 2022 as always I want to extend a thank you to our listeners online and to our investors who called in and we look forward to speaking with you again next quarter.

Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.

The rest of your day.

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