Q3 2022 Centrus Energy Corp Earnings Call
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Greetings and welcome to the Center's energy third quarter 2022 earnings call. At this time all participants are in a listen only mode. A brief 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 it is now my pleasure to introduce your host Dan Leistikow Vice President Corporate Communications. Thank you Dan you may begin.
Good morning. Thank you all for joining US today's call will cover the results for the third quarter of 2022 ended September 30th Dave We have Dan <unk>, President and Chief Executive Officer, Philip Strawbridge, Chief Financial Officer, and Kevin Harold Controller, and Chief Accounting Officer before turning the call over to Dan 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 a report for the third quarter of 2022 on Form 10-Q later today all of our news releases and SEC filings, including our 10, Ks 10, Qs and eight Ks are available on our website a replay of this call will also be available later this morning.
On the Suntrust website.
Like to remind everyone that certain information we may discuss on this call today, maybe considered forward looking information that involves risk and uncertainty, including assumptions about the future performance of Sentras. 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 forward.
These 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 November nine 2022, unless otherwise noted this call is the property of synthesis energy any transcription redistribution retransmission or rebroadcast of the call in any form without expressed written consent from Suntrust is strictly prohibited.
Thank you for your participation and I will now turn the call over to death on them.
Thank you Dan and thank you to everyone on the call today.
During our earnings calls over the past several years I have consistently emphasized the lumpiness in our business in terms of quarter to quarter variation and our third quarter numbers arcades point.
But even though the numbers this quarter were down we remain on track for a strong year.
And from an operational and strategic standpoint, our accomplishments in the third quarter combined with action taken by Congress and the administration as well as key developments in the marketplace.
Even more bullish today than I was three months ago.
I will walk through a few of those developments in a moment.
Let me begin by discussing our results.
In the third quarter, we booked $33 2 million in total revenue.
But a net loss of $6 $1 million.
This dynamic is consistent with previous year.
Listeners on these calls will recall, our revenues and margins vary considerably quarter over quarter, primarily based on two factors the.
The timing of our customer deliveries and the wide range of pricing in our order book.
Customers generally have long term multiyear contracts with an annual purchase commitments and we book the revenue from that sale and the quarterly customer elects to take that delivery.
The unit pricing varies considerably from contract to contract based on the market prices at the time the contracts were signed.
For context long term prices hit historic highs above $160 per separative work units in 2010.
Historic lows $40 for Separative work units in 2018 and have surged again this year to $135.
So the prices in our order book reflects a wide range.
Our third quarter 2022 deliveries happened to be at much lower pricing than the deliveries fulfilled in the same quarter last year and so our margins this quarter were lower by comparison.
As we've discussed there is no such thing as a typical quarter from centers, which is why we focus on our annual performance.
Through the first three quarters of the year, we've booked net income.
$39 million and gross profit of $69 $5 million.
More importantly, and taking a longer view, we continued to make progress and see positive development on a number of fronts over the last three months first.
From an operational standpoint, we are continuing to make all of our scheduled customer delivered in spite of the pandemic.
And uncertainty in global energy markets related to Ukraine invasion.
This has been a very strong year for centers in winning new sales year to date through the end of September we secured $270 million from the several contracts and commitments covering deliveries through 2030, and continuing to build long term value for the company.
<unk>.
The U S government's effort to support the establishment of a domestic source of enrichment to produce high assay low enriched uranium or halo continues to gain momentum in.
In late June the Department of Energy issued a request for proposals to help finish construction of the Haynesville demonstration Cascade, we have been building.
Hi.
And eventually to begin production on that site.
We submitted our proposal bid competitively awarded contract in August and the Department has indicated in a recent industry briefing that a decision could come as early as this month.
Furthermore in August .
Didn't sign the inflation reduction.
Through which Congress appropriated $700 million.
As a down payment and the effort to re establish a domestic supply chain for Halo.
Last month, the department of energy issued a sources sought noticed outlining a potential 10 year program to support the construction and operation of Haynesville enrichment in the United States via government purchases from up to 25 metric tons per year.
This sources short notice as a preliminary step not a formal request for proposals.
And the department would require additional annual appropriation beyond what is contained in the inflation reduction yet to fully implement.
That program, but it shows that the department and policymakers on both sides of the aisle are strongly committed to this effort and willing to put substantial resources behind it and fourth in addition to the growing momentum behind Halo that I. Just described there's also growing support from both industry as.
Well as government to invest in Americans domestic supply chain for the low enriched uranium R. L E U.
How's the current fleet of reactors in the United States and around the world.
Crane invasion has sparked rising concern about energy security and the United States is uniquely vulnerable because our country is the worlds largest importer of enriched uranium Russia.
Russia accounts for 46% of the world's enrichment capacity and currently there's not nearly enough uranium enrichment capacity outside of Russia to fuel the world's reactors.
<unk> Nuclear association projects that by 2030, China, and Russia, together will comprise 63% of global enrichment capacity with European State owned enterprises, making up the other 37%.
Reactor owners and operators required diverse sources of supply. So they know they can count on having a stable secure fuel supply chain from a resilient market with competitive pricing.
That explains the growing consensus that the market needs and American producer centers is well positioned to fill that role we have an active NRC license relationships with all the major utility customers and a proven technology.
The valuable because it can meet not only commercial requirements, but also Americans long term national security requirements.
It is a SaaS back to the United States has fallen from first to last place in uranium enrichment.
Biology that was invented here in the states during the second World War has defended our allies deterred our adversaries.
Used to dominate global markets for commercial fuel supporting both American jobs and U S. Nonproliferation policy, but it is effect and one that motivates every central employer employee to wake up every day and work hard to regain our loss leadership and its vital capability that is equally essential.
The us national security as well as to the epic Battle.
Air pollution and climate change.
Indeed, <unk> has the only deployment ready enrichment technology been legally available to support National Security mission for which a domestic technology is required by the administration has proposed a billion dollar investment in domestic <unk> enrichment, while senators mansion.
Barrasso rich and others in Congress have offered their own proposals for federal investment in recent months centers has been part of a robust conversation involving industry policymakers nongovernmental organizations and other stakeholders all focused on developing that forward that would enable us to dip.
Floyd are homegrown technology to produce <unk> for existing reactors SME U S. National security requirements. In addition to producing Hayward. So I'll now turn the call over to Phil who will walk you through some more of the numbers Philip.
Thank you Dan Good morning, everyone. As we regularly discussed on these calls there is considerable variability in our revenue margins from quarter to quarter, which is why we focus on what happens over the course of the entire year.
The first quarter of this year was relatively subdued we had a big second quarter with larger with a larger number of <unk> deliveries.
Fulfilled on higher price contracts and as Dan mentioned, the few deliveries fulfilled in the third quarter happened to be on a lower priced contracts. So our margins were lower as a result.
Alright, I'll use segment, we generated $22 million in revenue against cost of sales of $18 9 million for the quarter, resulting in a gross profit of $1 3 million for the segment.
Revenues and margins for the segment were lower than the same quarter of 2021 as a result of lower average market prices for deliveries, which was partially offset.
By an increase in the quantity.
Dinner centrist technical solutions segment, we generated $13 million of revenue cost of sales of $12 million in the quarter, resulting in a gross profit of $1 million per segment.
Segment revenues were $46 3 million lower than the same period in 2021.
When we recorded a $43 $5 million settlement with the department of energy for pension and post retirement health benefits related to a contract.
<unk> performed many years ago with the sportsman gaseous diffusion plant.
Excluding net debt settlement.
Segment revenue declined by $2 8 million for the quarter, but that was more than offset by the $6 1 million reduction in cost of sales.
Combining the two segments, we produced a gross profit of $2 3 million net loss of $6 1 million in revenue of $33 2 million for the quarter.
Through nine months, we've achieved $69 5 million in gross profit.
And $30 9 million and net income from revenue of $167 6 million.
For the three months period, our SG&A expenses were $8 6 million down from 9 million in the same quarter of 2021.
Through the first nine months of the year, our SG&A expenses are down from $25 million last year to $24 4 million this year, where.
We're in a strong financial position going forward with overall cash balance of $153 million, which includes $21 1 million of restricted cash for financial assurance and a long term order book value through 2030 of approximately $1 billion as of September 30.
That let me turn things back over to Dan.
Thanks Bill.
Before we get to your questions. Let me just take a moment to talk about the outlook for the nuclear industry as a whole which is continuing to improve.
The one in Ukraine has caused a great deal of turmoil across global energy markets, particularly for oil and gas the nordstream pipelines in Europe have been disabled natural gas prices have skyrocketed, and we have all been starkly reminded of the risks of Overdependence on fossil fuel energy, particularly for patients that are not blessed with <unk>.
Fossil fuel reserves.
That's having a huge impact on electricity markets. The international Energy Agency recently reported that average wholesale electricity prices in the European Union and the first half of 2022 were more than three times higher than in the first half of 2021, driven by the rising price of fossil fuels that.
Means nuclear.
Is increasingly competitive and the electricity market a market that is expected to grow substantially around the world in the coming years, driven by the rise of electric vehicles, greater use of electricity and heating and bringing electricity to more than a billion inhabitants of our plan that you don't have it today.
Meanwhile at.
The United States ramps up our exports of natural gas to our partners and allies. The overall demand is putting upward pressure on domestic natural gas prices.
Well U S electric utilities tend to pay twice as much for natural gas this summer compared to last summer and the price was more than triple what they paid in the summer of 2020, those price increases and the price volatility they represent the economics of nuclear more.
Attractive newco.
Nuclear is much less vulnerable to fuel price volatility because fuel is a much smaller percentage of the overall cost so nuclear energy remains affordable even when the cost of enriched uranium goes up the net result of all of this is a growing recognition all over the world and the need for more nuclear energy a lot more.
In fact in the International Energy Agency 2022 World Energy outlook, just released and last late just released in late October significantly upgraded the long term projections for nuclear energy generation across all three of the agencies scenario for the future.
For example in last year's report.
A estimated under their net zero emission scenario that global project.
With double by 2050, which is consistent with previous analysis by the international panel on climate change and others in the new updated report the net zero emission scenarios.
They are generating.
Double its current capacity by 2040, representing a substantially faster new reactor deployment worldwide.
We posted a couple of interesting chart based on the World Energy outlook data on our Twitter feed and if you have not already please do take a moment to follow US we are at central.
Energy.
And with that we will take your questions operator.
Thank you we will now be conducting a question and answer session. If you 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 me.
We ask that you limit yourself to one question and one follow up.
Before re prompting for questions for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from the line of Rob Brown with Lake Street Capital. Please proceed with your question.
Hi, good morning, gentlemen.
Good morning, Rob Good morning, Rob.
Just wanted to get a little perspective on the capacity of the demo facility and sort of what capacity or facility scale would be needed for sort of 25 metric tons.
Okay.
Sort of initial.
Document you talked about.
Yes. Good question, Rob So basically the 16 machines if you assume.
Feedstock.
Just.
Low enriched uranium or <unk>.
Typical for 95% enrichment level that will produce just just under one metric ton per year.
Between 900, K G U and one metric ton per year.
And to <unk>.
Basically.
Expand to produce on the order of 25, basically every cascade the cascades typically get deployed and chunks of 120 machines, each and each one of those produces six MCU per year with the same kind of feedstocks. So I mean, you can do the math so.
Basically.
Four of those we produced 24, plus the one MTO off the demo Cascade that would provide 20.
You are.
Per year.
Okay, great. Thank you. Thank you for that color and then.
Just kind of thinking through the lumpiness of the business.
So I know I know your annual numbers are pretty solid and they move around per quarter, but.
Just wanted to confirm any any sort of changes in the market or this is purely just the timing and delivery.
Quarter end and things sort of picked up.
Alright changes annually.
Annually and maintain where you are your topics.
Yes, it's truly lumpiness in other words.
The things that you see in the market you can see in the price curves.
<unk>.
Mentioned.
The original lay down.
Prices were 56 bucks per through.
Before all of the.
Challenges, we faced in Europe , and now they're $135 long term our market and as you know most of the business is contracted long term. So those those are very strong price trends and.
With the continued unrest in Europe .
And in addition, the secular increase in.
Climate, driven concerns and the consequent attraction of nuclear we think that aspect is solid as we noted.
We have booked a lot of sales ourselves in the last three quarters. So it's just generally generally.
And genuinely the lumpiness because different contracts get deliveries in different quarters and just.
Even out over a year to year kind of basis.
Thank you. Our next question comes from the line of Joseph Reagor with capital Roth Capital Partners. Please proceed with your question.
Hey, guys. Thanks for taking the questions.
Hey, Joe Good morning.
So far.
First.
On contracts so.
And it was 200.
70, or so million new contracts should we anticipate any of that I know youre not going to quantify it but any of that this year before year end.
I'm going to in terms of quarter by quarter stuff like that I'm going to kick that over to Philip.
No those were long term contracts that are signed up.
In the future as we described before that's the great thing about this industry is that you.
You're selling out as we say in our order book to 2030.
So that means that we've got visibility.
But those those contracts or ordered.
Okay, and then a little follow up on on contracts.
Is there any potential for anything that you might have at the beginning year anticipated.
This year being pushed into early next year.
Or is it a matter of whatever the number was that you expected this year will happen by year end.
Yes.
Go ahead Joe.
Yes, that's a great question.
Nothing's happened.
This year that would change what our vision was at the beginning of the year.
That's the bottom line and again that assumes that there's no sanctions between now and the market disruptions right. So.
As I mentioned before the great thing about our.
Our company and the revenues that we've got great visibility.
We don't see any change really.
As a reminder, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad. One moment. Please while we re poll for questions.
It appears we have no further questions I would like to turn the floor back over to management for closing remarks.
Thank you operator.
Our investor call for the third quarter of 2022.
We want to think.
All of you, who listened online and all of our investors have called and we'll look forward to talking to you again next quarter.
This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
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