Centrus Energy Corp. Q1 2023 Earnings Call
Greetings and welcome to the Sanchez Energy first quarter 2023 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. 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 VP corporate communications. Thank you Dan you may begin.
Good morning, and thank you all for joining US today's call will cover the results for the first quarter of 2023 ended March 31 today, we have Dan <unk>, President and Chief Executive Officer, Philip Strawbridge, Our Chief Financial Officer, and Kevin Harold Controller, and Chief Accounting Officer before turning the call over to Dan upon them and I'd like to.
Welcome all of our 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 2023, our 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 will also be available later this morning on the Suntrust website, I would like to remind everyone that certain information. We may discuss on this call today may be considered forward looking information.
The risks 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 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.
That grew at only up today only as of today may nine 2023, unless otherwise noted.
This call is the property of central synergy.
Ascription redistribution retransmission or rebroadcast of the call in any form without the expressed or central et cetera.
That's it.
Thank you for your participation and I will now turn the call over to Dan.
Thank you Dan and thank you to everyone on the call today.
I am pleased to report another healthy and profitable quarter for Sentras kicking off the year with $66 $9 million in revenue and net income of $7 2 million, we ended the quarter with $188 $8 million in cash.
We always remind our investors that our revenue and margins are lumpy due to the structure of our contracts. So what matters. Most is not any one quarter, but what happens over the course of the year. Nevertheless.
We are off to a strong start both in terms of bottom line numbers and laying the foundation for our future growth.
Im incredibly proud of our technical teams in Ohio and Tennessee.
We have continued to execute superbly on our contract with the U S Department of energy in February we completed construction of the demonstration Cascade of centrifuges, we have been building and spikes in Ohio, along with most of the support systems.
Having recently completed our operational readiness review.
We're now looking forward to receiving formal written approval from the nuclear regulatory commission to possess licensed physical material. The next steps will be to finish construction of the remaining support systems and complete some final testing activities before we bring the Cascade online I am pleased to report that we remain on track.
To begin operations and production by the end of this year.
This will make history as the first new U S owned U S technology enrichment plant to begin production in 70 years.
If you haven't done so already I encourage you to visit our website to read our shareholder letter to learn about the progress we've made thus far and to take a look at photos of the Cascade. It is an impressive site and a sign of good things to come.
The pilot plant is the only facility in the United States licensed by the nuclear regulatory commission to produce high assay low enriched uranium or halo.
Which is currently available only from Russia.
By establishing a domestic supply chain for Halo, we can help facilitate the commercial deployment of a new generation of Halo fueled reactors to meet the world's climate and clean energy needs.
In addition to the many halo fueled small modular reactors under development. There are a number of micro reactor design by companies like Oclaro Radiant Westinghouse U S and <unk> and others for which he was high energy density will be necessary.
Even as we begin production of Haynesville under contract with the department of energy to support the Department's mission requirements. Our ultimate goal is to scale up the facility to meet the full range of commercial government and national security requirements for enriched uranium, including Hey, Lou as well as the <unk> that can power.
The existing reactor fleet.
The pie can facility has roughly the same footprint as the Pentagon with room for thousands of additional centrifuges and it is already licensed for large scale production.
Later this year, we expect to complete phase one of our contract with the U S Department of energy, which covers bringing the cascade into operation and delivering an initial 20 kilograms of halo to the department.
Phase two will involve a full year of production at a rate of 900 kilograms per year.
These two phases represent the base contract in phase III. The department has options for up to nine years of additional production. Those years are the department sole discretion and subject to the availability of appropriations.
Expanding the plant will require significant federal investment and a strong public private partnership, particularly in an industry thats dominated by foreign government owned corporations.
There is growing recognition in many quarters among leaders in industry organized labor academia.
Nongovernmental organizations as well as in government on both sides of the aisle about the need to invest in restoring America's domestic uranium enrichment capacity the department of energy needs a U S technology enrichment capability for a number of national security missions.
The one Ukraine has also reinforced energy security concerns within the United States and among our friends and allies. The reality is that Russia has 46% of the world's enrichment capacity and theres not enough non Russian capacity in the world today.
The world's reactors.
Over a century ago Winston Churchill said that and this is a quote safety uncertainty in oil light and variety and variety variety alone close quote.
That logic applies equally today when it comes to nuclear energy the world needs not only more enriched uranium supply, but also more enriched uranium suppliers and that is where centers fits in.
As a first step to address the critical need for Halo. The inflation reduction Act signed in 2022 provided $700 million to help establish a domestic halo supply chain.
Congress added another $100 million as part of the omnibus funding Bill at the end of last year and.
In October the Department of energy issued a sources sought notice in anticipation of an eventual request for proposals.
The sources sought notice outlined a robust program to purchase significant quantities of Haywood through 2032 of course additional appropriations would be required fully to implement that program.
Given how important halo is to our energy future and to emerge as a global leadership in nuclear.
And given the fact that our country needs a new enrichment capability to meet long term national security requirements, We hope that Congress and the administration can come together and make the investments that are required building on the strong downpayments that was included in the inflation reduction Act.
Centrist stands ready to do our part our facilities already licensed and we believe we offer the fastest path.
Available to large scale production.
Sensors also has the only deployment ready use technology that can meet national security requirements foreign rich geranium and when it comes to National security enrichment.
Technology is required because longstanding U S policy and binding nonproliferation agreements prohibit the use of any form.
Origin enrichment technology for National Security and with that I will now turn the call over to Filip, who will walk you through some of the numbers.
Thank you Dan good morning, everyone.
As discussed there's considerable variability in our revenue and margins from quarter to quarter.
Last year for example, more than 90% of our gross profit came in Q2 and Q4.
The vast majority of our <unk> contracts are multiyear contracts our customers have a purchase obligation on an annual basis, but not on a quarterly basis, they choose which quarter to take delivery and we book the revenue and cost of sales in that quarter, which often varies from year to year what matters for centuries of course is the annual performance not quarterly performance.
<unk>.
That said as Dan mentioned, we had a very strong first quarter overall, our total revenue increased by $31 6 million over 2022 levels to $66 9 million in the <unk> segment involving the sale of enrichment to utilities, we generated $58 8 million in revenue for the quarter the cost of sale.
<unk> was $34 9 million, resulting in a gross profit of 23, 9% for the segment.
In our Central Technical solutions segment, which includes our contract with the department of energy to build and demonstrate daily production as well as variety of other contract work for public and private sector customers, we generated $8 1 million in revenue against cost of sales of $9 million for the quarter for a gross loss of <unk>.
<unk> thousand.
We're in a strong financial position going forward with an overall cash balance of $221 3 million, which includes $32 $5 billion in restricted cash for financial assurance.
As of March 31, our <unk> order book is valued at $1 billion through the end of the decade.
Now that total is just for the <unk> segment and does not include our technical solutions segment.
It excludes for example, the Halo operations contract with the Department of Energy, which we won last year under competitive solicitation.
With that I will turn.
Turn it back over to Dan.
Thank you Philip.
Before we get to your questions I'd, just like to say a word about what we believe is a clear trend towards growing demand for nuclear fuel just look at what has happened in the last few months on February 28 the.
The California Energy Commission approved plans to avert the premature shutdown of the Diablo Canyon nuclear power plant recognizing the reality that nuclear power is essential to meeting our decarbonization targets.
On March one ex energy announced a new partnership with Dow chemical to deploy four payload fueled X 100 reactors at one of Dow's industrial facilities, along the Gulf Coast.
On March 2nd the Department of Energy invited U S utilities to apply for the next round of awards under the $6 billion civilian nuclear tax credit program aimed at preserving America's large existing fleet of reactors on March 28, the government of Canada proposed a new 15% refundable.
Investment tax credit for clean energy that can support construction of new nuclear plants, both large and small.
On March 31.
Pacific Corp announced plans to build two additional haynesville fueled natrium reactors with Terrapower by 2033.
In addition to the one they plan to build in Wyoming by 2030 with the help of a $2 billion commitment from the U S Department of energy.
On April one a large new reactor in Georgia began producing electricity. It's the first new reactor built in the United States in the past 30 years, a second new reactor at that site is nearing completion as well on April 25th Gallup released New poll results showing public support for nuclear energy at the.
The highest level in a decade and just last week Dominion energy filed its integrated resource plan outlining options to build between three and six small modular reactors in Virginia over the next 15 years.
Duke Energy's CEO Lynn good told the shareholder meeting that Duke is committed to continuing its pursuit of nuclear energy and supporting the development of small modular reactors, including through a partnership with Terrapower Westinghouse unveiled plans for a new 300 megawatt small modular reactor called the <unk>.
300, and in Japan, Prime Minister Qasida announced a three year program to invest in the development of sodium fast reactors all of this points to a strong and growing nuclear market here in the United States and around the world.
<unk> is a critical mission to enable the next chapter nuclear energy, starting with Haywood production by the way not only can he will meet our needs here on Earth, but it can also take us to the stars in fact, NASA and DARPA announced the plans earlier this year to test a new halo fueled nuclear thermal.
Engines by 2027, and we look forward to the opportunity to produce the fuel for future missions that will take humans to the mark to Mars and beyond.
Finally, I want to thank all of our investors who are supporting us in this important work and with that operator, we'll take your questions.
Thank you we will now be conducting a question and answer session I would like to.
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.
We do ask that you limit yourself to.
Just one question and one brief follow up so that others will have a chance to participate.
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 is from the line of Rob Brown with Lake Street Capital markets. Please proceed with your question.
Good morning, and congratulations on the progress.
Thank you Rob.
I know you have the contracts in place for the for the Hilli production, but but is that sort of looks to next steps and then some of this hiring support and the support after how do you see that in terms of timeline when the decisions get made and what are some of the next steps.
I would extend that.
Central for Ya.
Well, great question Robin and good to talk to you so.
The $700 million is now.
In the process of being effectively translated through this request for proposals that we have been talking about that will be the next important step we don't know exactly what that's going to come out they've been working on the U S Department of energy.
And that's a very important.
Milestone in funding the next phase to buildup from.
A decision to make those kinds of investments and to raise the capital necessary to build to the next phase. We can end up building another cascade within about 42 months of a final investment investment decision and so that's that's sort of the timeline, we're talking about building enrichment facilities.
As a matter of it takes as you know Rob a few years.
The critical path item here is getting that government contribution that will tell private capital that this is a safe bet to invest in.
Okay. Thank you that's great color and then and then as you kind of think about investment I think you've talked about this before but.
How does that investment work is that still to be determined with the re contracting or do you expect it to be sort of similar to what the projects you've done thus far.
We really don't know Rob because that's exactly what we're expecting to see come out of the request for proposals.
A number of ways to skin the cat one way that's been talked about a lot is to use the power of government offtake demand too.
These investment there are other models like cost share models that have been used for example in the LDP program.
So I was curious as anybody, but we won't know really the structure of what it's going to be until until we see that RFP rollout.
Alright, Thank you I'll turn it over.
Thank you. Our next question comes from the line of Joseph.
With Ross.
Please proceed with your question.
Yes.
Hey, guys. Thanks for taking the questions and congrats on good start to the year.
Thank you thanks, Joe.
So.
Just kind of a big picture thing.
<unk> seen any changes in the overall.
Contract market, whether it is for an enriched uranium more enriched uranium following some of the Senate and house bills that were proposed.
Well I don't I don't really see a change Joe based on the legislative calendar or the introduction introduction of legislation, where we have seen and actually some of this predates the Ukraine invasion, but prices overall at enrichment bottomed out around August 2018.
Had been rising they got up to.
In a $50 range at the time of the invasion since the invasion.
The anxiety in the market has produced pretty substantial.
<unk> up to $140 in terms of term.
The term indicators that are published in the trade press.
And so I think most of the change.
I think internalized in that sense are not key to particular legislation being introduced but rather to the broader secular trends in the market that are driven by Ukraine, and the concern that Russia, which has been such an important.
Supply source with as I mentioned in my remarks, 46% of the installed production capacity of enrichment globally.
And the concern that then has spawned is I think driven a lot and obviously the other related aspect to this since you can't shelf uranium powder through central to your machine you got to turn that powder into a gas and the step they call conversion and obviously the same demand spike or the <unk>.
Concerns that have driven the price on enrichment north.
Have also since then.
Tight supply chain in the conversion space, you've seen increase in the conversion market as well now there is.
Our expectation that convert is going to restart their plant Metropolis, Illinois, which should ease some of that but that's another trend that we see.
Okay, and then just kind of a follow up.
Are you guys going to continue to look at.
Signing.
<unk>.
Contracts with utilities beyond that 2028 date that was suggested.
And the Senate Bill or.
Would you guys be focus more on near term contracts at least for now.
Well.
And Phil May want to chime in here, we always are looking into the future.
<unk>.
We're always looking for ways in which we can shift from our short term efforts to la.
Longer term glide path.
We are very focused now on seeing if we can.
Succeed.
In.
Making the transition from brokering a material that we're now getting from existing supply contracts to adding our own material to the supply chain and therefore to manage a segue between operating purely as a brokerage operation to one that has our own supply to add to the market and if we do.
That we will extend our glide path in terms of forward sales well into the future measured in decades.
Yes.
Yes, Joe I mean first of all we'd focus on both near term and long term opportunities in this legislation again draft.
Way out in the future would only apply to one of our supply contracts, we have other supply contracts as we've mentioned before so.
Okay fair enough I'll turn it over.
Thank you 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 poll for questions.
There appear to be no further questions at this time I would like to turn the floor back over to management for closing remarks.
Thank you operator, this will conclude our investor call for Q1 of 2023 as always I want to extend a thank you to our listeners online and our investments.
We look forward to speaking with 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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