Q3 2023 Centrus Energy Corp Earnings Call
[music].
Greetings and welcome to the Suntrust Energy third 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. 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 2023 ended September 30 today, we have Dan Kahneman, President and Chief Executive Officer, and Kevin Carroll Chief Financial Officer.
Before turning the call over to Dan <unk> I'd like to welcome all of our callers as well as those listening to our webcast. This conference follows our earnings news release yesterday.
We expect to file a report for the third quarter of 2023 on Form 10-Q later today.
All of our news releases and SEC filings, including our 10-K 10-Qs eight Ks are available on our website a replay of this call will also be available later this morning on the <unk>.
<unk> web site.
I'd like to remind everyone that certain 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 interests. Our actual results may differ materially from those in our forward looking statements.
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 November eight 2023, unless otherwise noted.
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 centers is strictly prohibited.
Thank you for your participation and I would now turn the call over to Dan.
Thank you Dan and thank you to everyone on the call today.
This was another great quarter for centers, while we always remind investors that our business runs on a year to year basis not fairly represented by quarterly results. We were nevertheless, pleased to deliver $8 $2 million in profit to our shareholders. This quarter.
This time, the Big news however, as measure neither on our quarterly nor even on an annual basis, but rather on a scale of three score and 10.
Why sell because a few weeks ago.
Interest inaugurated the first new U S owned U S technology uranium enrichment plant to start production in nearly 70 years.
As we speak centers is now producing high assay low enriched uranium or halo right here in the United States.
In piped in Ohio to be specific.
Using parts manufactured in Oak Ridge, Tennessee.
With an American workforce rebuilding America's domestic nuclear supply chain that is an historic accomplishment.
Last month, we were pleased to host so many people who care about America's energy future and National security, who can supply them to participate in the launch of the <unk> 16 centrifuge demonstration cascade.
Our speakers included leaders from government labor and industry.
Senators Sherrod Brown and Rob Portman.
And Chuck placement.
Deputy Secretary of energy David <unk>.
Assistant Secretary for nuclear energy Katy hub.
North American building trades unions, President Sean Mccarthy.
National Association of manufacturers, President and CEO, J, Timmins, and Pike County Commissioner Tony Montgomery.
Representatives from advanced reactor companies utilities, nongovernmental organizations and local community organizations all participated showed.
So did our brothers and sisters from the United Steelworkers International Brotherhood of electrical workers, the building's trades and the pipe Fitters all came to witness America, taking any essential step to restoring the global leadership in nuclear fuels that we once enjoyed and should never have lost.
Building on that momentum centers now has completed production of the first 20 kilograms of Hayward.
That means that we have demonstrated that our technology works and that we have completed phase one of the contract we signed with the department in 2022.
Notably we did so under budget and nearly two months ahead of schedule a rarity for first of a kind projects in the nuclear arena and a testament to the team's extraordinary work.
And phase two of the operations contract. We are required to produce 900 kilograms that halo for the department over the next 12 months under the contract. The department of energy is obligated to provide the halo storage cylinders necessary to collect the output of the Cascade Sentras will fill the department cylinders.
Hey, Lou and deliver that material to our secure physical material storage area. We've built.
Shareholders may recall that phase one of the contract required a 50 50 cost share with the department of energy and Phase II Doa will pay the full cost of production plus an incentive fee and the department will receive the output of the Cascade in phase III subject to the availability of appropriated funds the department.
Has the option to grant up to three three year extension, if combined with phase III that could add up to 10 years of production overall on a cost plus incentive fee basis.
While this contract is critical and demonstrating the viability of our technology and providing up to 9000 kilograms of Halo to the department of energy to support the developing advanced reactor market. What's even more important is that establishes a strong foundation to build more machines and expand production to address.
Any level of demand for a secure domestic source of both hey, Lou and low enriched uranium R. L. EU.
The way Americans think about supply chain and domestic resilience in the face of critical challenges has shifted dramatically over the past few years the supply chain bottlenecks uncovered by the Covid pandemic, followed by the crisis facing the U S semiconductor industry and finally, the invasion of Ukraine made american's realized.
Evermore clearly the importance of ensuring that we have a robust domestic supply chain for commodities that are vital to our national security and economic well being it has become as clear as day that it is foolish to rely exclusively on foreign state owned enterprises for such things as in this case the nuclear fuel.
Power's one fifth of our nation's electrical grid and provide nearly half of our carbon free electricity.
But through a series of missteps and misfortunes that is exactly what happened in the commercial market for <unk>, 100% of the world's uranium enrichment capacity now belongs to foreign state owned enterprises. According to the latest figures from the World Nuclear Association, Russia alone holds 44%.
Of the world uranium enrichment capacity, there is simply not enough non Russian enrichment to fuel the world's reactors, adding in China. Those two suppliers account for more than a half of global capacity.
As end users look to secure long term contracts for fuel from suppliers outside of Russia, or China. Their options are limited to transition the United States Europe and other friendly countries around the world away from dependence on Russia, the market will need more supply.
And more of our suppliers to provide secure diversified sources of fuel for the reactor fleets.
We believe that centers as Americans uranium enrichment company.
He is well suited to help fill the gap and bring greater supply diversity to the marketplace for <unk> as well as heyward.
While <unk> is essential to fuel the 93 reactors already operating in the United States Halo was the fuel of choice for most of the advanced reactor designs now underdevelopment and centers currently has the only nuclear regulatory commission licensed to produce Halo in the United States in fact until last month.
Russia was the only commercial haywood producer in the world having.
Having our demonstration cascade up and running it gives us a critical beachhead as we look to build a scaled up facility able to satisfy the demand as it develops in the next few years, we will continue to advance our technology train our workforce maintain our NRC license and expand our capabilities all of which will.
Our commercial expansion in the years ahead.
Hey, commercial scale Cascade with 120 centrifuges can produce about six metric tons of haywood per year.
With adequate funding and support you have the capability to bring an initial commercial scale Cascade online within 42 months, having built out that supply chain centers could then at a second Haywood Cascade six months later and then bring all subsequent Cascades online every two months thereafter once we've built out.
That supply chain and leverage the learning and improvements we make every time, we build a new cascade that is how American industry has always driven efficiency.
We have the technology license the site the space the skills and the ability to do this having a passionate and experienced workforce is essential now we are looking for the investment in the firm orders needed to unleash these capabilities and restore a domestic uranium enrichment capability.
At industrial scale.
Of course, it is never easy to reestablish a loss industrial capability and a strategic sector completely controlled by foreign state owned enterprises. So success will depend on government investment as well as private capital that is why the emerging consensus around the need for significant government investment.
On both sides of the aisle and at both ends of Pennsylvania Avenue is so encouraging but government needs to know that the private sector is also prepared to step up and do its part and we are.
Reactor developers that will need significant amounts of Hayward for their projects that are expected to come online in the next few years are beginning the process of securing the source of that huge sooner rather than later.
There's perhaps no better illustration of this urgency than the memoranda of understanding that we signed during the third quarter with two leading advanced reactor developers terrapower in Oklahoma under these mou's, we intend to work toward definitive agreements that would help establish a cost competitive and timely source.
<unk> been enrichment capacity for Terra powers Natrium demonstration reactor ahead of its 2030 operations date.
And that would help Oklahoma not only fuel there Aurora powerhouses, but also manufacture reactor components and potentially provide fuel fabrication services as well.
These efforts would leverage our facilities and technical capabilities and pricing as well as our advanced manufacturing facility in Oak Ridge, Tennessee.
So this is a moment of promise and hope for the industry and for the nation and we look forward to building on recent successes to create a more secure and prosperous energy future with that I am very pleased to turn it over to Kevin Harel, who recently transition as the company's Chief accounting officer to our new Chief financial.
Officer Kevin.
Thank you Dan Good morning, everyone. It's great to be speaking with you as Dan just reminded us our financial results vary from quarter to quarter based upon timing of contracted deliveries most of our contracts are multiyear arrangements in which customers have annual purchase obligations, but can choose which.
Quarter to take delivery, we booked the revenue and cost of sales in the quarter. When deliveries are made which can vary throughout the year, but tends to even out on an annual basis.
For the third quarter, we recognized total revenue of $51 3 million, which was an increase from $33 2 million in the same quarter last year.
At the segment level, the <unk> business had revenue of $40 5 million on cost of sales of $30 4 million, earning a gross profit of $10 1 million for the segment.
Our technical solutions segment, which includes our haynesville contract with the Doa generated $10 8 million of revenue on cost of sales of $9 6 million for a segment profit of approximately $1 2 million.
As Dan mentioned, we achieved $8 2 million and net income for the quarter compared to a loss in the prior year of $6 1 million.
At quarter end, we had $183 3 million of cash on our balance sheet, providing us with liquidity to invest strategically in our future and manage our working capital obligations.
Our order book remains strong with backlog of approximately $1 billion through 2030.
Our technical solutions segment, which as I mentioned includes our Halo contract represents additional revenue and earnings upside as we look ahead.
Lastly, we recently took a crucial step to de risk and strengthen our balance sheet on.
On October 12, the company reached an agreement to purchase a group annuity contract that will cover approximately 1400, retirees and settle as more than 40% of our outstanding pension liabilities.
The annuity contract will fulfill the plans commitment, but is anticipated to reduce ongoing future cost per cent for us.
The annuity contract transfer is $186 5 million and liabilities in exchange for $171 4 million of plant assets to a new insurer.
As a result of this transaction, we expect to recognize a gain of approximately $15 1 million and our income statement for the fourth quarter dependent upon the final settlement and pricing of the annuity transaction.
We reduce our risk lower our administrative expenses and strengthen our balance sheet, while continuing to honor our commitments to retirees.
More broadly this is yet another milestone and strengthening our financial position over the last several years.
At the beginning of 2015 shortly before Dan took over as CEO. The company on $179 3 million in unfunded pension liability from our legacy business.
As of September 32023, we estimate that our 2023 unmeasured net pension obligation would be approximately $42 2 million.
This would represent a reduction of more than 75%.
To further emphasize this point at the beginning of 2015, our net pension liability was more than four times greater than our market cap as.
As of September 30th.
Our ability was down to approximately 5% of our market cap and thats before the annuity purchase in October which will reduce it even further.
With that let me turn things back over to Dan.
Thank you Kevin.
This has indeed been a momentous year for nuclear energy and as we turned the corner and head into 2024, we're more excited than ever about the trends, we're seeing not only in technology and government, but also in the investment community.
Growing investor interest and sustainability and in creating significant new employment opportunities in clean energy is finding its way to the nuclear sector and will contribute to better capitalized companies across the nuclear energy value chain.
We are proud to have long standing partnerships with reactor developers and utilities and are building new relationships with the growing number of data centers and industrial companies that need to obtain vastly increasing amounts of clean and reliable energy to generate electricity and drive industrial processes at every level of government and across academia.
And non governmental organizations, we see increasing levels of institutional support for the reemergence of the American nuclear industry to support our national energy climate and National security objectives.
The efforts of many different companies from component manufacturers and developers to utilities and the investors financing. These projects are establishing the foundation and ecosystem for a thriving advanced nuclear industry, where centers can play a pivotal role while no one can say with certainty, which nuclear reactor technology.
We'll end up being deployed at greater scale centrist stands ready to supply all of them as they come to market.
As we've consistently emphasized this tremendous investor support will require further public private partnership recent developments prove that both the administration and Congress agree with that.
Just last month the house of Representatives included a $2 $4 billion investment in domestic uranium enrichment as part of the energy and water Appropriations Bill and the White House included $2 $2 billion for enrichment and its most recent supplemental funding request and.
And over the summer the Senate voted 96 to three to authorize a major nuclear fuel security program to send it also included enrichment funding as a priority in their energy and water appropriations Bill all of US can be encouraged by the bipartisan support and momentum behind these proposals and hope.
That Congress and the administration will move quickly to get them over the finish line.
Of course, none of this would be possible without our amazing employees and without our investors who are supporting us in this important work sincere thanks to each and every one of you finally I'd like to offer a heartfelt thanks to all of our veterans, who courageously serve to protect the great way of life in our United States.
Have come a long way in the last few years, but I truly believe the best is yet to come and with that we'll take your questions.
Operator.
Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.
Some tone will indicate your line is in the question queue. You May press star two if he 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, 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.
Good morning, good morning.
Rob.
You gave a good overview of some of the activities happening for a for support in the in the various government bodies, but how are you.
Just wanted to get a sense of how.
How soon those things need to happen for you to kind of continue your work or are you do you have that.
Pieces in place to kind of continue to produce Haley until those other pieces kind of come in come in terms of getting supply going.
Great Great question as always up so we have the resources, we need to continue under the pop contracts right, which are the <unk>.
And we're very excited as I'm sure you saw yesterday, we finished phase one we delivered.
20 kilograms promise of the department of energy now, we will be moving over to phase II, that's 900 kilograms.
In the coming year end, and we have no reason to doubt.
There will be continuing funding for that even under the continuing resolutions that were passed.
Being negotiated earlier, we had what they call anomalies too.
Support that continued funding stream because everybody both sides of the aisle realized that's important.
Your question, obviously implicit in your question is what happens all these requests it is really quite astonishing when you look back in recent years.
It had seen that there was a certain.
Reluctance or lack of focus I don't know how to describe it but it doesn't matter because it's over you have the the house of Representatives I believe literally the first build the past some of the new speaker was the energy and water appropriations, which as I'm sure. You know contains $2 $4 billion for enrichment over three years.
<unk> had the president submitting a request to the Congress for $2 2 billion to support enrichment in his latest supplemental request you already had.
At the committee level on the Senate side $800 million in that market. So these are really strong indications that I think the money is going to be forthcoming out timing. Obviously, it's a very unusual time in the U S. Congress. There are a number of things that could or could not happen in terms of continuing resolutions supper.
Mental.
Appropriations getting passed.
Full bills and so forth obviously, we're working every angle.
Following it all closely but I would say you know the supplemental is a real opportunity to see.
Important resources move and as is the real budgeting process.
When those happen.
I think as a much larger question than any one executive could answer but when it does happen.
That money would be signed by the president through Appropriations go to deal. We can then go out through the typical.
I presume through the typical request for proposal process. So that figure it would be some number of months, but in the meantime, we are continuing rob to engage with investors and so forth.
To look at ways to raise the capital to expand our plant.
Okay excellent. Thank you for the overview and then on the Mou is with Terrapower power and <unk>.
Yes.
What are the sort of next steps there in terms of.
What they need and do you have sort of the capacity in place to fulfill their needs at this point.
With that initial demonstration or would you need to kind of scale that can.
Their needs, but by 2030, I know thats, a few years away, but just want to get a sense of how that lays out yeah. I'll answer. Your second question first we would need to scale up right now.
Won't say.
And say exactly who needs what quantities, but we.
We will be to buy something that we will be making 900 kilograms per year and I think every ambition out there would suggest that theres going to need to be a lot more I mean, the deal itself has.
Put out a number of seeking on the order of 25 metric tons a year. So I don't think anyone thinks it's one cascade is now the second thing is as I'm sure you know the output of the Cascade is a property of U S Department of energy, so it'll be up to them to decide who among many aspirants would be getting the output from our.
Our initial demonstration cascade.
In terms of what's going on and we have very active and robust dialogue going on with both Oklahoma Terrapower and in fact with other companies as well as you might imagine that are not at the same level of maturity, perhaps and very earnest discussions talking about rate and pace and quantity of requirements and what it's going to take in term.
Of investment to get there and of course, everybody is looking at a combination of both public and private sources.
Okay, great. Thank you I'll turn it over and congrats on all the part of banks.
Rob.
Thank you. Our next question comes from the line of Joseph Reagor with Roth proceed with your question.
Hey, Dan and Kevin Thanks for taking the questions.
Good morning, Joe.
So I guess first thing.
And I'm sure this would be in the Q, but just for clarity today.
The tax gain in the quarter what was the driver there.
Yes, I'll turn that one over to Kevin.
Yes, thanks for the question Joe.
We have a normal process that we go through on a quarterly basis to reevaluate.
Our forecast and the individual drivers underneath that which includes pricing from market metrics and so as we went through there and reviewed published indices. We had noted we had a reduction in the costs, which prompted us to have.
Increased income in the next few years, which resulted in the release of the tax of VA and so that was the main driver of what transpired. So we will continue to reevaluate that on a quarterly basis.
May have updates in the future as we as we continue to evaluate that especially at year end.
Okay.
That's helpful and then.
As you guys ramp up Halo production.
Since this isn't exactly the.
The most common ramp up out there what are the.
Challenges bottlenecks things like that that you guys might face or is it just as simple as you have it up and running and now it will run.
And any thoughts on.
Potential impact of rising uranium prices on the Hayward facility.
Yeah, Okay. Another great question, so like break it into.
Into pieces, so start with what we have we've got a site license.
Not only are talented but incredibly dedicated workforce, we have a technology.
It has been known but now it's openly to the world demonstrated its functioning we're producing today right. So.
All of that is there the key issue and scaling up of course is going to be supply chain right.
Have decades of experience working with a series of suppliers, we've actually changed our philosophy.
From the earlier phase of students of history will remember a big project a dozen years ago, we had literally hundreds of suppliers. We have now turned for a lot of reasons.
Efficiency in.
And frankly, our own internal capabilities to source, increasing amounts of the parts of the machines to our own.
Technical manufacturing facility Center in Oak Ridge, Tennessee, and so I think we've got a much smarter supply chain and we're building out, but we're going to need to build that thing out and of course in a market in which the zeitgeist for nuclear continues to be very bullish.
Very competitive market out there we are.
Credibly proud of the talented personnel that we've got but if we have the good fortune to build out at the rate that I think people, who care about climate change and national security wish it's going to be a challenge to continue to recruit retain.
That kind of human talent, which is so important to these facilities. So if we're if we're very very successful we're going to be working.
Optimistic about it but you asked where the pinch points could come we're going to have to really focus on developing the town to be there when we need them.
In terms of your other question.
On uranium prices there of course is a correlation there.
And not least of which is the fact that as most of you know the principal feedstock.
Four.
High assay low enriched uranium is low enriched uranium and.
What has happened in the last couple of years and the prices.
Well Warner its uranium.
Tells you that that's all going north right and it's going north in every phase because.
The increased demand.
For enrichment.
That's not of Russian origin has driven up separative work units prices.
Overall, our bullishness in the uranium market whats driven up natural uranium prices and as people are trying to shove more uranium through more central machines, they need to turn more of that into uranium hexafluoride gas. So you have a big spike in the conversion market. So all of those inputs are going higher and so there was a.
A rationing effect that you see and that's why you've seen I think both bullishness in these prices then I think youll continue to see some general correlation there is always a toggling factor last thing I'll say between the various cost of the inputs.
So win win.
Through prices got to be very very low.
Tried to use as much Suez, possibly went through a lot of under feeding now and Theres concern going the other direction theyre going into Overfeeding, but when you go into Overfeeding that puts pressure on conversion. So it's a big kind of Dayton change so you're going to always see some toggling between the values of the natural uranium exceed the conversion price enrichment prices.
Input prices to that such as electricity rates.
Thanks.
Appreciate the color I'll turn it over.
Thank you. Our next question comes from the line of Alex Rygiel with B Riley Securities. Please proceed with your question.
Good morning, gentlemen, Dan a lot of great a lot of great information there.
Very nice quarter. So thank you.
Just to better understand the transition to phase two.
Can you talk about number one what approvals or.
Direction, you need from the Doe to transition into phase III and when that might start.
Yes, we finished phase one we made the delivery.
Just yesterday and we are.
Acting to move very smoothly and communications with.
DRA into phase two but I don't know.
Kevin wants to offer anything more technical than that.
Yes.
I don't think I would add anything outside of the fact that with our completion of phase one we're moving into phase III.
From a from a regulatory perspective.
We are evaluating what the possession limits are to ensure that we're in compliance with those and we will continue to work with.
Out of an organization is to make sure that we're aligned.
That's super helpful and then as it relates to Sue.
What's your visibility on the fourth quarter here now that we're five or six weeks into the fourth quarter and how do you see delivery is free and it's developing in this fourth quarter and into 2024.
Kevin.
Yes, probably felt that so Alex like a lot of company, we don't provide forward guidance.
I know we're into the quarter, but as we've noted in recent years, our revenues can vary significantly from quarter to quarter, depending on timing.
So we're working diligently to ensure that we're delivering for the fourth quarter in fact, we will.
We continue the process of ensuring that we have strong results for the annual cycle.
Excellent and then Dan maybe you could just touch upon the pipeline of additional opportunities or am I use like terrapower in Oakland.
Yeah, well again, a lot of these are still under confidentiality, but I would just say basically if you look at the terrain out there Alex.
Nine of the 10 advanced reactor development program winters and the Doe.
Graham require a high assay low enriched uranium fuel.
Obviously, our desire is to supply everyone right and there are those who are not in that program, who are also candidates as well and that for example includes OCA, which is the a lot of exciting work and back on the NRC regulatory process and I think you can't forget. The fact, there is a quite robust set.
Set of activities going over and the department of Defense with project Pele, and so forth and increasing interest for energy resilience requirements of our military bases and so forth that will need reliable power.
Do not want to be vulnerable to disruption and so forth.
There's been a lot of permits in a good way about the possibility of deployment of small and micro nuclear reactors in that direction. We are monitoring each and all of these sources and of course, there are international opportunities as well and you've started to see important marketing.
Advanced reactors happening internationally I might note the ex energy deal.
Going on with OTG Theres, a lot of interest in Canada in small and micro reactors for the very remote communities are now isolated and dependent on diesel or for the oil sands or trying to have very ambitious decarbonization targets, which will be assisted in being met if they can at least use nuclear power.
And not diesel for example to develop the oil sands up there. So so we're looking everywhere and very excited if you look at the last thing I'll say just kind of the macro terms.
The daily commercial lift off report came out in March called for very large increment like 700, Gigawatts of new electricity generation to meet our net zero targets just in this country of which about 200 gigawatts. They expect to come from nuclear that's a lotta research groups right and so we're very bullish.
On this and I keep saying the last thing, but perhaps the last last thing as what Youre seeing now also and this is very important is new sources of demand for completely reliable carbon free electricity. This is like Orange data centers I'm sure you've seen a lot of discussion among.
Various.
Massive companies that are out there which have.
Effectively insatiable requirements in that direction as well as industrial processes and of course to Decarbonize and meet our net zero targets only 27% of the greenhouse gases come from power generation, we're going to have to get the.
30% or so decarbonize industrial processes, and that's where these gen four reactors, where they're high output he'd.
Like ex energy with Dow chemical or so or so helpful.
I am very bullish.
The market out there could develop in a very robust way.
Okay.
Thank you very much.
Thanks.
Thank you there are no further questions at this time I'd like to turn the floor back over to Dan Westcott for closing comments.
Thank you operator that will conclude our call. Thanks, as always to our investors, who joined online and by phone today, we'll talk to you again next quarter.
This.
Todays teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.