Q4 2023 Centrus Energy Corp Earnings Call
Operator: Greetings and welcome to the Centrus Energy fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the Suntrust Energy fourth quarter 2023 earnings Conference call.
At this time, all participants on a listen only mode a brief.
Operator: 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, Lindsay Geisler, Director of Corporate Communications. Thank you.
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.
It is now my pleasure to introduce your host Lindsay Geisler director of corporate Communications. Thank you. Please go ahead.
Good morning. Thank you all for joining US today's call will cover the results for the fourth quarter and full year of 2023 ended December 31st today, We had a mere fact, Blair President and Chief Executive Officer, and Kevan Herold Chief Financial Officer.
Lindsay Geisler: Good morning. Thank you all for joining us. Today's call will cover the results for the fourth quarter and full year of 2023, ended December 31st. Today, we have Amir Vexler, President and Chief Executive Officer, and Kevin Harrell, Chief Financial Officer. Before turning the call over to Amir Vexler, 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. They expect to file a report for the fourth quarter and full year 2023 on Form 10-K later today. All of our news releases and FEC filings, including our 10-K, 10-Qs, and 8-Ks, are available on our website. A replay of this call will also be available later this morning on the Centrus website.
Before turning the call over to you on your Bachelor 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.
First to file a report for the fourth quarter and full year 2023 on Form 10-K later today.
All of our news releases and SEC filings, including our 10-K 10, Qs and eight Ks are available on our website. A replay of this call will also be available later this morning on the centric website.
Lindsay Geisler: I would 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 Centrus. Our actual results may differ materially from those in our forward-looking statement. 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.
I would like to remind everyone that certain information we may discuss on this call today may be considered forward looking information that involves risks and uncertainty including assumptions about the future performance of center at our actual results may differ materially from those in our forward looking statement.
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.
Lindsay Geisler: Finally, the forward-looking information provided today is sensitive and accurate only as of today, February 9, 2024, unless otherwise noted. This call is the property of Centrus Energy. Any transcription, redistribution, retransmission, or rebroadcast of the call in any form without the expressed written consent of Centris is strictly prohibited. Thank you for your participation, and I'll now turn the call over to Amir Dexler. Thank you,
Finally, the forward looking information provided today is sensitive and accurate only as of today February nine 2024, unless otherwise noted this call is the property of centers energy any transcription redistribution retransmission or rebroadcast of the call in any form without the expressed written consent of Suntrust is strictly.
Thank you for your participation and I'll now turn the call over to Amir Bachelor.
Thank you Lindsey.
Amir Vexler: And thank you to everyone on the call today. I've only been on the job for a few weeks, but I'm tremendously impressed with this organization and the people who make it run. This is a pivotal time.
Thank you to everyone on the call today.
I've only been on the job for a few weeks, but I'm tremendously impressed with this organization and the people who make it run.
This is a pivotal time.
As the United States looks the transition away from imported nuclear fuels and bolster energy security.
Amir Vexler: As the United States looks to transition away from imported nuclear fuels and bolster energy security, our country and our industry have never needed us more. As reactor developers race to commercialize next-generation reactor designs, a domestic source of advanced fuel for those reactors has never been more urgent. As utilities look to strengthen and diversify their fuel supply chains, the need for a new American source of uranium enrichment has never been clearer. And now that Centrus has a proven enrichment operation in Piketon, our potential to meet these growing needs has never been greater. There is so much that this company can do for our country and our customers in the next few years, which is only possible because of the continuing support of our investors. I appreciate the chance to share a few thoughts with you today and look forward to our continuing dialogue in the months and years to come.
Our country and our industry have never needed us more is.
Cause reactor developers race, the commercialized next generation reactor designs, a domestic source of advanced fuel.
For those reactors has never been more urgent.
As utilities look to strengthen and diversify their fuel supply chain the need for a new American source of uranium enrichment has never been clearer.
And now that's interest has proven enrichment operations and piloting our potential to meet these growing needs has never been greater.
There was so much that this company can do for our country and our customers in the next few years.
Which is only possible because of the continuing support of our investors.
I appreciate the chance to share a few thoughts with you today and look forward to a continuing dialogue in the months and years to come.
We start from a position of strength coming off of an outstanding year for the company in 2023 centers achieved $322 million in revenue the highest in eight years, we delivered $84 4 million in annual profit a 66% increase from 2022.
We continue to add to our long term order book in our Leu segment, which remains around $1 billion.
And we ended the year with unrestricted cash balance of close to 200, and the $1.2 million, putting us in a strong position going forward.
Amir Vexler: We start from a position of strength, coming off of an outstanding year for the company. In 2023, Centrus achieved $320.2 million in revenue, its highest in eight years. We delivered $84.4 million in annual profit, a 66% increase from 2022. We continue to add to our long-term order book in our LEU segment, which remains around $1 billion. And we ended the year with an unrestricted cash balance of close to $201.2 million, putting us in a strong position going forward.
Our revenue growth was driven by a 14% increase in our <unk> business.
This segment driven by larger sales volume of both <unk> and uranium.
At the same time, our team won $189 million in new sales contracts and commitments last year does that include a deliveries and revenues generation through 2030.
This was also a big year for our technical solutions segment.
We completed phase one of the Halo contract, finishing construction of the Cascade of advanced centrifuges, bringing it into operation and delivering the first 20 kilograms of high assay low enriched uranium or halo to the department of energy.
We did it ahead of schedule and under budget, demonstrating not only the effectiveness of our technology, but also our excellence in project management.
While the output of the initial Cascade is modest the government urgently need every bit of Halo, we can produce as fast as we can produce it.
Amir Vexler: Our revenue growth was driven by a 14% increase in our LEU business segment, driven by larger cells, volume of both, and Uranium. At the same time, our team won $189 million in new sales contracts and commitments last year. Sales that included deliveries and revenue generation through 2030. This was also a big year for our technical solutions segment. We completed phase one of the HALU contract, finishing construction of a cascade of advanced centrifuges, bringing it into operation, and delivering the first 20 kilograms of high-assay, low-enriched uranium, or HALU, to the Department of Energy. We did it ahead of schedule and under budget, demonstrating not only the effectiveness of our technology but also our excellence in project management. While the output of the initial cascade is modest, the government urgently needs every bit of halo we can produce, as fast as we can produce it. Indeed, the Department of Energy has made a multi-billion dollar commitment to support the deployment of halo-fueled reactors, while the Department of Defense is developing halo-fueled micro-reactors that could support our troops around the world. Right now, the Piketon Cascade is the only source of freshly enriched halo in the western world.
Indeed, the department of energy has made a multibillion dollar commitment to support deployment of Halo fueled the reactors.
While the department of Defense is developing Halo fueled microreactors that could support our troops around the world.
Right now the Pike and Cascade is the only source of freshly enriched payload in the western World where.
We are proud to be in position to support these vital missions and deliver real value to taxpayers.
Phase two calls for us to operate Cascade for a year and delivered the department of energy 900 kilograms of Halo.
Our contract also includes an optional third phase in which the department can purchase up to nine years of additional production from the Cascade.
Phase III is the department's sole discretion.
And is subject to the availability of congressional appropriations under the contract. The Parkman is responsible for providing behavioral storage cylinders to collect the output of the Cascade Lake. They have provided a few cylinders for us to get started with production and they have ordered more but the department has experienced supply chain delays.
Centrifuges will continue to operate but the quantity of Halo, we are able to withdraw from the Cascade in phase II is limited by the number of cylinders. The department can provide and will be less than 900 kilograms.
We don't anticipate immaterial financial impact on centrists since we are meeting our obligations and the department is compensating us on a cost plus incentive fee basis and phase II.
We expect that the delays in receiving the storage cylinders will get resolved sometime later this year and we don't anticipate this will be an ongoing issue after phase two.
Amir Vexler: We are proud to be in a position to support these vital missions and deliver real value to taxpayers. Phase 2 calls for us to operate a cascade for a year and deliver 900 kilograms of halo to the Department of Energy. Our contract also includes an optional third phase in which the department can purchase up to nine years of additional production from the cascade. However, phase 3 is at the department's sole discretion and is subject to the availability of congressional appropriations.
We have restored the Americas ability to enrich uranium now we need to do it at scale.
What our pipeline team has accomplished is remarkable.
First new U S own uranium enrichment plan to begin production in nearly seven years.
Enrichment capacity per machine is the highest for any centrifuge ever built anywhere in the world.
Each component is manufactured to the most exacting standards, enabling a 40 foot tall centrifuge to remain perfectly balanced while spending a lot of uranium at incredibly incredible speeds fast and powerful enough to separate two isotopes that have only a 1% weight difference between them.
Amir Vexler: Under the contract, the Department is responsible for providing the HALU storage cylinders to collect the output of the cascade. They have provided a few cylinders for us to get started with production, and they have ordered more, but the Department has experienced supply chain delays. The centrifuges will continue to operate, but the quantity of HALU we are able to withdraw from the cascade in phase two is limited by the number of cylinders the department can provide and will be less than 900 kilograms.
It is an incredible technical achievement.
I'm impressed not only by the Cascade into walkers, who build it but also by the enormous potential of the facility.
It has a footprint roughly the size of the Pentagon.
Hundreds of thousands of square feet of floor space room to accommodate more than 10000 centrifuges heavy steel plate in the floor neatly laid out row upon row, each one marking the position where our centrifuge can be an adult.
So for large scale production of L U for existing reactors as well as Halo for advanced reactors is right there and waiting.
Like any important worthwhile endeavor, it will not be easy deploying enrichment capacity for L. A U or hey, Louis scale is a capital intensive exercise, which is one reason why the rest of the world enrichment plants are owned by government.
Amir Vexler: We don't anticipate a material financial impact on Centrus since we are meeting our obligations and the department is compensating us on a cost-plus-incentive basis in Phase 2. We expect that the delays in receiving the storage cylinders will get resolved sometime later this year, and we don't anticipate this will be an ongoing issue after Phase 2. We have restored America's ability to enrich uranium; now we need to do it at scale. What our Piketon team has accomplished is remarkable, the first new U.S.-owned uranium enrichment plant to begin production in nearly seven years. The enrichment capacity per machine is the highest for any centrifuge ever built anywhere in the world. Each component is manufactured to the most exacting standards, enabling a 40-foot tall centrifuge to remain perfectly balanced while spinning a load of uranium at an incredible speed, fast and powerful enough to separate two isotopes that have only a 1% weight difference between them.
Here in the United States, we will do so differently.
It will require robust federal funding, coupled with private investment a public private partnership that reflects not only the commercial value of the facility, but also its value to national security energy security and other vinyl and other vital national interest.
The good news is that momentum is building for such a solution.
The war in Ukraine has focused the world's attention on energy security and supply chain for fuel, including nuclear fuel.
Russia has 44% of the world's uranium enrichment capacity and there isn't enough non Russian enrichment that fueled the world's reactors.
Russia, and China, together have almost 60% of the world's enrichment.
Although the U S House of Representatives passed legislation late last year to prohibit the importation of Russian nuclear fuel.
There is a growing understanding in the industry and among policymakers that transitioning away from dependence on Russia will take years and requires investment and new domestic capacity.
The transition away from reliance on Russia material must be carried out in an orchestrated manner to maintain market stability.
The market urgently needs, a new American producer to expand the diversity and security of supply and we are the best positioned company to fill that role.
Amir Vexler: It is an incredible technical achievement. I'm impressed not only by the cascade and the workers who built it but also by the enormous potential of the facility. It has a footprint roughly the size of the Pentagon, hundreds of thousands of square feet of floor space, room to accommodate more than 10,000 centrifuges. Heavy steel plates are arranged on the floor, neatly laid out, row upon row, each one marking the position where a centrifuge can be installed.
As a first step department of energy released an RFP last month to begin purchasing halo.
Establishing a demand signal to bring new capacity online.
We are well positioned to compete for that work as the only U S. On U S technology and Richard in the marketplace.
Especially since we could offer the fastest pathway to large scale Halo production. In addition members of both parties in the house and Senate are advancing legislation to make a multibillion dollar investment in uranium enrichment.
<unk> seems like the parties can't agree on much but they agree on this.
Amir Vexler: The potential for large-scale production of LEU for existing reactors as well as HALU for advanced reactors is right there and waiting. But like any important worthwhile endeavor, it will not be easy. Deploying enrichment capacity for LEU or HALU at scale is a capital-intensive exercise, which is one reason why the rest of the world's enrichment plants are owned by governments. Here in the United States, we will do so differently.
Late last year Boathouses path.
And the President signed legislation is part of the National Defense Authorization Act, creating a new program aimed at expanding U S production of both <unk> and Halo.
To provide funding for that effort the administration proposed $2 $2 billion as part of the supplemental funding request.
Fiscal year 2020 for energy and water Bill adopted in the house included a $2 4 billion. While the Senate version included includes $800 million in.
And just this week the Senate included 2.72 billion for domestic enrichment on a national security supplement.
Amir Vexler: It will require robust federal funding coupled with private investment, a public-private partnership that reflects not only the commercial value of the facility but also its value to national security, energy security, and other vital national interests. The good news is that momentum is building for such a solution. The war in Ukraine has focused the world's attention on energy security and supply chains for fuel, including nuclear fuel. Russia has 44% of the world's uranium enrichment capacity, and there isn't enough non-Russian enrichment to fuel the world's reactors.
Like I said it has to be public private partnership we are in the private sector and ready to step up and do our part sentras looks forward to leading the way.
With that I'm going to turn things over to Kevin. So he can walk you through some more of the numbers Kevin.
Thank you Amir and good morning, everyone.
Sensors had an exceptional fourth quarter in 2023, but I'm going to.
Focus my comments on the full year numbers, which we believe are most meaningful given the variability in quarter to quarter revenue recognition.
Our <unk> customers have multi year contracts to carry annual purchase commitments not quarterly commitments, we record the revenue in the quarter the customer elects to take delivery.
<unk> of those deliveries varies depending on the market conditions at the time the contract was signed.
Because of this variability in volumes and prices from quarter to quarter, we always encourage listeners to focus on the annual performance.
Amir Vexler: Russia and China together have almost 60% of the world's enriched uranium... Although the U.S. House of Representatives passed legislation late last year to prohibit the importation of Russian nuclear fuel, there is a growing understanding in the industry and among policymakers that transitioning away from dependence on Russia will take years and require investment in new domestic capacity. The transition away from reliance on Russian material must be carried out in an orchestrated manner to maintain market stability. The market urgently needs a new American producer to expand the diversity and security of supply. And we are the best positioned company to fill that role. As a first step, the Department of Energy released an RFP last month to begin purchasing HALU. Establishing a demand signal to bring new capacity online.
For the full year 2023, our revenue net income and cash balances are up significantly from a year ago.
Our <unk> business generated $269 million in revenue in 2023.
An increase of $33 4 million compared to the prior year, mainly driven by higher sales volumes for both swoop in uranium.
Our cost of sales went from $105 million in 2022 to $163 9 million in 2023. This was driven not only by higher volumes, but also by higher purchase prices.
That means that our gross margins in 2023 were down slightly from 2022, but we're still profitable at 39%.
We ended the year with a gross profit of $105 1 million in the <unk> segment compared to $136 million in 2022.
Yeah.
This was largely offset by our technical solutions segment, where we achieved a $19 7 million improvement in gross profit compared to 2022.
Amir Vexler: We are well positioned to compete for that work as the only U.S. owned and U.S. technology enricher in the marketplace, especially since we could offer the fastest pathway to large-scale halo production. In addition, members of both parties in the House and Senate are advancing legislation to make a multi-billion dollar investment in uranium enrichment. Sometimes it may seem like the parties can't agree on much, but they agree on this: Late last year, both houses passed and the president signed legislation as part of the National Defense Authorization Act creating a new program aimed at expanding U.S. production of both LEU and HALO. To provide funding for that effort, the administration proposed $2.2 billion as part of a supplemental funding request.
Company wide, our gross profit was $112 1 million only slightly down from $117 9 million in the prior year.
<unk> solutions revenue for 2023, it was $51 2 million against cost of sales of $44 2 million.
That compares to revenue of $58 2 million against cost of sales of $70 9 million in the prior year.
These differences year over year were driven by a one time expense of $21 3 million recognized in 2022, which represented the company's portion of its anticipated cost share under phase one.
And as Amir mentioned earlier, we fulfilled our cost are obligations with the successful completion of phase one the contract has now transitioned to a cost plus incentive fee model.
In late 2023, we also took an important step to strengthen and derisk our balance sheet by purchasing an annuity contract to transfer $186 5 million in pension obligations for about 1400 of our retirees to an insurance company, who will pay the retirees in full.
Kevin Harrell: Fiscal Year 2024 Energy and Water Bill adopted in the House included $2.4 billion, while the Senate version included $800 million. And just this week, the Senate included $2.72 billion for domestic enrichment on a national security supplement. Like I said, it has to be a public-private partnership. We are in the private sector and ready to step up and do our part. Centrus looks forward to leading the way. With that, I'm going to turn things over to Kevin so he can walk you through some more of the numbers. Kevin
That represents about 41% of our obligations under the largest of our two pension plans and more than 30% of our total pension obligation as of December 31 2022.
This action resulted in a $28 6 million gain for the company in the fourth quarter, which is reflected in the nonoperating components of net periodic benefit income line of our income statement.
Our net defined benefit pension liability at year end was $70 3 million down from $43 6 million a year ago.
Our pension liability has decreased by approximately 90% since the beginning of 2015, when it was $179 3 million.
Kevin Harrell: Thank you, Amir. Good morning, everyone. Centrus had an exceptional fourth quarter in 2023, but I'm going to focus my comments on the full year numbers, which we believe are most meaningful given the variability and quarter-to-quarter revenue recognition. Our LEU customers have multi-year contracts to carry annual purchase commitments, not quarterly. We record revenue in the quarter the customer elects to take delivery; pricing of those deliveries varies depending on the market conditions at the time the contract was signed. Because of this variability in volumes and prices from quarter to quarter, we always encourage listeners to focus on the annual price.
This was approximately four times our market cap at that time.
As of today, our pension liability is around 3% of our market cap.
We ended the year with a cash balance of $201 $2 million with an additional $32 6 million in restricted cash for a total of $233 8 million.
Our strong cash position not only enables us to manage our obligations and make strategic investments in our future, but it also generated $8 7 million worth of interest income for the year.
With that let me turn things back over to Amir.
Thank you.
As Kevin just outlined 2023 was a tremendously successful year.
I came to central because I believe it is essential for the United States to restore a domestic uranium enrichment capability at scale and this is the company that could do it.
In my view it was a tragic mistake for our country to have abandoned uranium enrichment effectively seeding its leadership position to Russia.
Kevin Harrell: For the full year 2023, our revenue, net income, and cash balance are up significantly from a year ago. Our LEU business generated $269 million in revenue in 2020, an increase of $33.4 million compared to the prior year, mainly driven by higher sales volumes for both SWOO and Uranium. Our cost of sales went from $105 million in 2022 to $163.9 million in 2023. This was driven not only by higher volumes but also by higher procurement. That means that our gross margins in 2023 were down slightly from 2022, but we're still profitable at 39%. We ended the year with a gross profit of $105.1 million in the LEU segment, compared to $130.6 million in 2022. This was largely offset by our technical solution segment, where we achieved a 19.7 million improvement in gross profit compared to 2020. Company-wide, our gross profit was $112.1 million, only slightly down from $117.9 million in the prior year.
It's put America's energy security at risk It limited our global influence. It also left the gaping hole in our defense supply chain since the country no longer has the ability to enrich uranium for national security missions.
This was in default of any one party or administration. It was a gradual erosion that unfolded over decades, what matters now is that we come together and fix it centrist is working closely with the department of energy both parties in Congress and our industry partners to forge a path forward that will enable us.
The reclaimer energy security and restore America's nuclear fuel supply chain.
With that we're happy to take your questions operator.
Thank you 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 he was a three movie a question from the queue for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Please ask one question and one follow up question and then re queue for additional questions.
Our first question is from Alex Alex Rygiel with B Riley Securities. Please proceed.
Yeah.
Hi, Good morning. This is actually men on for Alex I want to welcome you to mirror.
Look forward to building relationship going for it but congratulations on a really strong year.
So it sounds like phase two is set to be completed by November 2024, despite deliver.
Delivering less than the 9900 kilograms of Halo do you have any sense for the timing of phase three or just any updates on that that is moving forward.
Yeah.
Yes. Good morning, Thank you Ashley I appreciate the kind words and well wishes.
Your question is about phase III of the Halo operations contract as I understand it then you're specifically asking if we know whether the government will utilize its options under the contract.
Kevin Harrell: Technical Solutions' revenue for 2023 was $51.2 million against a cost of sales of $44.2 million. That compares to revenue of $58.2 million against a cost of sales of $70.9 million in the prior year. These differences, year over year, were driven by a one-time expense of $21.3 million recognized in 2022, which represented the company's portion of its anticipated cost share under Phase I. And, as Amir mentioned earlier, we fulfilled our cost-share obligations with the successful completion of Phase 1. The contract has now transitioned to a cost-plus-incentive model. In late 2023, we also took an important step to strengthen and de-risk our balance sheet by purchasing an annuity contract to transfer $186.5 million in pension obligations for about 1,400 of our retirees to an insurance company who will pay the retirees in full.
Yes, obviously, if that's if that's the question I have.
No ability to speculate that that is the government discretion.
It's their option all I can say is we've performed out of the contract.
Very well.
I think that.
<unk> has been noted in the well regarded but at the end of the day phase III as their option.
Okay.
<unk>.
And just a quick question about your pension obligation. So it looks like you had transfer Indiana Union retirees what are your plans for the rest of your pension obligation and kind of timing.
Yeah.
Read that question Ben Thanks for the question and good to talk to you again as well.
So we.
We're very proud of what we did in the past year as it relates to that pension annuity Asian, we were in a unique position based upon the markets that we have been evaluating and the third part of last year to third quarter of last year.
To be in a position to get favorable terms for a portion of our.
Kevin Harrell: That represents about 41% of our obligations under the largest of our two pension plans and more than 30% of our total pension obligation as of December 31st, 2022. This action resulted in a $28.6 million gain for the company in the fourth quarter, which is reflective in the non-operating components of the net periodic benefit income line of our income system. Our net defined benefit pension liability at year end was $17.3 million, down from 43.6 million a year earlier.
Pension benefit.
Community and what we're what we're doing from a future looking perspective is constantly evaluating it we have regularly reviews of what our remaining pension errors that exists on our balance sheet are at this point in time, and we will evaluate further derisking.
Don't have any definitive plans today, but a lot of what we do is looking at the market.
And what the market conditions are and how we can actually realize benefits to continue to derisk our balance sheet.
Great I'll get back in queue. Thank you.
Thank you Matt.
Our next question is from Rob Brown with Lake Street Capital markets. Please proceed.
Hi, good morning, and congratulations on a strong quarter and year and also welcome him here.
Thank you.
A question on the.
Kevin Harrell: Our pension liability has decreased by approximately 90% since the beginning of 2015, when it was $179.3 million. This was approximately four times our market cap at that time. As of today, our pension liability is around 3% of our market. We ended the year with a cash balance of $201.2 million, with an additional $32.6 million in restricted cash for a total of $233.8 million.
Payload contract in 900 kilograms that remain.
Thank you.
And I get to the full number but maybe just describe how.
To what degree that you can't deliver because of the cylinders.
I guess, what's the economic impact in terms of revenue too et cetera for the year does that does that.
So over to you.
The following year or how does that work.
Okay. So.
I think it was.
I think it was communicated in the past as well I'm sure. It has because I think I listen to some of these discussions before.
But under this halo operations contract.
We are contractually required to provide five be cylinders that are required to collect the output of the cascade.
But.
They really did not.
Amir Vexler: Our strong cash position not only enables us to manage our obligations and make strategic investments in our future, but it has also generated $8.7 million worth of interest income for the economy. With that, I will turn things back over to him. Thank you. As Kevin just outlined, 2023 was a tremendously successful year. I came to Centrus because I believe it is essential for the United States to restore a domestic uranium enrichment capability at scale, and this is the company that could do it. In my view, it was a tragic mistake for our country to have abandoned uranium enrichment, effectively ceding its leadership position to Russia. It put America's energy security at risk, it limited our global and, It also left a gaping hole in our defense supply chain since the country no longer has the ability to enrich uranium for national security missions. This wasn't the fault of any one party or administration.
They had some supply chain challenges that created difficulties for the deal with the security of these <unk> cylinders.
And.
As mentioned earlier the delivery of the nine nine kilograms as really being conditioned on their ability to deliver those cylinders to us in the timeframe that allows for continuous production phase II.
Yeah.
During the period, when the <unk> visa or insufficient the company will not be able to produce the halo.
We are discussing here, but.
But we will be able to continue operations of the Cascade and perform preventive maintenance and other regulatory compliance activities over there.
We.
Dissipate that the delay in obtaining these cylinders is really temporarily it's a temporary issue.
But as mentioned earlier, we will no longer be able to achieve and I think kilograms.
Really don't expect an economic impact here.
Okay. Okay. Thank you.
And then I think you talked about another RFP or at least last month from the Doe could you update on sort of the timelines on when responses are due and how the way to therapy difference differs from some of the other ones that have come out.
Okay.
There is there is to request for proposal that came out.
Yeah.
One was for.
The deep conversion.
Operator: It was a gradual erosion that unfolded over decades. What matters now is that we come together and fix it. Centrus is working closely with the Department of Energy, both parties in Congress, and our industry partners to forge a path forward that will enable us to reclaim our energy security and restore America's nuclear fuel supply chain. With that, we're happy to take your questions. Operator. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question area. Press Star 2 if you would like to remove your question from the..., for a participant, or equipment, it may be necessary to pick up your handset before pressing the start key.
And that's due next week.
And there is one that came out later on for the enrichment of Halo and I believe that one is due on March the 20 seconds.
And.
To your question how is it different well it is a long awaited and anticipated RFP. It is critical.
RFP to be able to ensure that the <unk> program and the reactors.
<unk> has really been funding the development of which.
Are going to be able to fuel so.
It is an important RFP for us we intend to and we're working very hard to answer and participate in both.
As you can imagine that plays right to our Switzerland, sweet spot, particularly the enrichment part of it and we intend to be part of it.
I Hope I hope I answered your question.
Okay. That's.
That's great. Thank you and if I could just ask one more about the purchase price kind of activity in the margins at this point.
Ashley Min: Please ask one question and one follow-up question and then requeue for additional questions. Our first question is from Alex Rygiel with B. Riley Security. Hi, good morning. This is Ashley Min on behalf of Alex.
What are the sort of the dynamics on the purchase prices in the contracts at this point do you expect gross margins I guess to stay.
Kind of stable, where they're at or do you see any trend changes in the gross margin going forward.
Ashley Min: I want to welcome you, Amir, and look forward to building a relationship here going forward. But congratulations on a really strong year. So it sounds like Phase 2 is set to be completed by November 2024, despite delivering less than 900 kilograms of HALU. Do you have any idea for the timing of Phase 3, or just any updates on if that is moving forward? Thank you, Ashley. I appreciate the kind words and well wishes.
Okay. So I'm, assuming that that you were asking about the <unk> business.
Yes, correct.
Okay. So the question is kind of rephrase it to make sure I understand that you are asking how are the current market price is going to affect margins going forward.
Yes, it's really about gross margins going forward either either market prices are contracted prices or the purchase prices on the on the material you are buying.
This appointment so.
As you probably know we have a supply type contracts and we have contracts in which we sell the material.
Amir Vexler: Your question is about phase 3 of the HALO operations contract, as I understand it, and you're specifically asking if we know whether the government will utilize its options under the contract. I have no ability to speculate on that; I guess that is at the government's discretion. It's their choice. All I can say is we've performed under the contract very well. I think our performance has been noted and well regarded, but at the end of the day, phase three is already there. Okay. And just a quick question about your pension obligation, so it looks like you transferred via union retirees. What are your plans for the rest of your pension obligation and what kind of timing?
Both of them have certain parts of the contract that is tied to market.
And the market pricing does effect.
<unk>.
It affects the supply one way and the other way it affects the sale.
On.
On the other way as well, although not able to provide any forward looking guidance I'm kind of trying to paint the picture of how things work.
So on one hand.
Youre supplied material is affected by market, but you also sell at prices that are affected by market.
Unfortunately, I can't give you any specific forward looking statements, but I hope I gave you enough information yet.
Yeah, that's perfect. Thank you I'll turn it over.
Okay.
Our next question is from Joseph Reagor with Roth. Please proceed.
Hey, guys. Thanks for taking my question and welcome mirror to the.
13.
Thank you Phil.
Who.
I know that we're not going to get a guidance answer here, but.
Maybe a different question on.
If you look at your contracts that you had in 2023 that led to the revenue you generated.
Kevin Harrell: I'll feed that question, and thanks for the question, and good to talk to you again as well. So we're very proud of what we did in the past year as it relates to that pension annuitization. We were in a unique position, based upon the markets that we had been evaluating in the third part of last year, the third quarter of last year, to be in a position to get favorable terms for a portion of our pension benefit community. And what we're doing from a future-looking perspective is constantly evaluating it. We have regular reviews of what our remaining pensioners that exist on our balance sheet are at this point in time, and we will evaluate further de-risking. We don't have any definitive plans today, but a lot of what we do is look at the market and what the market conditions are and how we can actually realize benefits to continue to de-risk our balance sheet. Great. I'll get back in the queue.
Are there any <unk>.
Additional contracts that were added that will be for 2024 without quantifying how much that is and where there any contracts in 2023 that roll off in 2024, just so we kind of have an idea of the puts and takes of.
You know kind of the total.
Number of contracts out there.
Yes, thanks for the question Joe.
Unfortunately that type of detail, we don't typically provide.
The one thing that I would highlight is that we consistently have a robust order book sales order book of $1 billion and we've had.
That trending at that number for multiple years and I would also highlight the fact that we had $189 million of new sales.
And so as we've articulated in the past, we do have a high level of visibility going out through 2030 with regards to our sales order book, but we couldnt get into any specifics as it relates to how those would matriculate over the next coming years.
Either for 2024 sales are ones in the past.
Operator: Thank you. Thank you, man. Our next question is from Rob Brown with Lake Street Capital Markets. Hi, good morning, and congratulations on a strong quarter and year. Also, welcome. Thank you. My question is really on the payload contract of 900 kilograms that are left. I think you will not get to the full number, but maybe just describe how much you can't deliver because of the cylinders and, I guess, what's the economic impact in terms of revenue to Centrus for the year. Does that really flow over to the following year, or how does that work? Okay, so. I think it was...
Okay.
Fair enough and then on the question the prior caller just asked about on margins.
I think historically there.
Some expectation that you had some contracts that were much higher margin that had been locked in and you had a one time reset option.
And those contracts were expected to roll off I can't remember if it was 2023 clean 'twenty four 'twenty 'twenty five.
And that therefore, there would be some kind of natural decline in margins, but it hasnt really shown up so is that a demonstration you guys have done a really good job of locking in new higher margin contracts or is that.
That there has been a slight decline, but that's it that's all we can expect.
No from a margin perspective, and specifically touching upon the legacy based contracts that you referenced I Wouldnt know, we still have about $282 6 million of deferred revenue.
Rob Brown: I think it was communicated in the past as well, I'm sure it has, because I think I listened to some of these discussions before. But under this Halo operations contract, as you know, the DOE is contractually required to provide 5B cylinders that are required to collect the output of the cascade. But they really did not...
On our books and those are predominantly legacy based contracts with higher priced.
Terms as well as margins. So we will anticipate those to continue to roll off in the future and as you noted I mean.
In EMEA earlier.
We contract with customers.
You do get favorable conditions based upon where market prices are today, so margins have been favorable based upon where market conditions are in the current year and also on the market commodity pricing.
Amir Vexler: They had some supply chain challenges that created difficulties for the GeoWeek in securing these five B-cylinders. And, you know, as mentioned earlier, the delivery of the 900 kilograms has really been conditioned on their ability to deliver those cylinders to us in the time frame that allows for continuous production phase two, you know, during the period when the 5B's are insufficient, the company will not be able to produce the halo. Disgusting.
Curve that currently exists that reflects those higher pricing mechanisms as well so.
I would anticipate that to.
To your point that we will see higher margins for some of the recent sales as well as the legacy ones still rolling off in future years.
Okay is it possible to ask one additional question before I turn it over.
Yes, absolutely.
So.
In the fourth quarter, you guys had some of this the lumpy uranium sales right.
Amir Vexler: But we will be able to continue operations of the cascade and perform preventive maintenance and other regulatory compliance type activities over there. You know, we anticipate that the delay in obtaining these cylinders is really temporary. It's a temporary issue. But as mentioned earlier, we will no longer be able to achieve 900 kilograms. We really don't expect an economic impact.
And historically the expectation on those would be that there would be very low margin.
Is it fair to assume that the margins were a little better than it's been historically in Q4, given the run up in uranium prices during the quarter.
That would be an accurate assessment, yes.
Fair enough I'll turn it over thank you.
Thank you.
As a reminder, the star one on your telephone keypad, we will pause for a brief moment to see if there's any final questions.
Yes.
Okay with no further questions in the queue I would like to turn the conference back over to Lindsay for closing remarks.
Amir Vexler: Okay. Thank you. And then I think you talked about another RFP released last month from the DOE. Could you update on sort of the timelines on when responses are due and how the latest RFP differs from some of the other ones that have come out? There were two requests for proposals that came out. One was for the deconversion, and that's due next week, and there's one that came out later on for the enrichment of HALU, and I believe that one is due on March the 22nd. And to your question, how is it different?
Thank you operator, this will conclude our investment investor call for the fourth quarter and full year 2023, as always I want to extend a thank you to our listeners online and our investors who called in and we look forward to speaking with you again next quarter.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
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Amir Vexler: Well, it is a long-awaited and anticipated RFP. It is critical. RFPs would be able to ensure that the ARDP program and the reactors that the DOE has really been funding their development are going to be able to fuel.
Amir Vexler: So it is an important RFP for us. We intend to, and we're working very hard, to answer and participate in both. As you can imagine, it plays right to our sweet spot, particularly the enrichment part of it, and we intend to be part of it. I hope I've answered your question. Yeah, that's great.
Rob Brown: Thank you. And if I could just ask one more about the purchase price kind of activity in the margins at this point, You know, what are the dynamics of the purchase prices in the contracts at this point? Do you expect gross margins, I guess, to stay kind of stable where they're at, or do you see any trend changes in the gross margin going forward? Okay, so I'm assuming that you are asking about the LEU business. Yes, correct.
Okay.
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[music].
Okay.
Amir Vexler: Okay, so the question is, I'm going to rephrase it to make sure I understand it, you're asking how the current market prices are going to affect margins going forward? Yeah, it's really about gross margins going forward, either market prices or contracted prices or the purchase prices on the material you're buying. As you probably know, we have a supply type contract, and we have contracts in which we sell the material. Both of them have certain parts of the contract that are tied to the market. And the market pricing does affect, on the one hand, you know... It affects the supply in one way, and in the other way, it affects the sale, on the other way as well.
Amir Vexler: Although I'm not able to provide any forward-looking guidance, I'm kind of trying to paint a picture of how things work. So, on the one hand... You know, your supplied material is affected by the market, but you also sell at prices that are affected by the market. Unfortunately, I can't give you any specific forward-looking statements, but I hope I gave you enough information. Yeah, that's perfect. Thank you. I'll
Operator: Our next question is from Joseph Rieger with Roth MKM. Hey guys, thanks for taking the question and welcome to the team. Thank you. So I know that we're not going to get a guidance answer here, but
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Joseph Rieger: Maybe a different question on, as you look at your contracts that you had in 2023 that led to the revenue you generated, were there any additional contracts that were added that'll be for 2024 without quantifying how much that is and whether there were any contracts in 2023 that roll off in 2024 just so we kind of have an idea that puts and takes of you know kind of the total number of contracts out there. Yeah, thanks for the question, Joe. Unfortunately, that type of detail we don't typically provide.
Kevin Harrell: The one thing that I would highlight is that, you know, we consistently have a robust order book, a sales order book of a billion dollars, and we've had that trending at that number for multiple years. And I would also highlight the fact that we had 189 million in new sales. And so, as we've articulated in the past, you know, we do have a high level of visibility going out through 2030 with regard to our sales order book, but we couldn't get into any specifics as it relates to how those would matriculate over the next coming years, either for 2024 sales or ones in the past. Okay, fair enough.
Kevin Harrell: And then on the question the prior caller just asked about margins, I think historically there was some expectation that you had some contracts that were at a much higher margin that had been locked in, and you had a one-time reset option, and those contracts were expected to roll off. I can't remember if it was 2023, 2024, 2025, and that, therefore, there would be some kind of natural decline in margins, but it hasn't really shown up. So is that a demonstration that you guys have done a really good job of locking in new higher-margin contracts, or is it that there has been a slight decline, but that's it? Is that all we can expect?
Joseph Rieger: No, from the margin perspective and specifically touching upon the legacy-based contracts that you referenced, I would note we still have about $282.6 million of deferred revenue on our books, and those are predominantly legacy-based contracts with higher-priced SWU terms as well as margins. So we will anticipate those to continue to roll off in the future. And as you noted, I mean, and Amir earlier, as we contract with customers, we do get favorable conditions based upon where market prices are today. So margins have been favorable based upon where market conditions are in the current year and also on the market commodity pricing curve that currently exists that reflects those higher pricing mechanisms as well. So I would anticipate, to your point, that we will see higher margins for some of the recent sales as well as the legacy ones still rolling off in future years. Is it possible to ask one additional question before I turn it over?
Joseph Rieger: Yes, absolutely. In the fourth quarter, you guys had some lumpy uranium sales, right? And historically, the expectation on those would be that they'd be very low-margin.
Kevin Harrell: But is it fair to assume that the margins were a little better than historically in Q4, given the run-up in uranium prices during the quarter? Yes. Okay, fair enough.
Joseph Rieger: I'll turn it over to you. Thank you. As a reminder, to press one on your telephone keypad, we will pause for a brief moment to see if there are any final questions. Okay, with no further questions in the queue, I would like to turn the conference back over to Lindsay for closing. Thank you, Operator.
Lindsay Geisler: This will conclude our investor call for the fourth quarter and full year 2023. As always, I want to extend a thank you to our listeners online and our investors who called in. We look forward to speaking with you again next quarter. Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
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