LEU Q3 2018 Earnings Call
Operator: Welcome to the Centrus Energy Corporation Q3 2018 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, [indiscernible]. Please go ahead, sir
Dan Leistikow: Good morning. Thank you for joining us. Today's call will cover the results for the third quarter 2018 ended September 30. Here today for the call are Dan Poneman, President and Chief Executive Officer; Marian Davis, Senior Vice President, Chief Financial Officer and Treasurer; and John Dorrian, Controller and Chief Accounting Officer. Before turning the call over to Dan Poneman, I'd like to welcome all of our callers as well as those listening on our webcast. This conference call follows our earnings news release issued yesterday afternoon. We expect to file our quarterly report on Form 10-Q this afternoon. All of our news releases and SEC 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. I'd like to remind everyone that certain of the information that 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 statements. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements is contained in our filings with the SEC, including our Annual Report on Form 10-K and quarterly reports on Form 10-Q. Finally, the forward-looking information provided today is time sensitive and is accurate only as of today, November 08, 2018 unless otherwise noted. This call is the property of Centrus Energy. Any transcription, redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Centrus is strictly prohibited. Thank you for your participation. And now, I'll turn the call over to Dan Poneman.
Dan Poneman: Thank you, Dan and thank you to everyone joining us today. Our results this quarter of $34.1 million in total revenue were in-line with our expectations. We continue to be on track to meet our annual guidance for the year on revenue and end of year cash balance which we are reaffirming today. While the commercial nuclear industry has faced many difficulties in the past decade, I am encouraged about Centrus' future prospects based on the developments we have seen in recent months. Our core nuclear fuel business is getting stronger as we continue to add to our order book. We do business in a highly competitive marketplace, but one advantage we have is that we do not have a high fixed costs that come with a commercial productions facility. We've been able to secure long term supplies from a variety of sources at a time when prices have declined to historic lows and solidify our position as the most diversified supplier in the market. Through September 30, our cost of sales per SWU has declined about 15% compared to the same time last year. We anticipate that it will decline again in 2019, with further decreases in subsequent years because of lower pricing in new supply contracts and contract adjustments on existing contracts. We are starting to see prices firm up at an opportune time. In September the UxC spot price indicator for SWU showed the first increase in 94 months going all the way back to November 2010, and while two months does not make a trend, the spot price indicator went up again in October. With this movement on pricing, we're also starting to see more activity on the demand side in both the U.S. and international markets. Since nuclear fuel is sold under a multi-year contract that can stretch a decade or more into the future and inventories have been high, many fuel buyers have flexibility to wait while prices were declining. Many of them are now coming off the sidelines and starting to place their orders for the 2020s, which means that we will have a growing number of opportunities to win new sales in the next several years. Our customers understand the value we provide them through competitive pricing, supply diversity and reliable delivery, and they are responding favorably. This combination provides us with a steady path for growth in the fuel business that is lower risk in the short term than operating in commercial facility and has plenty of opportunity in the long term. At the same time, we are much more than just fuel supplier. We have been intensely focused on diversifying the range of work we do for the nuclear industry, as well as other industries where our strengths in engineering, manufacturing, program management and plant operations are critical to success. Those efforts are bearing fruit and producing revenue. For example, we are continuing to work under contract with X-Energy, a pioneering reactor technology and fuel company, to develop a fuel fabrication facility for next generation reactor fuel. The advanced reactor market is one that we believe could be very important to us in the future. Many of these companies will be going to market in the next decade with innovative reactor designs that can be deployed faster, cheaper and more predictably in the current fleet. This will enable more countries to take advantage of the benefits of nuclear power while allowing existing nuclear operators to replace their current operating fleet, which will reach the end of their useful lives in the coming decades. Centrus has an important role to play not only in fueling these plants but also in helping the reactor companies design, engineer and manufacture components for their new models. For example, in September we announced a Memorandum of Understanding with Doosan Heavy Industries to pursue opportunities in the advanced reactor market as well as in others that would capitalize on our engineering and manufacturing capabilities in Tennessee. We are in the initial stages of this effort, but we are honoured to be working with a company that has such a strong track record in the industry. If the United States wants to continue its leadership in the global nuclear market, we will need to be able to fuel these new reactors in the future. A major component of that will be providing a new kind of nuclear fuel utilizing high-assay, low enriched uranium. While no domestic facility can produce its material today, we see great opportunity for our centrifuge technology to be used for this purpose in the future. In the meantime, we have continued to advance our cutting edge centrifuge technology under our contract with Oak Ridge National Laboratory. This and earlier contracts have been funded incrementally over the past few years, and we are continuing to perform work to our expected milestones as we work toward a successor agreement. In addition to that effort, in early October we announced a new work authorization to conduct a decontamination and decommissioning project for the U.S. Department of Energy in Oak Ridge, Tennessee. We obtained that work due to the capabilities we demonstrated in our D&D work in Piketon, Ohio. The project will generate $15 million in revenue and enable us to further demonstrate a new business line emerging from our diverse technical capabilities. Now for more details on the quarterly financial results ,I will turn the call over to Marian.
Marian Davis: Thank you, Dan and good morning to everyone on the call. We had $34.1 million in revenues in the third quarter, bringing the total to $109.2 million for the first nine months of the year, and we expect that nearly half of our annual revenues will come during the fourth quarter, as has been the case in recent years. As we regularly remind listeners on the call our revenues tend to vary significantly from quarter to quarter based on the timing of when we make our deliveries and the prices under those particular contracts. With most customers signed to multi-year contracts with annual purchase commitments, we recommend investors focus on our annual guidance rather than on any one quarter. We continue to reaffirm our annual guidance of total revenue in a range of $175 million to $200 million. We had a gross profit of $7.8 million this quarter a decrease of $3.5 million compared to the same period of 2017. For the nine months, we had a gross loss of $8.2 million primarily reflecting a greater concentration of LEU sales made under contracts that reflects lower prices under more recent market conditions. As we have noted this quarter and last, we expect our cost of sales to decline in 2019 and subsequent years, which will lead to an improvement in the gross profit measure. Advanced technology license and decommissioning cost, which consists of American Centrifuge expenses that are outside of the company's contract with Oak Ridge National Laboratory, increase $1.3 million for the quarter and $4.2 million for the nine month period compared to 2017, reflecting additional spending on the terminations of our NRC license and the DOE license for the American Centrifuge facility in Piketon, Ohio. With the D&D work at Piketon complete, most costs at the facility are now being charged to expense, rather than the accrued D&D liability, and include a greater allocation of facility cost at the site, following the relocation of certain corporate functions to an offsite facility. With the completion of D&D, we are also actively working with NRC to have the surety bond cancelled, which would permit Centrus to receive the $16.3 million of cash collateral. SG&A expenses declined $2.2 million, or 20%, this quarter compared to last year and were down $3.4 million, or 10%, for the nine months period compared to 2017, reflecting our recent efforts to align the cost structure of the company with our current business. For the bottom line we recorded a net loss of $7.8 million for the quarter compared to a net loss of $8.5 million in the same quarter of 2017. Cash as of September 30, 2018 was $125 million, and consistent with our annual guidance, we expect our cash balance at the end of the year to remain between $100 million and $125 million. As always, this guidance is subject to the factors described in the outlook section of our SEC filings, specifically the annual report on Form 10-K filed in March and the 10-Q we will file later today. Now I'll turn the call back over to Dan.
Dan Poneman: Thank you, Marian. I want to offer one final comment today. Over the past few years Centrus, like many others in the industry, has worked through a period of profound change while facing significant challenges in a very difficult market. The past three years have demonstrated that we have an incredible team assembled that can find solutions and execute on them even against imposing odds. But now things are changing. Separative work unit prices appear to have finally stopped their slide, demand is picking up, our supply costs are going down. We are winning new sales. We are not just a fuel company anymore. We are working on advanced reactor fuel, we are an advanced manufacturer, we are a D&D contractor. We have developed revenue producing activities today that did not exist at Centrus three years ago, and we've only just begun to scratch the surface of what our technical team can do. I want to thank our brilliant, innovative, tenacious employees who have never failed to deliver for us, and I cannot wait to write the next chapter with you. Finally, I want to thank our investors for your support of Centrus over the years. No one ever said that this would be easy or that success would happen overnight, but as more and more customers see the value the Centrus can provide, I am convinced that will build value for our investors and stakeholders as well. Operator we are happy to take any questions at this time.
Operator: [Operator Instructions]. Our first question is from Joshua Nahas of Foxhill Capital. Please go ahead. Joshua Nahas, Foxhill Capital Partners, LLC:
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Operator: [Operator Instructions]. We have no further questions. Do you have any closing comments?
Dan Leistikow: Thank you, Operator. That will conclude our third quarter 2018 investor call. I want to send a thank you to our listeners online and our investors who call in. We look forward to speaking with you again next quarter.