Centrus Energy Corp.
Q4 2020 Earnings Call Transcript

Published: 23 Mar 2021

[Operator:]

Greetings. Welcome to Centrus Energy Fourth Quarter Year-End 2020 Earnings Call. Please note this conference is being recorded. At this time, I'll turn the call over to Dan Leistikow, Vice President, Corporate Communications. Mr. Leistikow, you may now begin.

[Dan Leistikow:]

Good morning, and thank you for joining us. Today's call will cover the results for Q4 and year-end 2020 ended December 31. Here today for the call are Dan Poneman, President and Chief Executive Officer; Philip Strawbridge, Senior Vice President and Chief Financial Officer, Chief Administrative Officer and Treasurer; and John Dorrian, Controller and Chief Accounting Officer.

[Dan Poneman:]

Thank you, Dan, and thank you to everyone on the call today. I am pleased to report that in 2020, despite the incredible challenges brought on by the COVID-19 pandemic, Centrus Energy returned to profitability. With total revenue growing to $247.2 million, we posted a net profit of $54.4 million. Driven by the rising value of our stock, we launched a public offering that raised about $25 million before expenses. We also completed a cash tender offer to retire approximately 60 million shares of Series B senior preferred stock, and did so at a 25% discount, creating more value for our Class A shareholders. These efforts have strengthened our balance sheet and benefited our shareholders, as reflected in recent stock performance. There are a number of factors driving the success, but none of it could have been possible without the hard work and incredible talent of our employees. I'm so proud of each and every one of them and all that we have accomplished together. At this time a year ago, the country had just entered lockdown. We could not have known at the time that extensive teleworking, masking and social distancing would be a part of our lives for so long, but everyone in the company has risen to the challenge. We have not only endured, we've gotten stronger. And I am convinced that the best is yet to come.

[Philip Strawbridge:]

Thank you, Dan, and good morning to everyone on the call. As Dan mentioned, for the year-end 2020, we had total revenue of $247.2 million and achieved net profit of $54.4 million. On an EPS, on an adjusted basis, that equates to about $4.71 diluted per share for the year.

[Dan Poneman:]

Thank you, Philip. Let me offer a final thought about the future of the nuclear industry and the important role we can play in it. As the United States and other countries confront the growing need for reliable carbon-free electricity, as we work to reduce emissions and combat climate change in the coming years, it is increasingly clear that nuclear energy must be part of the solution. In recent years, we've seen bipartisan action around the country to preserve existing reactors and bipartisan action at the federal level to deploy the next generation of advanced reactors. Most recently, in December, the Energy Act of 2020 was adopted as part of the Omnibus Appropriations Bill. Among other things, the new law is designed to promote deployment of advanced nuclear reactors, and specifically requires the Department of Energy to create a new program to make HALEU available by 2026 for civilian, domestic research, development, demonstration and . Centrus plans to be the first to come to market with HALEU. In addition to meeting the emerging commercial requirement for HALEU, we are also uniquely suited to meet the government's own requirements for HALEU and other forms of enriched uranium. The Department of Energy's National Nuclear Security Administration, for example, needs a supply of low-enriched uranium for the production of tritium, which is necessary to maintain our existing nuclear deterrent. They may also need HALEU, potentially in significant quantities, if the Department of Defense decides to move forward with microreactor deployments.

[Operator:]

Our first question comes from the line of Rob Brown with Lake Street Capital.

[Rob Brown:]

First question is on the SWU pricing environment. How that's been trending lately? And have you seen that change since the beginning of the year? And sort of what's your sort of view on how that's playing out here?

[Dan Poneman:]

So ever since, Rob, the market bottomed in August of 2018, we have seen a rising curve for SWU price, both spot and term prices. And those trends have continued. We have seen, as I think I indicated in my remarks, increased activity. As the uncertainty of the Russian Suspension Agreement and the lack of resolution behind that has gone away, a lot of the demand that had been basically withheld as people were not sure what was the import environment, that demand has now come to market. And that demand, in turn, has put some upward pressure on both term and spot prices. So we continue to observe those kinds of those trends. And we expect that general rising of prices to continue.

[Operator:]

Our next question is from Joseph Reagor with ROTH Capital Partners.

[Joseph Reagor:]

And congrats on a great finish to the year. So I know you guys don't give specific guidance, but could you give us any color on expectations this year versus 2020 and anything you can as far as the quarterly expectations? We're almost done with the first quarter already. So any color there would be great.

[Philip Strawbridge:]

Yes, Joe, I'll take that. I mean, if you look -- we did give some guidance, as you'll recall. We said that 20 -- 2021 and 2022, from a revenue perspective, we expect to be slightly higher than 2020, if you exclude that bankruptcy settlement. And we say that margins will be about the same, right? So again, what we anticipate on a quarterly basis is mixed, if you know what I mean. We don't give that guidance. So I'm kind of reluctant to say anything. But we do believe that where we're at right now, it will be probably a little more balanced than in previous years. But again, we don't give quarter-by-quarter guidance. So did that help?

[Operator:]

Our next question comes from the line of Richard Fels with Odeon Capital.

[Richard Fels:]

My question is a 2-part question. One, can you give us any view on Centrus' part in reestablishing production domestically? What would that look like in the next 3 to 5 years on a national scale? And does Centrus play a part in that? Or could you see Centrus playing a part in that?

[Dan Poneman:]

Yes. Do you want to say the other part of your question?

[Richard Fels:]

The other part is, depending on how you answer the question, do you think that you would use the favorable capital markets to raise additional capital to possibly control, produce, position yourself to be a beneficiary of the reestablishment of U.S. production facilities that is mandated by the government?

[Dan Poneman:]

Yes. Those are great questions. So thank you. So the short answer -- and thank you for the question. To the first question is yes. Centrus does view itself as an essential part of reestablishing the production of enriched uranium. The United States stopped enriching uranium in 2013. And this is the first time since 1945, this period, in which we have not had domestic-sourced, domestic technology uranium enrichment. And we have been focused like a laser on reversing that. And that's why we've been very grateful to the U.S. Department of Energy for entering into the cost share contract that I mentioned in my remarks. And notwithstanding COVID, which has been a tremendous challenge for all of us, but when one is dealing with building nuclear machines in an environment in which people can't telework all at the time, we've been very grateful that we've been able to manage the things so that we're actually on track, and we are working very well with the Nuclear Regulatory Commission. And by early next year, we will actually be starting production of this exciting new fuel form, this 19.75% High Assay Low Enriched Uranium with a Nuclear Regulatory Commission to cover that. So that does put us in a position. It's a modest cascade that we'll be beginning with just 16 machines in the first instance, but it is very much our ambition to build on that initial cascade a larger production capability. There was a survey performed by the Nuclear Industry Council of members of the advanced reactor community. And they were asked in the survey, what is the problem that keeps you up at night? And the number 1 answer was access to this special fuel form, this HALEU. And so we want to meet that demand. There's a variety of curves out there that talk about what the demand curve in this new fuel form will look like. But the good thing about our technology is it's modular. So we can meter out the deployment of additional centrifuges to not -- to neither underbuild or overbuild, but to meet that demand. And since you can build enrichment facilities faster than you can build reactors, that sort of relative time scale favors us in terms of measuring and planning. So we hope and expect to play a pivotal role in performing that function. It's also important to note that there are national security requirements that are also anticipated, apart from this Advanced Generation Community, for enriched uranium. And we are uniquely suited to be able to do that because, as I said in my remarks, we have the only U.S. origin technology that is deployable to meet those requirements. And there's a long, long history going all the way back to President Eisenhower who had to work over of the federal government and the commercial sector working in tandem so that the national security requirements in the nuclear energy sphere can actually be used to leverage and enhance the commercial prospects. That's exactly how the U.S. commercial industry was launched in Shipment Port, Pennsylvania back in 1957. So that's on your first question. On the second question, about the use of favorable capital markets. It was really gratifying to us, in this past year, 5 years after emerging from Chapter 11, we were finally able to do a public offering. We've raised equities. We have brought in 80% of our preferred and -- $80 million, that is. And we intend to continue to be focused on capital markets. And as we find opportunities to make good use of the cash that we've raised, that's something that's always on our menu of ways to do that. And it could benefit the company in a number of ways. The capital raises we've done before have, I think, as Philip indicated, facilitated our strengthening of our balance sheet through the preferred offer that we did to bring in our preferred shares this past year. But there are also other investment opportunities that might appear that would help us in our quest to return to production. And to the extent that the best use of capital that we might raise in capital markets would be dedicated to that, that's another option. We always look at the highest and best use of whatever cash we raise. And we always do keep an eye on the overall tenor of capital market, whether the moment is propitious for us to act.

[Operator:]

The next question is a follow-up from Joseph Reagor with ROTH Capital.

[Joseph Reagor:]

Just one more thing, kind of following on a little bit of the answer you just gave. With the improved balance sheet, is there an opportunity in the near term to look at either more preferred repurchases or some debt repayment or maybe a debt refi? Anything like that?

[Dan Poneman:]

Thanks for the question. And the answer is, we are always looking for those kinds of opportunities. And we have -- now that we've filed the K, we've been focused in the last few days, obviously, on doing that and closing our books and so forth. But we're always on the lookout for those kinds of opportunities. I can't tell you exactly today what we will or will not do, obviously. But it's something that we continuously monitor effectively on a daily basis when we will have opportunities to do that. And the bottom line is, for us, it's very, very important to continue to strengthen our balance sheet. We feel very good about the progress we made, going back to our earlier tender offer where we -- we're able to cut our debt load about 3 years ago by 60%. That was the first step. And then the preferred exchange that I've already mentioned in the remarks, and Philip mentioned. So each one of these steps has put us into a better position and has been part of why it's possible for us to access capital in a way that we've had in the past. So we'll continue to keep all these options on the table and to take advantage of them opportunistically when the conditions look favorable.

[Philip Strawbridge:]

And Joe, just as -- you'll note that last month, an 8-K that we filed, that we did do a little bit more preferred with one of the major holders of the preferred where we exchange for common. So yes, we'll continue to focus on that.

[Operator:]

Our next question is from the follow-up from the line of Rob Brown with Lake Street Capital.

[Rob Brown:]

I just want to get your thoughts on the kind of advanced reactor market. There's been -- in the last few months, there's a number of good movements, positive movements. But how do you sort of see you fitting into that? And how -- what are sort of the cadence of development work that sort of flows from that for you?

[Dan Poneman:]

Well, I sort of consider it like soup and sandwich, like the old commercial. That's a great question. And look, sometimes, in a very simple analogy, I talk about Henry Ford. And as he had said, I've got this great car called the Model T. I don't have gasoline. That would not have been a very good pitch, right? So we are absolutely essential to that advanced reactor community. And that's why the Congress passed legislation calling for the HALEU to be made available by 2026 and so forth. The advanced reactor community itself is very exciting right now, and in the advanced reactor development program that was managed and run by Department of Energy, which itself was a product of bipartisan legislation. Of the 10 awardees of that program, 9 of the reactor designs require HALEU. And indeed, both of the 2 largest awards, the ones that went for the actual construction of demonstration reactors, one was by -- won by TerraPower, one was won by X-energy. Both of them also require a HALEU. So we believe that we are integrally related to that growth. And in fact, you may have noticed back in September, TerraPower and ourselves, we issued a release talking about our work together. We have made it our business to basically engage with all developers. We want to be the preferred HALEU provider to that market. And you've probably seen the numbers published by Nuclear Energy Institute and elsewhere as to what those forward demand curves for the advanced reactor development community looked like. And it is our hope and expectation to be in tandem right there with the deployment of the reactors with the fuel supply to support them. And we feel very good about that, especially, because, as I mentioned, the cadence, if I can use the word cadence, is such that it's faster to build centrifuges than it is to build reactors. So we feel very good about being in a position to be able to calibrate our expansion of capacity to meet the demand that we expect to see in the advanced reactor community.

[Operator:]

Thank you. At this time, I'll turn the floor back to Dan Leistikow for closing remarks.

[Dan Leistikow:]

Well, thank you, operator, and thanks, everyone, for joining. It was a great discussion today. This will conclude our fourth quarter 2020 investor call. And we look forward to speaking with you all again next quarter.

[Philip Strawbridge:]

Thank you, all, for your time.

[Operator:]

Thank you, everyone. This will conclude today's conference. You may now disconnect your lines at this time. Thank you for your participation.