Centrus Energy Corp.
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Operator:]

Greetings, and welcome to the Centrus Energy First Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Don Hatcher, Director of Investor Relations. Please proceed sir.

[Don Hatcher:]

Thank you, Tania. Good morning, and thank you for joining us. Today's call will cover the results for the first quarter of 2017 that ended March 31. Here today for the call are Dan Poneman, President and Chief Executive Officer, Steve Greene, Senior Vice President, Chief Financial Officer and Treasurer and John Dorrian, Controller and Chief Accounting Officer. Before turning the call over to Dan, I would like to welcome all our callers as well as those listening to 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 be available later this morning on the Centrus website. I would 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, May 10, 2017, unless otherwise noted. This call is the property of Centrus Energy. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Centrus is strictly prohibited. Thank you for your participation, and now I will turn the call over to Dan Poneman.

[Dan Poneman:]

Thank you, Don and thank you all for joining us. This was an important quarter for our company, particularly in terms of our balance sheet and our long-term financial health. When I joined Centrus as CEO in 2015, one of the biggest challenges we faced, was $247 million in long-term debt on our balance sheet. Another was the long running discussions we have had with the pension benefit guarantee corporation, regarding the status of the qualified pension plan. These issues have been a top priority for me since day one and I am very pleased to report that both were successfully resolved in the first quarter. On February 14, we completed an exchange offer covering most of our remaining debt, combined with a note repurchase we executed in 2016, the result is that we have reduced expansible on our debt by $143 million which is a 58% reduction compared to the end of 2015. The due date is also going to be extended to 2027 and the vast majority of the remaining debt making it easier for us to manage and giving us long-term stability that our customers are looking for when they signed long-term contract with us. Once that exchange offer was completed, we reached a favorable resolution of the outstanding issues that have been raised by the pension benefit guarantee corporation. In their notification to us, the PBGCs specifically said that the progress we have made in reducing and restructuring our long-term debt. The success of the exchange offer help produced a positive net income for the quarter of $7.6 million but more importantly it put us in a stronger financial position looking forward. One of the strength of our Company is that our nuclear fuel revenues come from long-term contracts that obligate customers to an annual purchase commitment, we have contracts in place stretching out more than a decade. The customer has the flexibility to determine the timing of the delivery within the year and we recognized the revenue in whatever quarter we feel is delivered. That means that our nuclear fuel revenue often varies widely in quarter-to-quarter. That's just the fact that has arisen in this industry. Despite that fact, we remain on track for our annual revenue and we have good visibility into that revenue. In 2017, our customers have elected to take delivery of the contracted purchase commitment later in the year, so revenues from nuclear fuel sales during quarter were less than $1 million, we expected that to happen and are not allowing [indiscernible]. As we noted in our annual 10-K filling, we anticipate that more than two-thirds of our annual revenue will be booked in the fourth quarter of this year and most importantly we are reaffirming our annual guidance of $200 million to $225 million in total annual revenue including $175 million to $200 million in nuclear fuel sales over the course of the full year. We are also continuing to reach out to our customers that aggressively for new business and to develop new opportunities to grow the company. We are looking at opportunities and Asia and elsewhere and of course here in the United States, which remains the largest and most important market from the world. As I mentioned a moment ago, we are in a long-term business. The notes exchange we completed in February was a culmination of many months of work and the actions we are taking today will take time to show-up on our bottom line. But I am confident that we are headed in the right direction to remain reliable supplier in the international nuclear fuel market in the years to come. And with that, let me turn the things over to Steve Greene.

[Steve Greene:]

Thank you, Dan, and good morning, everyone. As Dan mentioned, this has been a good quarter for us from the long-term perspective of the business. With the successful notes exchange program, we have substantially reduced our long-term debt and extended repayment of much of the remaining debt to 2027. This balance sheet improvement positions us to grow the business in the future. Our improved long-term outlook is further supported by the notice received from the PBDC in February resolving the outstanding issues and the agreeing to four payers regarding future actions related to the ongoing demobilization of the demonstration facility in Piketon. Finally, we received notice from the New York Stock Exchange from NYSC MCC on the April 28th that the company is back in compliance with the exchange's continued listing standard. And now a quick review of the financial results for the quarter. We generated little revenue in our LEU segment as Dan mentioned in the first quarter, but those results were in line with our expectations and reflect the variability and timing of the utility customer orders. We continue to anticipate that more than two-thirds of our revenue for the year will be recognized in the fourth quarter due to the timing of customer deliveries. Total revenue for the quarter was $7.2 million most of which we generated in our contract services segment under our contract with Oak Ridge National Laboratory for continued work on our advanced U.S. enrichment technology. Cost of sales for the LEU segment declined consistent with the lower revenues, but included cost related to benefits for former employees at the gas distribution plants as well as $2 million for inventory storage costs. In the contract services segment, cost of sales decreased compared to the first quarter of last year in line with the reduced scope of work for the Oak Ridge contract. In total, we recorded a gross loss for the quarter of $2.5 million. Advanced technology licensing and decommissioning costs which consists of American centrifuge expenses that are outside of the company's Oak Ridge contract declined $5.9 million or 49% compared to the first quarter of 2016 as the prior period included demobilization costs in preparation for the DND of the American Centrifuge demonstration cascade. We've accrued $34.9 million for DND obligations and anticipate these activities will continue to occur through the end of the year and the final approval from Boe and NRC. SG&A increased $1 million compared to the first quarter of 2016 in part due to increases in consulting compensation and IT spending. We reported a net income of $7.6 million for the quarter primarily driven by the $33.6 million gain on the early extinguishment of debt through the notes exchanged. Finally, as Dan said, we continue to reaffirm our guidance on total revenue, LEU revenue and our end of year cash balance. I'll now turn the call back to Dan.

[Dan Poneman:]

Thanks, Steve. The bottom line is that I feel very good about what we've accomplished not only over the past three months, but over the last couple of years. We have cut our debt by more than half and extended payment terms until 2027, we've developed new supply sources to become the world's most diversified provider of growth and enrich uranium, we've met or exceeded our revenue target each year. We won new sales and built new strategic partnerships up and down the supply chain that will help us grow in the years ahead. We are continuing to maintain and advance our uranium enrichment technology, so that it will be ready when the nation need that, while today's low prices in the nuclear fuel market won't last forever, we are taking advantage of those prices to lock in long-term supply sources for our customers in the next decade and beyond. In short, we've been executing a long-term plan that has for concrete accomplishment and positioned us for future growth. I am pleased that the progress we are making and I continue to be optimistic about our future. And with that, we will be happy to take your questions. Thank you.

[Operator:]

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] There are no questions in queue. I would like to turn the call back to management for closing comments.

[Don Hatcher:]

Thank you, Tania. And that concludes our call for today. Thank you everyone for participating in the call and for your continued support.

[Operator:]

Thank you. You may disconnect your line at this time. And thank you for your participation.