Centrus Energy Corp.
Q2 2017 Earnings Call Transcript

Published: 5 Aug 2017

[Operator:]

Good morning, and welcome to the Centrus Energy Corporation Second Quarter Conference Call. At this time all participants are in listen-only mode. An interactive questions 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 Mr. Don Hatcher, Director of Investor Relations. You may begin, sir.

[Don Hatcher:]

Thank you, Jerry. Good morning, and thank you for joining us. I apologize for the delay. There was a large influx of calls that had to be sorted out. So with that behind us, today's call will cover the results for the second quarter of 2017 that ended June 30. 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'd 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 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'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, August 3, 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 I'll now turn the call over to Dan Poneman.

[Dan Poneman:]

Thank you, Don; and thank you, all, for joining us today. During the past two years, we have worked to rebuild the company with a view to achieving a lighter cost structure and an improved business model that can take advantage of the current market dynamics of oversupply and lower prices. While this week has brought yet another reminder of the challenges new nuclear construction faces, we continue to believe that the opportunities both in the United States and in the global nuclear market give Centrus plenty of headroom to grow in the years ahead, with more than 500 reactors currently operating or under construction around the world. We are also encouraged by the President's initiative to expand and revitalize the US nuclear industry, and by Secretary Rick Perry's campaign to, "Make nuclear cool again." They have clearly articulated what all Americans know; that the United States has been and must remain a global leader in nuclear energy. The critical importance of nuclear safety, nonproliferation and national security demand no less. In support of this effort, our centrifuge, engineering and operation staff in Oak Ridge, Tennessee, continue to test our leading US uranium enrichment technology in support of a future national security role. They are improving upon our AC100 machine that successfully operated in a demonstration cascade in Ohio, for three years. With that demonstration complete, we are safely progressing with the D&D of the cascade in preparation for returning the facility to the Department of Energy in 2019. We remain open to finding a productive use for that Piketon facility. We continue to focus sharply on controlling our costs and schedule for the remainder of the project, and are working hard to complete it on time and on budget. In our LEU fuel business, we continue to see limited demand in the near term. At the same time, however, we offer our utility customers a diverse mix of long-term supply sources and a strong history of reliable delivery with a view to extending and expanding our customer relationships as opportunities arise. We believe that this combination will bring benefits to our shareholders a few years out when industry forecasts indicate a coming wave of demand. For this quarter, our results were in line with our expectations and we are on track to meet our annual guidance for both cash and annual revenue. We expect that we will recognize more than half of our revenue in the fourth quarter as customers continue their preference for deliveries near the end of the year. For more details on the financials, I will now turn the call over to our CFO, Steve Greene.

[Steve Greene:]

Thank you, Dan; and good morning, everyone. As Dan mentioned, our results were in line with our expectations and keep us on track for the year. We generated $44 million total revenue for the quarter, $37.9 million of which was from our LEU segment. Our revenues for the quarter declined compared to the prior year as a function of the volume and pricing of the particular deliveries made in the quarter. We continue to expect total revenue for the year of $200 million to $225 million, including $175 million to $200 million in the LEU segment. Cost of sales for the quarter totaled $48.3 million, reflecting declines in SWU sales volumes and the average cost of sales per SWU compared to the prior year, and the reduced scope of contract work with Oak Ridge National Laboratory. We recorded a gross loss of $4.3 million for the quarter, with the decline in gross profit from the same quarter in 2016, primarily due to a decline in the average SWU price, slightly offset by a decline in the average SWU cost. These differences are a function of the particular deliveries made in the quarter, and we do expect a positive gross profit for the LEU segment for the full year 2017. Advanced technology licenses and decommissioning costs which consist of American Centrifuge expenses that are outside of the company's contracts with Oak Ridge National Lab, declined $6.2 million or 37% for the six-month period ended June 30, 2017, compared to 2016. In the six-month period, D&D costs of $11.5 million were charged against the accrued D&D liability, which stood at $27.2 million as of June 30. SG&A expenses declined $2.8 million for the second quarter compared to the 2016 period, reflecting lower consulting, compensation and benefits costs. We recorded a net loss of $14.8 million for the six months ended June 30, 2017, compared to a net loss of $17.5 million in the 6 months ended June 30, 2016. The favorable variance is primarily the result of gains on the early extinguishment of debt as well as decline in advanced technology costs and interest expense, offset by the decline in gross profit. As I mentioned earlier, we continue to affirm our guidance on total revenue for the year and our end of year cash balance, recognizing the key factors described in our financial disclosures. And with that, I'll turn the call back over to Dan.

[Dan Poneman:]

Thank you, Steve. I'll close today by saying that regardless of the day-to-day ups and downs in our industry, the world needs the clean, reliable electricity produced by the commercial nuclear power fleet. Customers in many countries recognize the benefits of a diversified energy mix with a substantial nuclear component. And with nearly 450 reactors already in operation, the opportunities for Centrus to continue its longstanding role as a trusted supplier of on-time, on-spec nuclear fuel will continue in the years to come. Over the past two years, we've positioned Centrus to capitalize on this long-term market through the development of a diverse supply mix, listening carefully to our customers and addressing their needs, and continuing to develop advanced technology so that we will be ready to restore our nation's uranium enrichment capability whenever it is needed either for national security or for commercial purposes. I'm excited about where we are today and the possibilities for growth that we are pursuing. And with that, we would be happy to take your questions.

[Operator:]

Thank you. [Operator Instructions] Gentlemen, at this time we have no one queuing up for questions.

[Don Hatcher:]

We can conclude the call then.

[Operator:]

Ladies and gentlemen, this is the end of the conference call. Thank you for participating. You may disconnect your phones.