Centrus Energy Corp.
Q3 2016 Earnings Call Transcript

Published: 12 Nov 2016

[Operator:]

Greetings and welcome to the Centrus Energy Corp Third 2016 Earnings Conference 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. It is now my pleasure to introduce your host, Mr. Don Hatcher, Director of Investor Relations. Please go ahead

[Don Hatcher:]

Thank you, Kevin. Good morning and thank you for joining us. Today’s call will cover the third quarter results for 2016, which ended September 30th. 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 later today. All of our news releases and SEC filings, including our 10-K, 10-Qs, and 8-Ks are available on our Web site. A replay of this call also will be available later this morning on 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 10, 2016, 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. I’ll now turn the call over to Dan Poneman.

[Daniel Poneman:]

Thank you, Don. And thank you all for joining us. In a minute I will turn things over to our CFO Steve Greene, who can walk through the numbers in greater detail. But let me hit a few of the high point and office and contact. For the bottom line upfront, we are on track to achieve our revenue guidance for the year in the range $275 million to $300 million. Our revenues from sales of nuclear fuel are mostly locked in as part of large multiyear contracts with major utilities around the world. The timing of those deliveries vary throughout the year with lower revenues when we have fewer deliveries that’s why if you look at our quarterly results over the year, you will notice that our revenues tend to very significantly from quarter-to-quarter. In the third quarter of 2016, we did not have a large number of deliveries, our revenue in the LEU business was $14.1 million with an additional $7.3 million in revenue from our contract with Oak Ridge National Laboratory. Based on the timing of customer orders, we expect that approximately 40% of our annual revenues will come in the fourth quarter and that we will meet our revenue guidance for the year. This is similar to what we saw last year when approximately 40% of revenues also came in the fourth quarter. In the third quarter of 2015, our LEU revenue was $8.8 million because we did not have very many deliveries. The variation between the third quarter and fourth quarter reflected the timing of our customer orders, and we met our annual guidance. We’re also on track to achieve our cash guidance for the year with a balance of $200 million to $250 million at the end of the year subject to a number of variables we outlined in the outlook section of our earnings release. The global price for uranium enrichment measured in dollars for separate work units has been declining in recent years as has the market price for uranium. While our total sales volumes in terms of sue in 2016 will be comparable to 2015, the average price billed to our customers will be lower this year. Our cost of sales for sue however will also be lower, that’s because the decline in market price overtime will reduce the average cost incurred for our supply. This has helped us to generate a gross profit of $11.9 million for the LEU business over the first nine months of 2016, for gross margin of 8.3%. Because we are no longer saddled with a high cost of operating and production facility, we have the opportunity to obtain low cost supplies for our customers and we are taking advantage of that opportunity. In fact it’s a key piece of our strategy to grow our business for the long-term. Turning to the contract services side of the business, as you know last year we successfully completed a three year demonstration effort [technical difficulty] potentially technology in Ohio, which have been funded under our contract with U.S. Department of Energy Oak Ridge National Laboratory. We are now moving ahead with decontaminating and decommissioning of our demonstration cascade in Ohio. The schedule of that work has changed after some delays we have experience in getting regulatory and administrative approvals. As a result, we have changed our work plan so that we will complete the work with a smaller work force but over a longer period of time. The delay has increased cost, but we believe the new schedule will reduce the risk of further delays and cost increases. Oak Ridge National Laboratory is continuing to fund our ongoing testing and technology development work at our State of the Art facilities in Tennessee. The good news is that in September, we reach an agreement with the laboratory to extend that work for an additional year through September 30, 2017. While the funding level is about 20% lower than it was under the previous contract it will allow us to continue proving the technology retain key skills and personal and ensure that it is ready when the nation needs it in the future. The U.S. Department of Energy has determined that this technology is the most technically advance and lowest risk option for future deployment of emerging capability. We are committed to continue our work to prefect that technology even as we remain open to new or improve technology as we continue to work towards our long-term goal to return to production when the market recovers in the future. In the meantime, we are focused on reducing our cost structure, growing our LEU business and taking steps to be well positioned for when the market does indeed recover. This is the long-term effort and the steps we are taking now will take some time before they are reflected in our bottom line. I’m confident in our team, proud of the progress we’ve made so far and optimistic about our future. And with that let me turn things over to Steve Greene.

[Steve Greene:]

Thank you, Dan. And good morning everyone. As Dan mentioned, we have a light sales volume in the third quarter due to the timing of customer orders this year, but we expect two deliveries for the full year to be comparable to last year, and a large amount of our deliveries will be made in the fourth quarter. We recorded a net loss of $41.3 million for the quarter and $58.8 million for the nine months period. Both of which are improvements from the comparable periods in 2015. We generated total revenue of $21.4 million for the quarter. This is down 7.8 million from 2015 due to lower revenues for our contract with Oak Ridge National Laboratory. Revenue in our fuel business for the quarter was up 5.3 million year-over-year to 14.1 million despite the small delivery volume. For the nine months, overall revenue was $174.8 million which is down 33% from 2015, primarily driven by lower contract services revenue and lower uranium sales for the period. We continue to affirm our revenue guidance for 2016 of total revenue between $275 million and $300 million. Cost of sales were down $30.1 million quarter-over-quarter, but the result in 2015 included a $21.6 million charge for pension re-measurement. Cost of sales for the nine months period was down $117.9 million, cost to sales in the three and nine months period this year also included a valuation adjustment for our uranium inventory. For the three months, our gross loss was $2.1 million an improvement of $22.3 million compared to 2015 also reflecting the pension re-measurement charge last year. For the nine month period we recorded a gross profit of 19.2 million, an improvement 32.4 million from a gross loss of 13.2 million in the nine months period. Our effort to demobilized our centrifuge facility in Ohio as to decontaminated and decommission our demonstration cascade at the site continued to result in charge to advance technology cost, which totaled $21.9 million in the quarter, and $38.6 million in the nine months period. Charges include approximately $15 million to increase the accrued D&D liability based on updated cost estimates that reflects changes in the approach and anticipated timeframe over which the work will be conducted. We’ve estimated the remaining cost to perform the D&D work will be within our range of approximately $39 million to $49 million and will extend through 2018. We have accrued approximately $39 million under short-term and long-term liabilities on the balance sheet. Charges to advance technology cost also reflects ongoing support cost to maintain our NRP licenses for the Piketon facilities. For the nine months of 2016, those costs totaled approximately $15 million, we anticipate we will incur these costs at a similar rate through completion of D&D which is projected to run through 2018. SG&A declined $2.8 million in the quarter, but increase $2.5 million in the nine month period, reflecting gains and losses from re-measurement of pension obligation and slightly higher consulting cost. On that note, I’ll now turn the call back to Dan.

[Daniel Poneman:]

Thanks Steve. Let me just say in closing that we feel good about the progress that we’re making. We’re working to reduce our cost, expand our basis supply and win new sales. We are committed to being the world’s most diversified supplier and taking advantage of lower market prices to offer affordable nuclear fuel to our customer. With long-term sales and supply agreements through at least 2026, and a proven track record of reliable on time deliveries we have a strong base to build on for the future. We are on track to meet our revenue guidance for the year, and to grow our business in the years ahead. Now with that, we’d be happy to take your questions. Thanks

[Daniel Poneman:]

Okay. It will conclude our today. And we thank everyone for your participation and support. And have a good day.

[Operator:]

Thank you. That does conclude today’s teleconference. You may disconnect your line at this time. And have a wonderful day. We thank you for your participation today.