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Edited Transcript of LEU earnings conference call or presentation 9-May-19 12:30pm GMT

Q1 2019 Centrus Energy Corp Earnings Call

BETHESDA May 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Centrus Energy Corp earnings conference call or presentation Thursday, May 9, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dan Leistikow

Centrus Energy Corp. - VP of Corporate Communications

* Daniel B. Poneman

Centrus Energy Corp. - CEO, President & Director

* Marian K. Davis

Centrus Energy Corp. - Senior VP, CFO & Treasurer

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Presentation

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Operator [1]

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Greetings and welcome to Centrus Energy First Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Dan Leistikow, VP of Corporate Communications. Please proceed, sir.

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Dan Leistikow, Centrus Energy Corp. - VP of Corporate Communications [2]

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Good morning. Thank you for joining us. Today's call will cover the results for the first quarter of 2019 ended March 31. 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, I'd like to welcome all of 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 also be available later this morning on the Centrus website.

I'd like to remind everyone that certain of the information we may discuss on this call today may be considered forward-looking information that include -- 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, March -- May 9, 2019, unless otherwise noted.

This call is the property of Centrus Energy. Any transcription, redistribution, retransmission or rebroadcast of the call in any form without the express written consent of Centrus is strictly prohibited.

Thank you for your participation, and I will now turn the call over to Dan Poneman.

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Daniel B. Poneman, Centrus Energy Corp. - CEO, President & Director [3]

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Thank you, Dan, and thank you to everyone joining us today. We had a good start to 2019 with increased revenues and lower expenses, providing strong validation of the efforts we have made to improve the business in recent years.

For the quarter, our revenues were $38.7 million driven by higher uranium sales. Below the gross profit line, our SG&A and advanced technology expenses were down year-over-year providing $4.2 million in savings. We are on track to meet our guidance on revenue and cash for the full year, and we are reiterating that guidance today. As we discussed on the call last quarter, we expect to generate sufficient cash from operations in 2019 to pay the PIK Toggle Notes due in September, which had a balance of $27.5 million at March 31 and still end 2019 with a cash balance in the range of $120 million to $140 million.

As we discussed in our last conference call, our largest supply contract contains a price set -- reset provision. The new improved pricing went into effect at the beginning of this year. Because the cost of sales we report is a rolling average, it will take some time to be fully reflected in our cost-of-sales and bottom line numbers.

With the price reset in place, we are positioned to benefit as market prices for enrichment continue to rise. The published spot market price indicator for enrichment increased in September for the first time since late 2010. We have now had increases in 7 of the last 8 months, a 29% increase from the low in August of last year.

While we recorded a $20.8 million net loss for the quarter, we expect to see the benefits from lower purchase costs for our enrichment supply having a larger effect as we progress through the year, improving our margins in the LEU business and decreasing our net losses. We continue to expect a return to profitability next year, 2020.

This is made possible by both the price reset that occurred at the end of 2018 in our contract with TENEX as well as the supply we have contracted for in recent years to other suppliers and our purchases of stranded material from the market.

In our LEU segment, we also secured new sales contracts during the quarter, which raised our long-term order book up to $1.1 billion as of March 31. We are actively working on many other opportunities as utilities come off the sidelines to procure material needed in 2020, and we feel confident in our ability to catch a significant portion of that demand.

In the Contract Services segment, we continue to negotiate with the Department of Energy on the contract to build a high-assay, low-enriched uranium demonstration cascade, utilizing our improved AC-100M centrifuge technology, and we expect that to be concluded in the near term. This work is critical to ensuring that the United States has a reliable, long-term domestic source to support commercial and military projects to deploy advanced reactors that will need this new form of nuclear fuel.

Also in the advanced reactor market, our work for X-energy on the TRISO fuel fabrication plant design and licensing continues to be on track, and we believe the project holds significant long-term potential to meet the need for next-generation nuclear fuel for both existing and advanced reactors.

Now I'd like to turn the call over to Marian, who has more details on the quarter's financials.

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Marian K. Davis, Centrus Energy Corp. - Senior VP, CFO & Treasurer [4]

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Thank you, Dan, and good morning to everyone listening today. As Dan mentioned, we generated $38.7 million in total revenue in the first quarter. This is an 8% increase over the first quarter of 2018 and reflect higher uranium sales in our LEU segment, which was up 65% from the first quarter of 2018. We are reiterating our annual guidance and still anticipate that more than half of our revenues will come in the second half of the year due to the timing of customer order in the LEU segment and timing of execution of agreements in the Contract Services segment.

We had a gross loss of $5.5 million in the quarter, a slight improvement of $0.1 million from the first quarter of 2018. But our gross loss in the LEU segment of $3.2 million was an improvement of $10.3 million due to higher uranium sales volumes and margins and a decline in the average cost of sales per separative work unit.

We expect to see improving results as the year progresses as our cost of sales decreases with lower purchase costs that are anticipated in future quarters. Advanced technology license and decommissioning costs, which consist of American Centrifuge expenses that are outside of the company's contracts in the Contract Services segment, decreased 14% or $1.1 million for the first quarter of -- from the first quarter of 2018 reflecting lower expenses on the license termination work at our Piketon facility.

SG&A costs were also down for the quarter, decreasing 28% or $3.1 million. While this reflects timing of certain expenses that would normally be recognized in the first quarter, we still expect to see a significant decline in our SG&A expenses year-over-year compared to 2018.

For the bottom line, we recorded a net loss of $20.9 million for the quarter, an improvement of $4.1 million or 16% over the first quarter of 2018. We had a cash balance of $87.9 million at March 31, and we continued to expect to end 2019 with a cash balance of $120 million to $140 million. As Dan mentioned, this year-end estimate is after the cash outlay to redeem the 2019 PIK Toggle Notes due in September.

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 April and the 10-Q we will file later today.

With that, I'll turn the call back over to Dan.

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Daniel B. Poneman, Centrus Energy Corp. - CEO, President & Director [5]

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Thank you, Marian. In closing, I would like to say that we are all working each and every day to strengthen Centrus' role as the trusted partner to utilities and companies in the nuclear industry around the world. Whether that is supplying reliable, cost-effective fuel options for reactors operated today or developing the cutting-edge fuels for the next generation of reactors, our employees and management team see the potential before us and are excited about the opportunities we are pursuing. The world needs more nuclear power, and we intend to be a part of making it a successful solution to the energy challenges facing humanity today.

I would like to thank our shareholders and stakeholders for your continued support of our mission and our efforts to contribute to the national effort to reestablish U.S. global leadership in uranium enrichment while bringing our customers the energy solution that they needed to support nuclear energy's contributions to a clean energy future.

Operator, we are happy to take any questions at this time.

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Operator [6]

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(Operator Instructions) There are no questions in queue. I would like to turn the conference back over to Mr. Dan Leistikow for closing comments.

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Daniel B. Poneman, Centrus Energy Corp. - CEO, President & Director [7]

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Since there are no questions at this time, this will conclude Centrus' First Quarter 2019 Investor Call. I want to extend a thank you to our listeners. We look forward to speaking with you again next quarter.

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Operator [8]

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Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.