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

Q2 2019 Centrus Energy Corp Earnings Call

BETHESDA Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Centrus Energy Corp earnings conference call or presentation Monday, August 12, 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 the Centrus Energy Corp. Second Quarter 2019 Earnings Call. (Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the call over to your host, Mr. Dan Leistikow, Vice President, Corporate Communications for Centrus Energy. Thank you. You may begin.

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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 second quarter of 2019 ended June 30. 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 release issued Friday 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 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 12, 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 those joining us today. We are pleased with the developments that occurred in the second quarter, which I will speak to you in a minute.

But first, in our financial results, we generated revenue of $10.6 million for the quarter, split between uranium sales and our contract services work. We did not generate revenue from sales of separative work unit, or SWU, during the quarter. This merely reflects the timing of our customer deliveries for the SWU sales we have under contract for this year. We expect that most of these deliveries will happen in the second half of the year, as had been the case in recent years, and we will recognize that revenue when we make deliveries.

In addition, based on developments during the quarter, we are updating our 2019 guidance for both revenue and end-of-year cash balance. There are additional contracts signed for the contract services segment and new sales deliveries occurring in low-enriched uranium, or LEU, segment. We are now projecting full year total revenue to increase and be in a range between $205 million and $230 million.

The LEU segment's revenue will also increase to a range of $155 million to $180 million. Our cash balance at year-end is now projected to decrease and will be in a range of $105 million to $125 million, reflecting the timing of expenses and collections associated with the increased revenues. This projected cash balance reflects the anticipated repayment of the PIK Toggle Notes due next month, which had a balance of $27.5 million at June 30. Most importantly, we continue to expect that we will return to profitability next year.

As we announced in May, we had signed a letter agreement with the U.S. Department of Energy to begin construction of a new cascade of our AC-100M centrifuge machines that will demonstrate the technology's capability to produce high-assay low-enriched uranium. We expect to sign a definitized contract later this year. We believe that the new contract with U.S. Department of Energy will position Centrus as a global leader in demonstrating the ability to produce new, advanced nuclear fuel to power the next generation of reactors around the world. 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. With it, Centrus is taking an important step toward resumption of the uranium enrichment, which will support both segments of our business in the future.

While this agreement requires cost sharing with the federal government, we believe that the long-term net benefit for Centrus is well worth the investment as it allows us to resume enrichment with U.S.-origin technology and to maintain the talent and the facilities necessary to deploy a commercial enrichment capacity in the future.

As part of the new contract, we have extended our lease of the Piketon, Ohio plant site with the U.S. Department of Energy and have decided to maintain our licenses with the U.S. Nuclear Regulatory Commission to build and operate uranium enrichment demonstration and commercial facilities at the site.

In addition, DOE has returned our surety bond collateral of $13.5 million, which is held for the previous lease termination activities. DOE will be responsible for any decontamination and decommissioning of the demonstration facility, so we no longer need to carry collateral bonds to backstop such activities in the future.

In the contract services segment, we continue to work diligently on a fuel fabrication facility designed for X-energy. This work is proceeding on schedule, and we expect to extend our efforts upon completion of the current contract in November.

In the LEU segment, we are seeing increased demand for enrichment and uranium as utilities contract for supply in the 2020's. With enrichment prices stabilizing and showing an upward trend, fuel buyers are now looking to book long-term supply contracts. We feel well positioned to supply many of these contracts and are actively working with customers around the world to win these opportunities.

Finally, I would like to extend of my personal thanks to Marian Davis for her tremendous service to Centrus over the past 8 years, including as our CFO since early 2018. Marian will be leaving Centrus after this quarterly filing, and we wish her the very best in her future pursuits.

And with that, I will turn the call over to Marian one last time to discuss the quarterly financial results. Marian?

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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 joining us today.

We generated $10.6 million in total revenue in the second quarter. This is a 73% decrease from the second quarter of 2018 and primarily reflects a lack of separative work unit deliveries in our LEU segment for this quarter. We continue to expect revenue to be heavily weighted to the second half of the year, consistent with prior years.

We have updated our guidance and now expect total revenue to be in the range of $205 million to $230 million, reflecting the anticipated definitized contract with the Department of Energy for high-assay, low-enriched uranium and additional sales in our LEU segment.

We had a gross loss of $4.3 million in the quarter, an improvement of $6.4 million from the second quarter of 2018, reflecting lower cost of sales and higher prices for uranium sold.

Special charges or credits for workforce reductions and advisory costs were down $3.2 million from the second quarter of 2018. As a result of the letter agreement with the U.S. Department of Energy, special charges in the 3 and 6 months ended June 30, 2019, included a credit of $2.9 million for the reversal of accrued termination benefits for employees who were retained at the company's facility in Piketon, Ohio.

SG&A expenses continued to decline and were down 21% or $2 million from the second quarter of 2018. For the 6 months period, expenses declined $5.1 million or 24%, reflecting lower compensation, benefits and consulting costs.

For the bottom line, we recorded a net loss of $15.6 million for the second quarter, an improvement of $10.5 million or 40% over the second quarter of 2018, reflecting a decline in the gross loss, special charges and SG&A expenses.

We had a cash balance of $88.3 million at June 30. We are updating our full year cash guidance and expect to end 2019 with a cash balance of $105 million to $120 million. This year-end estimate includes the expected third quarter cash outlay to redeem the 2019 PIK Toggle Notes due next month.

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.

Finally, I want to express my thanks to Dan, the entire management team, the finance and accounting organization and our investors. I've enjoyed working with you.

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.

I will close by saying how excited I am about the opportunities we are pursuing in the nuclear fuel space. Centrus and its partners are establishing a U.S. source of fuel supply for the next generation of nuclear technologies. If nuclear power is to play a significant role in the efforts to stem climate change, these new reactors will be needed around the world and here at home to provide reliable, emissions-free electricity. The work our teams are doing to design, build and operate the fuel cycle of the future positions us to meet this demand as it emerges. I want to thank our shareholders and partners and stakeholders for their continued support of our efforts.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Mr. Leistikow there are no questions at this times. I'll turn the floor back to you for any final questions.

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

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Thank you, operator. Since there's no questions at this time, this will conclude Centrus' Second Quarter 2019 Investor Call. I want to thank our listeners online and the investors who dialed in. We look forward to speaking with you again in the future.

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Operator [3]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.