Centrus Energy Corp. (LEU) Q2 2015 Earnings Report, Transcript and Summary

Greetings. And welcome to the Centrus Energy Corporation Investor 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 Risk Management. Thank you, sir. You may begin.

Thank you. Good morning and thank you for joining us. Today’s call will cover the second quarter of 2015 that ended June 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 Dorian] [ph], Assistant Controller. 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 August 7th and our 10-Q filed the same date. 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 also 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 maybe 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 26, 2015 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.

Thanks, Don. Good morning and thanks for joining us. As I said in my remarks to shareholders in May, we are strongly committed to better communication with our investors and that include doing regular investor calls to discuss our quarterly and annual results. Obviously, we hope to hold this call a couple of weeks ago when we release the 10-Q, but we ran into some scheduling conflicts regardless, we still felt it will be valuable to hold the call and answer any questions you might have. I am going to offer a short high level snapshot of where we have been, where we stand and where we are headed, and I will turn it over to our new Chief Financial Officer, Steve Greene, who will briefly comment on the results that were reported earlier in the 10-Q. Without question, the last few years have been difficult for our industry and for Centrus. As you know, the consequences of the Fukushima disaster have included a substantially depressed global market for nuclear field and the shutdown of the Paducah production facility in 2013 has changed the nature of the supply mix we used to meet the demands of our customers. The end of the 20-year Megaton to Megawatt deal has had a major impact on Centrus as the failure to obtain a loan guarantee to build the ACP. On a positive note, Kyushu Sendai 1 reactor restart in Japan has commenced and it is expected to resume commercial power generation by September. To be sure, there is still a long road to go but if nuclear generation continues to recover in Japan it will be good news not only for our industry, but more importantly for the people of Japan and for efforts to reduce carbon emissions. In spite of the challenges of recent years, I believe we are making progress and are headed in the right direction. We put a renewed emphasis on meeting our customers’ needs, which has been well received as you’ve seen in our 10-Q, our costs are declining, our margins are improving and our cash balance remained strong. Having restructured our balance sheet last fall, we’ve substantially reduced our debt so that we can better navigate the challenges of the current business environment and we are bringing a new leadership to reinvigorate our approach to customers and opportunities and to drive our future growth. Our workforce is now about one-third of what it was just two years ago. Getting to that point has been very painful and we are grateful everyday for the contributions of the outstanding workforce that we’ve been able to retain. I’m so impressed by their skill, their commitment and their passion. Having made some very difficult changes in recognition of the changing market realities, we are now positioned as a more nimble company that can act quickly to seize emerging opportunities and meet the long-term needs of our customers. To that end, yesterday I was pleased to announce the upcoming appointment of two Senior Vice Presidents who will be tasked with growing our sales and extending our reach into new markets. Together, they combine six decades of experience in the nuclear industry and posses the creativity and strategic insight required to help our company grow again. Effective October 1st, Kevin Alldred will be our Senior Vice President for Business Strategy. Kevin will be charge with the strategic planning and the development of new business opportunities that will advance Centrus’ shareholders interest through project development, contractual arrangements and strategic business alliances. Kevin is coming to Centrus from the International Atomic Energy Agency and has been spearheading the establishment of IAEA’s new international fuel bank in Kazakhstan. He brings more than 30-years experience in dealing with international project and program management, nuclear field trading, isotope trading, sales and marketing and radioactive waste management. Effective September 1, Elmer Dyke will be our Senior Vice President for Business Operations and will be responsible for all aspects of our low enriched uranium business. This includes the sourcing, sales and delivery of LEU and uranium to customers in the United States and around the world. Elmer was most recently the Vice President for Sales at NAC International where he drove the company’s business development and sales efforts around the world. He has also served as Senior Vice President of NAC’s Global Consulting business and also led Booz Allen Hamilton’s business practice on nuclear nonproliferation and nuclear security. We are also continuing our partnership with the Department of Energy and Oak Ridge National Laboratory to conduct research, development and demonstration of the American Centrifuge technology. And while the current market conditions don’t support the deployment of a new production facility at this time, if and when the United States decides that it needs domestic enrichment capacity to support its national security and nonproliferation objectives, we stand ready to support that mission. Looking at the longer term, we continue to take steps to maintain our option to deploy the American Centrifuge technology for commercial production as markets improve. On the commercial side, we are continuing to be very aggressive in going after new business. We are intently focusing on diversifying our sources of supply to better serve our customers and deliver value to our customers and shareholders in the coming years. And I am firmly committed to our workforce in Maryland, Ohio, Kentucky, and Tennessee. I want to ensure that Centrus continues to be a great place to work so we can continue to add that value that our customers and shareholders expect. So with that, I would like to turn it over to Steve Greene, who was recently asked to take on a new role here at Centrus as our Chief Financial Officer. Steve?

Thank you, Dan. Good morning, everyone. I am going to briefly summarize the results given that they have already been available for some time. Revenue for the second quarter was $63.3 million and $231.1 million for the six month period of 2015. The volume of SWU sales declined 63% and 46% in the three and six month periods of 2015 compared to 2014, reflecting the variability and timing of utility customer orders and the expected decline in SWU deliveries in 2015. The average price billed to customers for sales of SWU increased 9% in both the three and six month periods, reflecting the particular contracts under which SWU were sold during the period. Cost of sales declined in both the three and six month periods of 2015 compared to the same periods in 2014 due to lower SWU sales volume and charges in the prior year periods related to the wind down of the Paducah Gaseous Diffusion Plant. Gross profit increased $0.8 million in the three months period and $28.6 million in the six month period ending June 30, compared to the prior year periods and we achieved the gross profit margin of 4.8% for the six month period. Since May 2014, we have been performing the American Centrifuge research and development activities and cascade operations for Oak Ridge National Laboratory as a subcontractor to UT-Battelle. Revenue and costs related to this contract are reported above the gross profit line in the contract services segment. Substantially all of our ongoing American Centrifuge costs are supported by revenue from this agreement. Project costs outside of this agreement, including certain demobilization and maintenance costs, are reported below the gross profit line in advanced technology costs. The demobilization of American Centrifuge activities associated with the transition from the RD&D Agreement to the active agreement is substantially complete. We expect to incur an estimated $1 million to $2 million in additional demobilization cost during the remainder of 2015. In the six-month period ended June 30, 2015, advanced technology costs were $5.8 million. In the six-month period of 2014, advanced technology costs were $51.3 million, reflecting development work performed under our prior agreement with DOE. Selling, general and administrative expense declined 38% in the three-month period and 15% in the six-month period compared to the same period of 2014, reflecting decreases in salaries, benefits and other compensation, offset by higher consulting costs and office-related expenses. Centrus reported a net loss for the second quarter of $15.1 million, compared to a net loss of $28 million in the same quarter of 2014. For the six-month period ended June 30, 2015, we’ve reported a net loss of $30.5 million, compared to a net loss of $78.8 million in the same period last year, reflecting increases in gross profit for the LEU segment and declines in advanced technology costs and reorganization items, partially offset by amortization of intangible assets that resulted from our reorganization. Turning to cash, we reported a cash balance of $218.5 million at June 30, 2015. Monetization of inventory purchased or produced in prior periods provided cash flow in the six-month period ended June 30, 2015. The sales deliveries exceeded product received under SWU purchase agreements. In the 10-Q filed on August 7th, we again reiterated our guidance for 2015 that we expect total revenue in the range of $425 million to $450 million and in end of year cash balance in the range of $175 million to $200 million. That concludes our remarks for today's call. Now I’d like to turn it over to the Operator for any questions.

Thank you. [Operator Instructions] It appears we have no questions at this time. I’d like to go back over to management for any additional concluding comments.

No additional comments, again we’d like to thank everyone for your participation on the call and with that, we’ll conclude the call and have a nice day.

Thank you all.

Thank you. Ladies and gentlemen, this does conclude today’s teleconference. We thank you for your participation and you may disconnect your lines at this time.