Greetings, and welcome to the Centrus Energy Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. A brief 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, Lindsay Geisler, Director of Corporate Communications. Thank you. Please go ahead.

Good morning. Thank you all for joining us. Today's call will cover the results for the fourth quarter and full year of 2023 and in December 31. Today, we have Amir Vexler, President and Chief Executive Officer, and Kevin Harrill, Chief Financial Officer. Before turning the call over to Amir Vexler, 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. They expect to file a report for the fourth quarter and full year 2023 on form 10K later today. All of our news releases and SEC filings, including our 10K, 10Qs, and 8Ks, are available on our website. A replay of this call will also be available later this morning on the Centres website. I would like to remind everyone that certain information 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 Centres. Our actual results may differ materially from those in our forward-looking statement. 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 10K and quarterly reports on form 10Q. Finally, the forward-looking information provided today is sensitive and accurate only as of today, February 9th, 2024, unless otherwise noted. This call is the property of Centres energy. Any transcription, redistribution, retransmission, or rebroadcast of the call in any form without the expressed written consent of Centres is strictly prohibited. Thank you for your participation, and I'll now turn the call over to Amir Vexler.

Thank you, Lindsay. And thank you to everyone on the call today. I've only been on the job for a few weeks, but I'm tremendously impressed with this organization and the people who make it run. This is a pivotal time. As the United States looks to transition away from imported nuclear fuels and bolster energy security, our country and our industry have never needed us more. As reactor developers race to commercialize next-generation reactor designs, a domestic source of advanced fuel for those reactors has never been more urgent. As utilities look to strengthen and diversify their fuel supply chain, the need for a new American source of uranium enrichment has never been clearer. And now that Centres has proven enrichment operation in Pyrton, our potential to meet these growing needs has never been greater. There is so much that this company can do for our country and our customers in the next few years, which is only possible because of the continuing support of our investors. I appreciate the chance to share a few thoughts with you today and look forward to our continuing dialogue in the months and years to come. We start from a position of strength, coming off of an outstanding year for the company. In 2023, Centres achieved $320.2 million in revenue, the highest in eight years. We delivered $84.4 million in annual profits, a 66% increase from 2022. We continue to add to our long-term order book in our LEU segment, which remains around $1 billion. And we ended the year with an unrestricted cash balance of close to $201.2 million, putting us in a strong position going forward. Our revenue growth was driven by a 14% increase in our LEU business segment, driven by larger sales volume of both, SWU and uranium.…

Thank you, Amir. Good morning, everyone. Centrus had an exceptional fourth quarter in 2023, but I'm going to focus my comments on the full-year numbers, which we believe are most meaningful given the variability in quarter-to-quarter revenue recognition. Our LEU customers have multi-year contracts to carry annual purchase commitments, not quarterly commitments. We record the revenue in the quarter the customer elects to take delivery. The pricing of those deliveries varies depending on the marking conditions at the time the contract was signed. Because of this variability in volumes and prices from quarter to quarter, we always encourage listeners to focus on the annual performance. For the full year 2023, our revenue, net income, and cash balance are up significantly from a year ago. Our LEU business generated $269 million in revenue in 2023, an increase of $33.4 million compared to the prior year, mainly driven by higher sales volumes for both SWU and Uranium. Our cost of sales went from $105 million in 2022 to $163.9 million in 2023. This was driven not only by higher volumes but also by higher purchase prices. That means that our gross margins in 2023 were down slightly from 2022 but were still profitable at 39%. We ended the year with a gross profit of $105.1 million in the LEU segment compared to $130.6 million in 2022. This was largely offset by our technical solution segment where we achieved a $19.7 million improvement in gross profit compared to 2022. Company-wide, our gross profit was $112.1 million, only slightly down from $117.9 million in the prior year. Technical solutions revenue for 2023 was $51.2 million against cost of sales of $44.2 million. That compares to revenue of $58.2 million against cost of sales of $70.9 million in the prior year. These differences year over…

Thank you. Just -- Kevin just outlined, 2023 was a tremendously successful year. I came to Centrus because I believe it is essential for the United States to restore a domestic uranium enrichment capability at scale, and this is the company that could do it. In my view, it was a tragic mistake for our country to have abandoned uranium enrichment, effectively feeding its leadership position to Russia. It put America's energy security at risk. It limited our global influence. It also left a gaping hole in our defence supply chain since the country no longer has the ability to enrich uranium for national security missions. This was in the fault of any one party or administration. It was a gradual erosion that unfolded over decades. What matters now is that we come together and fix it. Centrus is working closely with the Department of Energy, both parties in Congress and our industry partners to forge a path forward that will enable us to reclaim our energy security and restore America's nuclear fuel supply chain. With that, we're happy to take your questions. Operator?

Thank you. [Operator Instructions]. Our first question is from Alex Regal with B. Riley Securities. Please proceed.

Hi. Good morning. This is actually Min on for Alex. I want to welcome you, Amir. and look forward to building a relationship here going forward. But congratulations on a really strong year. So it sounds like Phase 2 is set to be completed by November 2024, despite delivering less than 90, the 900 kilograms of HALEU. Do you have any sense for the timing of Phase 3 or just any updates on if that is moving forward?

Yes. Good morning. Thank you, Ashley. I appreciate the kind words and well wishes. Your question is about Phase 3 of the HALEU operations contract. If they understand it, then you're specifically asking if we know whether the government will utilize its options under the contract. Obviously, if that's the question, I have no ability to speculate that and guess that. That is the government discretion. It's their option. All I can say is we've performed that in the contract very well. I think that our performance has been noted and well regarded, but at the end of the day, Phase 3 is their option.

Okay. Just a quick question about your pension obligation. So it looks like you transferred the other union retirees. What are your plans for the rest of your pension obligation and kind of timing?

Yes. I'll feed that question then. Thanks for the question and good to talk to you again as well. So we're very proud of what we did in the past year as it relents to that pension annuitization. We were in a unique position based upon the markets that we have been evaluating in the third part of last year, the third quarter of last year, to be in a position to get favorable terms for a portion of our pension benefit community. And what we're doing from a future looking perspective is constantly evaluating it. We have regularly reviews of what are remaining pensioneers that exist on our balance sheet are at this point in time and we will evaluate further de-risking. We don't have any definitive plans today, but a lot of what we do is looking at the market and what the market conditions are and how we can actually realize benefits to continue to de-risk our balance sheet.

Thank you, Min. Our next question is from Rob Brown with Lake Street Capital Markets. Please proceed.

Hi, good morning and congratulations on a strong quarter in year and also welcome Amir. My question is really on the pay-LUE contract of 900 kilograms that remain. I think you will not get to the full number, but maybe just describe how to what degree that you can't deliver because of the cylinders and I guess what's the economic impact in terms of revenue to DeCentres for the year? Does that flow over to the following year or how does that work?

Okay. So I think it was communicated in the past as well. I'm sure it has because I think I listened to some of these discussions before. But under this pay-LUE operations contract, as the deal we get contractually required to provide 5B cylinders that are required to collect the output of the cascade. But they really did not, they had some supply chain challenges that created difficulties for the deal we could secure in these 5B cylinders. And, as mentioned earlier, the delivery of the 99 kilograms has really been conditioned on their ability to deliver those cylinders to us in the timeframe that allows for continuous production Phase 2. During the period when the 5Bs are insufficient, the company will not be able to produce the halos that we're discussing here. But we will be able to continue operations of the cascade and perform preventive maintenance and other regulatory compliance that activities over there. We anticipate that the delay in obtaining these cylinders is really temporarily. It's a temporary issue. But as mentioned earlier, we will no longer be able to achieve the nine hundred kilograms. We really don't expect an economic impact here.

Okay, thank you. And then you talked about another RFP released last month from the DOE. Could you update on sort of the timelines on when responses are due and how the latest RFP difference differs from some of the other ones that have come through?

There's two requests for proposals that came out. One was for the de-conversion and that's due next week. And there's one that came out later on for the enrichment of Halo. And I believe that one is due on March the 22nd. And to your question, how is it different? Well, it is a long awaited and anticipated RFP. It is a critical RFP to be able to ensure that the ARDP program and the reactors that the DOE has really been funding the development of which are going to be able to fuel. So it is an important RFP for us. We intend to, and we're working very hard to answer and participate in both. As you can imagine, it plays right to our sweet spot to believe the enrichment part of it. And we intend to be part of it. I hope I answered your question.

Yes, that's great. Thank you. And if I could just ask one more about the purchase price kind of activity in the margins at this point, what are the sort of dynamics on the purchase prices in the contracts at this point? Do you expect gross margins, I guess, to stay kind of stable where they're at? Or do you see any trend changes in the gross margin going forward?

Okay, so I'm assuming that you're asking about the LEU business?

Yes, correct.

Okay, so the question is, I'm going to rephrase it, make sure I understand it. You're asking how are the current market prices going to affect margins going forward?

Yes, it's really about gross margins going forward, either market prices or contracted prices or the purchase prices on the material you're buying.

Yes, so as you probably know, we have a supply type contract and we have contracts in which we sell the material. Both of them have certain parts of the contract that is tied to market. And the market pricing does affect, on one hand, it affects the supply in one way and the other way it affects the sale on the other way as well. Although I'm not able to provide any forward-looking guidance, I'm kind of trying to paint the picture of how things work. So on one hand, your supplied material is affected by market, but you also sell at prices that are affected by market. So unfortunately, I can't give you any specific forward-looking statements, but I hope I gave you enough information here.

Our next question is from Joseph Reagor with Roth MKM. Please proceed.

Hey guys, thanks for taking the question and welcome here to the team. Thank you. I know that we're not going to get a guidance answer here, but maybe a different question. As you look at your contracts that you had in 2023 that led to the revenue you generated, were there any additional contracts that were added that'll be for 2024 without quantifying how much that is? And were there any contracts in 2023 that roll off in 2024? Just so we kind of have an idea that puts in place of kind of the total number of contracts out there?

Yes, thanks for the question, Joe. Unfortunately, that type of detail we don't typically provide. The one thing that I would highlight is that we consistently have a robust order book, sales order book of a billion dollars, and we've had that trending at that number for multiple years. And I would also highlight the fact that we had 189 million of new sales. And so as we've articulated in the past, we do have a high level of visibility going out through 2030 with regards to our sales order book, but we couldn't get it into any specifics as it relates to how those would matriculate over the next coming years, either for 2024 sales or ones in the past.

Okay, fair enough. And then on the question of the prior college, that's about on margins. I think historically there was some expectation that you had some contracts that were a much higher margin that had been locked in and you had a one-time reset option. And those contracts were expected to roll off. I can't remember if it was 2023, 2024, 2025, and that therefore there would be some kind of natural decline in margins, but it hasn't really shown up. So is that a demonstration you guys have done a really good job of locking in new higher margin contracts or is that that there has been a slight decline, but that's it? That's all we can expect?

No, from the margin perspective and specifically touching upon the legacy-based contracts that you referenced, I would know we still have about $282.6 million of deferred revenue on our books. And those are predominantly legacy-based contracts with higher priced SWU terms as well as margins. So we will anticipate those to continue to roll off in the future. And as you noted, I mean, and Amir earlier, as we contract with customers, we do get favorable conditions based upon where market prices are today. So margins have been favorable based upon where market conditions are in the current year and also on the market commodity pricing curve that currently exists that reflects those higher pricing mechanisms as well. I would anticipate that to your point that we will see higher margins for some of the recent sales as well as the legacy ones still rolling off in future years.

Okay. Is it possible to ask one additional question before I turn it over?

Yes, absolutely.

So in the fourth quarter, you guys had some of this, the lumpy uranium sales, right? And historically, the expectation on those would be that they'd be very low margin. But is it fair to assume that the margins were a little better than historically in Q4, given the run-up in uranium prices during the quarter?

That would be an accurate assessment. Yes.

Thank you. [Operator Instructions] Okay. With no further questions in the queue, I would like to turn the conference back over to Lindsay for closing remarks.

Thank you, Operator. This will conclude our investment investor call for the fourth quarter and full year 2023. As always, I want to extend a thank you to our listeners online and our investors who called in. We look forward to speaking with you again next quarter.

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.