Lightbridge Corporation (LTBR) Q3 2015 Earnings Report, Transcript and Summary

Good day everyone and welcome to today's program, Lightbridge's 2015 Third Quarter Business Update Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please note, this call maybe recorded. I'll be standing by if you should need any assistance. And it's now my pleasure to turn the conference over to Ms. Natalya Rudman with Crescendo Communications. Please go ahead ma'am.

Thank you, Tony, good morning. I'm Natalya Rudman from Crescendo Communications, and we handle Lightbridge's Investor Relations. I would like to welcome you to Lightbridge's 2015 third quarter business update conference call. The company's news release was distributed after the market closed yesterday and can be viewed on the Investor Relations page of the Lightbridge website at ltbridge.com. if anyone has questions after the call, you may contact Crescendo Communications Investor Relations for the company at 855-379-9900. Seth Grae, our Chief Executive Officer, will lead today's call. In addition, the following executives are available to answer your questions, Linda Zwobota, Chief Financial Officer; Jim Malone as Chief Nuclear Fuel Development Officer, and Andrey Mushakov, Lightbridge's Executive Vice President for International Nuclear Operations. Today's presentation includes forward-looking statements about the company's competitive position and product and service offerings. During the course of today's call, words such as expect, anticipate, believe, and intend will be used in our discussion of goals or events in the future. The presentation is based on our current expectations and involves certain risks and uncertainties that may cause actual results to differ significantly from those estimates. These and other risks are set forth in more detail in Lightbridge's filings with the Securities and Exchange Commission. Lightbridge does not assume any obligation to update or revise any forward-looking statements whether as a result of new developments or otherwise. You can participate in today's calls two ways, first, you may submit questions for management in writing to ir@ltbridge.com, if you have already submitted a question and we thank you, you can submit under anytime during the prepared remarks or during the Q&A period. Second, after the prepared remarks, telephones lines will be open for live questions. Now after that here is Lightbridge's CEO, Seth Grae.

Thank you, Natalie, good morning everyone. In our last call in August, I started out by pointing out how far we've come in five years since announcing the metallic fuel for power operates and longer fuel cycles in September 2010 in an industry where progress is typically measured in decades, not months or years. Since the beginning of the third quarter alone, I am pleased to report the following major milestones. First, we entered into a comprehensive nuclear services agreement with Canadian Nuclear Laboratories, also known as CNL. For fabrication of our patented next generation nuclear fuel test samples at CNL's Chalk River, Ontario, Canada. Second, we entered into a binding services agreement for radiation testing of our nuclear fuel samples in the Institute for Energy Technology Halden research reactor in Norway. The Institute for Energy Technology also known as IFE, is a leading international research foundation for energy and nuclear technology. Third, IFE was awarded an export license by the Norwegian Ministry of Foreign Affairs for radiation testing and discharge of our metallic fuel. Fourth, IFE's safety committee approved our planned loop radiation experiment in the Halden research reactor under commercial reactor operating conditions. Fifth, initial task and purchase orders were issued under agreements with the CNL and IFE. Sixth, four of the largest U.S. nuclear power plant operators continue to advise us on our nuclear fuel program and recently they expanded their support to include expert technical advice in the area of U.S. Nuclear Regulatory Commission, NRC; Regulatory licensing activities. Seven, we are engaged in active discussions with leading global nuclear fuel manufacturers. And lastly, we received additional Korean and Australian patents. I'll discuss many of these items in more detail but clearly the industry is embracing our technology as evidenced by the fact that four of the leading U.S. utilities which collectively represent about 50% of all nuclear power production in the country have publicly expressed interest in our technology formally requesting the NRC to review our patented metallic fuel designs. As I mentioned earlier, these utilities are now also providing technical advice in the area of regulatory licensing activities. Our nuclear fuel is safer, produces increased power output, lowers costs, enhances economics and reduces waste without overhauling the existing industry infrastructure. And we are very much on track and in many respects ahead of schedule towards commercialization of our metallic fuel. Most recently IFE which operates the Halden research reactor in Norway was granted an export license by the Norwegian Ministry of Foreign Affairs covering all planned activities relating to our nuclear fuel in Norway. Planned activities include radiation testing of our advanced metallic fuel samples under prototypic commercial reactor operating conditions, as well as discharge of radiated fuel samples from IFE's Halden research reactor. The export license is valid for an initial standard term of three years through October 31, 2018 and is extendable. The award of the Norwegian export license follows an agreement in July 2015 in which Lightbridge and IFE entered into a binding services agreement for radiation testing of our nuclear fuel samples in IFE's Halden research reactor, post radiation examination of the radiated feel samples at Studsvik in Sweden requires a separate Norwegian export license for which IFE plans to apply. Additionally, we announced in late September that IFE's Safety Committee approved our plan to loop radiation experiment in the Halden research reactor. As a next step they have submitted a safety report on our metallic fuel samples to the Norwegian of Radiation Protection Authority as part of an application for regulatory approval of the loop radiation experiment under commercial reactor operating conditions in the Halden reactor. We also announced that initial task and purchase orders have been issued under previously announced agreements with CNL and IFE, work is currently underway on both projects in accordance with the overall project plan. The initial phase of radiation testing is expected to begin in early 2017 and continue for about three years to reach the burnout necessary for insertion of lead test assemblies in a commercial power reactor. The final phase of the radiation testing necessary for batch reloads and full course in commercial reactors operating with a 10% power operate and a 24-month fuel cycle is expected to take an additional two years and be completed while lead test assemblies have begun operating in the core of a commercial power reactor. Given our progress, we plan to begin fuel fabrication and characterization of prototype fuel rods using depleted uranium in mid-2016 followed by fabrication of radiation fuel samples using enrich uranium before the end of 2016. We have held meetings with a large nuclear fuel fabricators with the goal of putting a teaming arrangement in place in 2017 or 2018. We have been encouraged by our progress in this area. It is possible that an arrangement could be finalized sooner than expected. We are very much on-track towards full scale lead test assembly demonstration in a commercial reactor in the 2020 to 2021 timeframe. We believe our commercial goals are aligned with government's priorities. The U.S. Clean Power Plan allows credit for new nuclear power plants and power upgrades or increased efficiency at existing nuclear power plants. We believe these credits for power operates will provide further support for our fuel in the U.S. making it even more economically attractive to power utilities. We designed our metallic fuel to have the specific benefit of increasing the power output of reactors exactly meeting the aforementioned goal of the clean power plant. Our metallic fuel accomplishes the power upgrade by increasing the power generated by the reactor every day the plant operates, as well as by lengthening the fuel cycle when the reactor is shutdown for refueling fewer days per year. States are charged with making plans to achieve these national goals by September 2016. Moreover, we are seeing increased interest in our fuel designs from reactor operators not just in the U.S. or around the world. Other countries are preparing plans that we expect will include similar provisions as the U.S. We look forward to announcing additional partnerships and support for our next generation fuel technology from the global nuclear community. As I mentioned on our last call, nuclear energy policy will be a major agenda item next month in Paris. At the 21st session of the conference of the parties to the United Nations Framework Convention on Climate Change or COP 21. Nearly 40,000 delegates are expected to attend. The conference goal is to arrive at a universal a legally binding agreement that enables nations to combat climate change and accelerate the transition toward resilient low carbon economies. The agreement would enter into force in 2020, the same year we are targeting for first use of our fuel in a commercial reactor in the United States. Participating countries must publish their national plans as soon as possible and before COP21 starts this December. We expect nuclear to be featured as a key solution given its ability to provide reliable base load energy and because nuclear reactors do not emit carbon dioxide. So to wrap up we believe we are in the cost of our fuel technology gaining an important place in the nuclear industry given the significant economic benefits of our fuel for nuclear reactor operators. To put this in perspective, we can produce power at lower incremental cost than natural gas, even the historic lows we've seen in the gas market. Even traditional nuclear can't compete on price at the levels. And we can generate base load energy without CO2 emissions or price volatility of natural gas. In addition to the financial benefits our fuel provide significant safety advantages as evidenced by 1000 degrees Celsius reduction in average fuel operating temperature compared to conventional uranium dioxide pellet fuel. Not only does our fuel operate at lower temperature but in a design basis accident, it does not run the risk of explosive hydrogen gas generation. Assuming just modest penetration of the U.S. market, we have the potential to generate hundreds of millions of dollars annually and high margin royalty fees upon successful commercialization. We will also introduce our fuel technology to large and growing global market. Now here is Lightbridge's Chief Financial Officer, Linda Zwobota to summarize the company's financial results for the quarter.

Thank you, Seth. As previously disclosed, management voluntarily sought guidance from the staff of the office of the chief accountant of the Securities and Exchange Commission regarding the classification of the company's warrant. Based on such guidance management has determined that the company's outstanding warrant should have initially been classified as derivative liabilities instead as of component of stockholders equity. With changes to the fair market value of the issuance of the warrants and subsequent periods reported in the company's statement of operations. We believe this restatement reflects our commitment to best practices and transparency, importantly, this restatement does not impact our cash position, financing, agreement or progress on our development plans. As a result, we plan to restate the company's consolidated financial statements as up and for the twelve months ended December 31, 2014 and 2013 as well as for the three and six months ended March 31 and June 30, 2015 and 2014. It is important to note again that these are non-cash items. The restatements related to the accounting for common stock purchase warrants issued by the company and our registered direct offerings on July 22 to October 21, 2013 and November 12, 2014. The register direct warrant contain a cash settlement feature and circumstances where there is a change in control of the company in the future. Based on our review these warrants which were classified as equity in the company's financial statements for the respective periods should have been initially classified as derivative liabilities as our estimated fair value with changes to the fair market value in subsequent periods reported in the company's statement of operations. In simpler terms, we've gone back and looked at the accounting of warrants based on SEC interpretations of warrants accounting and we're making non-cash adjustments based on how the warrant holders would be treated in the event of a future change of control of the company. In light of the restatement, we are only providing selected preliminary unaudited financial results for the third quarter 2015 but will be filing our full results on Form 10-Q, as well as our restated results for 2013 and 2014 as soon as practical. As a result of the restatement, we expect to record a non-cash gain in certain period. This may be offset by non-cash losses in the future assuming that our stock performed well. Importantly, this satisfies us that the filings and statement will be in excellent shape as we head towards what we hope will be major developments for the company in the coming months and years. Turning to our results for the quarter ended September 30, 2015, Lightbridge generated preliminary unaudited revenue of $234,000 compared to revenue of $275,000 for the same period last year. Our revenue was generated from consulting services. At the same time we are carefully managing G&A expenses and reducing corporate overhead where appropriate. Every facet of corporate operations has been examined and where possible, renegotiated to trim expenses and increase efficiency. Year-to-date, the company's cash flow used in operating activities in 2015 were $2.5 million compared to $3.4 million for 2014, a reduction of $0.9 million or 26%. Most of this reduction is in cash used in operating activities, came from costs in our quarter overhead. The company had approximately $1.7 million of cash and cash equivalents and an additional $0.3 million in restricted cash as of September 30, 2015 compared to approximately $4.2 million as of December 31, 2014. The primary objective of the current expense management program is to free up cash for research and development activity and defer the company's need to raise additional equity capital. We believe that our previously disclosed after-market sales program or ATM gives us flexibility to raise new capital opportunistically at a lower cost and reduce dilution compared to registered direct offerings. We have sold approximately $300,000 of our stock under this ATM program to-date and approximately $160,000 of that offering took place in September of this year. We currently have authorized future sales of upto an additional $200,000 in shares depending on market conditions. The amount of funding available under the company's Form S-3 shelf registration statement which is currently used to register sales under our ATM will increase on December 1, 2015. We also entered into an equity purchase agreement with Aspire Capital LLC which commits the Aspire Capital to purchase up to an aggregate of $10 million of our common stock at our election over a two-year term subject to certain terms and conditions. The company has filed a registration statement on Form S-1 with the Securities and Exchange Commission to register the resale of the common shares by a Aspire Capital. Year-to-date we have not sold any shares of Lightbridge's common stock under the equity purchase agreement with Aspire. We will provide regular quarterly updates on both programs going forward. The ATM program and equity purchase agreement with Aspire provide us with greater flexibility to raise the capital needed to further develop our nuclear fuel. When we do raise capital through these programs, it will be very judicious and opportunistic to minimize dilutions. As Seth mentioned earlier, our efforts are advancing on potential teaming agreements and others strategic transaction. This concludes my summary. I will be available for your questions during the next segment of today's presentation. Seth, it's back to you.

Thank you, Linda. Let's open the call to your questions. In addition to asking live questions by telephone, you can also submit questions in writing to our ir@ltbriigde.com. We will pause while the operator reviews the procedure for asking live questions. Tony?

Thank you. [Operator Instructions] We do have a question from Susan Harding with Branch Capital [ph]. Please go ahead your line is open.

Thank you. Good morning. I understand you're in active discussions with nuclear fuel manufacturers. Can you give any more detail on the types and sizes of these companies you're targeting and the nature of the discussions?

Well, the types are large global corporations that manufacture fuel for commercial nuclear reactors, they tend to also be companies that design nuclear reactors. In some cases are publicly traded in some cases are state-owned. And Jim Malone, if you want to add anything to.

Not really, I think you've characterized it quite well, they are large corporations and they are in many aspects of nuclear industry and efficient, so they are largely viable financially sound corporations.

Thank you. I just have one more question, given that your target to have fuel in a commercial reactor in the U.S. is in the 2020 timeframe. We do expect to see revenue before then?

Yes, in addition to our consulting revenue it is quite possible that there will be technology access fees from our initial agreements with large nuclear fuel manufacturing companies, fabricating companies, there also could be advanced license fees, royalties paid in advance of 2020 as they need to procure the fuel in advance of putting it into the reactor.

Okay, great. Thank you so much.

Thank you for the question.

[Operator Instructions] Amit Tandon, SeeThruEquity.

Hi, good morning. Hi, Seth, how are you?

Hi, Amit. Good to hear from you.

Good. A question about an article I read in the Wall Street Journal a couple of days back that -- basically along the lines of the following that Energy Department funds for nuclear cleanup have dwindled. And so, I was wondering if this creates policy headwinds or what in terms of the kind of the business that you guys are targeting?

We ask Jim Malone to start.

Yes, I read the same article and the focus of the article really was on the efforts that our monumental recall related resented to cleaning up the after-effects of the weapons program. As you can imagine, when -- in the early days -- closing days of World War II and the early days of the Cold War, the goal of that infrastructure was to create nuclear weapons. And they have little regard for the impact they are having on the on the environment at that time leaving a substantial list of facilities that still need to be decontaminated, cleaned up, and basically return to ground field at a minimum preferably Greenfield, and there has been a long history of DOE struggling to get the funding through that, and inter-agency fighting between EPA and DOE as to who is really responsible for it. So it's a long history but it really has not much impact whatsoever on the on the commercial nuclear fuel side or at commercial nuclear power side.

And I'll add that, again that is nuclear weapons complex material, that in no way had anything to do with the commercial civil nuclear power industry or nuclear fuel, either fresh fuel or spent fuel that came out of a commercial reactor.

That's good news, thanks for the clarification.

And let me just add one last thing in which is that's actually a different division within the Department of Energy than handles the civil nuclear side which is separately funded, that's a separate funding pot that the government, I think rightly is scrutinizing because sometimes it seems we spend a lot of money on these cleanup projects that don't really seem to succeed very well, it might need some more thinking

Strange, that's very helpful. Thanks guys, I appreciate it.

Thanks for the question.

[Operator Instructions] Debra Fiakas with Crystal Equity Research.

Good morning and thanks for taking my questions. I wanted to return to the previous discussion about the nuclear fuel producers and your conversations with them. It sounds like you've had a chance to speak with more than just a few -- they are large. So what is it that these large guys are thinking about what's going to be their tipping point as a decision factor that will bring them to do business with you?

These companies are large companies that tend to be reactor designed companies that tend not to have invented nuclear fuel technology, and nuclear fuel is one of the areas where what they've done in the past is they've licensed technology from other companies, generally much smaller companies that invented the technology and licensed that into the industry. So we work very well in the way that works. And in a sense, in the end our fuel could become something of a commodity where we become a non-exclusive licensor to multiple parties that make essentially the same product. They sell under their branding out into the industry and we collect royalty each time they do that. As you said, we've spoken with many companies from the U.S. to Europe to China, to others around the world. And Jim, if you'd like to add to that?

I think you've captured it, basically the fuel innovations have typically come from smaller operations and been adopted by the large companies. These small companies don't have the opportunity to have all of the data available respected existing power plant. That's necessary to do the analysis to support of operation of the fuel but they have superior skill and developing types.

Okay, good. And so you think they are typically used to sourcing their fuel technologies outside of their own companies. Is it some sort of regulatory approval or it kind of sounds like you're suggesting that your conversations with them are progressing very nicely. Is there something else that could happen prior to a regulatory approval that would help to solidify and cause these fuel producers or these potential partners, if you will, licensors to -- or licensees to make an affirmative decision and want to do business with you?

Yes, neither they nor we need regulatory approval for them to enter into a contract with us, a license agreement. There are technology transfer control and governments that we have to comply with and we do comply with them. As we said, all the controls over technology transfer that we need for our work in the current stages have been granted here in the U.S. and by other countries as we mentioned, for example, in Norway. So for licensing agreement they don't need a license from the NRC or its counterpart nuclear regulatory agencies in other countries. What they would need a license for, either from the NRC here or from similar bodies in other countries, is a license to manufacture the fuel for commercial reactors and utilities that operate the reactors would need a license to use the fuel. That is something we have long lead times for, they are well underway, particularly with four utilities here in the U.S. but also others that we're speaking with. The utilities tend to be the driving factor here, they are the customers, if they want to buy a type of fuel that is what puts the pressure on these large nuclear fuel manufacturing companies to want to make the fuel, and to do that they have to come to us. And that's what's happening.

Okay, very good, thank you. And then just one other question, this is with regard to your cash usage this year. The figure provided for the cash usage in the first part of the year, I just wondered how that might change. Is your burn rate expected to remain relatively stable or you're anticipating higher costs going forward apart from your cost savings program?

Right, the SG&A savings program will continue and that I think has been an excellent success here in the company. But we will be increasing cost as we are paying for aspects of this work in Canada, in Norway, in Sweden because we need to own the intellectual property rights, no one else on earth owns IP rights for Lightbridge's technology. And all of the new IP we're generating, we are going to own and license to for the benefit or our shareholders. So yes, you will see incremental increases as we go through this program. But that is because we will be generating IP that we will own that will have even greater value.

Excellent, thank you so much for answering the question.

Thank you for the call Debra.

[Operator Instructions]

And while we're waiting for any more live questions, Natalya Rudman is with Crescendo Communications which handles our Investor Relations. Let me ask Natalya if you have any --you've been receiving by email.

Sorry, I was just on mute but -- I think that one of the questions that is actually there to Jim Malone, was that could you please bring it up-to-date on your involvement in level of success at the IAEA Conference?

Yes, I think the conference lasted four days in Vienna. And the outcome was very favorable with respect to Lightbridge fuel, the topic of the conference was uranium enrichment and what should be considered as the maximum enrichment level for commercial nuclear fuel. There was some vigorous discussions and the outcome though was that -- what is defined by the IAEA is low enriched uranium or LEU would be the appropriate limits rather than trying to set an arbitrary limit below that. The LEU stops at 20%, so anything below 20% is okay by the IAEA concept. And that was the outcome of the meeting, we had some -- as I said, lively discussions about it, some people felt that 6% or 8% was enough but we were able to continue the discussion and point out that since the definition of LEU was already at 20% or below, that should remain as the limit and not try to make it too granular beneath that. So I think the outcome was very positive for the light rich fuel because we are one of the ones that has a higher enrichment than some of the other fuels trying to be developed.

We have another question on regarding the United States Clean Power Plan, can you please clarify any distinction that they need between the year after and power upgrades of existing the reactors?

Yes, and we'll be learning more about this tomorrow when Jim Malone and I have been invited to participate in the White House Summit on nuclear energy. As the White House is preparing for COP21 in Paris next month, and how nuclear power can be used favorably in relation to climate change and Lightbridge is very much a part of that discussion. The U.S. Clean Power Plan which will be the centerpiece of the U.S. government presentation in Paris next month gives carbon credits in two areas for nuclear power. One is for the new reactors that will come online, that are already under construction, there are five of those in the U.S. One of them just received its operating license about a week ago in Tennessee called Wasbar II [ph] at the Tennessee Valley Authority, and will come into actual power operation early in 2016 and that will count towards the plan. The other two are new Westinghouse AP1000 reactors, at the Bogland [ph] summer site in South Carolina and Georgia that will come into -- come online in the next few years. In addition to that, the Clean Power Plan gives full carbon credits for any power upgrades or efficiencies to existing reactors or new reactors. So even those new five reactors are any subsequently after its build, if they later have a power operator efficiency, that will count. And when we read the Clean Power Plan, we sort of saw dividend Lightbridge Act, we're the only game in town for this. There is no other way to give such a meaningful increases in power output or the efficiencies two reactors as Lightbridge fuel. There were in the past on areas what you'd call off the nuclear island, increasing the efficiency of the turbine, steam generator, different parts outside the reactor core but those are tapped out, the utilities have done a great job doing power upgrades outside the core reactor, everywhere they can squeeze efficiency out of these plants. And there is hardly anything left that they can do with any of these reactors. So U.S. power plants can really, only meaningfully receive power operates and increase the efficiencies by switching to Lightbridge fuel. So in addition to the economics that we've put out in our presentations about the longer fuel cycles and increased power adding to the revenue from the utilities and how we will receive a royalty on that, there is added money there for the utilities which is these carbon credits. And the states next year will be submitting their plans and we expect that will lead to a trading regime of these carbon credits across state lines. And each power upgrade and longer fuel cycle we give to a reactor is like cash that the utility booked in addition to just the revenue from the electricity production. So unless you have a follow-up on the Clean Power Plan, I hope that answers your question? Natalya, was there a follow-up?

Yes. I guess the follow-up to the question is that they brought that news article that existing reactors may not qualify for credit, at least in the same way as our new reactors.

That's exactly right, existing -- think of it this way. What the goal of COP21 is and the goal of Clear Power Plan here in the U.S. is, as that between now and a future date -- like future date in some cases is 2035, in some cases it's 2050. Between now and a future date we're going to increase our energy production while we're in decreasing our carbon emission. And we're going to decrease our carbon emission for example to present a 2% -- two degree Celsius average global temperature increase. So in a sense the existing power generation doesn't count for that because it's going forward from today, how do we increase power but decrease CO2. So new reactors under construction count because they are not yet producing power and they don't emit CO2. Reactors the are already operating don't count because it's a forward-looking view. So our fuel either for the new reactors or the existing reactors adding power output, lengthening fuel cycle, that does count. That added electricity generation that doesn't emit any CO2. So it turns out we're just perfect for this and I think that's one reason we were invited to the summit at the White House tomorrow.

Great, thank you so much.

Thank you. And do you or Tony have any added questions at this time?

We have no further questions from the phone lines.

Yes, there are no other questions.

Okay. Well, thank you everybody for calling in and for the great questions you asked on the phone and send in by email. We hope you share our optimism for Lightbridge's improving position in the expanding global nuclear power market and the opportunity to serve that market with our fuel. While we're still a few years away from full commercial deployment, we believe the progress we've made significantly reduces risks for investors. Moreover, assuming we are successful, we have the potential to generate hundreds of millions of dollars in high margins royalty revenues. Based on our current market cap and a conservative analysis of discounted cash flows, we believe we have the potential to generate significant value for shareholders. Moreover, management has not sold any shares and in fact we've been picking up shares in the open market. I'd like to thank all of our investors for your support. We look forward to providing additional updates in the near future. In the meantime our lines are always open at ir@ltbridge.com, and 1-571-730-1213. Thank you and goodbye.

Thank you. This does conclude today's conference. You may disconnect and please have a good day.