Lightbridge Corporation (LTBR) Q2 2016 Earnings Report, Transcript and Summary

Good day, everyone and welcome to today’s Lightbridge Corporation Second Quarter 2016 Earnings and Business Update Call. At this time, all participants are in a listen-only mode. Later, you'll have the opportunity to ask questions during the question-and-answer session [Operator Instructions] It is now my pleasure to turn the conference over to Mr. David Waldman. Please go ahead sir.

Thank you, operator and good morning and welcome to the conference call for Lightbridge’s 2016 second quarter business update. The company’s news release was distributed after the market closed yesterday and can be viewed on the Investor Relations page of the Lightbridge Web site at ltbridge.com. If anyone has questions after the call, you may contact Crescendo Communications, the Investor Relations firm 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, Chief Nuclear Fuel Development Officer; Andrey Mushakov, Executive Vice President for International Nuclear Operations; Jon Johnson, Senior Vice President and Nuclear Regulatory Expert; and Jonathan Baggett, Vice President for Program Management and Deputy Quality Assurance Manager. 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. This presentation is based on our current expectations and involves certain risks and uncertainties that may cause actual results to differ materially from such estimates. These and other risks are set forth in more detail on Lightbridge’s filings with the Securities and Exchange Commission. Lightbridge does not assume any obligation to update or revise any such forward-looking statements whether as a result of new developments or otherwise. You can participate in today’s call in two ways. First, you may submit questions for management in writing to ir@ltbridge.com. If you have already submitted a question we thank you. You can also submit them at anytime during the prepared remarks or during the Q&A period. Second, after the prepared remarks, telephone lines will be open for live questions. Now here is Lightbridge’s CEO, Seth Grae.

Well, thank you David and good morning everybody. As you may have seen in the news this week, the sale of the FitzPatrick power reactor in Upstate New York is the first time the price of a U.S. nuclear plant includes a value for its carbon-free electricity output. We see this news as a major validation of Lightbridge’s strategic vision. Nothing will add more carbon-free nuclear power to the electric grid than Lightbridge metallic fuel. Our fuel will increase the power of existing and new reactors increasing the value of the plants. Businesses and investors are starting to value means of preventing climate change. Energy and climate goals can only be met with a substantial increase in nuclear power as a part of the energy mix. Nuclear is about a million times more energy dense than any other fuel for generating power. Increasing the efficiency of other means is starting 11 million behind nuclear and Lightbridge fuel makes nuclear power substantially more efficient. During the second quarter, we have achieved important milestones. Lightbridge received a $2.8 million investment at a 30% premium to the market price at the time of the investment from Hou Xingping, chairman of one of the largest orange producing companies in China. Mr. Hou has significant investments in energy and technology companies. No warrants were issued in this transaction. We believe the terms of the financing were favorable for Lightbridge’s shareholders and we appreciate the support Mr. Hou shows to the company. We are also pleased to welcome Mr. Hou as Co-Chairman of the Board of Directors. He has tremendous experience in business acumen. On the same day we also received $1 million investment from Aspire Capital, also with no warrants. We are also happy to announce as disclosed in our recently filed 10-Q, that Lightbridge has entered into an option agreement with Aspire Capital, whereby we have the option until December 31, 2019 to execute two future successive equity line agreements for a total of $20 million. This $20 million of equity line financing is in addition to our existing $10 million equity line with Aspire Capital of which approximately $8 million still remains to be utilized. The NASDAQ has confirmed our continuing listing, and we expect to maintain our NASDAQ listing well into the future, due to the combination of the $2.8 million investment from Mr. Hou, $1 million investment from Aspire Caporal, plus an additional $4 million of milestone-based funding commitments from Aspire Capital, as well as the $8 million remaining under our existing equity line, and the recent $20 million option agreement we have entered into with Aspire. We continue to advance our discussions with key nuclear power industry partners, for fuel fabrication and manufacturing. We are on-budget and on-track executing on our business plan including joint development agreement with Areva. Areva is the largest nuclear supplier company in the world, and brings tremendous resources to the project. The joint development agreement is a binding contract with a highly detailed scope of work that covers steps that must be completed in order to form the joint venture company later this year. This commercial arrangement with Areva will enable us to complete the development, demonstration and regulatory licensing of Lightbridge metallic fuel leading to commercial deployment globally. We are also receiving additional strong support from the nuclear power industry, including from four leading U.S. nuclear plant operators, which continue to advise Lightbridge on our fuel program. We remain on-track for commercial deployment of our metallic fuel into the market, and we expect to have our first long-term commercial arrangement with a major fuel fabricator in place by the end of this year, which will be well ahead of schedule. Last month, Lightbridge executives along with representatives from Areva and nuclear utilities met with officials at the U.S. Department of Energy, the meeting focused on the status of the Lightbridge metallic nuclear fuel development program, and potential opportunities associated with the DOE loan guarantee program. We also discussed the potential value of certain DOE assets such as the transient reactor test facility, and other test facilities, as well as analytical support that can be provided by U.S. National Laboratories. National lab could provide services in support of obtaining U.S. nuclear regulatory commission approval for deploying Lightbridge metallic fuel. Additional follow-up meetings are being arranged to discuss specific steps for collaboration with DOE and with National Laboratories in areas of mutual interest. We're pleased to announce that Lightbridge Vice President Jonathan Baggett has returned to our U.S. Corporate Office after two years based in Seoul, South Korea advising the Company's customers and partners. Given his exemplary performance and valuable skill set Jonathan has also been awarded the additional role of Deputy Quality Assurance Manager. In that capacity he will work closely with Rene' Delaney, Lightbridge's Quality Assurance Manager, overseeing quality assurance aspects of our nuclear fuel program to ensure compliance with NQA-1 and 10 CFR Part 50 Appendix B requirements. In preparation for irradiation testing of our nuclear fuel samples at the Halden research reactor, Jonathan will participate in a quality assurance visit by the Lightbridge fuel team to Norway in the fall of 2016. We've also announced that Lightbridge received patents for our metallic nuclear fuel in key markets, including the U.S., Canada, China, Japan, South Korea, Russia, the European Union member countries and other global markets. Securing our intellectual property rights is an important step in advancing our global strategy. We're seeing increasing interest in our fuel designs from reactor operators in the United States and around the world. We look forward to announcing additional partnerships and support for our next-generation fuel technology from the global nuclear community in the near future. Now I'll turn the call over to Lightbridge's Chief Financial Officer, Linda Zwobota to summarize the company's financial results for the quarter.

Thank you, Seth. Turning to our financial results for the quarter ended June 30, 2016, Lightbridge’s net loss was approximately $1.3 million, or a loss of $0.30 per share, on revenue of $0.1 million. In the same quarter of 2015, the net loss was $1.0 million, or a loss of $0.28 per share on revenue of $0.3 million. All revenue was generated from consulting services. Stock-based compensation expense was $0.4 million for the quarter ended June 30, 2016 compared to $0.7 million for the quarter ended June 30, 2015. Excluding the impact of warrant revaluation for the derivative warrant liability, net loss for the quarters ended June 30, 2016 and 2015 would have been $1.6 million and $1.5 million, respectively. Listeners can refer to the About Non-GAAP Financial Measures section in our earnings press release. For the six months ended June 30, 2016, the Company’s cash flows used in operating activities were $2.4 million versus $1.8 million used in operating activities for the same period of 2015. This increase is primarily due to increased spending on research and development of approximately $0.4 million and an increase in general and administrative expenses of approximately $0.2 million largely driven by increased legal, auditing and accounting fees associated with two equity financing transactions and amendment of the 2014 warrants enabling the reclassification from derivative, liability to stockholder's equity that we completed over the past quarter. Turning to our balance sheet, as of June 30, 2016 the Company had approximately $1.5 million in cash compared to approximately $1.0 million in cash and restricted cash, at December 31, 2015. The Company had approximately $0.4 million in working capital at June 30, 2016, as compared to working capital of approximately $0.1 million at December 31, 2015. Stockholders' equity was approximately $1.1 million compared to stockholders’ deficiency of approximately $1.5 million at December 31, 2015. On June 20, 2016, at the opening of trading, we effected a one-for-five reverse split of our common shares. The common shares began trading on a split-adjusted basis on July 20, 2016. All share data herein has been retroactively adjusted for the reverse stock split. Common shares outstanding at June 30, 2016 totaled 4,799,906. The primary sources of cash available to us presently are equity investments through our security purchase agreement and equity line purchase agreement with Aspire Capital Partners LLC, and our ATM agreement with MLV & Company LLC. We have no debt or debt credit lines and we have financed our operations to-date through the sale of our equity securities and our consulting revenue. We did not raise any capital in 2016 from our ATM financing agreement, and we have raised approximately $2 million for the six months ended June 30, 2016 through our equity line purchase agreement with Aspire. As Seth mentioned earlier the company closed on a $2.8 million convertible preferred stock financing on August 02, 2016, which has improved the Company’s current cash and working capital position. On June 28, 2016, the Company entered into a Securities Purchase Agreement with Aspire Capital pursuant to which the Company has agreed to sell up to $5.0 million of shares of the Company's common stock to Aspire Capital, without an underwriter or placement agent. Pursuant to the Securities Purchase Agreement, the Company sold 371,400 shares of common stock and 295,267 pre-funded warrants at an exercise price of $0.05 per share to Aspire Capital on June 28, 2016 for $1 million. The Securities Purchase Agreement provides for the sale of up to an additional $4 million of the Company's common stock to Aspire Capital upon the achievement of certain milestones. This concludes my summary. I'll be available for your questions during the next segment of today's presentation. And Seth back to you.

Thank you, Linda. We are working with key industry players and look forward to announcing our first major commercial arrangement for deploying our metallic fuel later this year. Through these strategic partnerships and joint ventures we expect to be in position to leverage our partners’ existing resources and capabilities to cost effectively bring our fuel to market globally, which has a potential to generate 100s of millions of dollars in annual royalty revenues to Lightbridge and our shareholders. With Lightbridge metallic fuel, reactors can produce power at lower incremental cost than new build combined cycle gas fired power plants, even at the historically low natural gas prices we are seeing today. Traditional nuclear cannot compete on price at these levels and we can generate baseload energy without the CO2 emissions or price volatility of natural gas. Any realistic path to achieving global climate goal must include a significant increase in nuclear power. Lightbridge technology can facilitate a more rapid expansion of nuclear power via power upgrades of both existing and new build reactor units. Our fuel also significantly enhances the economic chase for nuclear power. We are in the cusp of our fuel technology gaining an important place in the nuclear industry, given the significant economic and safety benefits of our fuel-for-reactor operations. This week FitzPatrick is the first power reactor in U.S. to have a value for carbon-free electricity output specifically included in the value of the plant. With Lightbridge fuel increasing the power output of existing and new plants all reactors using our fuel can realize more value from electricity sales and from carbon credits. We've several people from management and the fuel team here to answer your questions. In addition to asking live questions by telephone, you can also submit questions in writing to ir@ltbridge.com. We will pause while the operator reviews the procedure for asking live questions. Tanisha?

[Operator Instructions]

While we wait for live questions, David Waldman who is with Crescendo Communications which handles our Investor Relations will proceed with questions coming in by email. David?

Great, thank you Seth. Our first question that was submitted by email, is the ratification of the U.S.-Norway 123 agreement by the U.S. Congress in any way delaying the selection between BWX and CNL to fabricate the sample fuel rods and what is the timing around the selection of the sample fuel rod fabricator, so you can get that fabrication process moving and get the testing moving?

Well, the answer to the first part of the question is no. In fact things are moving very well. The United States and Norway have both signed the new 123 agreement for civil nuclear collaboration. It has been submitted to Congress. If it sits there for 90 legislative days this year which we are willing to, it will automatically enter into force without any need for further action by Congress and there's no opposition in Congress whatsoever. We understand there's also no opposition whatsoever on the Norway side. If for any reason there're not 90 legislative days this year, it will be reintroduced next year and come into force next year. In the meantime nuclear trade between the U.S. and Norway will be able to continue under various means including the U.S. government is working with the International Atomic Energy Agency, the IAEA we are under the U.S. 123 agreement with the IAEA and the IAEA 123 agreement was Norway that trade to proceed that way and Norway and the U.S. both regard each other as completely trustworthy and good partners working on equally our matters. So no, there is nothing whatsoever relating to 123 agreement that we see could hold up anything relating to our work with Norway at all. We have received comprehensive proposals from Canadian Nuclear Laboratories and from BWXT to fabricate the fuel samples for Halden. We are evaluating them right now in the next few months we will announce one of them that will fabricate the samples to be shipped to Halden and meet our timelines. Right now it’s a pleasure working with both of them, they have clearly worked extensively on these submissions and we will provide more information when we have it.

Thank you. We will go ahead and take our first question from Paulenne Kirschenbaum with Chapin Associates. Please go ahead, your line is open.

It was recently announced that Areva was going to a significant raise of capital and apply it to two companies, one was going to be called NewCo and one of those two companies which I believe it was NewCo, was going to have a backlog an eight years backlog. Which one of those two companies is Lightbridge going to affiliate with?

Well Paulenne, we understand this happening is that the government of France which is ultimately the majority owner of the major French nuclear companies that include Areva as well as EDF, Électricité de France and other large companies through CEA which is the government entity that is the shareholder, is reorganizing these companies. Now the part of Areva we are dealing with is Areva NP like nuclear power. And that includes the whole reactor division of Areva which includes all of the fuel fabrication and it’s the largest nuclear supplier company in the world, just Areva NP as a standalone. Now EDF, Électricité de France is the largest nuclear operating company in the world, they have 59 plants in France, they are also an EPC firm for building plants pretty much the largest in the world in that area. And they are expanding internationally including into the UK. And as we understand that Areva NP will be acquired by EDF, so the part of Areva that we are working with, which is the reactor division of Areva that includes a fuel division will next year become part of EDF. And that will make EDF the largest nuclear company in the world by basically any metric. It will operate 59 plants they will be the largest fuel fabricator in the world. I think they will be the largest component manufacturer of reactor components in the world, the largest fuel designer in the world, really by any metric as whether you look at it as a fuel company or a reactor, a deployment company or as an operating company. That combined Areva NP and EDF will be unique in the world and we will be with that company. So, now will that combined company be able to do everything we need relating to our TAN and 17% power uprate fuels for existing reactors but also for our 30% power uprate fuel for new reactors. Areva operates globally, they're enormous in the U.S., in China, across Europe, around the world wherever there is nuclear power EDF is a global company and expanding. And we see the combined capabilities from fuel to ETC to reactor operations as presenting great opportunities for Lightbridge. And did you have a follow-up to that one?

Thank you. [Operator Instructions]

We've another question that's been submitted electronically. The comment is congratulations on the investment from a prominent Chinese businessman. Can you comment on the market opportunity for the fuel in China? And is this play role in his investment? Also does he get any royalties or other rights in China for his investment and will he be making introductions to potential partners or investors in China?

No, he's a passive investor with no rights or royalties whatsoever in China. Yes, he'll making introductions for us around the region. And we'll be there later this month with him. Mr. Hou is a leading figure in agriculture in China. He's the Chairman of the largest or one of the largest orange producers in China and he's become a significant investor in technology companies and in energy-related companies, particularly those that have vast opportunities in China and around the region. So, we think that Mr. Hou is a tremendous addition to the Lightbridge Board. He brings tremendous acumen and knowledge and regional knowledge to the Board in addition to other China and Asia knowledge that we have in the Company. And we see China as the largest growth market in the world for nuclear power in terms of new build reactors and we see Lightbridge's 30% power uprate fuel as being something that could be very beneficial for China when we recently announced our China patent. We said in there that just the announced plans for new reactors in China, if they were to use Lightbridge's 30% power uprate fuel, you could build fewer reactors with a 30% power uprate saving about $85 billion in construction cost in China in capital costs for those plants. And that's real money. And there's other benefits of the Lightbridge fuel as well and we're pursuing market there and around the world with all our partners and we look forward to expanding our activities in that region.

And we have another question that's been submitted electronically, with the recent patent approvals do we now have coverage in all the major markets and what is the strategy around the IT going forward?

I think we have coverage in all the major markets in terms of current reactors in the world and plans for new reactors, there's a few more who are waiting to come in but I think we've certainly hit the biggest ones like China, U.S., European Union and several other big ones, and also South Korea which is a major nuclear market. We invented and patented this nuclear fuel design, we invented and hold its trade secrets the manufacturing method for the nuclear fuel and we plan to patent key aspects of that methodology in the future. The strategy around this is that, in many markets we will be a licensing company, licensing to existing company that fabricate fuel, that will sell the fuel to reactors and we will receive royalties and this is how the nuclear power industry like many industries has always worked with smaller companies inventing crucial technologies the larger manufacturing companies license. But this can also take the form of joint ventures with existing capacity. So, for example, with Areva we are now negotiating a joint venture company that will utilize Areva capacity as part of Areva’s contribution to the JV as well as some new capacity the JV itself will add, and that is essentially our strategy around the IT which is our greatest asset.

Hi terrific. Well that is the last of the questions electronically, unless operator, are there any final questions?

We have no questions on the phone lines at this time.