Centrus Energy Corp.

Thank you for standing by. My name is John, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Centris Energy second quarter 2024 earnings call. All lives have been placed in me to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. I would now like to turn the call over to Dan Laisico. Please go ahead.

Good morning. Thank you all for joining us. Today's call will cover the results for the second quarter of 2024, ended June 30th. Today we have Amir Vexler, President and Chief Executive Officer, and Kevin Harrell, our 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 afternoon. We expect to file our report for the second quarter on Form 10-Q later today. 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 Centris website. I would like to remind everyone that certain information we may discuss in this call today can be considered forward-looking information that involves a risk and uncertainty, including assumptions about the future performance of CentRIS. Our actual results may differ materially from those in our forward-looking statements. Additional information concerning factors that would 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 accurate only as of today, August 7, 2024, unless otherwise noted. This call is the property of Centris Energy. Any transcription, redistribution, retransmission, or rebroadcast of the call in any form without the expressed written consent of Centris is strictly prohibited. Thank you for your participation, and I'll now turn the call over to Amir Vexler.

Thank you, Dan, and thank you to everyone on the call today. I am pleased to report another strong and productive quarter for Centris in which we delivered strong revenue, achieved positive profit margins, strengthened our balance sheet, and positioned ourselves for long-term growth. As always, we remind listeners that our results vary substantially from quarter to quarter due to the timing of customer deliveries, which is why we encourage folks to focus on the annual numbers as opposed to any one quarter. We had 189 million in revenue and reported 30.6 million in net income for the quarter, driven by a large number of customer deliveries in our LEU business segment. We expanded our cash balance to 227 million while strengthening and de-risking our balance sheet by eliminating the majority of our remaining pension obligations. Kevin will discuss this in greater depth shortly. Last October, we made history. by becoming the first U.S. uranium enrichment company to commence plant operations using U.S. enrichment technology in 70 years. We are continuing to produce high-assay, low-enriched uranium, or HALU, which is urgently needed to fuel the next-generation reactors. The modest quantity of HALU we can produce today is the foundation for the Department of Energy in supporting demonstration reactors and new fuel designs. Our potential is exponentially larger. The current HALU production cascade occupies a small corner of our Ohio facility, which is designed to accommodate more than 10,000 centrifuges. Our goal is clear, to expand our capacity at our American centrifuge plant in Ohio so that we can meet the full range of commercial and national security requirements for enriched uranium, including not only HALU, but also low enriched uranium for the existing fleet of commercial reactors. The global uranium enrichment market is dominated by state-owned enterprises, which is why U.S. government support for domestic enrichment technology through public-private partnership is so critical. Government investment is especially justified here given the fact that the government has its own requirements for enriched uranium, including national security missions that explicitly require the use of U.S.-origin enrichment technology, a technology only we can provide today. While the build-out of a scaled enrichment facility will require new investment as well as the support of the U.S. government, in the past few months alone we have seen strong signals that give us confidence in our strategic plans. Last quarter we announced $900 million in LEU purchase commitments from commercial customers contingent on our ability to secure financing necessary to build the new enrichment capacity. In addition, the Department of Energy has issued RFPs designed to jumpstart American production of both LEU and HALU. We submitted our proposals for HALU earlier this year. We are now developing our proposals for the LEU RFP, which is due next month. These RFPs are backed by more than $3.4 billion in congressional appropriations that were approved as part of the Inflation Reduction Act in 2022 and the bipartisan government funding bill in March 2024. Taken together, they represent the largest federal investment in domestic nuclear fuel production in decades. These are competitive solicitations. There are no guarantees. I have told my team to take nothing for granted. Our job is to put together competitive proposals that highlight our capabilities to bring the best value for the government. We have a strong case to make. We have a proven technology that is already in operations. We have one of only two U.S. sites currently licensed for LEU production and the only one licensed for ALU production. We are the only American-owned enrichment company. We are the only technology that will fully rely on and utilize an American supply chain. We manufacture our centrifuges in the U.S. Our technology is U.S. origin. That is crucially important because Under long-standing nonproliferation agreements, only a U.S.-origin technology can be used to support national security missions. In short, we are uniquely positioned to deliver an all-in-one, made-in-America solution, restoring a truly domestic uranium enrichment capability which will strengthen our energy security and our national security while creating family-supporting, high-tech jobs for American workers. If we are successful, we will play a pivotal role in enabling the United States to transition away from depending on foreign supplies of enrichment. And there's no time to waste. In May 2024, the President signed into law the ban on the imports of enriched uranium from Russia, which is set to take effect on August 11, 2024. However, lawmakers recognize the reality that the transition is going to take some time. So the law authorizes the Department of Energy to issue waivers through 2027. Centris has been clear that we need waivers for the next few years as we complete our Russian supply contracts and to enable us to transition back to our own production. We have also been consistent in our communications with our government partners that waivers are necessary to ensure an uninterrupted supply of fuel to the reactors that millions of Americans rely on every day for power. Last month, the Department of Energy granted Centris a waiver covering our importations for U.S. customers in 2024 and 2025, while deferring a decision on 2026 and 2027. We are pleased with the OE's approach to the process and this outcome, which reflects a shared understanding between government and industry that new capacity won't come online for several years and avoid the near-term disruption that would harm our American customers. We have also requested a waiver covering imports for our international customers that have their enriched uranium fabricated into fuel in the United States and re-exported. And longer term, we plan to request the waiver covering imports in 2026 and 2027 that we have not yet committed to customers. The reality is that Russia accounts for 44% of the world's enrichment capacity today. and U.S. utilities relied on Russian origin enrichment for more than a quarter of their needs last year. That's why these waivers are so important during this transition period, not just for Centris, but for the industry and the country, as we work to scale up domestic enrichment capacity over the next few years. Working together in partnership between government and business, America can do great things. Rebuilding our domestic uranium enrichment capacity is one of them. Centra stands ready to lead that effort. With that, I'm going to turn things over to Kevin.

Thank you, Amir. Good morning, everyone. Our financial results for the quarter remain in line with our internal projections based on customer orders and deliveries. The second quarter of 2024 reflected a more than 30% increase in school quantities delivered, albeit at slightly lower margin than those of the prior year. This was due to several deliveries in the second quarter of 2023 that were favorably priced but did not replicate in the current quarter as their fuel needs are anticipated in future quarters. We continue to generate positive quarterly cash flows, which is imperative as we focus on our future growth and pursuit of our own domestic production of LEU for the existing commercial reactor fleet and HALU for the next generation of reactors. As Amir noted earlier, For the second quarter of 2024, we generated 189 million in revenue and 30.6 million in net income, an increase of 90.6 million in revenue and 17.9 million in net income. Our LEU business generated 169.6 million in revenue, an increase of 82 million compared to the same quarter in 2023, reflecting increases in both the volume of sous sold as well as the average price of SWOO sold. Our cost of sales in LEU increased from $60.8 million in the second quarter of 2023 to $136.6 million in 2024, again reflecting the increase in sales volume as well as an increase in average unit cost of SWOO sold. We ended the quarter with an LEU growth profit of $33 million compared to $26.8 million in the second quarter of 2023. Our technical solution segment also generated 3.5 million in gross profit, which was an improvement of 2.3 million versus the second quarter of 2023. On a consolidated basis, our gross profit was 36.5 million, an increase from 28 million in the prior year. Technical solutions for the second quarter of 2024 generated 19.4 million in revenue, an increase of 8.6 million compared to the second quarter of 2023, and reported $15.9 million in cost of sales, which was an increase of $2.3 million compared to the prior year. Our results on a year-over-year basis reflected the transition of the HALU operation contract from a cost-share model under Phase 1 to a cost-plus incentive fee model under Phase 2. In the second quarter of 2024, we continued to raise funds under our ATM offering and raised $12.2 million, or $19.3 million year-to-date, net of related expenses. These proceeds and the gross margin generated in the second quarter contributed to our ending net cash balance of $227 million and a restricted cash balance of $32.6 million for a total of $259.6 million of cash and restricted cash. Our strong cash position continues to facilitate execution of our contractual obligations and investment in the strategic initiatives of our future. On May 28, 2024, we entered into an agreement to purchase a group annuity contract for approximately $224 million to transfer approximately $234 million of our pension plan obligations to an insurer. The annuitization will transfer the administration and benefit payments responsibilities for more than 1,000 beneficiaries and resulted in the recognition of 16.6 million remeasurement gain in our second quarter statement of operations. When combined with the previous fourth quarter 2023 annuitization, the company's pension plan obligations have been reduced by approximately $420 million which represents 90% of the obligation in the prior year. This covers approximately 2,400 beneficiaries. These transactions have significantly de-risked the company's balance sheet with a reduction in both current and future liabilities. These transactions were one piece of a multifaceted strategy to strengthen our balance sheet as part of a strategic vision to expand domestic enrichment capacity. With that, let me turn things back over to Amir.

Thanks, Kevin. One final point I'd like to make. Obviously, over the last few months, the US political cycle has been tumultuous in the run up to the election. No one knows what will happen in November or what the political landscape will be next year. The good news for the nuclear industry and for Centris in particular is that there is a broad consensus in both parties about the need to reclaim and advance American leadership in nuclear energy and nuclear fuel production. Our work on the HALU cascade was launched during the Trump administration and then expanded under the Biden administration. The Advanced Reactor Demonstration Program, which is funding the deployment of two HALU-fueled next-generation reactors, and advancing eight other innovative reactor designs was also launched by the Trump administration with bipartisan congressional support, and then received a major infusion of funding under the bipartisan infrastructure law signed by President Biden. And as I mentioned earlier, this spring, Republicans and Democrats in Congress worked together to enact a multi-billion dollar investment in U.S. nuclear fuel production, including support for LEU as well as HALU. Regardless of which candidates and parties win in November, we expect that nuclear energy and restoring domestic uranium enrichment capabilities will remain a key point of bipartisan agreement in Washington. In the end, having a reliable, affordable, emissions-free source of energy that can meet our nation's needs 24 hours a day, seven days a week, 365 days a year is something that appeals to people across ideological spectrum. We look forward to working with policymakers in both parties in the years ahead to restore America's status as a global leader in nuclear fuel production. Let me close by thanking all of our investors who have joined us today on this call. None of this would be possible without your support. We are committed to living up to the faith you have placed in us and delivering the results you expect and deserve. We are happy to take questions at this time. Operator?

Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your questions, simply press star one again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. As a reminder, we'll have to pause for a moment to compile the Q&A roster.

While we wait for questions, I am happy to share that the Centris Board of Directors appointed Ms. Stephanie O'Sullivan to our board yesterday. Her wealth of experience and knowledge in the national security and cyber security arena, among others, will be invaluable for our future success. She joins our new board member, Ray Rothrock, who was elected during the June shareholder meeting. We look forward to working with them during this exciting period for the nuclear industry in our company.

Thank you. Your first question comes from the line of Rob Brown from Lake Street Capital Markets. Please go ahead. Good morning.

Good morning. Just wanted to talk a little bit about the RFPs that you alluded or talked about. What's the timing, I guess, the HALU's been submitted and the LEU is still being worked on and plans to be submitted, but just give us a sense on how the timelines of those play out and are they interrelated or are they sort of independent efforts?

All right, so let's talk about your question about timing first. So, as you know, we submitted two of the RFPs and the third LEU RFP is due a month from now in September. You know, there's very little information from the Department of Energy exactly how and when those are going to be awarded. We can definitely guess and speculate, but we don't actually know. So I hope I'm answering your question, but those, obviously, as we always stated, those are critical, and we view the LEU part as being critically important to us as well. As we always said, this kind of a project will require public-private partnership, and although the timing of the government awards is up to the government, we really are ready to go.

Okay, great. Thank you. And then on the ban and the waiver situation, it sounds like you had waivers for a couple I think you said you got a deferred waiver for the out years. Is that a process where you will then, you know, see where you're at and ask for waivers again, or how does that process work?

Yeah, so just for background, our first waiver request application went on in May 27th. And on July 18th, the DOE issued the company a waiver that allows us to import LEU from Russia for the deliveries that we already committed to our customers in 2024 and 2025. On June 7th, we filed the second waiver request application to allow for importation of LEU from Russia for processing and re-export to the company's foreign customers. And at this point, we're waiting on DOE's determination. So to answer more specifically your question, the company really plans to file a third waiver request application to allow for importation of LEU from Russia in 2026 and 2027 for use in the US that we have not really yet committed to customers. So yes, we do have intentions to file a third waiver request to the DOE.

Okay, great. Thank you. I'll turn it over.

Your next question comes from the line of Alex Riegel from B. Reilly. Please go ahead.

Thank you very much, Shaman. Could you talk a little bit about the competitive environment for the multiple bids that have been submitted, as well as for the planned bid for Lou?

Okay. Yeah, good question. So, we Very simply put, Centris is not the only enricher. However, we are the only U.S. technology, U.S.-owned company in the runnings. Among ourselves and the other two enrichers, we're the only ones that are currently enriching and have proven technology. And so I think that positions us fairly uniquely. As I mentioned earlier on the earnings call, the fact that our technology could be used for commercial and for national security provides a very unique value to the United States of America. And so there are several Western enrichers, but we are fairly uniquely positioned specifically for this bid in our view.

That's helpful. And then, Kevin, you mentioned that the second quarter was sort of in line with company expectations. Clearly, the SWU revenue was very, very strong. Was there any pull through there? And so should we think about sort of your inline comment as inline for the year, but obviously the business is a little bit lumpy here, and therefore – third quarter, fourth quarter could fall off? Or have we seen a higher level of demand in the third quarter, too, because of these waivers? How should we think about all that?

Yeah, that's a great question. Yeah, what I was referencing in the earlier comments was that it was in line both on a quarter and on an annual basis. from a revenue perspective. So we don't expect that, to the point of your question, that we would have any fall-off in future quarters based upon how strong the quarter was. We were always expecting it to come out the way it was.

Alex, one other thing I wanted to mention to your earlier question, obviously I was more focused on answering your LEU one, but just to mention, I mean, Haley is a big part of this bid, and we Again, we're very uniquely positioned in that we're the only ones that are currently enriching KALU, not only enriching the only ones that have the license here in the U.S. or in the Western world to be able to do that. So I think that makes us fairly unique.

That's great. Thank you very much. Thanks, Alex.

Your next question comes from the line of Joseph Rieger from Karat Capital Partners. Please go ahead.

Hey, I'm here, Kevin and team. Thanks for taking the questions. Um, and congrats on a strong quarter. Um, I did have a kind of a follow on to the previous question. So, uh, so far a year to date, uh, SWU sales were about 163 ish million. Um, last year they were 208. Um, I think at some point you guys suggested that, you know, because the price of SWU was up and you know, the total for the year might be up slightly, but the contract volume isn't materially changing from year to year, then it will continue to have this lumpiness. Has anything changed entry year this year that would suggest the total sales for this year would be higher than your original expectation? I guess that's kind of the question.

To answer your question, no. I don't think there's anything that's transpired through June 30th that would change what our expectations are on an overall basis. I think what you're seeing in Q2 is strong performance that's largely reflective of stronger pricing, and we did have some Some deliveries move into the second quarter that we were always expecting that wouldn't have pushed out in our quarters. And again, you have to go back to the nature of our business. It's very cyclical. So you're not seeing necessarily the same customer deliveries in an annual cycle. It's all based upon the utility's needs. and their reload schedules are usually on an 18- to 24-month basis. So to answer your question, you know, this falls in line with our expectations that we forecasted at the commencement of the year. The one thing that I would note with regards to the technical solutions segment is that that is going to be stronger in the current year based upon the switchover from Phase I and Phase II. And as a reminder, Phase I was a cost-share arrangement, which we had a 50-50 – distribution between the government and Centris as it relates to that cost contribution. And the current year under Phase 2, we have a contract that goes up to $90 million for the Phase 2 cycle, which commenced last year in mid-November, and we'll realize higher revenues on that for the remainder of the year compared to the prior year. Hope that answered your question, Joe.

Sort of. And I realize that it's a limited in what kind of guide you guys can give. Looking a little deeper, margins. So gross margin for the LEU segment last year was about 39%. This year, it's about rough math, 15-ish percent so far this year. Is that simply, to your point, timing of contracts and how should we think about margins the rest of this year and next year? Is Is this a sign that margins are starting to get weaker as some of the better contracts have rolled off, or is this just timing?

It's primary timing. I mean, we're still going to have different contracts delivering at different profit margins. The one thing that I would note that I think may be illuminative is that, you know, in my earlier comments I mentioned the higher margins in the prior year were largely due to a delivery. on one of our customers that was a pretty big slug of SWU. That didn't replicate in the current year largely due to the timing of when they take their deliveries, and we expect that to be coming about in the future. And those margins that we realized in the past for that specific delivery will be replicated at the point in time where they take delivery, just they don't take delivery in a 12-month cycle, which is why you didn't see the mirror image of what we experienced last year.

Okay, thanks. I'll get back in queue.

And that does conclude our Q&A session. I would like to turn the floor back over to Mr. Dan Lycico for closing remarks.

Thank you, operator. This will conclude our investor call for the second quarter of 2024. As always, I want to extend a thank you to our listeners online and those who called in. We look forward to speaking with you again next quarter.

This concludes today's conference call. Thank you for your participation. You may now disconnect.