Centrus Energy Corp. Q2 FY2025 earnings call

• The nuclear industry is experiencing rapid growth driven by government actions and private investments, with confidence in the need for nuclear fuel. - Centrus achieved robust financial results in Q2, including $154.5M revenue, $53.9M gross profit, and $33.5M operating income. - Awaiting DOE's decision on $3.4B appropriation for domestic nuclear fuel production. - Continued to grow cash balance to $833M, with plans to optimize capital structure. - Launched a $60M investment in supply chain readiness for future large-scale deployment. - Successfully operated HALEU cascade at Piketon, Ohio, achieving 900-kilogram production milestone for Phase 2 and extending the contract through June 30, 2026. - Total company backlog stood at approximately $3.6 billion extending through 2040, with LEU segment backlog at $2.7 billion and Technical Solutions at $0.9 billion.

In the second quarter, Centrus Energy had two main segments. The LEU segment generated $125.7 million in revenue, a decrease of $43.9 million compared to the same quarter last year. The decrease was primarily due to a reduction in SWU sales volume and no sales from uranium during the period. LEU cost of sales was $75 million, a 45% decrease from the prior year. The Technical Solutions segment had revenue of $28.8 million, an increase of $9.4 million or 48% compared to the same quarter last year, driven by LEU feedstock and cylinder costs for the HALEU operation contract. Cost of sales for this segment was $25.6 million, an increase of $9.7 million or 61%. Total revenue for the quarter was $154.5 million, with a gross profit of $53.9 million and operating income of $33.5 million.

• Awaiting DOE's decision on $3.4B appropriation for domestic nuclear fuel production and how awards will be structured. - Optimistic about securing public and private capital to expand enrichment capacity. - Continues to pursue readiness initiatives to strengthen investment case, including cash balance growth, supply chain investment, and workforce expansion. - HALEU operation contract extended through June 30, 2026, with DOE having option to extend for additional years.

• Macroeconomic events could impact operations, though not significantly so far. - Variability in revenue and margins due to timing of deliveries under multiyear contracts. - Dependence on DOE's funding decision and its impact on capital expansion plans.

Q: Do you expect to see federal programs stemming from May's executive orders that would be incremental to the DOE's enrichment awards that you were selected for last year that could help fund or otherwise support your capacity expansion?

A: We really don't have any information. But the executive orders are a strong support for what we do.

Q: Curious how the $60 million investment in centrifuge manufacturing activities and supply chain readiness is progressing? And when might we see that show up in earnest in the financial statements?

A: Things are going well. It's an 18-month initiative running through CapEx and advanced technology costs, with variability in costs in related categories.

Q: What's sort of the opportunity for additional customer commitments for the LEU contingent backlog?

A: These agreements are important as we size up our plant, and we are continually working with other customers to grow the backlog, but specific details on identities are not disclosed.

Q: Do you expect to continue producing sort of the same rate of fiscal production there until some DOE decisions are made? Or how do you sort of see that fitting in with the DOE kind of next step?

A: Yes, it's business as usual, and we'll continue to enrich at the current rate.

Q: Is there any opportunity for you guys to start moving forward with, say, a smaller build-out of a low-enriched facility using your existing funds and maybe whatever is left on the ATM while you wait for the government to make a decision or in the event that the government decides to appropriate less funds than necessary to you guys or less than you expect?

A: We're continually evaluating such things based on DOE decisions and customer conversations, with the $60 million readiness initiative in place to execute quickly if needed.

Q: Can you remind us what's remaining on your current ATM?

A: There's nothing remaining on the ATM; we've exhausted what was out there, and we're evaluating next steps while maintaining financial flexibility.

Q: Can you highlight what the target amount of capital is on the balance sheet that you want over the next 3, 6 months or 1 year?

A: We don't get into details on specific capital build costs, but we have a fulsome business strategy with sensitivity analyses for public-private partnership, focusing on building out existing infrastructure and balancing funds from government and private sources.

Q: Can you share directionally where the profitability of the entire portfolio as a whole is currently?

A: We had a strong quarter with profit at approximately 40%, but we don't provide earnings guidance or disclose contract mix details; margin levels are expected to remain in past ranges with quarterly variability but on track with internal projections.

Q: Should we expect the next 2 quarters to show some level of uranium sales to come on par annual levels that you have seen in the past?

A: We don't provide guidance or details on individual shipments, but we're on track with internal revenue projections.

Q: Is there expectation of the HALEU operations contract increasing and for you to increasing your HALEU processing capabilities? And is there any CapEx planned or anticipated for that in future years?

A: We're working to the contract with DOE, but we don't have insights beyond public announcements; Centrus is the only Western HALEU producer, and we're needed for advanced reactors, but no further details on CapEx plans.

Q: Do we have any estimate on the CapEx required to expand the facility and then deploy the cascades to get to 96? And is there a time line for that, that you are targeting?

A: We don't provide specific CapEx numbers, but we've publicly announced timelines for cascades (42 months for first, 6 months for second, etc.), and we're working to accelerate timelines through manufacturing readiness initiatives, but no specific cost or timeline details beyond that.

Q: With the Russian contract kind of culminating over the next couple of years and only 3 Western enrichers that are currently enriching, how should we be thinking about filling that gap and where that capacity come online just given that it is a 42-month kind of lead time before once we get the allocation that you guys will be really up and running in earnest?

A: We're working hard through public-private partnership to come online as quickly as possible, and we hope to be part of the solution to fill the gap, though details on exact timing depend on DOE awards.

Q: Do you see that is kind of the pathway forward in terms of government intervention to setting a floor on the market or a structure that's similar to what the Department of Defense did with MP Materials?

A: I don't wish to speculate on how the government will impact the market; it will depend on how the awards and agreements are structured.

Q: Outside of sort of the expectations on the centrifuge side over time, are there any other areas of the supply chain that interest you over time?

A: Our focus is on reindustrializing and commercializing centrifuge technology, but we're always evaluating opportunities for vertical integration and efficiency, though no specific announcements at this time.

Q: Given that the volume targets for the Phase 3 HALEU contract are fairly consistent with levels that you guys have already kind of proven out or demonstrated, what would you say are kind of the main goals or objectives of Phase 3 relative to what you demonstrated in Phase 2?

A: The goals are to continue producing at our rates and fulfilling stated deliveries and production rates, continuing to demonstrate consistency and longevity of production within expected parameters as part of the demo program