Centrus Energy Corp Q1 FY2025 Earnings Call

Good morning, ladies and gentlemen and welcome to the Centrus Energy Q1 2025 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Thursday, May 8, 2025. I would now like to turn the conference over to Neal Nagarajan, Head of Investor Relations. Please go ahead.

Good morning. Thank you all for joining us. Today's call will cover the results for the first quarter of 2025 ended March 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. We expect to file our report for the first 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 Centrus 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 risks and uncertainty, including assumptions about the future performance of Centrus. Our actual results may differ materially from those in our forward-looking statements. 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 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, May 8, 2025 unless otherwise noted. This call is the property of Centrus Energy. Any transcription, redistribution, retransmission or rebroadcast of the call in any form without the expressed written consent of Centrus is strictly prohibited. Thank you for your participation. And I'll now turn the call over to Amir Vexler.

Thank you, Neal, and thank you to everyone on the call today, including our long-time listeners and those joining us for the first time. Over the past year and especially in recent months, Centrus has made significant progress, positioning us well for the future. We are currently the only company enriching uranium using US-owned technology supported by an American supply chain and workforce. We take pride in restoring America's ability to enrich uranium and providing additional options for domestic and global customers. Before discussing our recent performance, I want to quickly address the current market dynamics. Despite the ongoing uncertainties in the global trade landscape, we continue to receive shipments of enriched uranium from our suppliers, and tariffs have not affected our operations. Additionally, our centrifuge manufacturing supply chain is supported by an increasing number of suppliers across the United States. Moving on to our quarterly results, it's important to point out that our business can show significant variability in quarterly results. A substantial portion of our revenue comes from the LEU segment, where our customers generally have multiyear contracts for annual deliveries at set prices. However, customers can choose the quarter to take their deliveries, which does not always align year after year. Therefore, revenues and margins fluctuate based on how many deliveries occur in a quarter and the contracts' pricing. Consequently, we feel that our annual results are a more reliable indicator of our progress. In the first quarter of 2025, we reported solid financial results with $73.1 million in revenue, a gross profit of $32.9 million, and an operating income of $20.5 million, all of which outperformed the first quarter of 2024. Although variability is typical for us, the significant difference from last year's results was primarily due to two factors. First, we experienced a brief supply disruption from TENEX caused by a decree from the Russian Federation in November 2024, which has since been resolved for our pending orders. This meant that a shipment scheduled for the fourth quarter was pushed to the first quarter of 2025. Second, there was an impact from a one-time lower-margin contract reflected in the first quarter of 2024 results. We closed the first quarter with a robust cash balance of $653 million, which strengthens our ability to navigate temporary market fluctuations and invest in long-term growth. The Trump administration is currently reviewing the funding activities of federal agencies to align with the President's priorities. We believe the $3.4 billion appropriated by Congress to stimulate US nuclear fuel production supports the President's energy agenda. We are waiting for the DOE to announce how it plans to allocate these funds, structure its program, and determine award recipients. We are confident in our investment proposition as the only publicly traded proven enricher capable of fulfilling commercial and national security requirements while maximizing returns on government investment. Our objective is to secure enough public and private investment to expand our enrichment capacity. While we await the government's decision, we are actively pursuing four parallel initiatives to strengthen our investment case. First, we are improving our balance sheet to enhance our position for strategic investments aimed at expanding our capacity as part of a potential public-private partnership. We improved our capital structure in the fourth quarter by issuing $402.5 million in convertible senior notes, and in the first quarter of 2025, we used part of those funds to redeem all of our higher-yield 8.25% notes, which further strengthens our balance sheet ahead of the government’s funding decision. Kevin will elaborate on this shortly. Second, in late November 2024, we initiated a $60 million investment aimed at restarting centrifuge manufacturing readiness, expanding our manufacturing facility in Oak Ridge, Tennessee, rebuilding our supply chain, and completing engineering work. This investment is designed to mitigate risks in Centrus' domestic supply chain and reinforce our competitive advantage in domestic centrifuge production ahead of a government funding decision. Third, we are successfully operating our HALEU cascade at our Piketon, Ohio facility under the Operations Contract to provide HALEU that the DOE urgently requires. We began enrichment operations at the American Centrifuge plant in Piketon in 2023, marking the start of the first new US-owned enrichment plant in nearly 70 years. By March 31, we had delivered approximately 670 kilograms of HALEU to the Department of Energy, despite supply chain challenges related to the 5B cylinders. A key goal of our demonstration program is to prove continuous and safe centrifuge operations, which we have successfully achieved over the past 19 months. The effective operation of the HALEU cascade builds on over 3.5 million machine hours of successful centrifuge testing and technology demonstration. Our technology is reliable, works as intended, and delivers HALEU punctually and within budget. Moreover, our centrifuge design is adaptable to produce LEU, LEU+, and HALEU, effectively meeting various national security needs. Our successful deployment and track record of achieving milestones on time and below budget provide a strong investment case for government funding. Lastly, we continue to collaborate with local and federal government officials to advocate for Centrus, emphasizing the importance of leveraging American taxpayer funds to support jobs in the United States. This includes ongoing support from Chairman Chuck Fleischmann, who represents the district with our manufacturing facility in Oak Ridge, Tennessee, and has played a significant role in securing a meaningful portion of the $3.4 billion in funding. A bipartisan group of Ohio elected officials recently sent letters to Energy Secretary Chris Wright urging prioritization of Centrus' American-made centrifuge technology in the funding allocation process. These letters demonstrate growing public support, highlighting the need to keep taxpayer dollars in the United States to invest in an American supply chain. Our efforts to revitalize America's nuclear fuel supply chain have become increasingly urgent. We have already highlighted the significant and expanding existing market for commercial LEU both domestically and internationally. It’s critical to understand that our business model is predicated on current commercial market demand, excluding potential growth accelerators like data centers, hyperscalers, or AI. Additionally, we recognize the increased demand for enriched uranium for national security. We also appreciate the rising need for energy security and independence within the current global trade environment, as well as the possible substantial future market for HALEU driven by the upcoming advanced reactor sector. The DOE recently released HALEU from its availability program to five advanced reactor developers. At Centrus, we are proud to provide the free market with an American source of enriched uranium to meet these domestic and international demands. We envision multiple avenues for success in producing LEU to wean America's existing reactors off reliance on imports, meeting essential national security requirements, and fueling the next generation of reactors with HALEU. With that, I will now pass the call to Kevin to review the numbers.

Thank you, Amir. Good morning, everyone. Centrus reported strong financial results in the first quarter including generating $73.1 million in revenue, an increase of $29.4 million compared to the same quarter last year and $27.2 million in net income compared to a net loss of $6.1 million in the same quarter last year. In addition, we reported a positive gross profit of $32.9 million compared to $4.3 million in the same quarter last year. We also utilized a portion of the $402.5 million convertible debt to extinguish our 8.25% notes and raised net proceeds of $25.4 million under our ATM program. Our LEU business generated $51.3 million in SWU revenue, which was an increase of $27.7 million compared to the same quarter last year. The increase in SWU revenue was a result of an increase in both the volume sold and the average price per SWU sold. The LEU cost of sales for SWU decreased from $23.1 million in the first quarter of 2024 to $20.1 million in the current quarter. This was primarily due to a decrease in SWU costs which was the result of a 48% decrease in the average unit cost of SWU sold, partially offset by an increase in the volume of SWU sold. We ended the quarter with a gross profit of $31.2 million in our LEU segment compared to $0.5 million in the first quarter of 2024. LEU customers generally have multiyear contracts that carry annual purchase commitments, not quarterly commitments. The revenue and gross profit in our LEU business varies based upon the market conditions at the time the customer contract was signed and the cost of inventory at the time of delivery. Technical Solutions generated $21.8 million in revenue, an increase of $1.7 million compared to the first quarter of 2024 and reported $20.1 million in cost of sales, which was an increase of $3.8 million compared to the prior year. Our Technical Solutions segment generated $1.7 million in gross profit, which was a slight decrease of $2.1 million versus the first quarter of 2024. The lower margins in the Technical Solutions segment were driven by a delay in obtaining sufficient storage cylinders to complete Phase 2 of the HALEU Operation Contract. In November 2024, the DOE extended the Phase 2 period of performance, through June 30, 2025. Our total company backlog was $3.8 billion as of March 31, 2025 and extends to 2040. Our LEU segment backlog was approximately $2.8 billion and includes $0.7 billion of future SWU and uranium deliveries, primarily under medium-and long-term contracts with fixed commitments, and $2.1 billion in contingent LEU sales commitments in support of the potential construction of LEU production capacity at the Piketon, Ohio facility. With the first-quarter execution of the $0.8 million agreement with KHMP, we have now entered into definitized agreements for $1.7 billion of the total $2.1 billion in contingent LEU sales commitments. The contingent LEU sales commitments continue to depend on our ability to secure substantial public and private investment. Our Technical Solutions segment backlog was approximately $0.9 billion and includes funded amounts, unfunded amounts, and unexercised options. The unexercised options relate to the company's HALEU Operation Contract. In addition, the company has continued to undertake initiatives to improve its capital structure. In the first quarter of 2025, we redeemed 100% of the $74.3 million principal of our 8.25% Notes, originally due in 2027, which resulted in a gain on extinguishment of $11.8 million. Post-redemption, the company's long-term debt on its consolidated balance sheet only includes the 2.25% Convertible Notes. As noted earlier, in the first quarter of 2025, our ATM program generated an additional $25.4 million in net proceeds. These proceeds and the gross margin contributed to an ending cash balance as of March 31, 2025, of $685.7 million, which includes $32.7 million of restricted cash. Maintaining a strong cash position continues to facilitate execution of our near-term contractual obligations, as well as strategic investments in our long-term future. These achievements continue the progress made in 2024, by further strengthening our balance sheet to allow us to pursue the investment in our manufacturing capabilities and the leveraging of investment tax credit opportunities to partially fund these efforts. The first-quarter's accomplishments and initiatives continue to better position Centrus to execute on its long-term strategy to pursue adequate public and private funding with the goal of deploying its technology on a larger scale in order to restore America's uranium enrichment capability. With that, let me turn things back over to Amir.

Thanks, Kevin. I'd like to close by reminding our investors and listeners of the imperative need to both reduce our dependency on foreign nations and to inject more competition into the market to provide customers with more alternatives. Nuclear energy enjoys resounding bipartisan support and this administration appears to be especially bullish on its prospects. We are the only company with an American technology and an American workforce using an American supply chain that enriches uranium today. All of the other commercial enrichers today are foreign government-owned enterprises and cannot meet our national security needs. It is important to note that in this tariff environment, where global supply chains are being decoupled, we are also the only enricher that actually manufactures our centrifuges in the United States, using an ever-growing number of suppliers across multiple states. We are one of two enrichers to hold an NRC license to produce LEU, and the only NRC licensee for HALEU production. Our technology is tested and proven. Our centrifuges have continued to safely and successfully operate over the last 19 months and have enriched the expected output. And finally, there is a clear demand from the market for another proven commercial enricher to provide more competition on top of our two European competitors. Approximately, $2.1 billion of our backlog is in customer contingent LEU sales commitments to support the deployment of our new production facility in Piketon. And we are seeing growing momentum. We definitized $800 million of that $2.1 billion in the first quarter. In short, we meet the markets, the nations and our taxpayers' needs with a proven technology and a domestic supply chain. I would like to close by thanking our growing list of investors, analysts and listeners without whom none of this would be possible. We look forward to updating you on our progress on our next earnings call. With that we are happy to take questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. One moment please for your first question. Your first question comes from Rob Brown from Lake Street Capital. Please go ahead.

Just wanted to kind of get an update on the Department of Energy activity. I know you can't predict their steps but maybe a sense of how the environment is shaping up. I know you got some political support you mentioned but what's sort of the next steps you're looking for out of the DOE at this point?

Good morning, Rob. So since the question really deals with the environment there's been a lot of activity just recently. The Secretary testified on the House as you probably or may have heard yesterday. He was questioned exactly about that as to how fast can we spend, how fast can we go with some of the fuel awards. And the Secretary's answer was that they are moving quickly and they are planning to award the $2.7 billion. So we feel good about the fact that a lot of these funds have not really been affected by any of sort of the DOE activities out there and the Secretary has seemed to confirm that to the subcommittee. So just from our view we are seeing a lot of activity as well. I feel there is a lot of momentum moving forward in awarding the funds.

Okay. Great. And then it seems like the Russian shipment activity is continuing. Where is that at in terms of the process? Do they still need to get kind of order-by-order agreements? Or is that sort of open now to shipments under a normal course?

As far as I know nothing has changed since the last time we spoke about this. They require specific shipment authorizations from the Russian authorities. Really so far they have been able to conduct their normal course of business and get the authorization. Obviously, we cannot speak or speculate on behalf of what the authorities are going to do but I can report that so far their process has not impeded any of the commitments they have to us.

Okay. Thank you. I will turn it over.

Thank you, Rob.

Thank you. Your next question comes from Ryan Pfingst from B. Riley. Please go ahead.

Hey, guys, thanks for taking my questions. Amir, you mentioned that you're the only licensee for HALEU production. I'm curious if another entity wanted to pursue that license how long would that take them? And what potential roadblocks would they face from a national security or other standpoint?

Good morning. Good morning, Ryan. That actually is a good question particularly now in the environment that there's a lot of new companies and a lot of entities I guess saying they have a technology or they have ways to enrich, but they do not have any footprint to license the facility or any brick-and-mortar. That is in my view a major obstacle. That is a process that takes years and it is a process that requires tens of millions of dollars to actually get an NRC license. Now, if you are applying for an LEU license that it would be a Category three facility. A higher enrichment like HALEU would be like a Category two facility which is what we have and is quite a bit more strict and stringent around security aspects of it. And so, the short and simple is for somebody that does not have a facility and will have to greenfield it, assuming they have a technology because that opens up an entirely different conversation, assuming they have a technology, but no facility, no license my estimate we're talking about years and tens of millions of dollars at the minimum.

Appreciate that. And it's a good segue into my second question. In the past, you've stated that the first full-scale HALEU cascade could be brought online within 42 months of securing funding. Wondering if you have an update to that time frame as we likely get closer to the kickoff there.

Good question, Ryan. The update is, I would not change any of the estimates we provided before in the estimate that you just quoted. As you know, and as we've reported previously, we have announced a $60 million supply chain investment. And I can report to you that ACO that's our facility is actively expanding the supply chain, making building improvements qualifying parts production and finalizing the engineering design basis as we prepare for future construction and operation of the enrichment facility. So, I will not change the estimate, but I will say that we are doing quite a bit of work to make sure that that is a solid number and that we stay true to it.

Thanks. Appreciate the detail. I'll turn it back.

Thank you. Your next question comes from Joseph Reagor from ROTH Capital. Please go ahead.

Hi guys. Congrats on a strong start to the year and thanks for taking my questions. So, I guess two things. First, just kind of following up on some of the prior questions. So, I guess on the Q4 announcement you guys specifically said that you'd received at that time three, I think it was licenses for exports from TENEX. And with this update you just kind of said that you've been able to continue business as usual. Should we expect that like going forward from here there won't be like additional number-based updates of how many shipments got licenses for export. And instead, it will just be you're able to do business unless we're told otherwise.

Yes. I think we would stick to the general terms of communication as opposed to updating shipment-specific information and obviously, provide a little bit more detail just to give color to it. But from a communication, we will keep it general.

Okay. Yes. And then the second item is for Kevin. So, I noticed on the balance sheet that inventory and old inventory both jumped significantly from Q4 to Q1. And I know that there tends to be some increase in Q1, but it was a bit more than normal. Was there anything in particular driving that?

The only thing that I would say that was the primary drivers of that is as we've talked about before, we do ship and transport inventory and end product from St. Petersburg, Russia into the States. And when those are en route and in transit those have quite a significant value to them, which includes both the SWU and the UF6. So that can drive up the overall total value that is reflected. And you'll typically see and it's reflected in the press release an offset in the liability section. And so, that's reflected as inventories owed to customers and suppliers. And so, that would be one of the primary drivers that we have seen that.

Okay. Is it something where this is indicative of near-term potential deliveries for you guys? Or is it, when you get it you get it, and you make your deliveries on some unrelated schedule?

Yes, that's a great question. I think it is indicative of a near-term delivery. That's not always going to be the case or always going to be true, but it is a signal that we do have deliveries that are coming up as we've talked about in the past, the Russian deliveries are typically for the most part just-in-time type shipments. Thanks, Joe.

Thank you. Your next question comes from Vikram Bagri from Citi. Please go ahead.

Hi. Good morning. It's Ted on for Vik. Thanks for taking the question. I wanted to ask about tariffs. Could you give us any insight into how that may be playing into your discussions with customers about their future orders? Has that impacted any timing of when they choose to contract? And then on the supply chain could you just remind us how much of the domestic centrifuge manufacturing is exposed to imports? Or just any color there would be super helpful.

Okay. Great question, Ted. So to date, we have not really seen any impacts from the current tariffs that have been enacted. We have seen no disruption in our supply chain, again due to tariffs. Just to serve you as a reminder and I think it answers your second question, our European competitor supply chain is 100% foreign-based, while our supply chain is made up of a growing number of our suppliers across numerous US states. So it's fully domesticated. So naturally, we have less of an exposure to the impact of tariffs on our supply chain than our European competitors, who manufacture their machines in Europe. So, I hope I answered your question. I think the first part of your question, you weave customers into it. I hope I answered that as well.

Yes. That was helpful, thank you. And I have a follow-up question. In terms of the task orders that will be issued, could you just remind us what are the various permutations that those could take in terms of cost sharing or various other formats that the DOE might look to? And are you operating under assumption, for any one of those particular to come out?

That is a complex question that I am not sure that I can really answer, because the way I understood your question is, would the task orders rely on cost sharing or any other type of contracting mechanism? The answer is, it would be impossible for us to predict at this point. I'd rather really not speculate at this point. So, we stand ready to see what the DOE is going to come out with, and we will be prepared to answer in the best possible way.

Got it. Thank you.

Thank you. Your next question comes from Eric Stine from Craig-Hallum. Please go ahead.

Hi, everyone. Great to chat this morning.

Good morning.

Good morning. Yes.

Following up on an earlier question, I understand this may be difficult to answer, but I'll try. Kevin, you mentioned that the Russian shipments are more just-in-time. As we look ahead to 2025, are there any considerations we should have regarding the timing of SWU and uranium sales? Historically, there hasn't seemed to be any clear pattern or seasonality to it. Any insights to help us think about this would be appreciated.

No, thanks for the question. I mean, as you are aware we don't provide financial guidance. So there's nothing significant or material at this time, that we feel would be appropriate to bring up. I think the only thing that I might note is that, our customers are utilities reactors that what ultimately they're looking for is reloads for their locations, which are typically between 18 and 24 months. And so that really is the driver from a timing perspective, as to how the revenues and the SWU revenues materialize from a future perspective. So that I think to a certain extent gives you a sense of how our business works and when we would expect to see the revenue materializing but we couldn't get into any more details just for the fact that we don't provide any future earnings guidance.

Yeah. No understood. Just thought part of the way through the year but I totally get it. It's very difficult to call especially not giving any guidance. So all right. Well obviously you've got the three contracts. You're waiting on the IDIQs. You've talked about that whole process. But correct me if I'm wrong but you've also got an opportunity NNSA opportunity that is separate. So maybe just talk about that the opportunity from a national security perspective confidence next steps et cetera.

I don't know that I can add anything to what's been publicly available out there from the NNSA. Just from a big-picture perspective our technology is unobligated that is able to serve national security purposes. It's deployment ready. It really is the only technology that is operating right now that is able to meet our national security needs. I will not venture into predicting what how and when the NNSA may do what. I'll be very careful not to comment on it. But I'll only say that we stand by and we take note of developments and we stand ready to serve.

Got it. Thank you.

Thank you.

Thank you. Your next question comes from Sameer Joshi from H.C. Wainwright. Please go ahead.

Hey, good morning, Amir. Thanks for taking my questions.

Good morning.

Maybe a slightly nuanced question but can you explain the dynamics of the 48% decrease in SWU costs that resulted in nice margins for you this quarter?

I'm sorry Sameer I didn't catch that question. Would you mind repeating that one more time?

The cost of SWU was lower by around 48%. I just wanted to understand if that was due to volume or if there were other factors involved.

Thank you for your question. I can address the relationship between revenue and costs in a couple of ways. First, we experienced delays in fourth-quarter deliveries due to the permitting and licensing process in the Russian Federation, which pushed an increased volume into the first quarter and significantly affected our margin realization for that period. Regarding costs, we apply average costing in our accounting practices, which reflects our purchases and sales and ultimately determines the costs that impact our bottom line. Additionally, when comparing year-over-year or quarter-over-quarter on an annual basis, we observed an improvement in gross profit. This was mainly because last year we had low-margin shipments that negatively affected both our net income and margin realization, a scenario that did not occur this year. The shipments that were postponed from December to Q1 resulted in a more favorable margin realization, considering all the factors I've mentioned. Does that address your question?

Yeah. No that was good color. I just wanted to make sure that we understood that. Thanks a lot. Second question is on the 5B cylinders. What is the status? I mean I know they were delayed but is there an update on that?

I think the last time we reported that we have a steady flow and fulfillment of our 5B requirements. And that statement is still correct. There is no impact to our production from 5B cylinder sourcing.

Got it. And then one last question. Can you discuss the speed at which a competitive HALEU enricher might emerge and provide an overview of the areas or companies you consider to be emerging competitors? I believe the DOE is also in the process of awarding additional contracts for these.

Let me clarify your question. You are asking about the competitive landscape for HALEU production in the United States. As you may know, part of the DOE's awarded scope involves HALEU enrichment in the United States. From a competitive standpoint, we are currently the only facility with a CAT two license, which permits us to enrich up to 19.75% for HALEU. LES operates a facility in New Mexico, but as far as I know, they are not producing HALEU and may not even be licensed for it. I cannot speculate on what it would take for them to enter this market or amend their licenses. They have publicly stated that they are focusing on HALEU production in the United Kingdom, not the United States. If other companies want to enter this field, for example, Orano has made announcements regarding site selection, although they haven't specifically mentioned HALEU. I want to emphasize that obtaining greenfield licenses is a lengthy process requiring significant investment, where we hold a considerable first-mover advantage. Aside from these two competitors, there may be others, such as Laser Enrichment GLE, which has made recent announcements. We usually do not discuss competition, but you can refer to their general announcements. We are actively enriching and have the necessary equipment and license, which gives us a clear advantage. Additionally, centrifuge technology is the only proven and viable method to meet the increasing demand for enriched uranium in both the short and mid-term, as evidenced by market reactions. I hope this thoroughly answers your question.

Absolutely because one of the nuance I wanted to bring out is that you have the only licensee of the centrifuge technology in the US And I was wondering if any other HALEU producer might required to license that technology from you? Or will they be using some totally different technology? I do understand centrifuge is the best and most available right now.

Yes, correct. I would not venture to speculate on competition beyond some of the established competitors that I mentioned.

Okay. Fair. Thanks a lot for taking my questions.

Thanks, Sameer.

Thank you. There are no further questions at this time. I will now turn the call over to Neal Nagarajan. Please go ahead.

Thank you, operator. This will conclude our investor call for the first quarter of 2025. As always, I want to extend a thank you to our listeners online and our analysts who called in. We look forward to speaking with you again next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.