Q1 2010 Earnings Call Transcript

May 5, 2010 8:30 am ET


Steve Wingfield – Director, IR

John Welch – President and CEO

John Barpoulis – SVP and CFO

Bob Van Namen – SVP, Uranium Enrichment


Laurence Alexander – Jefferies

Gabriela Bis – Goldman Sachs

Baker Burleson – Fox Point Capital



Good day, ladies and gentlemen, and welcome to the first quarter 2010 USEC, Inc. earnings conference call. My name is Diana and I'll be your operator for today. (Operator Instructions) Now, I'd like to turn the conference over to your host for today, Mr. Steve Wingfield, Director of Investor Relations. Please proceed.

Steve Wingfield

Good morning. Thank you for joining us for USEC's conference call, regarding first quarter of 2010, which ended March 31st.

With me today are John Welch, President and Chief Executive Officer; John Barpoulis, Senior Vice President and Chief Financial Officer; Phil Sewell, Senior Vice President; Bob Van Namen, Senior Vice President and Tracy Mey, Controller and Chief Accounting Officer.

Before I turn the call over to John Welch, I want to welcome all of our callers, as well as those listening to our webcast via the Internet. This conference call follows our earnings news release issued yesterday after the markets closed. That news release is available on many financial websites, as well as our corporate website,

I want to inform all of our listeners that our news releases and SEC filings, including our 10-K, 10-Qs and 8-Ks are available on our website. We expect to file our quarterly report on 10-Q later today. A replay of this call will also be available later this morning on the USEC website.

I'd like to remind everyone that certain of the information that we may discuss on this call today may be considered forward-looking information that involves risk and uncertainty, including assumptions about the future performance of USEC. 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 is accurate only as of today May 5, 2010. This call is the property of USEC. Any redistribution, re-transmission or rebroadcast of this call in any form without the express written consent of USEC is strictly prohibited. Thank you for your participation

And now I'd like to turn the call over to John.

John Welch

Good morning and thank you for joining us this morning to discuss our first quarter results. Over the course of the next few minutes, I will address our progress on the American Centrifuge technology since the first of the year. I will also briefly discuss our financial results for the first quarter, our outlook for 2010 and provide sufficient time for your questions.

Taking a look at the bottom line, we reported a net loss for the quarter of $9.7 million compared to a net loss of $2.1 billion in the first quarter of 2009. Our results in the 2010 first quarter were significantly affected by a one-time charge of $6.5 million related to a change in tax treatment of Medicare reimbursements resulting from the recently enacted healthcare legislation.

Many of the activities we are working on to address DOE's concerns about technical aspects of the American Centrifuge are expensed under accounting rules and the $25.7 million in advanced technology expenses in the first quarter also had the effect of reducing our earnings.

Absent the Advanced Technology expense and the one time tax related charge, we would have reported positive earnings for the quarter. And despite reporting a loss, our revenue of $345 million was on target and the gross profit margin of 7.7% was higher than our expectations for the quarter.

As you will recall, we began de-mobilizing and reducing construction and machine manufacturing activities for the American Centrifuge project in August 2009. Although, Advanced Technology expense was significant in the first quarter, it was approximately $6 million less than the same quarter last year and capitalized spending in the first quarter was $93 million less than in the same period of 2009.

So although, we reduced construction and machine manufacturing activities, there continues to be spending related to the project as we work further to advance the project and address DOE's concerns. A significant portion of the spending was to assemble the AC100 machines in our Lead Cascade testing program, which began operations in March.

Turning next to our 2010 outlook, in our news release, we reiterated our revenue guidance for the year and our expectation for our gross profit margin of 5% to 6%. However, given the substantial uncertainty regarding our spending pattern for the American Centrifuge project, we did not provide guidance for the bottom line.

We did, however, provide guidance for total project spending through June 30, 2010. Be assured, as we gain clarity on our project spending as the year goes on, along with other factors, we will revisit our guidance.

Preserving the value of our substantial investment in the American Centrifuge technology has been a key element of our plan to enhance long-term shareholder value. We've made significant progress during the first four months of 2010 to address DOE's technical and financial concerns, which has been detailed in various communications, so I won't repeat them here. We appreciate your patience as we go through the process of addressing those concerns and we are working hard to bring the effort to a successful conclusion.

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