Greetings. Welcome to Centrus Energy Second Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.
I will now turn the conference over Dan Leysiakow, Vice President, Corporate Communications. Thank you. You may begin.
Good morning. Thank you all for joining us. Today's call will cover the results for the Q2 of 2021 ended June 30. Today, we have Dan Poneman, President and Chief Executive Officer, Philip Strawbridge, Senior Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer And John Dorian, Controller and Chief Accounting Officer. Before turning the call over to Dan Poneman, I'd like to welcome all of our callers as well as those listening to our webcast.
This conference call follows our earnings release issued yesterday. We expect to file our quarterly report on Form 10 Q tomorrow. All of our news releases and SEC filings, including our 10 ks, 10 Q and 8 ks are available on our website. A replay of this call will also be available later this morning on Centrus' website. I would like to remind everyone that certain of the information we may discuss on this call may be considered forward looking information that involves risk and uncertainty, including assumptions about the future performance of Centrus.
Or 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 ks, quarterly reports on Form 10 Q. Finally, the forward looking information provided today is time sensitive and accurate only as of today, August 12, 2021, unless otherwise noticed. 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 Dan Poneman.
Thank you, Dan, and thank you to everyone on the call today. I am pleased to report that after returning to profitability 2020. Centrus Energy is continuing that trend and had a strong and profitable Q2 of 2021. We saw a total revenue of $62,400,000 and posted a net profit of $11,600,000 for the 2nd 3 months of the year. Together, particularly under the unique and ongoing challenges presented by COVID-nineteen.
As noted on previous calls, We have been making our customer deliveries without interruption and benefit from the fact that most of our revenue comes from stable long term contracts. Our LEU business continues to perform well, and we've been adding new sales commitments since the beginning of the year. The overall pricing in the LEU market continues to increase each quarter in both the spot and long term markets showing positive momentum the uranium enrichment market. As part of our 3 year $115,000,000 contract with the United States Department of Energy, We are on track to begin demonstrating production of high assay low enriched uranium or HALU by next year. All of the from the U.
S. Nuclear Regulatory Commission, making the American Centricage Plant in Piketon, Ohio, the first and only Challenges related to COVID include increased delays from vendors and higher costs. We are working with the Department of Energy to minimize the impacts and to address these cost increases as we go forward. As regular listeners of our earnings calls will know, getting a domestic Department of Energy has made a multibillion dollar commitment to these next generation reactors as part of the Advanced Reactor Demonstration Program or ARDP, which will support the construction of 2 commercial scale advanced reactors in the next 7 years and is helping to advance 8 other designs towards commercialization. That program cannot succeed without HALOOP since 9 of the 10 reactor designs the department selected for the program, including the 2 major demonstrations by X Energy and TerraPower are expected to operate on HALOOP.
I should note that a number of the Advanced Reactor developers are reported to be making tremendous progress. In April, It was reported that X Energy signed an MoU with Energy Northwest and a local public utility district to work on siting, building and operating at XE-one hundred Advanced Nuclear Power Plant in Richland, Washington. And in May, TerraPower joined with Pacific Corp and Governor Mark Gordon to announce that they are working to site their reactor at a retiring coal plant in Wyoming. And last year, Oaklow, Developer of the Aurora Microreactor submitted the 1st ever combined license application for an advanced non light water reactor to the Nuclear Regulatory Commission and Oakville also requires HALO fuel. We are thrilled to see these companies moving so quickly to bring their next generation HALO fueled markets reactors to market.
The initial capacity of our HALO demonstration will be modest. However, the facility in Ohio is large. It could accommodate enough centrifuges to meet any level of HALU demand, and we have a modular expansion model so that we can match our capacity to market demand. As explained more fully in our quarterly filing, Our ability to operate and to expand the facility is subject to the availability of additional funding and or offtake agreements. While we are hopeful about that and believe HALO has a critical role to play in America's nuclear future, there are no guarantees.
Now For more details on the quarterly financial results, I will turn the call over to Philip. Philip?
Thank you, Dan. Good morning, everyone. As Dan mentioned, for the Q2 of 2021, we had total revenue of $62,400,000 and achieved a net profit of $11,600,000 Revenue from the LEU segment decreased $18,200,000 compared to same quarter in 2020, when we had that one time $32,400,000 collection from a customer that was in bankruptcy. Excluding that settlement in the prior period, LEU revenue increased by $19,000,000 in the 2nd quarter $26,400,000 through the first half of the year compared to the same periods in 2020. Our cost of sales was $8,100,000 higher in the Q2 compared to last year because we had a higher volume of sales.
At the same time, our cost of sales on a per unit basis actually declined. Pardon me. Excluding the recovery on bankruptcy court claims of $32,400,000 in the prior periods, the gross profit for SWU sales increased $5,700,000 in 3 period and $900,000 in the 6 month period due primarily to increases in the SWU sales volume and decreases in the average SWU unit cost, partially offset by decreases in the average Swoop sales price. Those of you that participated in these calls before know that we've said before Our revenues and margins vary a lot from quarter to quarter, but it's our annual performance that matters the most. In our LEU segment, which represents the majority of revenue, The customer decides what month to take their annual purchase commitment, and it's in that quarter that we record revenue for the customer's contract.
Some quarters look worse because we have fewer deliveries, while others look better because we have more deliveries. Another source of variation is the fact that some contracts were high or higher than they are today and others were signed when prices were lower. So a quarter can look better or worse depending upon the price So that particular contract that we're delivering in the quarter. On our Technical Solutions segment, revenue increased $4,900,000 in the Q2 Cost of sales for this segment increased $5,300,000 in the 3 months ended June 30, 2021 compared to the corresponding period in 2020, largely reflecting the increase in contract work performed. Now I'd like to talk a little bit about our SG and A costs.
Our total SG and A decreased $2,600,000 in the 3 months ended June 30 and decreased $2,900,000 in the period ending on June 30 compared to the corresponding periods in 2020. We have continued to cut consulting costs seeing decreases $2,600,000 for the quarter $3,600,000 for the 6 month period. Compensation expenses increased $200,000 for the quarter and other SG and A expenses increased by a net of $200,000 We'll continue to look for opportunities to reduce our SG and A costs as we have over the last several years. For us, cash, we ended the quarter with a balance of $176,000,000 putting us in a strong
Thank you, Philip. Before we get to your questions, let me step back for a moment so that we can see the forest through the trees. The great hockey player Wayne Gretzky famously said, you skate to where the puck is going, not to where it's been. As the last few months have shown us, From the devastating floods in Germany to the wildfires in the Northwest United States and in Southern Europe, extreme weather events are becoming more common, more intense and more dangerous. The real world effects of climate change are becoming more evident and more immediate.
Government leaders from Presidents and Prime Ministers to Mayors and Governors are faced with increasing pressure to act and to act aggressively. Global electricity demand is expected to roughly double over the next 30 years. But to avoid the worst consequences of climate change, We need to achieve net year emissions in the electricity sector in that same timeframe. In other words, a 100% increase in generation and a 100% decrease in emissions. Wind and solar are clearly part of the answer, and I've always believed we should deploy as much as we can, everywhere we can, as fast as we can.
But it is equally clear that intermittent renewables are not enough on their own. We need to back them up with firm, flexible, dispatchable, 0 carbon generation, which Nuclear Power is uniquely suited to provide. Maintaining our existing nuclear reactors and deploying the new advanced reactor designs is indispensable to fill in the gap. In fact, many of the new reactors like the ones X Energy and TerraPower and Oaklow are working to deploy our design with the ability to ramp their electricity production up and down. They can compensate for the intermittency of renewables to help make a 0 carbon electricity grid more achievable, affordable and reliable.
Decarbonizing demand for 0 carbon nuclear should continue to grow. Here in the United States, Congress and the administration have made a commitment to support advanced nuclear power. But that effort cannot succeed without the ability to produce HALO domestically. Filling that glaring hole in America's nuclear fuel supply chain We look forward to continuing to build value for you for the U. S.
Nuclear industry and for the country. Operator, we would be happy to entertain any questions at this time.
Thank Our first question is from Rob Brown with Lake Street Capital Markets. Please proceed.
Good morning.
Good morning, Rob.
Just wanted to dig in a little bit into the LEU pricing trends. You said it's increased every quarter. How do you see that kind of going in the near term? And what's sort of driving that price increase at this point?
Great question, Rob. Thanks. So since the market bottomed in August 20 18, we've seen about a 50% increase. That's been driven by a couple of factors. There's a lot of uncertainty in the market that was created by the trade action involving the so called Russian suspension agreement and the resolution of that agreement restored confidence in the market.
That's a factor. Secondly, the trend up until August 2018 reflected a couple of Dominant factors, number 1, obviously beginning March 2011 with the Fukushima disaster, you had Japan taking 54 reactors offline, Germany immediately taking 8 reactors offline, a lot of reactors, demand So that combination of reduced demand and increased supply obviously had a depressive effect on prices. But as the price continued To decline, the reactor operators were continuing to work down inventories and they were not pressed Once that inflection point was hit in 2018 as reactor Utilities needed to get their fuel. Now your incentive structure switches because as the market starts to rise, you have less Incentive to wait because you might have to pay a higher price later on. So that demand actually came to market More quickly, and then as I said, the inventories were getting worked down.
In addition, there's been just continued interest In the potential growth of nuclear, which I talked about in some of my prepared remarks, and so that combination of factors has led to Continued rising of prices. Now just to be complete, there are also Other factors that could in time have a depressive effect, so if for example, Reactors continue to close prematurely in the United States of America that would dampen demand and damp demand would obviously have a dampening effect on the continuation of the existing price curve, which is gently rising.
Okay, great. Thank you. And then maybe just you mentioned a little bit about the How is the contract activity going? And are you seeing utilities Making decisions on signing orders at this point and where is that at this point?
You gapped out of it. Did you say where are you to
I just wanted to get a sense of the order activity from utilities that you're seeing.
Yes. So as I said, Rob, a few minutes ago, we've signed significant amounts ourselves in recent months. We reported $100,000,000 of new sales. So we are seeing utilities coming to market and I would say in kind of in the normal course. That period that I told you about before where utilities were basically withholding demand from the market as price was falling, that has ended.
And Again, I'd like to emphasize the impact of the clarity to the market that the resolution of the Russian Suspension Agreement Extension brought to bear was a very important factor in encouraging utilities to come to market. That cloud of uncertainty was a problem. And having removed that, that has, I think, given utilities greater
Good morning, guys. Thanks for taking the questions. Hey, Joe. So First, on the LU segment and the sales This quarter, I guess, we're a bit above what the market expectations were. Is this solely timing?
Or did you pick up any additional sales beyond What your annual expectation was at
the beginning of the year?
Rob, it's just it's timing. It was timing.
Okay. I just wanted to that helps for future modeling.
Yes, absolutely.
And then on the Technical Services segment, There's been a small gross loss there the 1st 2 quarters this year. I think The expectations weren't that, that'd be hugely profitable, but is there anything you guys can do to swing that to a profit in this coming quarters?
Phil may want to supplement this, but this we view this segment as critical to the future of the company. We're right now in a pivot point for the entire U. S. Nuclear industry. And as we said, both under the Advanced Reactor Development Program and other projects such As the Oklo Aurora Reactor, there's just a lot of ferment and activity in the industry.
As Debt demand picks up as commitments become stronger and clearer, both Government sources of demand, the U. S. Government has its own very important demand for halo fuel as well as the prospect of demand coming from this next generation reactors. That would be the driving force in the demand signal that would help us bring CTS into profitability. Our objective, we've had a huge milestone, Joe, in terms of June 11 approval by the NRC of the only Caillou license, in other words, our ability under NRC license to go to up to 20% enrichment, That gives us an enormous advantage.
We're going to start producing modest quantities early next year, and we view that as the critical stepping stone to an expansion of the plant. And once we move into an expansion phase, that's when we are looking for more profitable results out of the CTS segment. But I don't know if Philip wants to add to that.
Yes, Joe. I mean, as you know, we haven't given guidance in Technical Solutions and the Just what Dan said, I mean, it's really our investment for the future. So and I'll say this, The nuclear industry, particularly that segment, moves rather slowly. So but We think that we've got good opportunities, as Dan said.
Our next question is from Andrew Ginsberg with R. W. Pestridge, please proceed.
Good morning, guys. Thanks for taking my questions. Sure. So just to get a little bit more clarity around the HALO centrifuges and You mentioned having a modest capacity. Is that is the max capacity that right now, that 1 metric ton that's been discussed for the period.
And if so, do you guys have any kind of expectations on CapEx requirements to scale that out As any of the demand for HALU continues to grow?
So, there's 2 parts there. And the first part is yes, I mean that 1 MTU is the quantity. In terms of the CapEx, I won't talk numbers per se, unless Philip may want to say something. But I would say, the good news about Our overall project design is that we can expand in a modular fashion since as Philip said a few minutes ago, The actual quantum of the upcoming demand remains uncertain. There's a lot of optimism, but there's also uncertainty and there's Time that will pass between now and the actual bringing to market of that new capacity.
So the good news for us Is that we can expand the enrichment cascades in a modular fashion to match the projections of the demand, but that also means that the projections For the CapEx, they're going to be modular and so there's not like a fixed number that we can share with you at this time. But Philip, do you want to expand on that?
We have reached the end of our question and answer session. I would like to turn it back to Dan for closing comments.
Thank you, operator. This will conclude our investor call for the Q2 of 2021. As always, I want to thank
Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.