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Lightbridge Corporation (NASDAQ:LTBR)

Q2 2014 Earnings Conference Call

August 6, 2014 11:00 AM ET

Executives

Gary Sharpe – Investor Relations

Seth Grae – President and Chief Executive Officer

James Guerra – Chief Operating Officer, Chief Financial Officer, Executive Vice President

James Malone – Chief Nuclear Fuel Development Officer

Andrey Mushakov – Executive Vice President-International Nuclear Operations

Operator

Good day, ladies and gentlemen, and welcome to the Lightbridge Corporation 2014 Second Quarter Business Update and Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

I would now like to introduce your host for today’s conference, Mr. Gary Sharpe. You may begin sir.

Gary Sharpe

Thank you Kevin. Good morning and welcome to the Lightbridge 2014 second quarter business update.

Our earnings news release was distributed after the market closed yesterday and can be viewed on the Investor Relations page of the Lightbridge website at ltbridge.com. We also filed the Company’s Form 10-Q with the Securities and Exchange Commission. Seth Grae, our CEO, will lead today’s call. In addition, the following executives are available to answer your questions, Jim Guerra, our CFO and Chief Operating Officer; and Jim Malone, the Company’s Chief Nuclear Fuel Development Officer and Andrey Mushakov Lightbridge’s Executive Vice President for International Nuclear Operations.

Today’s presentation includes forward-looking statements about the Company’s competitive position and product and service offerings. During the course of today’s call, words such as expect, anticipate, believe, and intend will be used in our discussion of goals or events in the future. These statements are based on our current expectations and involve certain risks and uncertainties that may cause actual results to differ significantly from such estimates.

The risks include, but are not limited to the degree of market adoption of the company’s product and services offerings, market competition, dependence on strategic partners, and the company’s ability to manage its business effectively in a rapidly evolving market. These and other risks are set forth in more detail in our filings with the SEC. Lightbridge does not assume any obligation to update or revise any such forward-looking statements whether as a result of new developments or otherwise.

You can participate in today’s call two ways. You can submit questions for management in writing to ir@ltbridge.com. If you’ve already submitted a question, we thank you and we do have few. You can submit them at any time during the prepared remarks and during the Q&A period. And second, after the prepared remarks, of course, the telephone lines will be opened for live questions.

So now let’s get started. Here is Seth Grae, CEO of Lightbridge.

Seth Grae

Thank you, Gary. Good morning everyone.

Lightbridge’s across-the-board progress and momentum during the first half of 2014 are very encouraging. Our outlook for continued growth in the second half of the year is beyond, and beyond is just as promising. Milestones achieved by Lightbridge to date in 2014 include, new patent protection of our fuel technology in the United States and abroad, new Advisory Services contract that drive organic revenue and exciting advances in discussions with potential partners to fabricate and begin key phase of research reactor testing of our innovative next generation metallic nuclear fuel.

Let’s review our patent milestones. As we grow, the intellectual property, that supports Lightbridge fuel technology will enjoy broad protection. During the first half of 2014, the company was issued the key U.S. patent, covering our multi-lobed metallic fuel rod design and fuel assemblies. We also purchased patent our protection internationally. Australia issued Lightbridge our first international patent on this metallic fuel technology, more patent applications are pending in additional countries. These patents not only protect Lightbridge’s unique fuel rod design and fuel assemblies, but also are anticipated future royalty revenue stream.

Next, we advanced plans for additional fabrication and research reactor radiation testing over the company’s fuel designs during the first half of 2014. We expect to sign a collaborative agreement this year with U.S. and or other Western fuel fabricators or development partners. We are in active, substantive discussions on the most critical phases of fuel testing and demonstration work.

Our success in these negotiations will influence development of lead test assemblies using Lightbridge fuel and their operation in commercial reactors. This process sets the stage for fuel fabricators to pay technology access fees to Lightbridge. We’re enthusiastic about the progress with potential fuel fabrication partners.

We will be able to continue the work in Russia if we choose to do so, but we expect to announce arrangements to test and demonstrate our nuclear fuel elsewhere in the West with no schedule loss. Nuclear fuel fabricators represent an important facet of Lightbridge’s go-to-market strategy. Fabricators will push out Lightbridge fuel to end users, nuclear utilities around the world. The roster of commercial fuel fabricators includes Ariba, GE-Hitachi, Westinghouse, Toshiba, Jebel and others.

In late 2013, Lightbridge signed a memorandum of understanding with a subsidiary of Babcock & Wilcox to explore collaboration opportunities in fabrication of Lightbridge designed metallic fuel. For many years Babcock & Wilcox has been a highly regarded fuel to the U.S. Navy’s nuclear power fleet. We continue to make progress in this evaluation and will report results when they become available.

If you entered Lightbridge’s quarterly calls, the next generation nuclear fuel technology that we are developing and commercializing has the independently validated benefits of enhanced safety and increased revenue for both existing and new build reactors. Our comprehensive advisory services for established and emerging nuclear programs are based on transparency, non-proliferation, safety and operational excellence.

The company’s fuel technology and advisory services are well positioned to capitalize on near-term catalyst and long-term growth opportunities precisely as the commercial nuclear industry responds to rising global demand for reliable, carbon-free, base load electric power.

There are more than 430 operable civil nuclear reactors in 32 countries around the world, with more than 70 additional reactors currently under construction and other 173 reactors are planned and an additional 309 reactors have been proposed according to the World Nuclear Association.

In our primary U.S. market, where 100 reactors are in operation, five reactors are being built in Georgia, South Carolina and Tennessee. 19 companies are studying, licensing or building more than 30 new reactors in the United States. The Nuclear Regulatory Commission is reviewing license applications for 16 new nuclear power plants.

A recent report by The United Nations Intergovernmental Panel on Climate Change said global investment in commercial nuclear energy will reach about $50 billion per year through 2030. By 2035 The International Energy Agency projects a 60% increase in global nuclear capacity from a combination of power uprates and reactor construction. This is the large addressable market opportunity in which Lightbridge is poised to grow.

As I mentioned earlier, fuel fabricators will push our fuel into the nuclear energy market. The other major market segment of the global supply chain is the end user. Nuclear utility companies that operate reactors demand from end users will pull Lightbridge fuel through the supply chain, complementing the push by fuel fabricators.

Lightbridge has made great strides in incorporating the voice of the customer in the development of our fuel designs. Our Nuclear Utility Fuel Advisory Board or NUFAB is comprised of senior fuel managers at four of the largest U.S. nuclear utilities, Exelon, Duke Energy, Southern Company and Dominion Resources. These utilities account for nearly half of the electricity generated by nuclear reactors in the United States. They tell us in detail about the competitive challenges they face in keeping new-build, and existing reactors and other infrastructure competitive.

The council of these senior nuclear utility fuel managers has been invaluable in helping Lightbridge design a solution to those challenges, namely our metallic fuel that delivers more power, more safely, over longer fuel cycles and with reduced volumes and reduced radio-toxicity levels of spent fuels.

Lightbridge advisory services also contribute to the Company’s progress and momentum in the first half of 2014. This business segment has generated more $52 million of revenue for Lightbridge since 2008. Subsequent to the second quarter, a consortium that includes Lightbridge was awarded a multi-year, technical-support services contract to support the Federal Authority for Nuclear Regulation or FANR, an independent government agency in the United Arab Emirates overseeing construction of nuclear power plants.

The scope of contracted services is expected to be determined in the fourth quarter of 2014. This new contract with a new major partner is in addition to Lightbridge’s ongoing work for FANR. This week, Lightbridge will be included in small meetings with the presidents of African Nations that are considering developing nuclear energy programs. These presidents are in Washington D.C. to participate in a summit convened by President Obama.

Alongside the U.S.-Africa Summit, Lightbridge is promoting our comprehensive advisory services, that helps clients with on-time, on-budget development and safe regulation of nuclear power. Although development of nuclear energy regulatory programs and infrastructure is our long-term proposition, we are encouraged that Lightbridge is being included at the early stages of these initiatives. We believe this illustrates the growing awareness of the Company’s value adding expertise. We will keep you abreast of Lightbridge’s successes with potential new consulting assignments.

Our confidence continues to grow about the improving competitiveness of commercial nuclear energy for base load generation, compared to power from solar and wind technology. In July, the Edison Electric Institute published a definitive report on the impact of Germany’s shift to renewable energy sources and away from nuclear energy. Germany has adopted several policies to promote renewable energy generation and is planning to shut down its nuclear plants by 2021. How is that going?

The EEI reports that Germany’s large scale integration of renewable power has resulted in a net increasing costs to consumers and other stakeholders. Edison Electric Institute Finance findings show that household electricity prices in Germany have more than doubled from 2000 to 2013. Further, new cost benefit studies by researchers at the Massachusetts Institute of Technology, MIT and the bookings institution underscore that solar and wind power are by far the most expensive ways of reducing carbon emissions.

Researchers showed that nuclear energy is the most cost effective zero emission technology. Lightbridge and others in our industry, support a diverse energy mix that features nuclear energy. A report by Cambridge Energy Research, illustrates that power generation from a balanced portfolio of sources, produces lower and less volatile prices, as well as other economic benefits. The report concludes that reduced energy diversity will boost U.S. wholesale prices by about 75% and increase retail power prices by 25%. Higher energy prices tends to reduce overall economic activity. The important role of nuclear in ensuring energy diversity, as well as reliable carbon-free electricity has never been clear.

Lightbridge nuclear fuel technology and advisory services, truly are well-positioned domestically and internationally for more progress in 2014. The near-term catalysts and long-term growth opportunities are clearly defined. We are confident that Lightbridge will create tremendous value for shareholders in the course of solving our industry’s current challenges.

Now, let’s open the call to your questions. Remember, in addition to asking live questions by telephone you also can submit questions in writing to ir@ltbridge.com. We will pause while Kevin reviews the procedure for asking live questions.

Question-and-Answer Session

Operator

(Operator Instructions)

Gary Sharpe

While we’re waiting for calls to queue up for questions, Kevin, let’s start with one that’s come on over the Internet. The question is technology licensing fees are projected to be the first fuel related revenue for Lightbridge. What’s the typical range for these licensing fees, and are these fees similar in magnitude to your projected royalty payments?

Seth Grae

Well, let me start with it, very specific numbers, tend to in this industry center around what companies have already paid to develop the technology to the point on technology access fees, and you look at the totality of what the company has invested in developing the technology to that point, and generally they center around that. Technology access fees are a negotiation with each entity that we deal with. Generally, the more money they put in upfront, the lower the future revenue stream, and if we want a greater future revenue stream, then perhaps the lower the technology access fee upfront.

And if you look at the Siemens report that’s on our website, we’re looking, say in the $5 million to $10 million per year, per reactor, royalty fee to Lightbridge. For each year that each reactor uses our nuclear fuel technology, a rule of thumb that you can track in that Siemens report is that if Lightbridge brings $60 million per year of real benefit economically to the reactor, not including the safety benefits, not including other benefits, but real bottom line benefit to the utility from the longer fuel cycle and the power uprate, that’s about $60 million per year, and it’s 10% royalty to Lightbridge would be about $6 million per year. But it depends on the individual negotiation with the fuel fabricator, with the utility, and the power output of the reactor and what their revenues are, and their electricity pricing structure in that country.

Gary Sharpe

Okay. Another question via email. Will Lightbridge be announcing progress with Babcock & Wilcox soon?

Seth Grae

Yes, we expect to. As we said, we expect in 2014, there will be announcements related to Babcock & Wilcox. We’ve been making progress in discussions with them and expect to have announcements when they’re ready.

Gary Sharpe

Next question from the Internet is what’s Lightbridge’s involvement with this U.S.-Africa Leaders Summit that was announced this week?

Seth Grae

The official part of the summit are meetings with President Obama by over 50 heads of state from Africa. Alongside the summit, the leaders have been arranging several other meetings in Washington. We are being included tomorrow in small meetings with some other nuclear companies, with the Presidents and other leaders of African countries that either already have nuclear power or are looking to develop nuclear power, and some of them are looking to develop nuclear power regionally, where economically it might make sense for a collective of neighboring countries that are starting to consider this where as it wouldn’t make sense for any one of those countries. We’ll be meeting – one meeting tomorrow actually with two Presidents at once of two countries, which is a first for us.

Gary Sharpe

All right, next question from the Internet. If the Obama administration is promoting carbon-free energy, is Lightbridge a candidate for government grants, loan guarantees, or other support?

Seth Grae

Well, first of all, I don’t think that’s an “if,” I think, it is a fact. The Obama administration is promoting carbon-free energy. Is Lightbridge a candidate for government grants, loan guarantees, or other support? Yes, and so are partner companies that work with us with our technology. We’re in some discussions now very recently with the USTDA, the Trade Development Agency at the Department of Commerce, about support for some of Lightbridge’s fuel in other countries to help expand U.S. business in those countries, including Lightbridge’s business.

But most Federal Government support from the U.S. Government would flow to our partner companies. For example, if you look at Carbon Credits, it benefits for generating less CO2 from energy generation to meet the new EPA rule that will take effect next June to reduce carbon emissions from power plants in each state by 20% -- below 2005 levels by 2020, and 30% reduction by 2030. Those benefits can go to the utilities. So utilities that use Lightbridge technology to help achieve those goals will benefit and would, I think, benefit from government programs that relate to such areas, and that could be a driver for Lightbridge technology here and in other countries where governments are promoting more carbon-free energy generation or in the case of switching from coal to natural gas less carbon generation.

Gary Sharpe

One more question from the Internet. Who are the potential fuel fabrication partners that Lightbridge is working with?

Seth Grae

Well, in addition to the partners we’ve already announced in discussions, we have announced there are some others that we will be announcing publicly in due course, we expect this year.

Gary Sharpe

Here is a question that just came in over the Internet. Is a Thorium reactor being built, and is East Asia the most probable place for that development?

Seth Grae

Thorium is a metal on the periodic table of the elements. Thorium-type fuels can be used in reactors that can use Thorium-based fuels or other type-based fuels. Lightbridge has Thorium fuel technology that we’ve been developing for some time that is not a front-burner issue for us, even though we have excellent results, because what the utility customers, what the voice of the customer tell us is their two biggest issues is they want to improve reactor safety and they want to improve their economics, and Lightbridge’s metallic fuel will do that better than anything else in the world could. That’s what we are proving out, bringing tremendous value to our industry.

Thorium’s benefits are not in those two areas. The utilities are not willing to pay for that. The fuel fabricators are not willing to pay for that. There are R&D efforts in India and in China on Thorium fuel technologies partly to diversify out of its much dependence on uranium, but what you actually see being built commercially in both of those countries are typical light water reactors using uranium fuels, exactly Lightbridge’s market. So, just as there has been R&D in the United States and other places on Thorium fuel, what the industry wants is light water reactors with Uranium fuel, and that’s our targeted market, that’s where we’re putting our resources.

Gary Sharpe

All right the next question, if the members of Lightbridge’s Nuclear Utility Fuel Advisory Board are telling you what attributes they want in your fuel, does that mean that they’ll buy it when it’s available? And will NUFAB support, accelerate any approvals by the NRC.

Andrey Mushakov

I think that the NRC is the best independent nuclear regulator in the world, will act in its own very independent of course. That being said, we’ve met with the NRC, we have tremendous NRC experience in our company, and we’re very confident of speedy approvals by the NRC in accordance with our timeframe. The Nuclear Utility Fuel Advisory Board is from companies that generate almost half the nuclear electricity in the United States, at least one of them have reactors under construction, as well. So, they are heavily involved with the NRC, they are directly regulated by the NRC, and they are advising us.

So, yes, I think they’re advice brings tremendous NRC experience into the company and helps ensure: A, that the timeframes are realistic based on how they do things at real large utilities; and B, that when we go to the NRC, when our customers go to the NRC, it will be based on what the customers are comfortable doing. Some companies go to the NRC just with data, just with models and try to get something new approved. That’s not Lightbridge’s approach. At Lightbridge, we are going to be going to the NRC with the actual data from in-reactor tests and research reactors at commercial reactor conditions.

Gary Sharpe

Okay. Next question. Can you please give us a recap of the balance sheet situation at Lightbridge? Are you still contemplating either a capital raise or joint venture to finance your upcoming R&D and capital expenditures?

Seth Grae

Well, the answer to that is the same as it’s been for the last few years, which is that the company brings in most of its cash through our consulting business, and the company also periodically has equity raises. We’ve had two, in the company’s existence as a publicly-traded company, one in July 2010 and one October of 2014 – 2013, sorry 2013 last year. And the company also is considering joint venture or other transactions with major partners in our industry that could bring in capital.

Going forward, we will continue to bring in revenue from our consulting business, and we’ll consider conducting an equity raise when we think it’s the right time. And we will also consider these transactions with major companies. But, although, then the new contract we’ve announced today with FANR in the UAE in a new area for us, which I’ll tell you is based on helping them with inspections of materials shipped to the UAE from abroad for use in their nuclear power program. That’s the only new announcement we have today in that area, but we do expect more and more soon on the consulting side.

Gary Sharpe

Okay. I’m going to ask operator Kevin to repeat the Q&A instructions if there are any live questions. And so, Kevin, if you would please?

Question-and-Answer Session

Operator

(Operator Instructions)

Gary Sharpe

Okay. Seth, that appears to be the extent of questions that we’ve gotten from the Internet as well as any live questions. So, if you would please.

Seth Grae

Well, thank you and I think this is an excellent set of questions and appreciate the interest in the company. Lightbridge is well-positioned to serve the rapidly growing nuclear power market with our fuel designs and our expert independent advisory services. Until our next conference call, our lines are always open at ir@ltbridge.com and at 1-571-730-1213. Thank you and good bye.

Operator

Ladies and gentlemen, this concludes today’s presentation. You may all disconnect. And have a wonderful day.

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