Centrus Energy Corp. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Centrus supplies low-enriched uranium (LEU) and provides technical services, including work to demonstrate high-assay low-enriched uranium (HALEU) production.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $99.1m | $62.4m | $134.4m | $118.0m |
| Gross profit | $60.9m | $17.1m | $67.2m | $28.8m |
| Operating income | $44.6m | $7.5m | $41.2m | $8.4m |
| Net income | $37.4m | $11.6m | $37.0m | $16.7m |
| Diluted EPS | $2.51 | $0.79 | $2.48 | $0.65 |
Q2 revenue rose 59%, chiefly as SWU revenue increased 89% to $85.5m; the average SWU selling price rose 136%, partly offset by a 20% decline in volume. For the first half, revenue rose 14%: SWU revenue increased 18%, uranium sales contributed $4.9m, and technical-solutions revenue fell 10% to $31.2m. First-half gross profit more than doubled, led by higher LEU margins and improved HALEU contract economics.
Q2 and first-half technical-solutions revenue were $13.6m and $31.2m, respectively. The first-half segment recorded $4.9m gross profit, versus a $2.1m gross loss a year earlier. Higher advanced-technology spending, amortization and a $0.5m workforce-reduction charge partly offset operating gains. First-half income tax expense rose to $11.1m from $0.3m; management attributed the change in part to use of deferred tax assets after a portion of the federal valuation allowance was released at year-end 2021.
Cash, debt and liquidity
- Cash and cash equivalents were $115.6m at June 30, 2022, down from $193.8m at year-end 2021. Cash, cash equivalents and restricted cash totaled $136.9m, including $21.1m of long-term financial-assurance deposits.
- Operating cash flow was negative $56.2m for the first half, versus positive $2.9m in 2021. The outflow reflected supplier payments, inventory purchases and lower net customer advances/deferred revenue. Capital expenditures were $0.5m; total cash decreased $59.9m.
- Working capital was $122.9m, compared with $72.6m at December 31, 2021. Total liabilities were $623.6m and stockholders’ deficit was $94.9m.
- Debt comprised $74.3m principal of 8.25% notes maturing in February 2027, plus accrued future interest obligations; reported current and long-term debt totaled $104.9m. The notes’ estimated fair value was $71.2m. Centrus said it expected adequate liquidity for at least 12 months from the filing date; anticipated capital expenditures were approximately $1.0m over the next 12 months.
Outlook, material developments and risks
- Centrus withdrew 2022 operating-results guidance, citing market uncertainty and disruption. Its LEU sales order book was approximately $1.0bn through 2029, including about $311m of deferred revenue and customer advances; management estimated approximately 2% was at risk from customer operations. Order-book estimates depend on delivery timing, contract terms and future prices.
- SWU spot prices rose to $87 per unit by June 30, up 55% since the start of 2022. The company cited the Ukraine war and demand for secure, carbon-free energy as drivers. Higher prices may support market opportunities but can also raise costs under market-linked supply contracts.
- Russia-related sanctions, payment restrictions, transportation availability and possible customer reluctance to accept Russian-origin LEU threaten performance under the TENEX supply contract. A Canadian transporter obtained a permit to transport Russian LEU, but it was valid for one year; alternative qualified transport may be difficult or costly. Potential restrictions on Russian imports had not been adopted as of the filing date.
- The DOE extended the existing HALEU contract to November 30, 2022, with work authorized through August 31. Funding was $147m as of June 30 and increased to $154m after quarter-end. Supply delays in DOE-provided storage cylinders shifted the operational demonstration to a new competitive procurement. The DOE RFP proposed an initial 50/50 cost-share phase, followed by cost-plus-incentive-fee production; potential cost sharing could materially affect liquidity. No contract award or future HALEU demand was assured.
- Other significant exposures include substantial pension and postretirement obligations and legal matters. DOE asserted approximately $9.6m of potential responsibility for Joppa power-plant decommissioning costs; Centrus had not accrued a liability and said it could not estimate any potential obligation. Portsmouth-related contamination litigation continued, and a separate wrongful-death complaint was filed in June 2022; Centrus disputes liability and seeks DOE indemnification.
Investor verification priorities
- Track TENEX deliveries, payment channels, sanctions and renewal or replacement of transportation arrangements.
- Confirm the outcome, funding terms and cash requirements of the DOE HALEU procurement, including any cost-share obligations.
- Reconcile continued operating cash use with customer shipment timing, inventory purchases and the decline in cash.
- Assess whether LEU order-book values, customer concentration and delivery assumptions remain achievable amid changing prices and trade restrictions.
- Monitor developments and potential exposure in the Joppa decommissioning claim and Portsmouth litigation.