Centrus Energy Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Centrus supplies low-enriched uranium (LEU) and provides technical services, including work toward demonstrating high-assay low-enriched uranium (HALEU) production. The filing is unaudited; quarterly results may not indicate full-year performance.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $35.3 million | $55.6 million, down 37% |
| Gross profit | $6.3 million; 17.8% margin | $11.7 million; 21.0% margin |
| Operating income (loss) | $(3.4) million | $0.9 million |
| Net income (loss) | $(0.4) million | $5.1 million |
| Net loss per share | $(0.03), basic and diluted | $(0.17), basic and diluted; prior-year net income included a preferred-stock deemed dividend in the amount allocable to common shareholders |
| Cash used in operating activities | $(12.6) million | $(8.5) million |
| Cash and cash equivalents | $168.5 million at March 31 | $193.8 million at December 31, 2021 |
| Working capital | $70.6 million | $72.6 million at December 31, 2021 |
| Debt | $104.9 million carrying value, including $74.3 million principal and future interest obligations; 8.25% notes mature February 2027 | Estimated fair value of notes was $73.7 million at March 31 |
Cash, cash equivalents and restricted cash totaled $180.9 million at quarter-end, including $12.4 million of financial-assurance deposits. Total liabilities were $670.6 million, and stockholders’ deficit was $133.0 million. Deferred revenue and customer advances were $302.8 million current and $45.1 million long-term. The filing reports a $1.0 billion LEU sales order book extending to 2029, including approximately $0.3 billion of deferred revenue and advances.
Changes versus the prior-year quarter
- LEU segment revenue fell 54% to $17.7 million. SWU revenue declined 66% to $12.8 million; SWU volume was down 21% and average realized SWU price down 58%, primarily reflecting customer-order timing and the contracts delivered. Uranium revenue was $4.9 million, versus none in Q1 2021.
- LEU gross profit decreased to $2.9 million from $12.7 million, reflecting lower SWU volume and lower profit per unit. Technical solutions revenue was nearly flat at $17.6 million, while gross profit improved to $3.4 million from a $1.0 million loss.
- Total gross profit declined 46%. The company moved from operating income to an operating loss and from net income to a net loss. Lower LEU gross profit was partly offset by improved technical solutions results.
- Operating cash use increased by $4.1 million year over year. In Q1 2022, a $28.3 million decrease in payables under inventory purchase agreements and a $5.1 million decrease in pension and postretirement liabilities were significant uses of cash, partly offset by collections reflected in lower accounts receivable.
Outlook, risks and contingencies
- Guidance: Centrus withdrew from providing 2022 results-of-operations guidance, citing uncertainty and disruption, including the war in Ukraine. Management said it expected adequate liquidity for at least the next 12 months and anticipated approximately $1.0 million of capital expenditures over that period.
- Russia and supply: TENEX is a major SWU supplier. At filing, sanctions had not directly prevented performance, but sanctions on banks, payment channels, trade restrictions, or customer refusal of Russian material could disrupt purchases, deliveries, or sales. Rising market-based input prices may also raise costs. The company cited alternative supply contracts but said these may not fully replace unavailable supply.
- Market conditions: Spot SWU indicators rose to $80 in Q1 2022 from $56 at year-end 2021. Higher prices may benefit market conditions but can also increase supply costs; customer sales prices may lag market indicators. Results can fluctuate with delivery timing, customer orders, and market and trade conditions.
- HALEU program: DOE delays in providing storage cylinders prevented the operational demonstration from being completed under the existing contract timetable. DOE had increased its funding ceiling to $130 million by March 31; subsequent to quarter-end, an April 7 modification added $12 million, bringing the ceiling to $142 million, and the contract period was extended to November 30, 2022, with authorization to work through August 31. DOE planned to move operations to a separate competitive contract; Centrus said it intended to compete, but no award was assured. Additional delays, costs, or insufficient funding could affect liquidity if the company elects to proceed beyond funded work.
- Other exposure: Pension and postretirement obligations were $19.6 million and $113.5 million, respectively. DOE asserted that approximately $9.6 million of Joppa power-plant decommissioning costs may be Enrichment Corp.’s responsibility; Centrus had not assessed the merits or estimated any liability and accrued none. In the Portsmouth contamination class action, claims other than those on behalf of minor children continued; Centrus asserted potential Price-Anderson Act indemnification. Management stated it could not predict outcomes but did not believe other ordinary-course legal matters would materially affect the company.
- COVID-19: Management said LEU operations had not been materially affected, but pandemic-related supply-chain delays and increased vendor costs had affected HALEU work.
Most important facts for investors to verify
- Whether Russian sanctions, payment-channel restrictions, or customer actions affect TENEX supply, deliveries, or Centrus’s ability to serve its order book.
- DOE’s final HALEU funding, contract scope and schedule, and whether Centrus wins a follow-on operations contract.
- Whether LEU delivery timing and realized prices recover after the sharp year-over-year revenue and gross-profit declines.
- Cash conversion and liquidity, particularly inventory-related payables, customer advances, and the substantial deferred-revenue balance.
- Developments in the $9.6 million DOE power-cost assertion and the Portsmouth litigation, including any change in estimated exposure or indemnification.