Centrus Energy Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Centrus supplies nuclear fuel components through its LEU segment and provides engineering, manufacturing and related services through Technical Solutions. Comparative period is Q1 2022.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $66.9 million | $35.3 million |
| Gross profit / margin | $23.0 million / 34.4% | $6.3 million / 17.8% |
| Operating income (loss) | $8.3 million | $(3.4) million |
| Net income (loss) | $7.2 million; $0.47 diluted EPS | $(0.4) million; $(0.03) diluted EPS |
| Cash used in operating activities | $(9.7) million | $(12.6) million |
- LEU revenue rose 232% to $58.8 million, primarily reflecting a 206% increase in SWU volume and a 53% increase in average SWU selling price. LEU gross profit increased to $23.9 million from $2.9 million.
- Technical Solutions revenue declined 54% to $8.1 million; the segment recorded a $0.9 million gross loss versus $3.4 million gross profit. The decrease reflected the wind-down of the HALEU Demonstration Contract and lower revenue from other contracts, partly offset by the new HALEU Operation Contract.
- Higher gross profit drove the return to operating and net income. Higher advanced technology costs ($3.4 million versus $1.1 million), SG&A ($10.3 million versus $7.5 million), and less favorable nonoperating benefit-plan results partly offset the improvement. Q1 2023 also included $1.9 million of investment income.
Liquidity, debt and balance sheet
- At March 31, cash and cash equivalents were $188.8 million, versus $179.9 million at year-end. Including $32.5 million of restricted financial-assurance deposits, cash, cash equivalents and restricted cash totaled $221.3 million.
- Working capital was $192.4 million, up from $137.9 million at December 31, 2022. Management expects adequate liquidity for at least the next 12 months, subject to operating conditions, funding and customer-payment timing.
- Operating cash outflow was $9.7 million; financing provided $18.9 million, including $22.0 million of net ATM proceeds, partly offset by $3.1 million of debt-classified interest payments. Capital expenditures were $0.3 million.
- Debt carrying value was $98.7 million, comprising $74.3 million principal and accrued future interest obligations, with $6.1 million classified as current. The 8.25% Notes mature in February 2027. Total liabilities of $733.5 million exceeded total assets of $689.0 million; stockholders’ deficit was $44.5 million.
- The company issued 722,568 Class A shares through its ATM offering, receiving $23.4 million after agent fees and commissions, before $0.2 million of direct issuance costs. The share issuance improved liquidity but diluted existing shareholders.
Material changes, outlook and risks
- Management provided no 2023 results guidance, citing uncertainty and disruption, including the war in Ukraine. SWU spot prices rose to $130 per SWU by March 31, 2023, up 18% since year-end 2022; management linked the increase to geopolitical uncertainty and renewed interest in nuclear power.
- The LEU order book was approximately $1.0 billion, extending to 2029, and included about $320 million of deferred revenue and customer advances. It is an estimate dependent on delivery timing, contract terms and future price assumptions; management noted Russian-supply, sanctions and import-restriction risks.
- Under the DOE HALEU Operation Contract, Phase 1 targets initial production of 20 kilograms of HALEU UF₆ by December 31, 2023; Phase 2 targets annual production of 900 kilograms by no later than December 31, 2024. Management said work was on schedule and on budget, but final support systems and NRC operational-readiness reviews remained before production could begin.
- The contract is incrementally funded: DOE was obligated for approximately $33.0 million of the estimated $120.1 million transaction price for Phases 1 and 2 at quarter-end. Centrus had recorded a remaining accrued contract loss of $14.5 million. If DOE does not provide additional funding, Centrus may incur material additional costs or losses. Phase 2 and optional extensions are subject to appropriations and DOE decisions.
- Key business risks include disruption of TENEX Russian supply, payments or transportation from sanctions or other restrictions; customer and supplier concentration; LEU price and order timing volatility; and dependence on government funding and future HALEU demand. The RSA sunset reviews concluded in April 2023 with determinations to keep the agreement in effect.
- Contingencies include DOE’s asserted approximately $9.6 million share of Joppa power-plant decommissioning costs; Centrus had not accrued a liability and could not estimate its potential exposure. The company also described three Portsmouth-related lawsuits and said it believes DOE indemnification may apply; outcomes are uncertain.
Most important facts for investors to verify
- Whether Russian LEU supply, transport and payment channels remain available, and how any new sanctions or import restrictions affect deliveries and obligations.
- Progress, remaining readiness approvals, actual cost share and DOE funding for HALEU production milestones; whether later-phase funding and demand materialize.
- LEU order-book assumptions, customer delivery timing, concentration and realized selling margins relative to market prices.
- Cash generation and liquidity needs, including inventory-loan repayments, the 2027 notes and the effects of further share issuance.
- Developments in the Joppa decommissioning claim and Portsmouth litigation, including any indemnification or liability estimates.