Centrus Energy Corp. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; annual comparisons are to FY2020. The filing also reports fourth-quarter results.
Business context
Centrus supplies low-enriched uranium (LEU) and uranium to nuclear utilities and provides technical, engineering, and manufacturing services. Its two segments are LEU and technical solutions. LEU remains the core commercial business; technical solutions includes work on a DOE-funded demonstration cascade intended to produce high-assay, low-enriched uranium (HALEU).
Financial performance
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Revenue | $298.3 million | $247.2 million | Up 21% |
| Gross profit | $114.5 million | $97.6 million | Up 17%; gross margin approximately 38.4% versus 39.5% |
| Operating income | $68.3 million | $51.0 million | Up 34%; operating margin approximately 22.9% versus 20.6% |
| Income before taxes | $135.9 million | $53.0 million | Included a substantial benefit from pension and postretirement accounting |
| Net income | $175.0 million | $54.4 million | Up $120.6 million; included a $39.1 million income-tax benefit |
| Diluted EPS | $9.75 | $0.57 | Net income allocable to common shareholders was $135.3 million in 2021, after preferred-stock-related allocations |
| Operating cash flow | $50.0 million | $67.1 million | Down $17.1 million |
| Capital expenditures | $1.2 million | $1.4 million | Cash used in investing activities was $1.2 million |
Fourth-quarter 2021 net income was $116.2 million, compared with $16.4 million in Q4 2020. The filing reports Q4 2021 basic and diluted EPS of $6.14 and $5.97, respectively; Q4 2020 diluted EPS was a loss of $2.55.
Segments and material year-over-year changes
- LEU: Revenue was $186.1 million, down 2%; gross profit fell to $73.0 million from $97.8 million. SWU revenue rose 8% to $163.3 million as SWU sales volume increased 64%, but uranium revenue fell 42% to $22.8 million. The 2020 comparison benefited from a $32.6 million customer bankruptcy settlement. Excluding that payment, 2021 average SWU prices billed were down 16%.
- Technical solutions: Revenue rose 98% to $112.2 million and gross profit was $41.5 million, versus a $0.2 million gross loss. FY2021 revenue included a $43.5 million DOE settlement for past pension and postretirement benefit costs. Excluding that settlement, revenue increased 21% and the segment recorded a $2.0 million gross loss.
- Company net income also reflected $67.6 million of nonoperating net periodic benefit income, including a $50.5 million net actuarial gain, and a $40.7 million partial release of the federal deferred-tax valuation allowance. These items materially affect comparability and should not be treated as recurring operating performance.
Cash, liquidity, debt, and obligations
- Cash and cash equivalents were $193.8 million at year-end, up from $152.0 million. Cash, cash equivalents, and restricted cash totaled $196.8 million. Working capital was $72.6 million, compared with $40.0 million in 2020.
- Operating cash flow was $50.0 million. Financing used $9.9 million, including $44.4 million for preferred-stock redemptions, offset in part by $42.1 million of net common-stock proceeds. The company sold 1.52 million Class A shares for $44.2 million gross proceeds during 2021.
- The 8.25% notes mature in February 2027. Principal was $74.3 million; the reported carrying amount of $107.9 million includes future interest obligations. The balance sheet classified $6.1 million as current debt and $101.8 million as long-term debt.
- Defined-benefit pension and postretirement health and life obligations remained significant. Year-end reported liabilities were $23.1 million for pensions and $114.9 million for postretirement benefits. The company expects $0.4 million of non-qualified pension contributions and $7.0 million of postretirement benefit contributions in 2022; it expects no required contribution to qualified pension plans in 2022.
- Management stated it expected adequate liquidity for at least 12 months from the filing date, subject to operating conditions, customer payment timing, trade restrictions, COVID-19 effects, and government funding. Planned capital expenditures for the next 12 months were approximately $1 million.
Outlook, risks, and unusual matters
- Management expected FY2022 LEU revenue and gross margins to exceed FY2021 levels, based on the current order book and market conditions. The LEU order book was approximately $986 million at year-end, extended to 2029, and included $348.2 million of deferred revenue and customer advances. The company estimated about 3% was at risk from customer operations; the order book is an estimate, not a guarantee of future revenue or profit.
- The TENEX supply contract is the company’s largest supply source and extends through 2028. Russian-origin imports are subject to U.S. quotas. At filing, the company said then-current sanctions had not disrupted performance, but the war in Ukraine and potential additional sanctions or trade restrictions could affect procurement, payments, deliveries, or sales. Alternative supply may be insufficient or more expensive.
- The DOE HALEU contract was due to expire June 1, 2022. COVID-related delays in DOE-furnished storage cylinders prevented operation of the cascade under that contract, so DOE planned a new competitive contract for facility completion and operations. Centrus said it was positioned to compete, but had no assurance of an award or program funding. DOE’s cost-share ceiling had reached $126.7 million; the filing also disclosed DOE’s March 4, 2022 intent to fund a further $9.0 million. Additional costs, delays, or an unfunded commitment could harm liquidity.
- HALEU has no commercial market today. Demand depends on advanced reactor development, government funding, regulatory and technical progress, and future customer commitments. Failure to secure follow-on contracts could limit facility operations and jeopardize the company’s ability to retain its NRC license at the site.
- DOE asserted a potential $9.6 million liability related to decommissioning the Joppa power plant; Centrus said it was assessing the assertion and had accrued no liability because it could not estimate the potential exposure. A Portsmouth-site contamination class action remained in litigation; another related class action was dismissed with prejudice after appellate affirmation, and a separate action was voluntarily dismissed without prejudice. The company cited potential DOE indemnification in applicable cases.
- The SEC staff had requested additional information on non-GAAP measures and the presentation of certain settlement-related revenue in the 2020 and 2021 reports. Centrus revised non-GAAP disclosures but said the SEC review was not complete as of the filing.
Most important facts for investors to verify
- Reconcile reported net income and EPS to recurring operating performance, particularly the pension actuarial gain, DOE settlement revenue, and deferred-tax valuation-allowance release.
- Track actual 2022 LEU deliveries, pricing, gross margins, order-book revisions, and the company’s ability to sell all material required by its TENEX purchase commitments.
- Confirm the outcome, funding, timing, and cost terms of DOE’s competitive HALEU follow-on contract and any incremental company cost exposure.
- Monitor U.S. and international sanctions, Russian export restrictions, and any effects on TENEX contract performance or customer acceptance of Russian-origin material.
- Review the Joppa power-plant liability assessment, Portsmouth litigation developments, and the status of the SEC staff’s filing review.