Centrus Energy Corp. — Q2 2020 Form 10-Q
Business context and reporting period. Centrus supplies nuclear fuel, principally separative work units (SWU) and uranium, and provides technical, engineering and manufacturing services. This unaudited report covers the three and six months ended June 30, 2020; comparisons are with the corresponding 2019 periods.
Financial performance and position
| Metric | Q2 2020 | Six months 2020 |
|---|---|---|
| Revenue | $75.7 million | $120.7 million |
| Gross profit | $43.8 million | $63.4 million |
| Operating income | $31.0 million | $39.9 million |
| Net income | $33.7 million | $45.0 million |
| Net income allocable to common shareholders | $31.7 million; $3.28 basic EPS | $41.0 million; $4.25 basic EPS |
| Cash from operating activities | Not provided separately | $(8.4) million |
- Revenue increased from $10.6 million to $75.7 million in Q2 and from $49.3 million to $120.7 million for the first half. SWU sales were $58.6 million in Q2 and $89.3 million for the half; technical solutions revenue was $12.3 million and $26.6 million, respectively.
- Cash and cash equivalents were $119.3 million at June 30, down from $130.7 million at year-end 2019. Cash, cash equivalents and restricted cash totaled $125.2 million. Working capital was $71.5 million, compared with $32.8 million at year-end.
- Debt carrying value was $117.1 million, including $74.3 million principal and future interest obligations; $6.1 million was classified as current. The 8.25% notes mature in February 2027. The Series B preferred stock had a $131.2 million liquidation preference and cumulative 7.5% dividends.
- Total liabilities were $760.6 million, including pension liabilities of $131.6 million and postretirement benefit obligations of $132.4 million. Stockholders’ deficit was $291.7 million.
Changes versus the prior comparable period
- Both Q2 and first-half results moved from losses in 2019 to substantial profits in 2020. First-half net income improved by $81.5 million from a $36.5 million loss.
- A $32.4 million recovery tied to a rejected FirstEnergy supply contract was recognized as SWU revenue in Q2. Management identified this as a one-time benefit. Excluding it, first-half SWU revenue still increased, supported by higher sales volume and average selling price.
- LEU segment gross profit was $44.5 million in Q2 and $61.9 million for the half, versus losses in both 2019 comparison periods. Technical solutions generated $1.5 million first-half gross profit, versus a $1.5 million loss.
- First-half operating cash use improved to $8.4 million from $45.1 million in 2019, but remained negative despite reported net income. Cash use included lower customer advances/deferred revenue and payments associated with benefit liabilities and receivables.
Outlook, management commentary and risks
- Management expected lower revenue in Q3 than Q2, with a stronger Q4 due to the usual timing of deliveries. It said the LEU order book was $1.0 billion, extended to 2030, and included $0.3 billion of deferred revenue and customer advances. Order-book value depends on delivery timing, prices, customer choices and other assumptions.
- Management stated it expected adequate liquidity for at least 12 months from the filing date. Planned capital expenditures were approximately $2–$3 million over the next 12 months. The filing cautions that results fluctuate materially between quarters.
- The principal near-term risk was Russian supply and trade restrictions. The Department of Commerce had preliminarily found the Russian Suspension Agreement did not meet statutory requirements; its final determination was then due October 5, 2020. Termination, inadequate import quotas, duties or retroactive cash deposits could make Russian-sourced LEU uneconomic to sell and threaten contract performance and business viability.
- The HALEU demonstration contract with DOE is a three-year cost-share program: DOE agreed to reimburse 80% of costs up to $115 million, while Centrus bears its 20% share and any overages. DOE was obligated for approximately $65.1 million at June 30, and Centrus had received $30.2 million. The accrued estimated contract loss was $13.0 million; 2020 cost of sales benefited from releases of prior loss accruals. Commercial HALEU demand is uncertain and technical, regulatory and economic hurdles remain.
- Centrus signed a nonbinding letter of intent with Advanced Reactor Concepts concerning potential future HALEU supply. The NRC accepted Centrus’s license-amendment application for review in June. Neither action guarantees commercial sales or regulatory approval.
- COVID-19 had not materially affected LEU operations as of the filing, but workforce restrictions, supplier performance, government reviews and the pandemic’s duration could affect operations and results. Centrus said it could not then estimate the full financial impact.
- Material contingencies included DOE litigation over $42.8 million of pension and postretirement costs, Portsmouth-site contamination lawsuits and threatened claims. A court allowed some claims in one class action to proceed while dismissing others; another complaint was dismissed and a separate citizen suit was voluntarily dismissed without prejudice. Centrus asserted potential Price-Anderson Act indemnification. The filing also noted a potential future recovery on the DOE claim, but its amount and timing were uncertain.
Important facts for investors to verify
- Whether the Russian Suspension Agreement was extended on terms that provide sufficient import quota, and the final outcome of the Department of Commerce review and any related duties or deposits.
- How much of reported earnings and cash generation reflects recurring deliveries versus the $32.4 million FirstEnergy recovery; operating cash flow remained negative in the first half.
- Progress, remaining funding and cost performance under the HALEU contract, including the $13.0 million accrued loss and DOE’s incremental funding obligations.
- Actual customer deliveries, order-book conversion and concentration: several customers accounted for significant portions of period revenue.
- Developments in pension and postretirement obligations, DOE reimbursement litigation, Portsmouth-related claims and potential indemnification.
- Liquidity and supplier performance under the Russian and Orano supply agreements, particularly amid COVID-19 and trade-policy uncertainty.