Centrus Energy Corp. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Centrus supplies nuclear fuel and services through its LEU and technical solutions segments.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Revenue | $45.0 million | $38.7 million |
| Gross profit (loss) | $19.6 million | $(5.5) million |
| Operating income (loss) | $8.9 million | $(20.8) million |
| Net income (loss) | $11.3 million | $(20.9) million |
| Net income (loss) allocable to common stockholders | $9.3 million; diluted EPS $0.95 | $(22.9) million; diluted EPS $(2.40) |
| Cash from operating activities | $(18.5) million | $(31.9) million |
| Cash and cash equivalents | $109.2 million | $130.7 million at Dec. 31, 2019 |
| Working capital | $33.2 million | $32.8 million at Dec. 31, 2019 |
| Debt carrying value | $117.1 million, including interest obligations | $120.2 million at Dec. 31, 2019 |
Gross margin was approximately 43.6%, versus negative 14.2% a year earlier. Cash, cash equivalents and restricted cash totaled $115.1 million at quarter-end. Total liabilities were $756.2 million, total assets $430.8 million, and stockholders’ deficit $325.4 million. Capital expenditures of approximately $2–$3 million were anticipated over the next 12 months.
Material changes versus Q1 2019
- Revenue increased 16%, but segment mix shifted: LEU revenue fell 13% to $30.7 million, while technical solutions revenue rose to $14.3 million from $3.6 million. There were no uranium sales in Q1 2020, compared with $22.7 million a year earlier.
- Higher average SWU selling prices and lower average SWU costs drove LEU gross profit of $17.4 million, versus a $3.2 million loss. SWU sales volume declined 7%; average billed SWU price rose 166%, reflecting the contracts delivered.
- Technical solutions moved to $2.2 million gross profit from a $2.3 million loss, mainly reflecting HALEU and UT-Battelle work. Advanced technology costs declined by $5.7 million to $0.9 million.
- Operating cash outflow improved by $13.4 million year over year, but remained negative. Cash and cash equivalents declined $21.5 million from year-end.
Outlook, risks and unusual items
- Management said liquidity was expected to be adequate for at least 12 months from the filing date, subject to operating conditions, customer receipts, market and trade developments, COVID-19, and government funding. No full-year earnings or revenue guidance was provided.
- The LEU sales order book was $1.0 billion as of March 31, 2020, extending to 2030 and including $0.3 billion of deferred revenue and customer advances. Its value depends on delivery timing, customer choices and estimated future prices.
- Under the three-year DOE HALEU cost-share contract, DOE reimburses 80% of costs up to $115 million; the contract is incrementally funded, with DOE then obligated for approximately $53.2 million. Centrus had received $19.0 million in aggregate payments. The accrued contract loss was $15.3 million, after a $3.0 million Q1 reduction for work performed. Commercial or government demand for HALEU is uncertain and faces technical, regulatory and economic hurdles.
- COVID-19 had not materially affected LEU operations or significantly affected technical solutions operations as of the filing, according to management. Workforce restrictions and potential delays in government reviews could affect HALEU work; the eventual financial impact was not estimable.
- Trade exposure is material: Russian LEU imports face quotas and restrictions, and the future of the Russian Suspension Agreement (RSA) and import quotas remained uncertain. An adverse outcome could raise costs, constrain deliveries and impair contract performance. COVID-19-related deadline extensions delayed the expected trade review determination.
- Other significant risks include reliance on TENEX and other suppliers, an oversupplied enrichment market, pension and postretirement obligations, and the uncertain timing of commercial enrichment production. Management reported no material changes to the risk factors in the 2019 Form 10-K.
- Legal matters include a $42.8 million DOE pension and benefit reimbursement claim, carried with a full valuation allowance; three class actions alleging off-site contamination near the Portsmouth site, for which Centrus says it seeks DOE indemnification; and a FirstEnergy contract claim. A bankruptcy court rejected the guaranty claims against FES and FG in March 2020; Centrus appealed, while claims against the contract parties remained unresolved.
- The Series B preferred stock carries a 7.5% cumulative dividend; dividends had not been declared or paid. The filing allocates $2.0 million of cumulative preferred dividends in calculating income allocable to common stockholders.
Most important facts for investors to verify
- Whether operating cash outflows and the decline in cash can be sustained under expected customer receipts and inventory commitments.
- Developments in RSA negotiations, import quotas and the outcome of the pending U.S. trade reviews.
- DOE funding, cost performance and schedule for the HALEU contract, including whether its accrued loss estimate changes.
- Customer delivery timing, realized SWU prices and supplier performance relative to the $1.0 billion order book.
- Progress and potential financial impact of the DOE reimbursement claim, Portsmouth-related lawsuits and FirstEnergy appeal.
- COVID-19 effects on operations, suppliers, customers and government reviews beyond management’s assessment at the filing date.