Centrus Energy Corp. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a quarterly filing; selected fourth-quarter results are noted below. Centrus supplies low-enriched uranium (LEU) and provides engineering, manufacturing, and other technical services. LEU represented about 81% of 2019 revenue.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $209.7 million | $193.0 million |
| Gross profit (loss) | $32.5 million; 15.5% gross margin | ($17.9) million; (9.3)% gross margin |
| Operating loss | ($19.7) million | ($92.4) million |
| Net loss | ($16.5) million | ($104.1) million |
| Net loss allocable to common shareholders | ($24.3) million; ($2.54) per share | ($111.9) million; ($12.23) per share |
| Cash from operating activities | $11.3 million | ($74.4) million |
Revenue rose 9%. LEU revenue increased 3% to $169.4 million; technical solutions revenue increased 41% to $40.3 million. The LEU segment generated $50.8 million in gross profit, compared with a $23.3 million gross loss in 2018. Technical solutions recorded an $18.3 million gross loss, including an $18.3 million accrued expected loss on the HALEU contract. Excluding that accrual, the segment was approximately break-even in 2019.
2019 operating cash flow benefited from a $44.0 million increase in deferred revenue and customer advances, net of deferred costs, and a $29.3 million reduction in receivables. Cash used in financing was $35.0 million, including repayment of the 8% PIK Toggle Notes. Cash, cash equivalents, and restricted cash decreased $23.1 million during the year.
At year-end, cash and cash equivalents were $130.7 million ($136.6 million including restricted cash); reported working capital was $32.8 million. Total assets were $455.9 million and total liabilities were $792.8 million, leaving a stockholders’ deficit of $336.9 million. Debt carrying value was $120.2 million, including the 8.25% Notes due February 2027; their principal balance was $74.3 million, with future interest obligations included in the reported carrying value. The 8% PIK Toggle Notes were repaid at maturity in September 2019 for $28.5 million, including accrued interest.
Defined-benefit pension plans were underfunded by $142.3 million and postretirement health and life plans by $152.8 million at year-end. Management expected $30.8 million of plan contributions in 2020. Series B Preferred Stock had a $127.2 million aggregate liquidation preference, including accumulated dividends; preferred dividends accrue at 7.5% annually.
Fourth quarter: Revenue was $55.7 million, gross profit was $6.8 million, operating loss was $6.7 million, and net loss was $2.8 million. In fourth-quarter 2018, revenue was $83.8 million and net loss was $45.2 million.
Material changes and notable items
- LEU cost of sales fell 37% to $118.6 million. Average cost per SWU declined 38%, primarily following a price reset under the Russian supply agreement; average SWU selling price rose 24%, while SWU sales volume fell 24%.
- Technical solutions revenue increased with HALEU program work and completion of the K-1600 decontamination and decommissioning contract. The HALEU expected-loss accrual was a significant expense; it is subject to revision as actual costs and remaining estimates change.
- Advanced technology costs declined 44% to $14.6 million, and selling, general and administrative expenses declined 16% to $33.7 million.
- Cash and cash equivalents rose to $130.7 million from $123.1 million, while reported working capital declined to $32.8 million from $45.8 million. Inventory net of amounts owed rose to $58.9 million from $26.7 million.
- The LEU sales order book was $1.0 billion at year-end, unchanged from 2018, and extended to 2030. It includes $0.3 billion of customer deferred revenue and advances; the company estimated $110–$120 million of 2020 SWU and uranium revenue from contracted deliveries.
Outlook, risks, and contingencies
The three-year DOE HALEU cost-share contract provides reimbursement for 80% of eligible costs up to $115 million; Centrus bears the remaining 20% and any costs above the cap. DOE was obligated for approximately $53.2 million at year-end, and Centrus had received $10.7 million in cash payments. The filing cautions that commercial or government demand for HALEU is uncertain and that technical, regulatory, and economic hurdles remain.
Management stated it expected adequate liquidity for at least 12 months from the filing date and anticipated $2–$3 million in capital expenditures over the next 12 months. The company did not provide 2020 financial guidance, citing uncertainty about the length and severity of the COVID-19 pandemic. At filing, LEU operations had not been affected; limited on-site staffing and possible government review delays could affect HALEU work.
- Russian trade restrictions: The Russian Suspension Agreement and related import quotas were scheduled to expire at the end of 2020. An adverse outcome could restrict deliveries or lead to duty deposits exceeding 115% of imported product value, potentially making Russian supply uneconomic. Centrus also depends on TENEX for significant supply and must find markets for contracted purchases.
- Market and customer exposure: LEU markets remained oversupplied despite recovering price indicators. The filing reports three largest customers at approximately 56% of revenue; disclosures differ on the share represented by the ten largest customers (72% in a risk-factor discussion versus 95% in the customer note).
- Long-term obligations: Unfunded pension and postretirement obligations, debt service, and accumulating preferred dividends may constrain liquidity and other uses of cash.
- Legal matters: Three class actions allege off-site contamination connected with the Portsmouth site; the company disputes liability and says it has sought DOE indemnification. A $42.8 million DOE pension-cost claim remains unresolved and fully valuation-allowed. A bankruptcy court ruled in March 2020 that FirstEnergy-related guaranties did not apply to Centrus subsidiaries’ claims; claims against the original contract parties remained unresolved.
- Other exposure: Government funding, contract cost overruns, NRC approvals and licensing, supplier performance, customer credit, competition, cyber and security incidents, and possible strategic transactions are material uncertainties.
The auditor issued an unqualified opinion on the consolidated financial statements. Management reported effective disclosure controls and internal control over financial reporting at year-end and stated that a previously identified material weakness had been remediated.
Important facts for investors to verify
- Whether post-2020 Russian import quotas and trade arrangements permit Centrus to use TENEX supply as planned, and the impact on purchase commitments, customer deliveries, and margins.
- The assumptions behind the $1.0 billion LEU order book, including customer delivery timing, contract pricing, and the portion of supply commitments that exceeds contracted sales.
- Actual HALEU contract costs, DOE funding and payments, progress against milestones, and any changes to the $18.3 million accrued loss.
- Cash generation, working-capital movements, debt obligations, and required pension and postretirement contributions.
- The customer-concentration disclosure discrepancy: ten largest customers are stated as both approximately 72% and 95% of revenue; clarify the applicable customer group and revenue basis.
- Developments in the Portsmouth claims, the DOE pension-cost claim, and the remaining FirstEnergy contract claims.