Centrus Energy Corp. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Centrus supplies low-enriched uranium (LEU) and provides technical services, including work to demonstrate high-assay low-enriched uranium (HALEU) production. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $33.2 million | $91.3 million | $167.6 million | $209.3 million |
| Gross profit | $2.3 million | $49.5 million | $69.5 million | $78.3 million |
| Operating income (loss) | $(12.8) million | $38.2 million | $28.4 million | $46.6 million |
| Net income (loss) | $(6.1) million | $42.1 million | $30.9 million | $58.8 million |
| Diluted earnings (loss) per share | $(0.42) | $2.95 | $2.06 | $3.66 |
| Cash from (used in) operating activities | Not provided quarterly | $(35.1) million | $0.8 million |
Q3 gross margin was approximately 7%, versus 54% a year earlier; nine-month gross margin was approximately 41%, versus 37%. At September 30, cash and cash equivalents were $131.7 million, down from $193.8 million at year-end 2021. Cash, cash equivalents and restricted cash totaled $153.0 million. Working capital was $111.0 million, compared with $72.6 million at year-end.
Total assets were $618.2 million and total liabilities were $718.5 million, leaving a stockholders’ deficit of $100.3 million. Debt included $74.3 million principal on 8.25% notes due February 2027; reported carrying value was $101.8 million, including future interest obligations. The company paid $6.1 million of note interest during the nine-month period, classified as financing cash flow.
Material changes and drivers
- Q3 revenue fell 64% year over year. LEU revenue declined 37%, principally as the average price of SWU sold fell 76%, partly offset by 60% higher SWU volume. Technical Solutions revenue fell 78%; Q3 2021 included a $43.5 million DOE settlement for legacy pension and postretirement claims.
- Nine-month revenue declined 20%, while gross profit declined 11%. LEU gross profit rose $24.4 million, reflecting higher average SWU margins despite lower volume. Technical Solutions gross profit fell $33.2 million; the prior-year DOE settlement was a major comparison factor. Excluding that settlement, Technical Solutions gross profit increased $10.3 million.
- Nine-month net income decreased 47%, reflecting lower Technical Solutions gross profit, $8.7 million higher advanced technology costs, and $8.6 million higher income tax expense, partly offset by improved LEU gross profit.
- Operating cash use was $35.1 million, compared with $0.8 million provided in the prior-year period. Management attributed the decline mainly to approximately $24 million more paid to suppliers and approximately $24 million less collected from customers, driven by shipment and contract timing.
Outlook, risks and contingencies
- Centrus withdrew 2022 operating-results guidance, citing market uncertainty and disruption. Management stated it expected adequate liquidity for at least the next 12 months, subject to operating conditions, customer payments, market and trade restrictions, and government contract funding.
- The LEU sales order book was approximately $1.0 billion through 2029, including about $311.1 million of deferred revenue and customer advances. The estimate depends on delivery timing, customer requirements, contract pricing and other assumptions.
- The existing DOE HALEU contract was extended to November 30, 2022. DOE funding was $156.3 million as of September 30 and increased to $158.9 million after quarter-end. Centrus had received $155.1 million through September 30. A follow-on DOE solicitation proposed a 50/50 cost-share initial phase and later cost-plus-incentive-fee work; award and options are subject to appropriations. Management said the proposed initial cost share could materially affect liquidity, but the amount was not estimable.
- The Inflation Reduction Act included $700 million for DOE’s HALEU Availability Program. A subsequent DOE notice described a potential long-term procurement program, but it was preliminary and would require additional appropriations. Commercial HALEU demand, timing and economics remain uncertain.
- Russia-related sanctions, export controls, payment restrictions, transport availability and customer reluctance could disrupt TENEX supply or deliveries. A Canadian transporter’s permit to handle Russian LEU was valid for one year, creating a potential need for an alternative provider. Rising market-linked input costs could also pressure margins. SWU spot prices reached $95 per unit by September 30, up 70% since the start of 2022, according to management.
- DOE asserted that Centrus may owe approximately $9.6 million for a share of Joppa power plant decommissioning costs. Centrus was assessing the claim, had not formed an opinion on its merits, could not estimate any liability, and recorded no accrual.
- Portsmouth-related contamination and personal-injury litigation remained pending. Centrus said it believed its operations complied with regulations and that any liability should be covered by Price-Anderson Act indemnification; outcomes are uncertain.
- Long-term obligations include pension and postretirement benefit liabilities. Management reported no material change in critical accounting estimates and stated disclosure controls were effective.
Key facts for investors to verify
- Whether the sharp Q3 earnings decline reflects delivery timing and prior-year settlement comparisons, and how margins develop as higher market prices flow into contract sales and supply costs.
- Cash conversion, inventory and supplier-payment trends, and liquidity needs if Centrus must fund a new DOE HALEU contract’s cost-share phase.
- DOE follow-on contract award, funding and appropriations, plus the completion and operational readiness of the HALEU cascade.
- Continued ability to source, transport, pay for and deliver Russian-origin LEU under TENEX commitments, and the availability and cost of replacement supply.
- Resolution or further developments regarding the $9.6 million DOE assertion and Portsmouth litigation, including the scope and availability of indemnification.