Centrus Energy Corp. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is the three months ended March 31, 2020. Centrus supplies low-enriched uranium (LEU) and provides technical services, including work to demonstrate high-assay low-enriched uranium (HALEU) production. Figures below are in millions of dollars unless noted.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $55.6 | $45.0 |
| Gross profit / margin | $11.7 / 21.0% | $19.6 / 43.6% |
| Operating income / margin | $0.9 / 1.6% | $8.9 / 19.8% |
| Net income | $5.1 | $11.3 |
| Net income (loss) allocable to common shareholders | $(2.2) | $9.3 |
| Basic and diluted EPS | $(0.17) | $0.97 / $0.95 |
| Operating cash flow | $(8.5) | $(18.5) |
Revenue rose 24%. LEU revenue increased 24% to $38.1, while technical-solutions revenue increased 22% to $17.5. Gross profit fell $7.9, primarily reflecting lower average SWU selling prices and higher average unit costs, including $15.9 of previously deferred inventory costs recognized in LEU cost of sales. Technical solutions recorded a $1.0 gross loss, versus $2.2 gross profit a year earlier. Net income declined by $6.2, partly offset by higher non-operating pension benefit income. The $6.6 deemed dividend related to retired preferred shares drove the common-shareholder loss; management reported non-GAAP adjusted EPS of $0.34 basic and $0.33 diluted, versus $0.97 and $0.95.
Liquidity, balance sheet and financing
- Cash and cash equivalents were $163.3 at March 31, up from $152.0 at year-end; cash, cash equivalents and restricted cash totaled $169.2. Working capital was $67.2, versus $40.0.
- Operating cash use was $8.5, including cash uses from increased inventory, lower SWU-purchase payables, customer advances recognized as revenue, and benefit-liability payments. Financing provided $20.2, including $23.2 of cash proceeds from common-stock issuance; capital expenditures were $0.4.
- Total liabilities were $768.5 and stockholders’ deficit was $284.8. Current assets and current liabilities were $406.1 and $338.9, respectively.
- Debt carrying value was $111.0, comprising $74.3 principal and future interest obligations; the notes carry an 8.25% coupon and mature in February 2027. Cash exceeds principal, but substantial pension and postretirement obligations remain: $119.0 and $128.9, respectively.
- The at-the-market offering sold 1,092,113 Class A shares for $25.2 gross and $24.2 net proceeds (including $0.7 receivable at quarter-end). Class A shares issued and outstanding increased to 12.765 million from 11.390 million at year-end. The company also exchanged and retired 3,873 preferred shares for 231,276 common shares and a warrant for 250,000 shares.
Outlook, material matters and risks
- Management expected FY2021 and FY2022 LEU revenue to be slightly higher than 2020, with gross margins similar to 2020 excluding the prior-year $32.6 one-time customer bankruptcy settlement recovery. Results can vary significantly with order and delivery timing.
- The LEU order book was approximately $989 at March 31, 2021, extending through 2030 and including about $300 of deferred revenue and customer advances. Management estimated about 2% was at risk from customer operations; order-book estimates depend on customer timing, contract terms and price assumptions.
- The three-year DOE HALEU cost-share contract is capped at $115, with DOE currently obligated for approximately $102.8; Centrus had received $69.6 in aggregate payments. Management said work was on schedule and within budget, with modest production targeted for early 2022 and contract performance expected to finish in Q1 2022. Continued operation or expansion afterward depends on securing funding or output contracts; otherwise the cascade could be shut down or operated at a loss. The accrued contract loss was $5.7.
- A tentative DOE settlement of a long-running pension and postretirement-cost claim could provide $43.5, including interest, subject to required approvals. Any recovery would be applied to benefit obligations; timing and amount are uncertain.
- COVID-19 had not materially affected LEU operations or results to date, but supplier delays and higher costs were being experienced. Key risks include LEU market oversupply and pricing, Russian supply and trade restrictions, customer concentration, supplier dependence, uncertain HALEU demand and funding, benefit obligations, and litigation concerning alleged contamination at the former Portsmouth site. Management said it expected adequate liquidity for at least 12 months.
- Several Portsmouth-related lawsuits and claims remained pending. The company stated that it believed its operations complied with regulations and that certain liabilities should be indemnified; outcomes cannot be assured. No material change to the 2020 Form 10-K risk factors was reported.
Investor verification points
- Check subsequent results against the LEU revenue and margin outlook, especially the effect of delivery timing and deferred inventory costs.
- Track HALEU project milestones, NRC licensing, remaining DOE funding, cost-share exposure, and post-contract funding or customer commitments.
- Verify approval and collection of the proposed $43.5 DOE settlement and its effect on pension and postretirement obligations.
- Assess cash conversion, inventory and customer-advance movements, share dilution, and the distinction between the notes’ $74.3 principal and $111.0 carrying value including future interest.
- Monitor developments in Portsmouth litigation, Russian import restrictions and supply commitments, and customer concentration.