Centrus Energy Corp. (NYSE American: LEU) — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report; the filing separately reports fourth-quarter net income of $21.3 million.
Business context
Centrus supplies low-enriched uranium (LEU) and uranium components to nuclear utilities through its LEU segment, and provides engineering, manufacturing and related services through Technical Solutions. The company is also developing U.S. uranium-enrichment capability for high-assay low-enriched uranium (HALEU). LEU provided approximately 80% of FY2022 revenue.
Financial highlights
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $293.8 million | $298.3 million |
| Gross profit | $117.9 million | $114.5 million |
| Gross margin | 40.1% | 38.4% |
| Operating income | $59.7 million | $68.3 million |
| Net income | $52.2 million | $175.0 million |
| Diluted EPS | $3.38 | $9.75 |
| Cash provided by operating activities | $20.6 million | $50.0 million |
Revenue declined 2%, while gross profit increased 3%. LEU revenue rose 27% to $235.6 million, with segment gross profit up 79% to $130.6 million. Technical Solutions revenue fell 48% to $58.2 million and the segment recorded a $12.7 million gross loss. FY2022 net income included $6.6 million of nonoperating benefit-plan income, versus $67.6 million in FY2021; the prior year also included a $43.5 million DOE settlement and a $40.7 million release of a federal tax valuation allowance.
Cash and cash equivalents were $179.9 million at year-end, with $29.8 million of restricted cash collateral for inventory loans and $0.2 million of other financial-assurance deposits. Working capital was $137.9 million. Total debt carrying value was $101.8 million, including $74.3 million principal on 8.25% Notes due February 2027; the notes’ disclosed fair value was $68.8 million. Total liabilities exceeded assets, leaving a $74.1 million stockholders’ deficit. Management stated liquidity should be adequate for at least 12 months from the report date.
LEU order book was approximately $1.0 billion through 2029, including about $319 million of deferred revenue and customer advances. This estimate depends on delivery timing, pricing and other assumptions and is not a measure of future profit.
Material changes and unusual items
- LEU gross profit improved as average selling prices rose, SWU sales volume increased, and average SWU unit cost declined. SWU spot prices rose 96% during 2022, to $110 per SWU at year-end, amid the Ukraine war and heightened supply concerns.
- Technical Solutions’ results included a $21.3 million accrued loss for Phase 1 of the new HALEU Operation Contract. DOE had awarded the contract in November 2022; Phase 1 is a 50/50 cost share. The base contract includes a subsequent production phase, subject to funding, and DOE options for up to nine additional years.
- FY2022 operating cash flow decreased by $29.4 million year over year, with cash use for inventory a significant factor. Inventory, net, increased to $148.4 million from $82.7 million.
- The company issued 99,090 Class A shares through its ATM offering for net proceeds of $3.6 million in 2022. It authorized a separate ATM offering of up to $24.0 million in December 2022 and had not sold shares under that offering by year-end.
Outlook, risks and contingencies
Centrus provided no 2023 results-of-operations guidance, citing market uncertainty and disruption. Management reported HALEU work progressing on schedule and budget, targeting initial production in 2023; the filing says remaining support-system construction and NRC operational-readiness approvals were still required. DOE funding beyond currently committed amounts, future contract awards and commercial HALEU demand remain uncertain. The Inflation Reduction Act appropriated $700 million for a DOE HALEU Availability Program, but the prospective program was not yet a final procurement.
Key risks include possible sanctions, transport or payment disruptions affecting Russian supplier TENEX; dependence on imported enrichment material and alternative suppliers; customer concentration (the two largest customers represented approximately 28% of revenue); market oversupply and commodity-price volatility; DOE appropriations and contract cost overruns; pension and postretirement obligations; and regulatory, cybersecurity and nuclear-material liabilities. The filing describes Portsmouth-site litigation and DOE’s asserted approximately $9.6 million share of Joppa power-plant decommissioning costs; Centrus had not accrued the latter and said it could not estimate any liability. The company also stated that certain nuclear-liability claims may be subject to DOE indemnification, which is not assured in every circumstance.
Important facts for investors to verify
- Whether TENEX deliveries, payments and transportation remain workable amid sanctions and related restrictions, and whether alternate supply can cover any disruption.
- Actual HALEU production timing, remaining NRC approvals, Phase 1 cost-share exposure and the availability of DOE funding or follow-on contracts.
- Whether LEU order-book deliveries and margins materialize as estimated, particularly given customer timing options and required supply purchases.
- Cash needs for inventory, pension and postretirement obligations, and debt service; confirm the distinction between unrestricted and restricted cash.
- Developments in the Portsmouth lawsuits and the DOE’s Joppa decommissioning-cost assertion, including potential exposure and indemnification.