Centrus Energy (LEU) - 2020 Q3 - Quarterly Report

PART I Item 1. Financial Statements (Unaudited) Centrus Energy Corp. reported a net income of $38.0 million for the nine months ended September 30, 2020, marking a significant financial turnaround Condensed Consolidated Balance Sheets As of September 30, 2020, total assets increased, liabilities decreased, and stockholders' deficit improved to $(275.6) million Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $386.3 | $369.6 | | Total Assets | $468.2 | $455.9 | | Total Current Liabilities | $315.8 | $336.8 | | Total Liabilities | $743.8 | $792.8 | | Total Stockholders' Deficit | $(275.6) | $(336.9) | Condensed Consolidated Statements of Operations Centrus reported a net income of $38.0 million for the nine months ended September 30, 2020, driven by increased gross profit despite flat revenue Financial Performance (in millions, except per share data) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Total Revenue | $154.3 | $154.0 | | Gross Profit | $62.6 | $25.7 | | Operating Income (Loss) | $30.4 | $(13.0) | | Net Income (Loss) | $38.0 | $(13.7) | | Diluted EPS | $3.12 | $(2.05) | Q3 Financial Performance (in millions, except per share data) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Total Revenue | $33.6 | $104.7 | | Gross Profit (Loss) | $(0.8) | $35.5 | | Net Income (Loss) | $(7.0) | $22.8 | | Diluted EPS | $(0.83) | $2.17 | Condensed Consolidated Statements of Cash Flows Cash provided by operating activities was $5.2 million for the nine months ended September 30, 2020, reversing a prior-year outflow Cash Flow Summary (in millions) | Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Cash from Operating Activities | $5.2 | $(26.5) | | Cash from Investing Activities | $(0.9) | $0.7 | | Cash from Financing Activities | $17.8 | $(33.8) | | Increase (Decrease) in Cash | $22.1 | $(59.6) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, LEU and Technical Solutions revenue, a common stock offering, and a preferred stock tender offer - SWU revenue for the nine months ended Sep 30, 2020, includes $32.4 million collected from a customer in settlement of a supply contract rejected in bankruptcy court[22] - The company's order book for the LEU segment was $1.0 billion as of September 30, 2020, extending to 2030[26] - Under the HALEU Contract with the DOE, the company's cost of sales for the nine months ended Sep 30, 2020, benefited by $8.7 million from the reversal of previously accrued contract losses[33] - In August/September 2020, the company sold 2,537,500 shares of Class A Common Stock, generating gross proceeds of approximately $25.4 million[50][51] - On October 19, 2020, the company commenced a tender offer to purchase up to $60 million of its Series B Senior Preferred Stock at a price of $954.59 per share[73] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses improved LEU segment profitability, HALEU contract progress, successful capital raise, and liquidity management Overview Centrus focuses on nuclear fuel supply and advanced production, with a $1 billion order book and key HALEU and Russian supply agreements - The company's LEU segment has a $1 billion global order book with contracts extending to 2030[81] - Centrus is working on a three-year, $115 million cost-shared contract with the DOE to demonstrate production of High-Assay, Low-Enriched Uranium (HALEU)[86] - The U.S. Department of Commerce and the Russian Federation agreed to extend the Russian Suspension Agreement through 2040, setting aside a significant portion of the import quota for Centrus's supply agreement with TENEX[82] Results of Operations Gross profit significantly increased to $62.6 million for the nine months ended September 30, 2020, driven by LEU and Technical Solutions Segment Performance - Nine Months Ended September 30 (in millions) | Segment | Revenue 2020 | Revenue 2019 | Gross Profit 2020 | Gross Profit 2019 | | :--- | :--- | :--- | :--- | :--- | | LEU Segment | $112.8 | $125.5 | $61.0 | $25.1 | | Technical Solutions | $41.5 | $28.5 | $1.6 | $0.6 | | Total | $154.3 | $154.0 | $62.6 | $25.7 | - LEU segment revenue for the nine months ended Sep 30, 2020, includes a $32.4 million collection from a customer in settlement of a supply contract rejected in bankruptcy[134] - Technical solutions revenue increased by $13.0 million (46%) in the nine-month period, primarily due to work performed under the HALEU Contract[136] - Net income for the nine months ended Sep 30, 2020, was $38.0 million, a favorable variance of $51.7 million from the prior year, primarily due to a $36.9 million increase in gross profit and an $11.2 million decline in advanced technology costs[152] Liquidity and Capital Resources Centrus ended Q3 2020 with $152.8 million cash, maintaining adequate liquidity through operating cash, HALEU funding, and a stock offering - The company ended Q3 2020 with a consolidated cash balance of $152.8 million[154] Working Capital Summary (in millions) | Component | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $152.8 | $130.7 | | Working capital | $70.5 | $32.8 | - Net proceeds from the August 2020 common stock offering were $23.8 million[165][169] - The HALEU Contract with DOE is incrementally funded, with DOE currently obligated for costs up to approximately $74.5 million of the $115 million total[157] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes in internal controls - Based on an evaluation as of September 30, 2020, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective[178] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[179] PART II – OTHER INFORMATION Item 1. Legal Proceedings Centrus is involved in legal proceedings including a $42.8 million claim against DOE, Portsmouth GDP lawsuits, and a $32.4 million bankruptcy recovery - The company is appealing the DOE's denial of a $42.8 million claim for pension and postretirement benefits costs related to the former Portsmouth GDP[183] - Centrus is a defendant in several class-action lawsuits alleging off-site contamination from the Portsmouth GDP site and has invoked indemnification under the Price-Anderson Act[184][186][190] - In June 2020, the company collected approximately $32.4 million from a settlement of claims against FirstEnergy Nuclear Operating Company in its bankruptcy proceedings[191] Item 1A. Risk Factors Key risks include Russian SWU import restrictions, potential new duties on foreign uranium, and adverse impacts from the COVID-19 pandemic - A key risk is the restriction on Russian uranium imports. The amended RSA, effective through 2040, allocates a portion of export limits to Centrus, but the company's backlog is not yet sufficient to meet all minimum purchase obligations from its Russian supplier[195][199][200] - The company faces risks of new duties, sanctions, or other trade restrictions on SWU or uranium purchased from any foreign suppliers, which could adversely affect profitability[202] - The COVID-19 pandemic poses a risk to business operations, with potential for supply chain disruptions, increased costs, and delays, particularly for the Technical Solutions segment and the HALEU contract which requires on-site work[207][208] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including a consulting agreement, CEO/CFO certifications, and XBRL financial data - Filed exhibits include a consulting agreement, CEO/CFO certifications (Rule 13a-14(a) and 18 U.S.C. Section 1350), and financial statements in XBRL format[210] Signatures The report is duly signed on November 13, 2020, by Philip O. Strawbridge, Senior Vice President and Chief Financial Officer