Centrus Energy (LEU) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the period ended September 30, 2021 Condensed Consolidated Balance Sheets The balance sheet shows total assets of $487.2 million and a significant reduction in the total stockholders' deficit Condensed Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $414.2 | $406.1 | | Total Assets | $487.2 | $486.3 | | Total Current Liabilities | $335.2 | $366.1 | | Total Liabilities | $716.3 | $806.9 | | Total Stockholders' Deficit | $(229.1) | $(320.6) | Condensed Consolidated Statements of Operations The company reported a net income of $42.1 million in Q3 2021, a major turnaround driven by a substantial revenue increase Statement of Operations Highlights (in millions, except per share data) | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $91.3 | $33.6 | $209.3 | $154.3 | | Gross Profit (Loss) | $49.5 | $(0.8) | $78.3 | $62.6 | | Operating Income (Loss) | $38.2 | $(9.5) | $46.6 | $30.4 | | Net Income (Loss) | $42.1 | $(7.0) | $58.8 | $38.0 | | Diluted EPS | $2.95 | $(0.83) | $3.66 | $3.12 | Condensed Consolidated Statements of Cash Flows Cash from operations was $0.8 million for the nine-month period, with an overall $19.0 million increase in cash and cash equivalents Cash Flow Summary (in millions) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Cash provided by operating activities | $0.8 | $5.2 | | Cash (used in) investing activities | $(0.7) | $(0.9) | | Cash provided by financing activities | $18.9 | $17.8 | | Increase in cash, cash equivalents and restricted cash | $19.0 | $22.1 | Notes to Condensed Consolidated Financial Statements The notes detail revenue disaggregation, the HALEU contract status, the LEU order book, and a subsequent tender offer - The LEU segment's sales order book was approximately $1 billion as of September 30, 2021, extending to 2030[22] - Technical solutions revenue for Q3 and YTD 2021 includes $43.5 million from a settlement with the DOE for past pension and postretirement benefits costs[32][66] - The HALEU Contract is experiencing increased costs of approximately $10 million and delays, with production now expected to begin in mid-2022[29] - Subsequent to the quarter end, on October 20, 2021, the company commenced a tender offer to purchase all outstanding Series B Senior Preferred Stock[75] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes performance across its LEU and technical solutions segments, focusing on revenue drivers and capital structure Overview The company operates in LEU and technical solutions, with a focus on the HALEU demonstration contract and capital structure improvements - Centrus operates two business segments: low-enriched uranium (LEU) and technical solutions[80] - The company is deploying a HALEU demonstration cascade under a cost-share contract with the DOE, but is experiencing increased costs of approximately $10 million and supply chain delays, pushing the start of production to mid-2022[88][89] - In the nine months ended Sep 30, 2021, the company raised $27.6 million in net proceeds from the sale of 1.24 million shares of Class A Common Stock[97] - On October 20, 2021, the company launched a tender offer to purchase all outstanding Series B Senior Preferred Stock[99] Results of Operations Q3 2021 revenue grew 172% to $91.3 million, boosted by a $43.5 million DOE settlement in the technical solutions segment Segment Revenue and Gross Profit (in millions) | Segment | Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | LEU | Revenue | $32.0 | $18.7 | $115.3 | $112.8 | | | Gross Profit (Loss) | $8.3 | $(0.9) | $39.2 | $61.0 | | Technical Solutions | Revenue | $59.3 | $14.9 | $94.0 | $41.5 | | | Gross Profit | $41.2 | $0.1 | $39.1 | $1.6 | | Total | Revenue | $91.3 | $33.6 | $209.3 | $154.3 | | | Gross Profit (Loss) | $49.5 | $(0.8) | $78.3 | $62.6 | - Technical solutions revenue in Q3 2021 included a $43.5 million settlement with the DOE; excluding this, revenue for the segment increased due to more work on the HALEU and X-energy contracts[134] - LEU segment gross profit for YTD 2021 was $39.2 million, compared to $61.0 million in YTD 2020; the 2020 period included a one-time $32.4 million revenue recognition from a customer bankruptcy settlement[140] - SG&A expenses increased by $2.3 million in Q3 2021, mainly due to a $2.2 million remeasurement of long-term incentive compensation obligations tied to the company's stock price[145] Liquidity and Capital Resources The company ended Q3 with a $171.0 million cash balance and believes it has adequate liquidity for the next twelve months - The company ended Q3 2021 with a consolidated cash balance of $171.0 million[159] Working Capital Summary (in millions) | Component | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $171.0 | $152.0 | | Inventories, net | $73.0 | $59.9 | | Working capital | $79.0 | $40.0 | - The company commenced a tender offer to purchase all outstanding Series B Preferred Shares at $1,145.20 per share, with a potential aggregate cost of $43.3 million[178] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective with no material changes in internal controls - Based on an evaluation as of September 30, 2021, the CEO and CFO concluded that the Company's disclosure controls and procedures were effective[186] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2021[187] PART II – OTHER INFORMATION Legal Proceedings This section refers to Note 11 of the financial statements for information regarding the company's legal proceedings - For details on legal proceedings, the report refers to Note 11, Commitments and Contingencies — Legal Matters, in Part I of the financial statements[190] Risk Factors This section highlights material risks related to the HALEU contract, including future funding and operational uncertainties - A key risk is the uncertainty of obtaining the full benefit of the HALEU Contract and being able to operate the enrichment facility after the contract's completion in 2022[192] - The DOE is considering moving the operational portion of the HALEU demonstration to a new, competitively-awarded contract, and there is no assurance Centrus will win this contract[193] - Failure to secure U.S. government or other funding to continue operating the Piketon facility could have a material adverse effect on the company's business and financial condition[194] Exhibits This section lists key exhibits filed with the Form 10-Q, including agreements, amendments, and required certifications - Exhibits filed include compensation agreements, the DOE settlement agreement dated September 7, 2021, a lease amendment with the DOE, and CEO/CFO certifications[195]