Market Overview

Centrus Reports Second Quarter 2018 Results

Share:
  • Reaffirming annual outlook of $175-200 million in revenue and $100-125
    million cash balance for year-end 2018
  • Cash balance of $140.1 million at June 30, 2018
  • Revenue of $39.4 million compared to $44.0 million for the second
    quarter of 2017
  • Net loss of $26.1 million compared to net loss of $22.4 million for
    the second quarter of 2017

Centrus Energy Corp. (NYSE:LEU) today reported a net loss of
$26.1 million for the quarter ended June 30, 2018, compared to a net
loss of $22.4 million for the second quarter of 2017. The net loss
allocable to common stockholders was $28.1 million or $3.08 per common
share (basic and diluted) for the quarter ended June 30, 2018, compared
to a net loss allocable to common stockholders of $24.4 million or $2.69
per common share (basic and diluted) for the second quarter of 2017.

"Centrus is working to expand our long-term fuel supply for our
customers around the world and to develop the fuel supply infrastructure
for the next generation of advanced reactors," said Daniel B. Poneman,
Centrus president and chief executive officer. "While our results this
quarter reflect the difficult market dynamics of recent years, the work
we have done recently to lock in low-cost sources of supply and secure
new long-term sales contracts will show in our future results, as our
costs and revenues become more closely aligned."

Revenue, Cost of Sales and Order Book

Revenue for the second quarter was $39.4 million, a decrease of $4.6
million, or 10 percent, compared to the same quarter in 2017. In the
six-month period ended June 30, 2018, revenue was $75.1 million, an
increase of $23.9 million, or 47 percent, from the same period in 2017.
The Company anticipates generating nearly half of its annual revenue in
the fourth quarter.

Revenue from the Low-enriched Uranium (LEU) Segment declined $5.0
million in the three months and increased $15.5 million in the six
months ended June 30, 2018, compared to the corresponding periods in
2017. The volume of separative work units (SWU) sales increased 18
percent in the three-month period and 97 percent in the six-month
period, reflecting the variability in timing of utility customer orders.
The average price billed to customers for sales of SWU declined 26
percent in the three-month period and 34 percent in the six-month
period, reflecting the particular contracts under which SWU were sold
during the periods and the trend of lower SWU market prices in recent
years.

Revenue from the Contract Services Segment increased $0.4 million in the
three months and $8.4 million in the six months ended June 30, 2018,
compared to the corresponding periods in 2017, reflecting services
provided under the X-energy contract beginning in the second quarter of
2018, partially offset by the reduced scope of contract work for
American Centrifuge technology services in the current periods. The
increase in the six-month period also reflects $9.5 million of revenue
related to the January 2018 settlement with the U.S. Department of
Energy (DOE) related to past work performed.

Cost of sales for the LEU Segment increased $0.4 million in the three
months and $32.5 million in the six months ended June 30, 2018, compared
to the corresponding periods in 2017, due to the increases in sales
volumes partially offset by declines in the average cost of sales per
SWU. Cost of sales is affected by sales volumes, unit costs of
inventory, and direct charges to cost of sales such as legacy costs
related to former gaseous diffusion plant employees. The average cost of
sales per SWU declined approximately 15 percent in the six months ended
June 30, 2018, or 13 percent, excluding legacy costs, reflecting
declines in our purchase costs per SWU in recent periods. The Company
anticipates its average cost of sales per SWU from its diverse sources
of supply will decline in 2019 and subsequent years.

Cost of sales for the Contract Services Segment increased $1.0 million
in the three months and declined $0.2 million in the six months ended
June 30, 2018, compared to the corresponding periods in 2017, reflecting
services provided under the X-energy contract beginning in the second
quarter of 2018, and the reduced scope of contract work for American
Centrifuge technology services over the current six-month period.

As of December 31, 2017, the Company's LEU Segment order book was $1.3
billion and approximately 14 percent of the order book was reported to
be at risk due to milestones related to the deployment of the American
Centrifuge Plant or due to customer financial conditions. As of June 30,
2018, the order book was $1.3 billion, reflecting completed deliveries
and new contracts in the six months ended June 30, 2018. On July 26,
2018, a customer that had filed for bankruptcy court protection in March
2018 signed a new contract with the Company and rejected the existing
long-term contract. The rejection of the prior contract and the
acceptance of the new contract are subject to court approval. After
giving effect to the expected contract rejection and the new contract,
the order book will be $1.1 billion, absent the impact of other order
activity in the interim, and the specific risks the Company had
previously identified to the order book will have been resolved.

Gross Loss

Centrus realized a gross loss of $10.7 million in the three months ended
June 30, 2018, an increase of $6.0 million compared to the gross loss of
$4.7 million in the corresponding period in 2017. In the six months
ended June 30, 2018, the Company realized a gross loss of $16.0 million,
an increase of $8.4 million compared to the gross loss of $7.6 million
in the corresponding period in 2017. Excluding the $9.5 million of
revenue in the current period from the January 2018 settlement with DOE
related to past work performed, the gross loss in the six months ended
June 30, 2018, was $25.5 million.

The gross loss for the LEU Segment in the three months ended June 30,
2018, was $10.0 million, an increase of $5.4 million compared to the
gross loss of $4.6 million in the corresponding period in 2017. In the
six months ended June 30, 2018, the gross loss for the LEU Segment was
$23.5 million, an increase of $17.0 million compared to the gross loss
of $6.5 million in the corresponding period in 2017. The particular SWU
sales in the three and six months ended June 30, 2018, reflect a greater
concentration of sales made under contracts that reflect lower prices
under more recent market conditions.

For the Contract Services Segment, Centrus realized a gross loss of $0.7
million in the three months ended June 30, 2018, compared to a gross
loss of $0.1 million in the corresponding period in 2017. The Company
realized a gross profit of $7.5 million in the six months ended June 30,
2018, including $9.5 million of revenue from the January 2018 settlement
with DOE, compared to a gross loss of $1.1 million in the corresponding
period in 2017.

Advanced Technology License and Decommissioning Costs

Advanced technology license and decommissioning costs consist of
American Centrifuge expenses that are outside of our customer contracts
in the Contract Services Segment, including ongoing costs for work at
the Piketon, Ohio, demonstration facility. Costs increased $1.0 million,
or 23 percent, in the three months and $2.9 million, or 28 percent, in
the six months ended June 30, 2018, compared to the corresponding
periods in 2017. In the current periods, efforts at the Piketon facility
were focused on U.S. Nuclear Regulatory Commission license termination
and DOE lease turnover activities, and the related costs were charged to
expense. In the prior period, efforts were primarily focused on
decontamination and decommissioning (D&D) of the Piketon facility, and
the related costs were recorded as a reduction of the D&D liability. In
addition, a greater allocation of Piketon facility costs was charged to
advanced technology license and decommissioning costs in the current
periods following the relocation of certain corporate functions from the
Piketon facility.

SG&A and Special Charges

Selling, general and administrative (SG&A) expenses were unchanged in
the three months and decreased $1.2 million, or five percent, in the six
months ended June 30, 2018, compared to the corresponding periods in
2017. Overhead allocated to SG&A expenses declined $0.9 million in the
three months and $1.5 million in the six months ended June 30, 2018,
following the relocation of certain corporate functions from the Piketon
facility. Compensation and benefits declined $0.2 million in the
three-month period and $0.4 million in the six-month period. Consulting
costs increased $0.9 million in the three-month period and $0.6 million
in the six-month period, primarily for work related to business
development.

Special charges declined $2.0 million, or 87 percent, in the three
months and $3.8 million, or 81 percent, in the six months ended June 30,
2018, compared to the corresponding periods in 2017. Special charges in
the six months ended June 30, 2018, and 2017, consisted of estimated
employee termination benefits of $0.8 million and $1.4 million and
advisory costs related to updating the Company's information technology
systems of $0.1 million and $3.3 million, respectively.

Cash Flow

Centrus ended the second quarter of 2018 with a consolidated cash
balance of $140.1 million. The net reduction of $59.9 million in the SWU
purchase payables balance, due to the timing of purchase deliveries, was
a significant use of cash in the six months ended June 30, 2018. The
operating loss of $53.7 million in the six months ended June 30, 2018,
net of non-cash expenses, was a use of cash. Sources of cash included
the net reduction in receivables from utility customers of $18.9 million.

2018 Outlook

Centrus anticipates SWU and uranium revenue in 2018 in a range of $150
million to $175 million, reflecting a decline in average sales prices
compared to 2017 as more sales are made under contracts that reflect
more recent market conditions. The Company anticipates total revenue in
a range of $175 million to $200 million. Consistent with prior years,
revenue continues to be most heavily weighted to the fourth quarter;
Centrus expects nearly one-half of its 2018 revenue to be generated in
the fourth quarter. The Company expects to end 2018 with a cash and cash
equivalents balance in a range of $100 million to $125 million. The
anticipated decrease in cash and cash equivalents in 2018 is driven by
the expected timing of purchases under supply agreements and an increase
in required cash contributions to our postretirement benefit plans.

Centrus' financial guidance is subject to a number of assumptions and
uncertainties that could affect results either positively or negatively.
Variations from its expectations could cause differences between the
guidance and the ultimate results. Among the factors that could affect
the results are:

  • Additional short-term purchases or sales of SWU and uranium;
  • Timing of customer orders, related deliveries, and purchases of LEU or
    components;
  • The outcome of legal proceedings and other contingencies;
  • Potential use of cash for strategic initiatives;
  • Actions taken by Centrus' customers, including actions that might
    affect existing contracts, as a result of market and other conditions
    impacting customers and the industry; and
  • Additional costs for decontamination and decommissioning of Centrus'
    facility in Ohio.

About Centrus Energy Corp.

Centrus is a trusted supplier of nuclear fuel and services for the
nuclear power industry. Centrus provides value to its utility customers
through the reliability and diversity of its supply sources - helping
them meet the growing need for clean, affordable, carbon-free
electricity. Since 1998, the Company has provided its utility customers
with more than 1,750 reactor years of fuel, which is equivalent to 7
billion tons of coal.

With world-class technical capabilities, Centrus offers turnkey
engineering and advanced manufacturing solutions to its customers. The
Company is also advancing the next generation of centrifuge technologies
so that America can restore its domestic uranium enrichment capability
in the future. Find out more at www.centrusenergy.com.

Forward-Looking Statements

This news release contains "forward-looking statements" within the
meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") - that is, statements related to future
events. In this context, forward-looking statements may address our
expected future business and financial performance, and often contain
words such as "expects", "anticipates", "intends", "plans", "believes",
"will", "should", "could", "would" or "may" and other words of similar
meaning. Forward-looking statements by their nature address matters that
are, to different degrees, uncertain. For Centrus Energy Corp.,
particular risks and uncertainties that could cause our actual future
results to differ materially from those expressed in our forward-looking
statements include risks: related to our significant long-term
liabilities, including material unfunded defined benefit pension plan
obligations and postretirement health and life benefit obligations;
risks relating to our outstanding 8.0% paid-in-kind ("PIK") toggle notes
(the "8% PIK Toggle Notes") maturing in September 2019, our 8.25% notes
(the "8.25% Notes") maturing in February 2027 and our Series B Senior
Preferred Stock, including the potential termination of the guarantee by
United States Enrichment Corporation of the 8% PIK Toggle Notes; risks
related to the use of our net operating losses ("NOLs") and net
unrealized built-in losses ("NUBILs") to offset future taxable income
and the use of the Rights Agreement (as defined herein) to prevent an
"ownership change" as defined in Section 382 of the Internal Revenue
Code of 1986, as amended (the "Code") and our ability to generate
taxable income to utilize all or a portion of the NOLs and NUBILs prior
to the expiration thereof; risks related to the limited trading markets
in our securities; risks related to our ability to maintain the listing
of our Class A Common Stock on the NYSE American LLC (the "NYSE
American"); risks related to decisions made by our Class B stockholders
regarding their investment in the Company based upon factors that are
unrelated to the Company's performance; the continued impact of the
March 2011 earthquake and tsunami in Japan on the nuclear industry and
on our business, results of operations and prospects; the impact and
potential extended duration of the current supply/demand imbalance in
the market for low-enriched uranium ("LEU"); our dependence on others
for deliveries of LEU including deliveries from the Russian government
entity Joint Stock Company "TENEX" ("TENEX") under a commercial supply
agreement with TENEX and deliveries under a long-term supply agreement
with Orano Cycle; risks related to our ability to sell the LEU we
procure pursuant to our purchase obligations under our supply
agreements; risks relating to our sales order book, including
uncertainty concerning customer actions under current contracts and in
future contracting due to market conditions and lack of current
production capability; risks related to financial difficulties
experienced by customers, including possible bankruptcies, insolvencies
or any other inability to pay for our products or services; pricing
trends and demand in the uranium and enrichment markets and their impact
on our profitability; movement and timing of customer orders; risks
related to the value of our intangible assets related to the sales order
book and customer relationships; risks associated with our reliance on
third-party suppliers to provide essential services to us; risks related
to existing or new trade barriers and contract terms that limit our
ability to deliver LEU to customers; risks related to actions that may
be taken by the U.S. government, the Russian government or other
governments that could affect our ability to perform or the ability of
our sources of supply to perform under their contract obligations to us,
including the imposition of sanctions, restrictions or other
requirements; the impact of government regulation including by the U.S.
Department of Energy and the United States Nuclear Regulatory
Commission; uncertainty regarding our ability to commercially deploy
competitive enrichment technology; risks and uncertainties regarding
funding for the American Centrifuge project and our ability to perform
under our agreement with UT-Battelle, LLC ("UT-Battelle"), the
management and operating contractor for Oak Ridge National Laboratory
("ORNL"), for continued research and development of the American
Centrifuge technology; the potential for further demobilization or
termination of the American Centrifuge project; risks related to the
current demobilization of portions of the American Centrifuge project,
including risks that the schedule could be delayed and costs could be
higher than expected; failures or security breaches of our information
technology systems; potential strategic transactions, which could be
difficult to implement, disrupt our business or change our business
profile significantly; the outcome of legal proceedings and other
contingencies (including lawsuits and government investigations or
audits); the competitive environment for our products and services;
changes in the nuclear energy industry; the impact of financial market
conditions on our business, liquidity, prospects, pension assets and
insurance facilities; revenue and operating results can fluctuate
significantly from quarter to quarter, and in some cases, year to year;
and other risks and uncertainties discussed in our filings with the
Securities and Exchange Commission, including our Annual Report on Form
10-K for the year ended December 31, 2017.

 
CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited; in millions, except share and per share data)
   

Three Months Ended
June 30,

Six Months Ended
June 30,

2018   2017 2018   2017
Revenue:
Separative work units $ 32.9 $ 37.9 $ 50.6 $ 38.7
Uranium 3.6
Contract services 6.5   6.1   20.9   12.5  
Total revenue 39.4 44.0 75.1 51.2
Cost of Sales:
Separative work units and uranium 42.9 42.5 77.7 45.2
Contract services 7.2   6.2   13.4   13.6  
Total cost of sales 50.1   48.7   91.1   58.8  
Gross loss (10.7 ) (4.7 ) (16.0 ) (7.6 )
Advanced technology license and decommissioning costs 5.4 4.4 13.4 10.5
Selling, general and administrative 9.7 9.7 20.9 22.1
Amortization of intangible assets 1.5 2.0 2.8 3.2
Special charges for workforce reductions and advisory costs 0.3 2.3 0.9 4.7
Gains on sales of assets (0.2 ) (0.7 ) (0.3 ) (1.7 )
Operating loss (27.4 ) (22.4 ) (53.7 ) (46.4 )
Gain on early extinguishment of debt (33.6 )
Nonoperating components of net periodic benefit expense (income) (1.7 ) (0.4 ) (3.3 ) (0.8 )
Interest expense 1.0 0.7 2.0 3.6
Investment income (0.6 ) (0.3 ) (1.2 ) (0.6 )
Loss before income taxes (26.1 ) (22.4 ) (51.2 ) (15.0 )
Income tax benefit     (0.1 ) (0.2 )
Net loss (26.1 ) (22.4 ) (51.1 ) (14.8 )
Preferred stock dividends - undeclared and cumulative 2.0   2.0   4.0   3.0  
Net loss allocable to common stockholders $ (28.1 ) $ (24.4 ) $ (55.1 ) $ (17.8 )
 
Net loss per common share - basic and diluted $ (3.08 ) $ (2.69 ) $ (6.05 ) $ (1.96 )
Average number of common shares outstanding - basic and diluted (in
thousands):
9,118 9,077 9,111 9,070
 
 
CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share and per share data)
   

June 30,
2018

December 31,
2017

ASSETS
Current assets
Cash and cash equivalents $ 140.1 $ 208.8
Accounts receivable 27.9 60.2
Inventories 100.0 153.1
Deferred costs associated with deferred revenue 130.2 122.3
Other current assets 22.7   22.5  
Total current assets 420.9 566.9
Property, plant and equipment, net of accumulated depreciation of
$2.2 as of June 30, 2018 and $1.9 as of December 31, 2017
4.5 4.9
Deposits for financial assurance 19.8 19.7
Intangible assets, net 79.9 82.7
Other long-term assets 0.7   1.1  
Total assets $ 525.8   $ 675.3  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities $ 47.0 $ 54.3
Payables under SWU purchase agreements 19.5 79.4
Inventories owed to customers and suppliers 45.1 77.9
Deferred revenue and advances from customers 195.0   191.8  
Total current liabilities 306.6 403.4
Long-term debt 155.3 157.5
Postretirement health and life benefit obligations 151.7 154.2
Pension benefit liabilities 155.2 161.6
Advances from customers 14.5
Other long-term liabilities 12.3   17.5  
Total liabilities 795.6 894.2
 
Stockholders' deficit
Preferred stock, par value $1.00 per share, 20,000,000 shares
authorized
Series A Participating Cumulative Preferred Stock, none issued
Series B Senior Preferred Stock, 7.5% cumulative, 104,574 shares
issued and outstanding and an aggregate liquidation preference of
$115.4 as of June 30, 2018 and $111.5 as of December 31, 2017
4.6 4.6
Class A Common Stock, par value $0.10 per share, 70,000,000 shares
authorized, 7,632,669 shares issued and outstanding as of June 30,
2018 and December 31, 2017
0.8 0.8
Class B Common Stock, par value $0.10 per share, 30,000,000 shares
authorized, 1,406,082 shares issued and outstanding as of June 30,
2018 and December 31, 2017
0.1 0.1
Excess of capital over par value 60.2 60.0
Accumulated deficit (335.5 ) (284.5 )
Accumulated other comprehensive income, net of tax   0.1  
Total stockholders' deficit (269.8 ) (218.9 )
Total liabilities and stockholders' deficit $ 525.8   $ 675.3  
 
 
CENTRUS ENERGY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
 

Six Months Ended
June 30,

2018   2017
Operating Activities
Net loss $ (51.1 ) $ (14.8 )
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization 3.3 3.6
PIK interest on paid-in-kind toggle notes 0.9 0.8
Gain on early extinguishment of debt (33.6 )
Gain on sales of assets (0.3 ) (1.7 )
Changes in operating assets and liabilities:
Accounts receivable 32.1 (32.1 )
Inventories, net 20.4 42.7
Payables under SWU purchase agreements (59.9 ) (39.7 )
Deferred revenue, net of deferred costs (4.7 ) 13.9
Accounts payable and other liabilities (7.0 ) (15.7 )
Other, net 0.6   (1.4 )
Cash used in operating activities (65.7 ) (78.0 )
 
Investing Activities
Capital expenditures (0.1 ) (0.1 )
Proceeds from sales of assets 0.3   1.7  
Cash provided by investing activities 0.2   1.6  
 
Financing Activities
Payment of interest classified as debt (3.0 )
Repurchase of debt (27.6 )
Payment of securities transaction costs   (9.0 )
Cash used in financing activities (3.0 ) (36.6 )
 
Decrease in cash, cash equivalents and restricted cash (68.5 ) (113.0 )
Cash, cash equivalents and restricted cash at beginning of period 244.8   296.7  
Cash, cash equivalents and restricted cash at end of period $ 176.3   $ 183.7  
 
Supplemental cash flow information:
Interest paid in cash $ 0.4 $ 2.1
Non-cash activities:
Conversion of interest payable-in-kind to long-term debt $ 0.9 $ 0.8
Exchange of debt for Series B preferred stock $ $ 4.6
 

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