Centrus Energy Corp. (NYSE American: LEU) today reported results
for the fourth quarter 2017 and full year ended December 31,
2017.
2017 Summary:
- Gross profit of $56.8 million on
revenue of $218.4 million for full year
- Net income of $12.2 million
- Cash balance of $208.8 million at
year’s end
- Completed a private exchange for
majority of PIK Notes, reducing long-term debt by more than half
and extending maturity
- Long-term LEU sales order book at $1.3
billion
- Contract to advance U.S. uranium
enrichment technology extended through September 2018
- Memorandum of Understanding with
leading advanced reactor company to develop next generation reactor
fuel
“In 2017, Centrus completed several initiatives critical to our
long-term success, including a restructuring of our balance sheet,
improvements to our business operations, securing new fuel supply
and sales contracts, and extending our contract to advance U.S. gas
centrifuge technology for future energy and national security
purposes,” said Daniel B. Poneman, Centrus president and chief
executive officer.
“For the year, we met our guidance for revenue and year end
cash, earned net income of $12.2 million, and met our internal
milestones for the decontamination and decommissioning of our
demonstration cascade on time and ahead of budget,” Poneman added.
“As we look to the future, we are working to leverage our unique
technical and advanced manufacturing capabilities to diversify our
business through new services and partners, such as our recent
agreement with X-energy to develop next-generation reactor
fuel.”
Financial Results
Centrus reported a net income of $35.5 million, or $3.69 per
common share (basic and diluted), in the fourth quarter of 2017,
compared to a net loss of $8.2 million, or $0.90 per share (basic
and diluted), in the fourth quarter of 2016. For the full year, the
Company reported net income of $12.2 million, or $0.58 per share
(basic and diluted), compared to net loss of $67.0 million, or
$7.36 per share (basic and diluted), in 2016.
Favorable factors in 2017 include an $11.7 million increase in
gross profit, including an increase in gains on the remeasurements
of retirement plan obligations of $24.9 million, a $32.2 million
decline in advanced technology license and decommissioning costs, a
$14.4 million decline in interest expense, and a $33.6 million gain
on the early extinguishment of debt. The Company also recorded $9.5
million in special charges in 2017.
Revenue and Cost of Sales
Revenue for the fourth quarter of 2017 was $116.9 million, a
decrease of 14 percent compared to $136.5 million in the fourth
quarter of 2016. Revenue for 2017 was $218.4 million, a decrease of
30 percent compared to $311.3 million in the prior year. Total
revenue for 2017 was within guidance previously provided for
2017.
For the full year, revenue for the LEU segment totaled $195.4
million, a decline of $77.4 million, or 28 percent, in 2017
compared to 2016. The volume of SWU sales decreased 21 percent. The
average price billed to customers for sales of SWU declined 4
percent, 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 LEU segment for 2017 was within
guidance provided throughout 2017 and reflects expected declines in
SWU and uranium volumes delivered compared to 2016.
Revenue from the contract services segment was $23.0 million in
2017, a decline of $15.5 million, or 40 percent, compared to 2016
due to the reduced scope of contract work for American Centrifuge
technology services in the current year and the timing of revenue
recognition in the prior year. As a result of the contract signed
with UT-Battelle in March 2016, revenue in 2016 included $30.4
million for work in 2016 as well as $8.1 million for March 2016
reports on work performed in the fourth quarter of 2015.
Cost of sales for the LEU segment declined $98.2 million, or 42
percent, in 2017 compared to 2016 primarily due to the changes in
SWU sales volumes noted above and 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 including
legacy costs related to former Gaseous Diffusion Plant (GDP)
employees.
Retiree benefit costs for former GDP employees resulted in a
reduction of cost of sales of $23.1 million in 2017 compared to an
increase in cost of sales of $4.2 million in 2016. These results
included the impacts of periodic remeasurements of pension and
postretirement benefit obligations. In 2017, the net gain
recognized for retiree benefit costs reflects favorable investment
returns relative to the expected return assumption, changes in
mortality and healthcare claim assumptions, and favorable claims
experience, partially offset by declines in market interest rates
and changes in retiree benefits. Excluding direct charges for the
retiree benefit costs, the average cost of sales per SWU declined 5
percent, reflecting declines in the Company’s purchase costs per
SWU in recent periods.
Cost of sales for the contract services segment declined $6.4
million, or 20 percent, in 2017 compared to 2016 due to the reduced
scope of contract work.
Gross Profit
Centrus realized a gross profit of $56.8 million in 2017, an
increase of $11.7 million compared to $45.1 million in 2016. The
Company realized an increase in gross profit of $20.8 million for
the LEU segment primarily due the net gain in 2017 related to
retiree benefit costs and the decline in the average cost of sales
per SWU, partially offset by the decline in sales volumes and the
decline in the average SWU price billed to customers. Centrus
realized a gross loss of $2.5 million for the contract services
segment in 2017 compared to a gross profit of $6.6 million in 2016.
Revenue for the contract services segment in 2016 included a
billing for March 2016 reports on work performed in the fourth
quarter of 2015.
Advanced Technology License and Decommissioning Costs
Advanced technology license and decommissioning costs consist of
American Centrifuge expenses that are outside of our contracts with
UT-Battelle, including ongoing costs to maintain the demobilized
Piketon facility and the Company’s U.S. Nuclear Regulatory
Commission licenses at that location. For 2017, costs declined
$32.2 million, or 67 percent, compared to 2016. Costs in the prior
year included demobilization costs of approximately $7.0 million
incurred in early 2016 in preparation for the decontamination and
decommissioning (D&D) of the Piketon facility. Charges in 2016
also included $19.0 million to increase the accrued D&D
liability based on updated cost estimates that reflected changes in
the approach and schedule. D&D costs commenced in the second
quarter of 2016 and are charged against the D&D liability. Most
of the D&D work was completed by December 31, 2017, and a
credit of $5.9 million to advanced technology license and
decommissioning costs was recognized in the fourth quarter of 2017
as a result of using primarily internal resources and less
contractor support as well as efficiencies achieved. Centrus will
continue to incur costs of approximately $20 million to maintain
the demobilized Piketon facility until the facility is returned to
the U.S. Department of Energy when the lease expires in June
2019.
SG&A and Special Charges
Selling, general and administrative (SG&A) expenses declined
$3.1 million, or 7 percent, in 2017 compared to 2016, of which $2.3
million relates to the periodic remeasurements of pension benefit
obligations. Remeasurements in 2017 resulted in a net gain of $0.7
million and remeasurements in 2016 resulted in a net loss of $1.6
million. The gain and loss are mainly attributable to (a) changes
in market interest rates used to measure long-term pension
obligations and (b) investment returns relative to expected return
assumptions. In 2017, consulting costs declined $1.4 million
compared to 2016 and compensation and benefit costs increased $0.7
million compared to 2016.
Special charges were $9.5 million for 2017 and included
estimated employee termination benefits of $3.5 million, less $0.3
million for unvested employee departures. Special charges for
estimated employee termination benefits were $0.4 million in 2016.
Advisory costs related to the Company’s project to align its
corporate structure to the scale of its ongoing business operations
and to update related information technology were $6.3 million in
2017 and $1.0 million in 2016.
Cash Flow
Centrus ended 2017 with a consolidated cash balance of $208.8
million. During 2017, net cash used in operating activities was
$25.1 million. American Centrifuge expenditures have been a use of
cash, including the $37.6 million reduction in the D&D
obligation. Sources of cash included $17.7 million resulting from
the monetization of inventory offset by an increase in customer
receivables.
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. Revenue continues to be most heavily weighted to the
fourth quarter, and Centrus expects more than one-half of its
annual revenue to be generated in the fourth quarter of 2018. 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 the Company’s
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 these expectations could
cause differences between the Company’s guidance and its ultimate
results. Among the factors that could affect its results are:
- Additional short-term purchases or
sales of SWU and uranium;
- Timing of customer payments, 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 our customers,
including actions that might affect our existing contracts, as a
result of market, financial and other conditions impacting our
customers and the industry; and
- Additional costs for decontamination
and decommissioning of the Company’s facility in Ohio.
Conference Call
Centrus Energy’s investor conference call to discuss the fourth
quarter and full year 2017 results is scheduled for March 15, 2018,
at 8:30 a.m. EDT. A live webcast of the conference call can be
accessed through the Investor Relations section of the Company’s
website at www.centrusenergy.com, and a recording of the call will
be available on the site through March 29, 2018.
About Centrus Energy Corp.
Centrus Energy 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 and engineering capabilities, Centrus 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 -
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 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 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; 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 (the
“Russian Supply Agreement”); risks related to our ability to sell
the LEU we procure pursuant to our purchase obligations under our
supply agreements, including the Russian Supply Agreement; 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 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 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 U.S. 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, the
management and operating contractor for Oak Ridge National
Laboratory, 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. We do not
undertake to update our forward-looking statements except as
required by law.
CENTRUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited; in millions, except per
share data)
Three Months EndedDecember
31,
Year Ended
December 31,
2017 2016 2017 2016
Revenue: Separative work units $ 113.2 $ 130.2 $ 195.4 $
258.5 Uranium — — — 14.3 Contract services 3.7
6.3 23.0 38.5 Total revenue
116.9 136.5 218.4 311.3
Cost of Sales: Separative work units
and uranium 59.3 103.6 136.1 234.3 Contract services 5.6
7.0 25.5 31.9
Total cost of sales 64.9 110.6
161.6 266.2
Gross profit 52.0 25.9 56.8
45.1 Advanced technology license and decommissioning costs 0.7 9.3
15.7 47.9 Selling, general and administrative 10.0 11.6 43.1 46.2
Amortization of intangible assets 4.9 4.9 10.6 12.5 Special charges
for workforce reductions and advisory costs 2.4 0.2 9.5 1.4 Gains
on sales of assets (2.3 ) (0.2 ) (4.6 )
(1.2 ) Operating income (loss) 36.3 0.1 (17.5 ) (61.7 ) (Gain) on
early extinguishment of debt and debt restructuring costs — 3.7
(33.6 ) (13.0 ) Interest expense 1.0 4.9 5.3 19.7 Investment income
(0.3 ) (0.3 ) (1.3 ) (0.8 ) Income
(loss) before income taxes 35.6 (8.2 ) 12.1 (67.6 ) Income tax
provision (benefit) 0.1 — (0.1 )
(0.6 )
Net income (loss) $ 35.5
$ (8.2 ) $ 12.2 $
(67.0 ) Preferred stock dividends - undeclared and
cumulative 1.9 — 6.9
—
Net income (loss) allocable to common
stockholders $ 33.6 $ (8.2
) $ 5.3 $ (67.0 )
Net income (loss) per common share - basic and diluted $
3.69 $ (0.90 ) $ 0.58 $ (7.36 ) Average number of common shares
outstanding - basic and diluted 9.1 9.1 9.1 9.1
CENTRUS ENERGY CORP.
CONSOLIDATED BALANCE SHEETS
(Unaudited; in millions, except share
and per share data)
December 31, 2017 2016
ASSETS Current assets Cash and cash equivalents $
208.8 $ 260.7 Accounts receivable, net 60.2 19.9 Inventories 153.1
177.4 Deferred costs associated with deferred revenue 122.3 89.3
Other current assets 22.5 13.3
Total
current assets 566.9 560.6 Property, plant and equipment, net
4.9 6.0 Deposits for surety bonds 19.7 29.5 Intangible assets, net
82.7 93.3 Other long-term assets 1.1 24.1
Total assets $ 675.3 $
713.5 LIABILITIES AND STOCKHOLDERS’
DEFICIT Current liabilities Accounts payable and accrued
liabilities $ 53.3 $ 46.4 Payables under SWU purchase agreements
79.4 59.6 Inventories owed to customers and suppliers 77.9 57.5
Deferred revenue and advances from customers 191.8 123.6
Decontamination and decommissioning obligations 1.0
38.6
Total current liabilities 403.4 325.7
Long-term debt 157.5 234.1 Postretirement health and life benefit
obligations 154.2 171.3 Pension benefit liabilities 161.6 179.9
Other long-term liabilities 17.5 38.6
Total liabilities 894.2 949.6 Commitments and contingencies
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 $111.5
million as of December 31, 2017 4.6 — Class A Common Stock, par
value $0.10 per share, 70,000,000 shares authorized, 7,632,669 and
7,563,600 shares issued and outstanding as of December 31, 2017 and
December 31, 2016 0.8 0.8 Class B Common Stock, par value $0.10 per
share, 30,000,000 shares authorized, 1,406,082 and 1,436,400 shares
issued and outstanding as of December 31, 2017 and December 31,
2016 0.1 0.1 Excess of capital over par value 60.0 59.5 Accumulated
deficit (284.5 ) (296.7 ) Accumulated other comprehensive income,
net of tax 0.1 0.2
Total
stockholders’ deficit (218.9 ) (236.1 )
Total
liabilities and stockholders’ deficit $ 675.3
$ 713.5
CENTRUS ENERGY CORP.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Unaudited; in millions)
Year Ended December 31, 2017
2016 Operating Activities Net income (loss) $ 12.2 $
(67.0 ) Adjustments to reconcile net income (loss) to cash (used
in) provided by operating activities: Depreciation and amortization
12.0 13.1 Immediate recognition of retirement benefit plans (gains)
losses, net (25.8 ) 1.4 PIK interest on paid-in-kind toggle notes
2.9 9.7 Gain on early extinguishment of debt (33.6 ) (16.7 ) Gain
on sales of assets (4.6 ) (1.2 ) Inventory valuation adjustments —
3.0 Changes in operating assets and liabilities: Accounts
receivable (17.6 ) 6.5 Inventories, net 44.7 89.5 Payables under
SWU purchase agreements 19.8 (25.8 ) Deferred revenue, net of
deferred costs 15.9 13.4 Accounts payable and other liabilities
(43.8 ) 10.4 Other, net (7.2 ) 1.4 Cash (used
in) provided by operating activities (25.1 ) 37.7
Investing Activities Capital expenditures (0.5
) (3.0 ) Proceeds from sales of assets 4.7 1.5 Deposits for surety
bonds - net decrease — 0.3 Cash
provided by (used in) investing activities 4.2
(1.2 )
Financing Activities Payment of interest
classified as debt (3.4 ) — Repurchase of debt (27.6 )
(9.8 ) Cash used in financing activities (31.0 )
(9.8 ) (Decrease) increase in cash and cash
equivalents (51.9 ) 26.7 Cash and cash equivalents at beginning of
period 260.7 234.0 Cash and cash
equivalents at end of period
$ 208.8 $
260.7 Supplemental cash flow information:
Interest paid in cash $ 4.2 $ 6.5 Non-cash activities:
Exchange of debt for Series B preferred stock $ 4.6 $ — Conversion
of interest payable-in-kind to long-term debt $ 0.4 $ 3.4
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Centrus Energy Corp.Investors:Don Hatcher,
301-564-3460orMedia:Jeremy Derryberry, 301-564-3392
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