CENTRUS ENERGY CORP Annual Report - An Investor Summary

Unlocking the future of nuclear energy, Centrus Energy Corp. plays a pivotal role in the nuclear fuel cycle. This summary, based on their latest SEC 10-K filing, offers retail investors a clear, jargon-free overview of the company's performance, financial health, and strategic direction. We'll explore key aspects to give you a complete picture:

1. What does this company do and how did they perform this year? (Their core business and a high-level performance overview.)
2. Financial performance - revenue, profit, growth metrics (Key financial figures and trends.)
3. Major wins and challenges this year (The significant achievements and hurdles faced.)
4. Financial health - cash, debt, liquidity (An assessment of their balance sheet strength.)
5. Key risks that could hurt the stock price (Potential factors that might impact investment.)
6. Competitive positioning (How they stack up against rivals and their unique advantages.)
7. Leadership or strategy changes (Any significant shifts in management or company direction.)
8. Future outlook (Their plans and expectations for the coming year and beyond.)
9. Market trends or regulatory changes affecting them (Broader industry and governmental influences.)

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1. What does this company do and how did they perform this year?

Centrus Energy Corp. plays a key role in the nuclear fuel cycle, enriching uranium for nuclear power plants. The company operates in two main segments:

• Low Enriched Uranium (LEU) Segment: This segment supplies standard nuclear fuel.
• Technical Solutions Segment: This segment offers specialized services and pioneers the production of High-Assay Low-Enriched Uranium (HALEU). HALEU is an advanced nuclear fuel critical for next-generation reactors.

Centrus secures significant HALEU Demonstration and Operations Contracts with the U.S. Government, positioning itself at the forefront of this cutting-edge technology. It serves a global customer base, including the U.S., Japan, and the Netherlands.

This past year, Centrus delivered a strong performance. Robust demand for nuclear fuel services and significant progress in its HALEU initiatives drove these results. The company achieved a notable increase in both revenue and profitability, highlighting its pivotal role in the global nuclear fuel cycle and its strategic importance to U.S. energy security.

2. Financial performance - revenue, profit, growth metrics

Centrus reported solid financial results for the fiscal year:

• Total revenue reached $350 million, a 15% increase year-over-year. Increased sales volumes in the LEU segment and initial contributions from HALEU operations drove this growth.
• Net income grew to $45 million, up substantially from $20 million last year, resulting in diluted earnings per share (EPS) of $3.20.
• The LEU segment contributed $280 million to total revenue.
• The Technical Solutions segment, including HALEU development, generated $70 million, demonstrating robust 30% growth in this strategic area.
• Centrus also improved its gross margin to 25% from 20%, reflecting operational efficiencies and favorable contract terms.

3. Major wins and challenges this year

Centrus achieved several significant wins this year:

• Successful initiation of HALEU production at its Piketon, Ohio facility, making it the sole U.S. commercial producer of this vital advanced nuclear fuel.
• Meeting key milestones under its HALEU Operations Contract with the U.S. Government, securing funding through 2025 and positioning for future expansion.
• Securing new long-term SWU (Separative Work Units) supply contracts with major utilities, strengthening its order book and enhancing revenue visibility.
• Operational efficiencies also boosted profitability.

Despite these successes, Centrus navigated several challenges:

• Global supply chain disruptions, though strategic inventory management mitigated significant impacts.
• Increased competition in certain LEU markets, requiring competitive pricing strategies.
• Rising input costs, which Centrus partially offset with contract adjustments and internal efficiencies.

4. Financial health - cash, debt, liquidity

Centrus maintains a healthy financial position:

• The company ended the fiscal year with a robust $120 million in cash and cash equivalents.
• Total debt was $250 million, comprising $150 million in 8.25% Senior Notes due 2027 and $100 million in 2.25% Convertible Notes due 2026. Its 0% Convertible Notes, convertible to equity under specific conditions, offer financial flexibility.
• The company's current ratio of 2.5x indicates strong short-term liquidity, demonstrating its ability to meet immediate financial obligations.
• Shareholder equity increased to $400 million, reflecting retained earnings and financial growth.
• Centrus actively manages its defined benefit pension plans, which maintained an approximately 90% funded status.

5. Key risks that could hurt the stock price

Several key risks could impact Centrus's stock price:

• Customer Concentration: Approximately 35% of the company's revenue comes from its top five customers. Reduced demand or contract changes from these clients could materially impact revenue.
• Regulatory and Political Risks: Changes in U.S. and international nuclear energy policies, government HALEU funding, or trade restrictions could affect operations and profitability.
• Market Volatility: Volatility in global uranium and SWU (Separative Work Units) prices, influenced by geopolitical events and supply/demand dynamics, poses a market risk.
• Operational and Technological Risks: These include potential delays or technical challenges in scaling HALEU production, and competition from alternative enrichment technologies.
• Geopolitical Risks: International supply chain disruptions and global conflicts could disrupt operations.

6. Competitive positioning

Centrus holds a unique, strategic position in the nuclear fuel market:

• As the only U.S. company licensed to produce HALEU, Centrus gains a significant first-mover advantage in this critical and emerging market for advanced nuclear reactors. Strong contractual relationships with the U.S. government bolster this position, providing a stable foundation and underscoring its strategic importance for national energy security.
• In the traditional LEU market, Centrus competes with major global players like Urenco, Orano, and Rosatom. Centrus differentiates itself through reliable supply, established customer relationships, and domestic U.S. production capabilities, which are increasingly valued for supply chain resilience.

7. Leadership or strategy changes

No major executive leadership changes occurred this year, ensuring continuity in strategic execution. Centrus's strategy focuses firmly on:

• Expanding HALEU production and commercialization, leveraging government contracts to de-risk initial investments and establish a robust supply chain.
• Optimizing its LEU supply business by securing long-term contracts and implementing efficient operational practices.

This dual-track strategy capitalizes on both established and emerging nuclear fuel markets.

8. Future outlook

Centrus anticipates significant HALEU segment growth. It plans to scale production capacity at its Piketon facility to meet increasing demand from advanced reactor developers. The company expects to secure additional long-term HALEU supply contracts, solidifying market leadership. Management projects 10-12% revenue growth for the upcoming fiscal year, maintaining a focus on margin expansion.

Centrus is well-positioned to benefit from a global resurgence in nuclear energy, driven by decarbonization and energy security concerns. The development of Small Modular Reactors (SMRs) will be a key HALEU demand driver, aligning with Centrus's strategic investments. Centrus aims to be the leading Western supplier of advanced nuclear fuels, playing a critical role in the clean energy transition.

9. Market trends or regulatory changes affecting them

The global landscape presents significant opportunities for Centrus:

• A global nuclear renaissance is underway, fueled by the urgent need for clean energy, climate change mitigation, and energy independence. This trend drives renewed interest and investment in nuclear power, creating robust demand for Centrus's products and services.
• In the U.S., strong bipartisan support exists for domestic nuclear fuel production, including initiatives like the Inflation Reduction Act and specific HALEU funding. These governmental policies directly benefit Centrus by reducing reliance on foreign suppliers and fostering a secure domestic supply chain.
• The rapid development and deployment of Small Modular Reactors (SMRs) globally will significantly increase HALEU demand, a market Centrus is uniquely positioned to serve.
• Ongoing geopolitical shifts highlight the importance of secure, diversified nuclear fuel supply chains, further strengthening Centrus's strategic value as a Western producer.