In-Depth Company History and Overview

Centrus Energy Corp. (LEU) is a trusted American supplier of nuclear fuel and services for the nuclear power industry, helping to meet the growing global demand for carbon-free electricity. The company operates two business segments: Low-Enriched Uranium (LEU), which supplies various components of nuclear fuel to commercial customers, and Technical Solutions, which provides advanced uranium enrichment for the nuclear industry and the U.S. government, as well as other technical services.

Centrus Energy Corp. was incorporated in 1998 as part of the privatization of the U.S. government's uranium enrichment enterprise. The company's LEU segment provides most of Centrus' revenue and involves the sale of LEU, the fissile component of nuclear fuel, primarily to utilities that operate commercial nuclear power plants. Centrus supplies LEU from multiple sources, including medium- and long-term supply contracts, spot purchases and its own inventory.

In 2001, Centrus produced LEU through 2001 at the former Portsmouth Gaseous Diffusion Plant (GDP) in Piketon, Ohio and through 2013 at the former Paducah GDP in Paducah, Kentucky, both of which facilities Centrus had leased from the U.S. Department of Energy (DOE). As a result of the U.S. government's prior operation of the plants, there are contamination and other potential environmental liabilities associated with the facilities.

In 2002, Centrus' predecessor, USEC Inc., and the DOE signed the 2002 DOE-USEC Agreement, pursuant to which the parties made long-term commitments directed at resolving issues related to the stability and security of the domestic uranium enrichment industry. This agreement required Centrus to develop, demonstrate and deploy advanced enrichment technology in accordance with milestones, and provided for remedies in the event of a failure to meet a milestone under certain circumstances. The company and the DOE have agreed that all rights, remedies and defenses of the parties with respect to any missed milestones and all other matters under the 2002 DOE-USEC Agreement continue to be preserved.

Over the years, Centrus has navigated significant challenges in the nuclear fuel industry, including the shutdown of the Paducah facility in 2013 and the closure of the Portsmouth Gaseous Diffusion Plant in Piketon. Despite these setbacks, the company has remained a key player in the nuclear fuel supply chain, focusing on its core LEU business and investing in advanced enrichment technologies.

In 2014, Centrus emerged from Chapter 11 bankruptcy and implemented a fresh start accounting, which resulted in the recognition of intangible assets related to the company's sales backlog and customer relationships. This provided Centrus with a stronger financial footing to weather the industry's challenges.

Recent Developments and Performance

Centrus has continued to make significant progress in recent years, particularly in its Technical Solutions segment. In 2019, the company signed a cost-share contract with the U.S. Department of Energy (DOE) to deploy a cascade of centrifuges and demonstrate the production of High-Assay Low-Enriched Uranium (HALEU) for advanced reactors. This contract, known as the HALEU Demonstration Contract, was later modified to increase the total funding to $173 million and extend the performance period.

Building on the success of the HALEU Demonstration Contract, in 2022, Centrus was awarded the HALEU Operation Contract by the DOE. This contract, with a base value of approximately $150 million, tasks the company with continuing the operation and maintenance of the HALEU production cascade, as well as producing 900 kilograms of HALEU per year. The company has since made significant progress under this contract, announcing in October 2023 that it had begun enrichment operations in Piketon, Ohio, and in November 2023, that it had made its first delivery of HALEU to the DOE.

In addition to its HALEU-related achievements, Centrus has also been successful in securing long-term LEU supply contracts with major utility customers. As of December 31, 2024, the company's LEU segment backlog stood at approximately $2.8 billion, extending through 2040. This backlog includes $2 billion in contingent LEU sales commitments, which are subject to the company's ability to secure the necessary public and private investment to build new enrichment capacity.

Financials

Centrus' financial performance in recent years has been solid, with the company reporting strong revenue growth and profitability. In 2024, the company generated $442 million in revenue, a 38% increase from the prior year, and net income of $73.2 million. The company's gross profit margin in 2024 was 25.2%, reflecting the favorable pricing dynamics in the LEU market.

The LEU segment, which is the primary driver of Centrus' revenue, accounted for approximately 79% of total revenue in 2024. This segment generated $349.9 million in revenue, an increase of $80.9 million compared to 2023, driven by growth in both uranium and SWU revenue. The LEU segment gross profit was $93.9 million, compared to $105.1 million in 2023.

The Technical Solutions segment also showed strong performance, generating $92.1 million in revenue in 2024, an 80% increase from 2023. This growth was driven by the transition of the HALEU program from a cost-share to a cost-plus-incentive-fee arrangement. The segment's gross profit was $17.6 million, an improvement of $10.6 million over the prior year.

For the fourth quarter of 2024, Centrus reported revenue of $151.6 million and net income of $53.7 million. Revenue increased 46.3% year-over-year, driven by higher SWU and uranium prices and volumes.

In terms of geographic markets, the majority of Centrus' revenue comes from the United States, which accounted for approximately 57% of total revenue in 2024. International sales, primarily to customers in Japan, Belgium, and the Netherlands, accounted for the remaining 43% of revenue.

Liquidity

To further strengthen its financial position and support its growth initiatives, Centrus took several strategic actions in 2024. In the fourth quarter, the company issued $402.5 million in convertible senior notes, resulting in net proceeds of $388.7 million. These funds will be used for general corporate purposes, including investment in technology development and deployment, as well as potential acquisitions and other business opportunities.

Additionally, Centrus has made significant progress in reducing its pension plan obligations. In 2024, the company entered into agreements to purchase group annuity contracts, transferring approximately $420 million in pension plan obligations and reducing its net pension liability by over $280 million. As of the end of 2024, Centrus had just $26 million in remaining pension plan obligations, with a funding level in excess of 118%.

The company's strong cash position, with an unrestricted cash balance of $671.4 million as of December 31, 2024, provides Centrus with the financial flexibility to execute its strategic initiatives and weather any potential industry challenges. Other key financial metrics include:

• Debt/Equity ratio: 3.37

• Current ratio: 2.93
• Quick ratio: 2.46
• Annual operating cash flow: $37.0 million
• Annual free cash flow: $32.9 million

Securing Domestic Enrichment Contracts with the U.S. Government

One of Centrus' key achievements in 2024 was being selected as a contract awardee by the DOE for multiple solicitations aimed at expanding domestic production of both LEU and HALEU. In October 2024, the company was awarded the HALEU Deconversion Contract and the HALEU Production Contract, which have a combined maximum value of $3.4 billion. Then, in December 2024, Centrus was awarded the LEU Production Contract, which has a maximum value of $3.4 billion over a ten-year period.

These contract awards represent a significant opportunity for Centrus to play a pivotal role in restoring America's domestic uranium enrichment capabilities. The company is uniquely positioned to deliver a made-in-America solution, as it is the only American company with a proven enrichment technology and an NRC license to enrich uranium up to 20% for HALEU production. Additionally, Centrus' American-only supply chain and manufacturing capabilities align with the U.S. government's objectives of reducing reliance on foreign, state-owned sources of enriched uranium.

The DOE's investment of over $3.4 billion in these solicitations, funded in part by the Inflation Reduction Act of 2022 and the bipartisan government funding bill in March 2024, underscores the critical importance of domestic uranium enrichment for both commercial and national security purposes. Centrus is well-positioned to compete for task orders under these contracts, which will determine the ultimate dollar value and scale of the expansion supported.

Geopolitical Tensions and Supply Chain Challenges

The ongoing war in Ukraine and the resulting sanctions and trade restrictions have significantly impacted the global nuclear fuel market. In May 2024, the U.S. passed the Import Ban Act, which prohibits the importation of Low-Enriched Uranium (LEU) from Russia into the United States, effective August 11, 2024. This ban, subject to the issuance of waivers by the DOE, poses a significant challenge for Centrus, as the company's largest supplier of SWU is the Russian state-owned entity TENEX.

To mitigate the impact of the Import Ban Act, Centrus has been actively pursuing waivers from the DOE. The company has secured waivers for deliveries to its U.S. customers in 2024 and 2025, but the outlook for 2026 and 2027 remains uncertain. Additionally, in November 2024, the Russian government issued a decree that rescinded TENEX's general license to export LEU to the United States, requiring the company to obtain specific export licenses for each shipment.

Centrus has been informed that TENEX has received three specific licenses to date, allowing it to export LEU to the U.S. for the company's pending orders. However, there is no certainty that TENEX will be able to obtain additional licenses in a timely manner, or that previously granted licenses will not be rescinded. This uncertainty has the potential to disrupt Centrus' ability to meet its delivery obligations to customers.

To further strengthen its supply chain and mitigate these geopolitical risks, Centrus announced in November 2024 a $60 million investment to resume centrifuge manufacturing activities and expand its manufacturing capacity at the company's facility in Oak Ridge, Tennessee. This investment will help the company de-risk its supply chain and accelerate the deployment of its American-made enrichment technology.

Industry Trends and Outlook

The global nuclear industry outlook has begun to improve, with the development of advanced small and large-scale reactors, innovation in advanced fuel types, and growing commitment from nations to deploy nuclear power. The International Energy Agency (IEA) projects global nuclear energy generation to grow substantially in the next three decades, by 18% by 2030 and 47% by 2040 under the Stated Policies scenario.

This positive industry outlook bodes well for Centrus, as the company is well-positioned to capitalize on the growing global demand for nuclear power and the increasing need for domestic uranium enrichment capabilities in the United States. The company's strong backlog, successful execution of the HALEU Operation Contract, and recent contract awards from the DOE provide a solid foundation for future growth.

As of year-end 2024, Centrus reported a total company backlog of $3.7 billion, extending to 2040. This includes $2.8 billion in the LEU segment and $0.9 billion in the Technical Solutions segment. Additionally, the company has secured $2 billion in contingent LEU sales commitments to support potential construction of LEU production capacity at the Piketon, Ohio facility.

While Centrus has not provided specific financial guidance for 2025, the company has begun laying the groundwork ahead of anticipated government task orders, for which they plan to compete. This strategic positioning, combined with the company's strong financial performance in 2024, suggests a positive outlook for Centrus in the coming years.

Concluding Remarks

Centrus Energy Corp. has demonstrated its ability to navigate industry headwinds and adapt to changing market conditions. The company's strategic investments in strengthening its balance sheet, reducing pension liabilities, and bolstering its domestic manufacturing capabilities position it well to weather any future storms and continue delivering value to its shareholders.

As the world increasingly turns to nuclear power as a reliable and carbon-free source of electricity, Centrus Energy Corp. stands at the forefront of the industry, poised to play a pivotal role in restoring America's uranium enrichment capability and supporting the country's energy and national security objectives. With its diverse customer base, strong backlog, and focus on advanced technologies like HALEU production, Centrus is well-positioned to capitalize on the growing opportunities in the global nuclear fuel market.