CENTRUS ENERGY CORP

Previous wording

Published spot price indicators for SWU reached historic highs in April 2009 at $163 per SWU. In the years following the 2011 Fukushima accident in Japan, spot prices declined more than 75%, bottoming out in August 2018 at $34 per SWU. This was followed by a period of price increases which reached $155 per SWU by December 31, 2023. As of March 31, 2024, spot prices are $166 per SWU. This represents an increase of 7% since the beginning of the year and 388% over the 2018 historic low. This surge in the SWU spot price beginning in 2022 has been driven by uncertainty created as a result of the war in Ukraine, coupled with growing interest in nuclear power as a source of reliable carbon-free energy.

Current wording

Published spot price indicators for SWU reached historic highs in April 2009 at $163 per SWU. In the years following the 2011 Fukushima accident in Japan, spot prices declined more than 75%, bottoming out in August 2018 at $34 per SWU. This was followed by a period of price increases, which reached $155 per SWU by December 31, 2023. As of June 30, 2024, spot prices were $176 per SWU. This represents an increase of 14% since the beginning of the year and 418% over the 2018 historic low. This surge in the SWU spot price beginning in 2022 has been driven primarily by uncertainty created as a result of the war in Ukraine, coupled with growing interest in nuclear power as a source of reliable carbon-free energy.

Previous wording

Changes in the supply-demand balance and in the competitive landscape arising from the war in Ukraine may affect pricing trends, change customer spending patterns, and create uncertainty in the uranium market. At the same time, there remains uncertainty about future demand for nuclear power generation. To address these changes, we will continue to evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions.

Current wording

Changes in the supply-demand balance and in the competitive landscape arising from the war in Ukraine may affect pricing trends, change customer spending patterns, and create additional uncertainty in the uranium market. At the same time, uncertainty remains about future demand for nuclear power generation. To address such changes and uncertainty, we continue to evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions.

Previous wording

Our Technical Solutions segment is committed to the restoration of America’s domestic uranium enrichment capability to play a critical role in meeting U.S. national security and energy security requirements and advancing America’s nonproliferation, energy, and climate objectives. Our Technical Solutions segment is also focused on repairing broken and vulnerable supply chains, providing clean energy jobs, and supporting the communities in which we operate. Our goal is to deliver major components of the next-generation nuclear fuels that will power the future of nuclear energy as it provides reliable carbon-free power around the world.

Current wording

Our Technical Solutions segment is committed to the restoration of America’s domestic uranium enrichment production capability in order to play a critical role in meeting U.S. national security and energy security requirements and advancing America’s nonproliferation, energy, and climate objectives. Our Technical Solutions segment is also focused on repairing broken and vulnerable supply chains, providing clean energy jobs, and supporting the communities in which we operate. Our goal is to deliver major components of the next-generation nuclear fuels that will provide reliable carbon-free power around the world.

Previous wording

Under the 2019 HALEU Demonstration Contract, Centrus was engaged by the DOE to construct a cascade of 16 AC100M centrifuges in Piketon, Ohio to demonstrate HALEU production. The DOE has funded the contract up to $173.0 million with a period of performance that ended November 30, 2022. The Company is currently performing closeout activities on the HALEU Demonstration Contract. The DOE elected to change the scope of the HALEU Demonstration Contract and moved the operational portion of the contract to a new, competitively-awarded contract that would provide for operations beyond the term of the existing HALEU Demonstration Contract.

Current wording

Under the 2019 HALEU Demonstration Contract, Centrus was engaged by the DOE to construct a cascade of 16 AC100M centrifuges in Piketon, Ohio to demonstrate HALEU production. The DOE has funded the contract up to $173.0 million with a period of performance that ended November 30, 2022. Closeout activities on the HALEU Demonstration Contract are ongoing. The DOE elected to change the scope of the HALEU Demonstration Contract and moved the operational portion of the contract to a new, competitively-awarded contract that would provide for operations beyond the term of the existing HALEU Demonstration Contract.

Previous wording

On November 10, 2022, after a competitive solicitation, the DOE notified Centrus that the Company had won the HALEU Operation Contract and work began on December 1, 2022. The base contract value is approximately $150 million with two phases through 2024. Phase 1 included an approximately $30 million cost-share contribution from Centrus matched by approximately $30 million from the DOE to complete construction of the cascade, begin operations and produce the initial 20 kilograms of HALEU UF 6 by no later than December 31, 2023. On October 11, 2023, the Company announced that it began enrichment operations in Piketon, Ohio. On November 7, 2023, the Company announced that it made its first delivery of HALEU to the DOE, completing Phase 1 by successfully demonstrating its HALEU production process. During November 2023, the Company transitioned to Phase 2 of the HALEU Operation Contract.

Current wording

On November 10, 2022, the DOE notified Centrus that the Company had been awarded the HALEU Operation Contract and work began on December 1, 2022. The base contract value is approximately $150 million with two phases through 2024. Phase 1 included an approximately $30 million cost-share contribution from Centrus matched by approximately $30 million from the DOE to complete construction of the cascade, begin operations and produce the initial 20 kilograms of HALEU UF 6 by no later than December 31, 2023. On October 11, 2023, the Company announced that it began enrichment operations in Piketon, Ohio. On November 7, 2023, the Company announced that it made its first delivery of HALEU to the DOE, completing Phase 1 by successfully demonstrating its HALEU production process. During November 2023, the Company transitioned to Phase 2 of the HALEU Operation Contract.

Previous wording

Phase 2 of the HALEU Operation Contract includes production of 900 kilograms per year of HALEU UF 6, as well as continued operations and maintenance. The DOE owns the HALEU produced from the demonstration cascade, and Centrus is being compensated on a cost-plus-incentive-fee basis, with an expected Phase 2 contract value of approximately $90 million, subject to Congressional appropriations. The HALEU Operation Contract also gives DOE options to pay for up to nine additional years of production from the cascade beyond the base contract; those options are at the DOE’s sole discretion and subject to the availability of Congressional appropriations. Concurrently, pursuant to an amendment to our lease for the Piketon facility, the DOE assumed all D&D liabilities arising out of the HALEU Operation Contract.

Current wording

Phase 2 of the HALEU Operation Contract includes production of 900 kilograms of HALEU UF 6 per year as well as continued operations and maintenance. The DOE owns the HALEU produced from the demonstration cascade, and Centrus is being compensated on a cost-plus-incentive-fee basis, with an expected Phase 2 contract value of approximately $90 million, subject to Congressional appropriations. The HALEU Operation Contract also gives DOE options to pay for up to nine additional years of production from the cascade beyond the base contract; those options are at the DOE’s sole discretion and subject to the availability of Congressional appropriations. Concurrently, pursuant to an amendment to our lease for the Piketon facility, the DOE assumed all D&D liabilities arising out of the HALEU Operation Contract.

Previous wording

Under the HALEU Operation Contract, DOE is contractually obligated to provide the 5B Cylinders necessary to collect the output of the cascade, but supply chain challenges have created difficulties for DOE in timely securing enough 5B Cylinders for the entire production year. To support the DOE in mitigating the risk of further delays in delivery of 5B Cylinders, the Company received technical direction and a contract modification from the DOE to procure compliant 5B Cylinders and components. The contractual obligation to furnish compliant 5B Cylinders under the HALEU Operation Contract continues to rest with the DOE. During periods where quantities of 5B Cylinders are insufficient, the Company will not be able to produce HALEU, but will be able to continue operations of the cascade and perform preventive maintenance and regulatory compliance type activities. Centrus anticipates that the delays in obtaining sufficient 5B Cylinders will be temporary, but no longer expects to achieve delivery of the 900 kilograms of HALEU UF 6 anticipated for Phase 2 of the contract which extends to November 2024. Although inadequate for meeting the full delivery quantity target, the DOE has been successful in locating a small number of 5B Cylinders. Using the 5B Cylinders currently made available by the DOE, Centrus has now achieved cumulative deliveries to the DOE of approximately 135 kilograms of HALEU UF 6. We anticipate additional 5B Cylinders will be available during the second quarter, which will allow the Company to continue producing HALEU. The target fee for Phase 2 of the contract was estimated to be $7.5 million based on the estimated costs for the contract and is subject to a contract minimum fee of $6.9 million. The Company is also performing additional work on infrastructure and facility repairs under DOE’s technical direction and subsequent contract modification.

Current wording

Under the HALEU Operation Contract, DOE is contractually obligated to provide the 5B Cylinders necessary to collect the output of the cascade, but ongoing supply chain challenges have created difficulties for the DOE in timely securing enough 5B Cylinders for the entire production year. To support the DOE in mitigating the risk of further delays in delivery of 5B Cylinders, the Company received technical direction and a contract modification from the DOE to procure compliant 5B Cylinders and components. The contractual obligation to furnish compliant 5B Cylinders under the HALEU Operation Contract continues to rest with the DOE. During periods where quantities of 5B Cylinders are insufficient, the Company will not be able to produce HALEU but will be able to continue operations of the cascade and perform preventive maintenance and regulatory compliance-type activities. Centrus anticipates that the delays in obtaining sufficient 5B Cylinders will be temporary but no longer expects to achieve delivery of the 900 kilograms of HALEU UF 6 anticipated for Phase 2 of the contract, which extends to November 2024. Although inadequate for meeting the full delivery quantity target, the DOE has been successful in locating a small number of 5B Cylinders. Using the 5B Cylinders currently made available by the DOE, Centrus has now achieved cumulative deliveries to the DOE of approximately 179 kilograms of HALEU UF 6. We anticipate additional 5B Cylinders will be available during the third quarter, which will allow the Company to continue producing HALEU. The target fee for Phase 2 of the contract was estimated to be $7.5 million based on the estimated costs for the contract and is subject to a contract minimum fee of $6.9 million. In accordance with the HALEU Operation Contract, the Company has submitted several change requests for work being performed on infrastructure, facility repairs, and 5B Cylinders. The additional work is being performed under the DOE’s technical direction or contract modifications.

Previous wording

The DOE continues to pursue the availability of HALEU for the ARDP and for the advanced reactor market in general. Following receipt of a $700 million congressional appropriation from the Inflation Reduction Act, on January 9, 2024 and November 28, 2023, the DOE issued RFPs for the production of HALEU and the deconversion of HALEU into different forms needed to fabricate fuels used by various advanced reactor developers. The Company has submitted proposals in response to each RFP, with the goal of expanding HALEU production capability at the Piketon facility, subject to availability of funding and/or off-take commitments. We understand that the DOE plans to award one or more indefinite delivery-indefinite quantity contracts to one or more successful bidders, after which one or more awardees would compete for individual task orders. The total contract ceiling for all task orders is $2.7 billion for enrichment and $800 million for deconversion, subject to further appropriations.

Current wording

The DOE continues to pursue the availability of HALEU for the ARDP and for the advanced reactor market in general. The DOE issued RFPs for deconversion of HALEU into different forms needed to fabricate fuels used by various advanced reactor developers and the production of HALEU on November 28, 2023 and January 9, 2024, respectively. On June 27, 2024, the DOE issued an RFP focusing on the domestic production of LEU to ensure the availability of enriched uranium in a quantity that would be sufficient to address a supply disruption and gaps in domestic production and enrichment. The Company has submitted proposals in response to each of the November 28, 2023 and January 9, 2024 RFPs, and expects to submit a proposal in response to the June 27, 2024 RFP with the goal of expanding production capability at the Piketon facility, subject to availability of funding and/or off-take commitments. We understand that the DOE plans to award multiple indefinite delivery-indefinite quantity contracts to one or more successful bidders, after which one or more awardees would compete for individual task orders. The total to be awarded under the RFPs is $3.4 billion with a minimum of $2.0 million for each award, subject to further appropriations. Although we believe that we are well positioned, there is no assurance that we will be awarded a contract under any of the RFPs and, if awarded, the nature, timing and amount of the task orders that may be issued under an award is uncertain.

Previous wording

The war in Ukraine has contributed to a significant increase in market prices for enrichment and (along with proposals to limit imports of LEU from Russia) prompted calls for public and private investment in new, domestic uranium enrichment capacity not only for HALEU production but also for LEU production to support the existing fleet of reactors. As a result, Centrus is exploring the opportunity to deploy LEU enrichment alongside HALEU enrichment to meet a range of commercial and U.S. government requirements, which would bring cost synergies while increasing revenue opportunities. Our ability to deploy LEU and/or HALEU enrichment, and the timing, sequencing, and scale of those capabilities, is subject to the availability of funding and off-take commitments.

Current wording

The war in Ukraine (along with the recently enacted Import Ban Act, which had been contemplated by the Congress for more than a year) has contributed to a significant increase in market prices for enrichment and prompted calls for public and private investment in new, domestic uranium enrichment capacity not only for HALEU production, but also for LEU production to support the existing fleet of reactors. As a result, coupled with competing for an award under the January 9, 2024 RFP, Centrus is exploring the opportunity to deploy LEU enrichment alongside HALEU enrichment to meet a range of commercial and U.S. government requirements, which would bring cost synergies while increasing revenue opportunities. Our ability to deploy LEU and/or HALEU enrichment, and the timing, sequencing, and scale of those capabilities, is subject to the availability of funding (through outstanding DOE RFPs and other sources) and off-take commitments.

Previous wording

The Energy Act of 2020, which was signed into law in December 2020, requires the DOE to establish a program to support the availability of HALEU for civilian domestic research, development, demonstration, and commercial use. The Energy Act also reauthorized DOE nuclear energy research, development, demonstration, and commercial application activities, including advanced fuel, research and development for advanced reactors, used fuel technologies, and integration of nuclear energy systems for both existing plants and advanced nuclear concepts. It also authorized the funding of an ARDP which was launched by the DOE in May 2020. There are a number of advanced reactors under development that would use HALEU. Nine of the ten advanced reactor designs selected by the DOE for its ARDP will require HALEU. Various agencies of the U.S. government, including the U.S. Department of Defense, the Defense Advanced Research Projects Agency, and the DOE are building microreactors which demonstrates the focus on both the development of microreactors and HALEU. We believe our investments in advanced enrichment technology and our progress in demonstrating HALEU production will position the Company to meet the needs of government and commercial customers in the future as they deploy advanced reactors and next generation fuels and also offers potential cost synergies for a return to LEU production. Further, the Company is taking steps to pursue, including through the exploration of strategic partnerships, technologies that are complementary to HALEU production and critical to the HALEU ecosystem, including deconversion and fuel fabrication.

Current wording

The Energy Act of 2020, which was signed into law in December 2020, requires the DOE to establish a program to support the availability of HALEU for civilian domestic research, development, demonstration, and commercial use. The Energy Act also reauthorized DOE nuclear energy research, development, demonstration, and commercial application activities, including advanced fuel, research and development for advanced reactors, used fuel technologies, and integration of nuclear energy systems for both existing plants and advanced nuclear concepts. It also authorized the funding of an ARDP which was launched by the DOE in May 2020. There are a number of advanced reactors under development that would use HALEU. Nine of the ten advanced reactor designs selected by the DOE for its ARDP will require HALEU. Various agencies of the U.S. government, including the U.S. Department of Defense, the Defense Advanced Research Projects Agency, and the DOE are building small modular reactors and microreactors, which demonstrates the focus on both the development of microreactors and HALEU. We believe our investments in advanced enrichment technology and our progress in demonstrating HALEU production will position the Company to meet the needs of government and commercial customers in the future as they deploy advanced reactors and next generation fuels and also offers potential cost synergies for a return to LEU production. Further, the Company is taking steps to pursue, including through the exploration of strategic partnerships, technologies that are complementary to HALEU production and critical to the HALEU ecosystem, including deconversion and fuel fabrication.

Previous wording

While the monthly price indicators have increased for several years, the uranium enrichment segment of the nuclear fuel market remains oversupplied and faces uncertainty about future demand for nuclear power generation. However, without Russian supply, the global market would be undersupplied for uranium enrichment. Changes in the competitive landscape affect pricing trends, change customer spending patterns, and create uncertainty. To address these changes, we have taken steps to adjust our cost structure; we may seek further adjustments to our cost structure and operations and evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions.

Current wording

While the monthly price indicators have increased for several years, the uranium enrichment segment of the nuclear fuel market remains oversupplied and faces uncertainty about future demand for nuclear power generation. However, without Russian supply, the global market would be undersupplied for uranium enrichment. Recent data from the International Trade Commission shows a significant increase of the importation of enriched uranium into the U.S. from China in 2023 and 2024. If this trend continues, it will likely have significant changes in the competitive landscape that will affect pricing trends and customer spending patterns and create uncertainty and likely have a negative impact on our business. To address these changes, we have taken steps to adjust our cost structure; we may seek further adjustments to our cost structure and operations and evaluate opportunities to grow our business organically or through acquisitions and other strategic transactions.

Previous wording

The global nuclear industry outlook has begun to improve after many years of decline or stagnation. The development of advanced small and large-scale reactors, innovative advanced fuel types, and the commitment of nations to begin deploying nuclear power or to increase the share of nuclear power in their nations has created optimism in the market. Part of the momentum has resulted from efforts to lower greenhouse gas emissions to combat climate change and improve health and safety.

Current wording

The global nuclear industry outlook has improved after many years of decline or stagnation. The development of advanced small and large-scale reactors, the innovation of advanced fuel types, and the commitment of nations to begin deploying nuclear power or to increase the share of nuclear power in their nations has created optimism in the market. Part of the momentum has resulted from efforts to lower greenhouse gas emissions to combat climate change and improve health and safety.

Previous wording

According to the WNA, as of March 2024, there were 60 reactors under construction worldwide, approximately one-half of which are in China. The United States, with over 90 operating reactors, remains the world’s largest market for nuclear fuel. The nuclear industry in the United States, Japan, and Europe faces headwinds as well as opportunities. In the United States, the industry has been under pressure from the expansion of subsidized renewable energy as well as relatively low-cost natural gas resources in recent years, although natural gas prices in the U.S. electricity sector tripled between 2020 and 2022 according to data from the U.S. Energy Information Administration (“EIA”). Nine U.S. reactors have prematurely shut down in the past ten years and others could shut down in the next few years. At the same time, construction was recently completed and commercial operations began in the second quarter of 2024 on one large reactor. The DOE recently released a report outlining a pathway to deployment of approximately 200 gigawatts of additional capacity by 2050 which would triple the nuclear energy capacity in the United States.

Current wording

According to the WNA, as of June 2024, there were 60 reactors under construction worldwide, approximately one-half of which are in China. The United States, with over 90 operating reactors, remains the world’s largest market for nuclear fuel. The nuclear industry in the United States, Japan, and Europe faces headwinds as well as opportunities. In the United States, the industry has been under pressure from the expansion of subsidized renewable energy as well as relatively low-cost natural gas resources in recent years, although natural gas prices in the U.S. electricity sector tripled between 2020 and 2022 according to data from the U.S. Energy Information Administration (“EIA”). Nine U.S. reactors have prematurely shut down in the past ten years, and others could shut down in the next few years. At the same time, construction was completed and commercial operations began in the second quarter of 2024 on one large reactor and one formerly shutdown reactor has plans to restart. The DOE recently released a report outlining a pathway to deployment of approximately 200 gigawatts of additional capacity by 2050, which would triple the nuclear energy capacity in the United States.

Previous wording

As a consequence of the March 2011 earthquake and tsunami in Japan, over 60 reactors in Japan and Germany were taken offline, and other countries curtailed or slowed their construction of new reactors or accelerated the retirement of existing plants. Eleven reactors in Japan have restarted, and an additional 16 reactors are in the process of restart approval. Due to the war in Ukraine, the EU is encouraging its member countries to reconsider the planned early retirement of existing plants in order to reduce reliance on Russian gas imports.

Current wording

As a consequence of the March 2011 earthquake and tsunami in Japan, over 60 reactors in Japan and Germany were taken offline, and other countries curtailed or slowed their construction of new reactors or accelerated the retirement of existing plants. In Japan, 12 reactors have restarted and an additional 13 reactors are in the process of restart approval. Due to the war in Ukraine, the EU is encouraging its member countries to reconsider the planned early retirement of existing plants in order to reduce reliance on Russian gas imports.

Previous wording

On July 13, 2023, the Company and TerraPower, LLC (“TerraPower”) entered into a memorandum of understanding (“MOU”) to expand their collaboration aimed at establishing commercial-scale, domestic production capabilities for HALEU to fuel the Natrium TM reactor that TerraPower is building in Wyoming. Under this MOU, the Company and TerraPower will collaborate to ensure the Natrium demonstration reactor has access to HALEU at the milestones necessary to meet the project's 2030 operation date. Subject to a definitive agreement to be negotiated, Centrus will work toward scaling up production capacity with additional centrifuge cascades to meet TerraPower's fuel requirements.

Current wording

On July 13, 2023, the Company and TerraPower, LLC (“TerraPower”) entered into a memorandum of understanding (“MOU”) to expand their collaboration aimed at establishing commercial-scale, domestic production capabilities for HALEU to fuel the Natrium TM reactor that TerraPower is building in Wyoming. Under this MOU, the Company and TerraPower will collaborate to ensure the Natrium demonstration reactor will have sufficient HALEU at the milestones necessary to meet the project's 2030 operation date. Subject to a definitive agreement to be negotiated, Centrus will work toward scaling up production capacity with additional centrifuge cascades to meet TerraPower's fuel requirements.

Previous wording

The war in Ukraine has escalated tensions between Russia and the international community. As a result, the United States and other countries have imposed, including in the United States through the imminent enactment of the “Prohibiting Russian Uranium Imports Act” discussed below, and may continue imposing, additional sanctions and export controls against certain Russian products, services, organizations and/or individuals. Such additional restrictions could affect our ability to purchase and re-sell Russian uranium enrichment, engage in transactions with TENEX, or implement the TENEX Supply Contract, which would have a negative material impact on our business. Further, sanctions by the United States, Russia or other countries may impact our ability and cost to transport, export, import, take delivery, or make payments related to the LEU we purchase and may require us to increase purchases from non-Russian sources to the extent available. Due to restrictions imposed by Canada on the ability of Canadian persons and entities to provide ocean transportation services to Russia, a permit is required for our shipper, a Canadian company, to transport the LEU that we procure under the TENEX Supply Contract to the United States. A Canadian permit issued to our shipper was recently extended to March 2027, but for so long as the sanctions remain in place, the shipper will require further extensions beyond the current validity of the permit for continued shipments of LEU imports.

Current wording

The war in Ukraine has escalated tensions between Russia and the international community. As a result, the United States and other countries have imposed, including through the U.S.’s enactment of the Import Ban Act discussed below, and may continue imposing, additional sanctions and export controls against certain Russian products, services, organizations, and/or individuals. Such additional restrictions could affect our ability to purchase, take delivery of, transport, or re-sell Russian uranium enrichment, engage in transactions with TENEX, or implement the TENEX Supply Contract, which would have a negative material impact on our business. Further, sanctions by the United States, Russia or other countries may impact our ability and cost to transport, export, import, take delivery, or make payments related to the LEU we purchase and may require us to increase purchases from non-Russian sources to the extent available. For example, due to restrictions imposed by Canada on the ability of Canadian persons and entities to provide ocean transportation services to Russia, a permit is required for our shipper, a Canadian company, to transport the LEU that we procure under the TENEX Supply Contract to the United States. A Canadian permit issued to our shipper was extended to March 2027, but for so long as the sanctions remain in place, the shipper will require further extensions beyond the current validity of the permit for continued shipments of LEU imports. In addition, on June 24, 2024, members of the EU agreed to issue a 14th sanctions package, primarily targeting the export of Russian liquid natural gas and other services. The sanctions package includes restrictions on the transportation of empty containers to Russia. Since we supply empty cylinders under the TENEX Supply Contract that are filled and returned to us, this new sanctions package may impact the transportation of LEU from Russia to the extent such export activity has a nexus to a EU member state (e.g., through a ship’s flag, nationalities of crew members, etc.). This new sanctions package does not impact our near term deliveries. We are working with our shipper to determine the extent of the impact of the new sanctions on the transportation of LEU from Russia which may ultimately require our shipper to obtain special authorizations for the shipment of empty containers to Russia if a nexus with a EU member state exists.

Previous wording

In response to the war in Ukraine, there have been proposals to ban imports of uranium products that could cut off or reduce our ability to import LEU in one or more years under the TENEX Supply Contract. In fact, in December 2023, the U.S. House of Representatives passed H.R. 1042, the “Prohibiting Russian Uranium Imports Act”, which was also passed by the U.S. Senate on April 30, 2024. This legislation bans imports of LEU from Russia into the U.S. beginning ninety (90) days after the date of enactment, subject to issuance of waivers by the DOE. The legislation is before the President for signature into law and its enactment is expected imminently. The U.S. ban on imports of Russian LEU without the grant of a timely waiver, would have a negative material impact on our business. Through 2027, well over one-half of the LEU that we expect to deliver to customers was sourced under the TENEX Supply Contract. While we have other sources of supply, they are not sufficient to replace the TENEX supply. Accordingly, upon enactment of the “Prohibiting Russian Uranium Imports Act”, we will apply for waivers from the Secretary of Energy and other applicable government agencies to allow us to request permission to continue supplying LEU to our customers. It is uncertain whether any waiver would be granted and, if granted, whether any waiver would be granted in a timely manner. In addition, there is draft legislation in Congress designed to impose sanctions on Rosatom which would prohibit transactions with TENEX, a subsidiary of Rosatom. We do not know what actions TENEX might take in response to the legislation when enacted but, if TENEX refuses to make future deliveries under the TENEX Supply Contract, our delivery obligations to our customers would be negatively impacted, including a potential material adverse effect on the Company.

Current wording

In response to the war in Ukraine, there were proposals to ban imports of uranium products that could cut off or reduce our ability to import LEU in one or more years under the TENEX Supply Contract. In fact, on May 13, 2024, the Import Ban Act was enacted. This new law bans imports of LEU from Russia into the U.S. beginning ninety (90) days after the date of enactment, subject to issuance of waivers by the DOE. In accordance with the instructions published by the DOE on May 24, 2024, the Company filed its first waiver request application on May 27, 2024, to permit the importation of LEU already committed for delivery to its U.S. customers in 2024 through 2027. On July 18, 2024, the DOE issued the Company a waiver allowing it to import LEU from Russia for deliveries already committed by the Company to its U.S. customers in years 2024 and 2025. For the years 2026 and 2027, the DOE deferred its decision to an unspecified date closer in time to the deliveries. On June 7, 2024, the Company filed a second waiver request application to allow for importation of LEU from Russia for processing and reexport to the Company's foreign customers and is awaiting DOE's determination. The Company plans to file a third waiver request application to allow for importation of LEU from Russia in 2026 and 2027 for use in the U.S. that have yet to be committed to our customers. The U.S. ban on imports of Russian LEU, without the grant of additional timely waivers, would have a negative material impact on our business. Through 2027, well over one-half of the LEU that we expect to deliver to customers was sourced under the TENEX Supply Contract. While we have other sources of supply, they are not sufficient to replace the TENEX supply. It is uncertain whether any waiver would be granted in response to our pending or any potential future applications and, if granted, whether any waiver would be granted in a timely manner.

Previous wording

Given all the foregoing, we continue to monitor the situation closely in order to address the potential impact of any new sanctions on the Company and possible mitigation thereof.

Current wording

Given all the foregoing, we continue to monitor the situation closely in order to address the potential impact of any new sanctions or restrictions on the Company and possible mitigation thereof.

Previous wording

•The potential for sanctions and other measures that restrict with whom we may transact or affect the importation, sales or purchases of SWU or uranium or goods or services required for the sale, purchase, transportation or delivery of such SWU or uranium;

Current wording

•Recently enacted sanctions and the potential for additional sanctions and other measures that restrict with whom we may transact or affect the importation, sales or purchases of SWU or uranium or goods or services required for the sale, purchase, transportation or delivery of such SWU or uranium;

Previous wording

•Our ability to obtain a waiver to allow us to import LEU from Russia so that we may continue supplying LEU to our customers upon the likely enactment of the “Prohibiting Russian Uranium Imports Act”;

Current wording

•Our ability to obtain additional waivers to allow us to import LEU from Russia so that we may continue supplying LEU to our customers, given the enactment of the Import Ban Act in May 2024;

Previous wording

•The government’s inability to satisfy its obligations, including supplying government furnished equipment under its agreements with the Company or processing security clearances due to a shutdown or other reasons; and

Current wording

•The U.S. government’s ability to satisfy its obligations, including supplying government furnished equipment under its agreements with the Company or processing security clearances due to a shutdown or other reasons; and

Previous wording

The Company’s backlog is $2.0 billion as of both March 31, 2024 and December 31, 2023 and extends to 2033. Backlog is recognized as revenue in future periods as work is performed or deliveries of SWU and uranium are made.

Current wording

The Company’s backlog is $2.7 billion and $2.0 billion as of June 30, 2024 and December 31, 2023, respectively, and extends to 2040. Backlog is recognized as revenue in future periods as work is performed or deliveries of SWU and uranium are made.

Previous wording

Our backlog in the LEU segment extends to 2030. As of March 31, 2024 and December 31, 2023, our backlog was approximately $1.0 billion. The backlog is the estimated aggregate dollar amount of revenue for future SWU and uranium deliveries primarily under medium and long-term contracts with fixed commitments, and includes approximately $0.3 billion of deferred revenue and advances from customers as of March 31, 2024, whereby customers have made advance payments to be applied against future deliveries. No orders in our backlog are considered at risk related to customer operations. However, these medium and long-term contracts are subject to significant risks and uncertainties, including existing import laws and restrictions such as the RSA, which limits imports of Russian uranium products into the United States and applies to our sales using material procured under the TENEX Supply Contract, as well as the potential for additional sanctions and other restrictions affecting the Company or its suppliers, in response to the evolving situation regarding the war in Ukraine.

Current wording

Our backlog in the LEU segment extends to 2040. As of June 30, 2024 and December 31, 2023, our backlog is approximately $1.7 billion and $1.0 billion, respectively. The backlog is the estimated aggregate dollar amount of revenue for future SWU and uranium deliveries primarily under medium and long-term contracts with fixed commitments, and includes approximately $0.3 billion of deferred revenue and advances from customers as of June 30, 2024, whereby customers have made advance payments to be applied against future deliveries. No orders in our backlog are considered at risk related to customer operations. However, these medium and long-term contracts are subject to significant risks and uncertainties, including existing import laws and restrictions such as the RSA, which limits imports of Russian uranium products into the United States and applies to our sales using material procured under the TENEX Supply Contract, as well as the potential for additional sanctions and other restrictions affecting the Company or its suppliers, in response to the evolving situation regarding the war in Ukraine.

Previous wording

Our backlog in the Technical Solutions segment extends to 2033. As of both March 31, 2024 and December 31, 2023, our backlog was approximately $1.0 billion. Our backlog includes both funded amounts (services for which funding has been both authorized and appropriated by the customer), unfunded amounts (services for which funding has not been appropriated), and unexercised options. If any of our contracts were to be terminated, our remaining backlog would be reduced by the expected value of the cancelled contracts.

Current wording

Our backlog in the Technical Solutions segment extends to 2033. As of both June 30, 2024 and December 31, 2023, our backlog is approximately $1.0 billion. Our backlog includes both funded amounts (services for which funding has been both authorized and appropriated by the customer), unfunded amounts (services for which funding has not been appropriated), and unexercised options. If any of our contracts were to be terminated, our remaining backlog would be reduced by the expected value of the cancelled contracts.

Previous wording

Revenue from our LEU segment accounted for approximately 54% of our total revenue for the three months ended March 31, 2024. The majority of our customers are domestic and international utilities that operate nuclear power plants, with international sales constituting approximately 34% of revenue from our LEU segment since 2022. Our agreements with electric utilities are primarily medium and long-term fixed-commitment contracts under which our customers are obligated to purchase a specified quantity of the SWU component of LEU from us. Contracts where we sell both the SWU and natural uranium hexafluoride components of LEU to utilities or where we sell natural uranium hexafluoride to utilities and other nuclear fuel related companies are generally shorter-term, fixed-commitment contracts. Individual customer orders for the SWU component of LEU fulfilled in the three months ended March 31, 2024 averaged approximately $5.9 million per order. As a result, a relatively small shift in the timing of customer orders for LEU may cause significant variability in our operating results year over year.

Current wording

Revenue from our LEU segment accounted for approximately 90% and 83% of our total revenue for the three and six months ended June 30, 2024, respectively. The majority of our customers are domestic and international utilities that operate nuclear power plants, with international sales constituting approximately 41% of revenue from our LEU segment since 2022. Our agreements with electric utilities are primarily medium and long-term fixed-commitment contracts under which our customers are obligated to purchase a specified quantity of the SWU component of LEU from us. Contracts where we sell both the SWU and natural uranium hexafluoride components of LEU to utilities or where we sell natural uranium hexafluoride to utilities and other nuclear fuel related companies are generally shorter-term, fixed-commitment contracts. Individual customer orders for the SWU component of LEU fulfilled in the six months ended June 30, 2024 averaged approximately $7.7 million per order. As a result, a relatively small shift in the timing of customer orders for LEU may cause significant variability in our operating results period over period.

Previous wording

Utility customers, in general, have the option to make payment but defer receipt of SWU and uranium products purchased from Centrus beyond the contractual sale period, resulting in the deferral of costs and revenue recognition. Refer to Note 2, Revenue and Contracts with Customers, of this Quarterly Report on Form 10-Q of the Consolidated Financial Statements for further details.

Current wording

Utility customers, in general, have the option to make payment but defer receipt of SWU and uranium products purchased from Centrus beyond the contractual sale period, resulting in the deferral of revenue recognition and related costs. Refer to Note 2, Revenue and Contracts with Customers, of the Consolidated Financial Statements for further details.

Previous wording

Our financial performance over time can be affected significantly by changes in prices for SWU and natural uranium hexafluoride. Market prices for SWU and uranium significantly declined from 2011 until mid-2018, when they began to trend upward. More recently, market uncertainty in the wake of the war in Ukraine has driven SWU and uranium hexafluoride prices sharply higher. Since our backlog includes contracts awarded to us in previous years, the average SWU price billed to customers typically lags published price indicators by several years. While some sales reflect the low prices prevalent in recent years, certain older contracts included in our backlog have prices that are above current market prices.

Current wording

Our financial performance over time can be affected significantly by changes in prices for SWU and natural uranium hexafluoride. Market prices for SWU and uranium significantly declined from 2011 until mid-2018, when they began to trend upward. More recently, market uncertainty in the wake of the war in Ukraine has driven SWU and natural uranium hexafluoride prices sharply higher. Since our backlog includes contracts awarded to us in previous years, the average SWU price billed to customers typically lags published price indicators by several years. While some sales reflect the low prices prevalent in recent years, certain older contracts included in our backlog have prices that are above current market prices.

Previous wording

Recent proposals, including proposed U.S. legislation, to severely limit or cut off supply of LEU from Russia, have drawn attention to the potential for significant tightening of supplies in the market. Russian enrichment plants represent 44% of the world’s capacity, and Russian capacity significantly exceeds its domestic needs. According to data from the WNA, the annual enrichment requirements of reactors worldwide outside of Russia vastly exceeds the available supply of non-Russian enrichment, which potentially threatens the viability of some reactors, including those in the United States. While inventories and increased production at non-Russian plants may mitigate the shortfall, these options would not fully replace Russian supply. Deployment of new capacity ultimately could replace Russian enrichment but this capacity will take a number of years and significant funding from private and/or government sources to come online.

Current wording

The newly enacted Import Ban Act, which bans the importation of LEU from Russia, may severely limit importation through 2027 and will cut off supply of LEU from Russia after 2027. This has drawn attention to the potential for significant tightening of supplies in the market. Russian enrichment plants represent 44% of the world’s capacity, and Russian capacity significantly exceeds its domestic needs. According to data from the WNA, the annual enrichment requirements of reactors worldwide outside of Russia vastly exceeds the available supply of non-Russian enrichment, which potentially threatens the viability of some reactors, including those in the United States. While inventories and increased production at non-Russian plants may partially mitigate the shortfall, these options would not fully replace Russian supply. Deployment of new capacity ultimately could replace Russian enrichment, but this capacity will take a number of years and significant funding from private and/or government sources to come online. Centrus is seeking public and private funding to deploy new production capacity at its Piketon, Ohio, plant to help meet the need for new, domestic supplies of enriched uranium.

Previous wording

The following chart summarizes SWU long-term price and spot price indicators, and a UF 6 spot price indicator, as published by TradeTech, LLC in Nuclear Market Review:

Current wording

The following chart summarizes SWU long-term price and SWU and UF 6 spot price indicators, as published by TradeTech, LLC in Nuclear Market Review:

Previous wording

Cost of sales for SWU and uranium is based on the amount of SWU and uranium hexafluoride sold and delivered during the period and unit inventory costs. Unit inventory costs are determined using the average cost method. Changes in purchase costs have an effect on inventory costs and cost of sales. Cost of sales includes costs for inventory management at off-site licensed locations and also includes certain legacy costs related to former employees of the Portsmouth GDP and Paducah GDP.

Current wording

Cost of sales for SWU and uranium is based on the amount of SWU and uranium hexafluoride sold and delivered during the period and unit inventory costs, which are determined using the average cost method. Changes in purchase costs have an effect on inventory costs and cost of sales. Cost of sales includes costs for inventory management at off-site licensed locations, as well as, certain legacy costs related to former employees of the Portsmouth GDP and Paducah GDP.

Previous wording

Revenue from the LEU segment was $23.6 million and $58.8 million for the three months ended March 31, 2024 and 2023, respectively, a decrease of $35.2 million (or 60%), SWU revenue decreased by $35.2 million as a result of a 53% decrease in the volume of SWU sold and a 14% decrease in the average price of SWU sold.

Current wording

Revenue from the LEU segment was $169.6 million and $87.6 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $82.0 million (or 94%). SWU revenue increased by $91.6 million as a result of a 147% increase in the volume of SWU sold and an 18% increase in the average price of SWU sold. Uranium revenue decreased by $9.6 million as a result of a 40% decrease in the volume of uranium sold, partially offset by a 26% increase in the average price of uranium sold.

Previous wording

Revenue from the Technical Solutions segment was $20.1 million and $8.1 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $12.0 million (or 148%). Revenue generated by the HALEU Operation Contract increased by $12.0 million due to the transition from Phase 1 to Phase 2 in late 2023.

Current wording

Revenue from the Technical Solutions segment was $19.4 million and $10.8 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $8.6 million (or 80%). Revenue generated by the HALEU Operation Contract increased by $8.4 million due to the transition from Phase 1 to Phase 2 in late 2023. The remaining increase was attributable to other contracts.

Previous wording

Cost of sales for the LEU segment was $23.1 million and $34.9 million for the three months ended March 31, 2024 and 2023, respectively, a decrease of $11.8 million (or 34%). SWU costs decreased by $12.3 million as a result of a 53% decrease in the volume of SWU sold, partially offset by a 38% increase in the average unit cost of SWU sold. Cost of sales for the three months ended March 31, 2024 and 2023, respectively, included $0.3 million and $2.1 million for the revaluation of inventory loans.

Current wording

Cost of sales for the LEU segment was $136.6 million and $60.8 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $75.8 million (or 125%). SWU costs increased as a result of a 70% increase in the average unit cost of SWU sold and a 147% increase in the volume of SWU sold. Uranium costs decreased as a result of a 40% decrease in the volume of uranium sold, partially offset by a 27% increase in the average unit cost of uranium sold. Cost of sales for the three months ended June 30, 2024 and 2023, respectively, included $1.5 million and $0.8 million for the revaluation of inventory loans.

Previous wording

Cost of sales for the Technical Solutions segment was $16.3 million and $9.0 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $7.3 million (or 81%). Costs incurred for the HALEU Operation Contract increased by $7.3 million due to the transition from Phase 1 to Phase 2 in late 2023. For details on HALEU Operation Contract accounting, refer to Technical Solutions Segment above.

Current wording

Cost of sales for the Technical Solutions segment was $15.9 million and $9.6 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $6.3 million (or 66%). Costs incurred for the HALEU Operation Contract increased by $6.3 million due to the transition from Phase 1 to Phase 2 in late 2023. For details on HALEU Operation Contract accounting, refer to Technical Solutions Segment above.

Previous wording

Gross profit for the LEU segment was $0.5 million and $23.9 million for the three months ended March 31, 2024 and 2023, respectively, a decrease of $23.4 million (or 98%). The decrease for the three months ended March 31, 2024 was due primarily to the specific contract and pricing mix of SWU contracts and the timing of their deliveries quarter over quarter. This was reflected by a decrease in the volume of SWU sold and a decrease in the average profit margin per SWU.

Current wording

Gross profit for the LEU segment was $33.0 million and $26.8 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $6.2 million (or 23%). The increase for the three months ended June 30, 2024 was due primarily to the specific contract and pricing mix of SWU contracts and the timing of their deliveries quarter over quarter. This was reflected by an increase in the volume of SWU sold, partially offset by a decrease in the average profit margin per SWU.

Previous wording

Capital expenditures were $1.5 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Gross profit for the Technical Solutions segment was $7.3 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $7.0 million (or 2,333%). The increase was primarily attributable to the transition from Phase 1 to Phase 2 of the HALEU Operation Contract in late 2023.

Previous wording

Income tax expense (benefit) was ($2.3) million and $2.4 million for the three months ended March 31, 2024 and 2023, respectively, a change of $4.7 million (or 196%). Income tax expense (benefit) for both periods resulted from applying the annual effective tax rate to the quarterly income from continuing operations adjusted for discrete items. For more information about the valuation allowance, see Note 14, Income Taxes, in our Consolidated Financial Statements on our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

Income tax expense was $8.9 million and $3.3 million for the three months ended June 30, 2024 and 2023, respectively, an increase of $5.6 million (or 170%). Income tax expense for both periods resulted from applying the annual effective tax rate to the quarterly income from continuing operations adjusted for discrete items. For more information about the valuation allowance, see Note 14, Income Taxes, in our Consolidated Financial Statements on our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

Advanced technology costs were $5.7 million and $3.4 million for the three months ended March 31, 2024 and 2023, respectively, an increase of $2.3 million (or 68%). Advanced technology costs consist of American Centrifuge work and related expenses that are outside of our customer contracts in the Technical Solutions segment, including bid and proposal activities and work to improve our centrifuge technology.

Current wording

Advanced technology costs were $9.8 million and $7.5 million for the six months ended June 30, 2024 and 2023, respectively, an increase of $2.3 million (or 31%). Advanced technology costs consist of American Centrifuge work and related expenses that are outside of our customer contracts in the Technical Solutions segment, including bid and proposal activities and work to improve our centrifuge technology.

Previous wording

Selling, general and administrative costs were $8.1 million and $10.3 million for the three months ended March 31, 2024 and 2023, respectively, a decrease of $2.2 million (or 21%). This decrease was due primarily to a decrease in employee-related expenses, including equity related compensation, and a decrease in consulting costs.

Current wording

Selling, general and administrative costs were $15.7 million and $18.1 million for the six months ended June 30, 2024 and 2023, respectively, a decrease of $2.4 million (or 13%). This decrease was due primarily to a decrease in employee-related expenses, including equity related compensation.

Previous wording

As of March 31, 2024, the Company had a consolidated cash and cash equivalents balance of $209.3 million. In addition, there was $29.8 million of restricted cash related to three inventory loans, which required a cash deposit into an escrow fund. See Note 3, Cash, Cash Equivalents, and Restricted Cash of the Consolidated Financial Statements. The Company anticipates having adequate liquidity to support our business operations for at least the next 12 months from the date of this Quarterly Report. Our view of liquidity is dependent on, among other things, conditions affecting our operations, including market, international trade restrictions, sanctions and other conditions, the impact of enactment of the “Prohibiting Russian Uranium Imports Act” and our ability to obtain a waiver thereunder, should the legislation be enacted, the level of expenditures and government funding for our services contracts and the timing of customer payments. Liquidity requirements for our existing operations are affected primarily by the timing and amount of customer sales and our inventory purchases.

Current wording

As of June 30, 2024, the Company had a consolidated cash and cash equivalents balance of $227.0 million. In addition, there was $29.8 million of restricted cash related to three inventory loans, which required a cash deposit into an escrow fund. See Note 3, Cash, Cash Equivalents, and Restricted Cash of the Consolidated Financial Statements. The Company anticipates having adequate liquidity to support our business operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q. Our view of liquidity is dependent on, among other things, conditions affecting our operations, including market, international trade restrictions, sanctions and other conditions, the impact of the May 2024 enactment of the Import Ban Act and our ability to obtain additional waivers thereunder, the level of expenditures and government funding for our services contracts, and the timing of customer payments. Liquidity requirements for our existing operations are affected primarily by the timing and amount of customer sales and our inventory purchases.