Greetings. Welcome to the Centrus Energy fourth quarter year-end 2022 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I'll now turn the conference over to your host, Dan Leistikow. You may begin.
Good morning, thank you all for joining us. Today's call will cover the results for the fourth quarter and full year of 2022, ended December 31st. Today we have Dan Poneman, President and Chief Executive Officer, Philip Strawbridge, Chief Financial Officer, and Kevin Harrill, Controller and Chief Accounting Officer. Before turning the call over to Dan Poneman, I'd like to welcome all of our callers as well as those listening to our webcast. This conference call follows our earnings news release issued yesterday. We expect to file our report for the fourth quarter and full year of 2022 on Form 10-K later today. All of our news releases and SEC filings, including our 10-K, 10-Qs, and 8-Ks, are available on the website. A replay of this call will also be available later this morning on the Centrus website.
I would like to remind everyone that certain information we may discuss on this call may be considered forward-looking information that involves risk and uncertainty, including assumptions for the future performance of Centrus. Our actual results may differ materially from those in our forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements is contained in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking information provided today is time sensitive and accurate only as of today, February 22nd, 2023, unless otherwise noted. This call is the property of Centrus Energy. Any transcription, redistribution, retransmission, or rebroadcast of the call in any form without the express written consent of Centrus is strictly prohibited.
Thank you for your participation, and I'll now turn the call over to Dan Poneman.
Thank you, Dan. Thank you to everyone on the call today. I'm pleased to report that Centrus delivered a strong fourth quarter finish in 2022. You measure it by our strong top-line annual numbers or by the long-term contracts we secured to help lay the foundation for the future of our business, or by the improving market for nuclear fuel, 2022 was a very good year for Centrus. With annual revenue of $294 million, we achieved net income for the year of $52 million. That's a strong number by any measure.
While it is lower than the 2021 number, it's important to keep in mind that 2021 included income from a one-time $43.5 million legal settlement, a $40 million tax adjustment, as well as an increase in the value of our pension assets as the stock market soared. Centrus was enormously successful in 2022 in securing new contracts to sustain and grow our business. In our LEU business segment, we secured a record $270 million in new sales contracts and commitments. With delivery stretching out through 2030, the sales we made in 2022 will provide a steady source of revenue and margin for many years to come. Importantly, maintains our long term order book value at $1 billion for the LEU segment.
We also bid for and won a competitively awarded Department of Energy contract that will enable us to begin first of a kind production of High-Assay, Low-Enriched Uranium, or HALEU, by the end of this year and then continue producing in 2024. This will enable us to finish the work we started under a previous contract signed in 2019 to build a cascade of centrifuges to demonstrate production of HALEU in Piketon, Ohio. In 2022, the department elected to move the operational portion of the demonstration into this new competitively awarded contract that would allow for a much longer period of operations. The phase I of the new contract is valued at about $60 million, 50% of which will be paid by Centrus.
Phase I requires us to complete construction, conduct operational readiness reviews with the Nuclear Regulatory Commission, secure NRC approval to begin operations, and then produce an initial quantity of 20 kgs of HALEU for the Department of Energy by the end of this year. Our cost share contribution ends after phase I In phase II, we will operate the cascade for a full year at a production rate of about 900 kgs per year. We will be compensated in phase II on a cost-plus-incentive-fee basis, and that phase is estimated to be approximately $90 million. The contract also includes options at the department's sole discretion and subject to the availability of annual appropriations from Congress for up to nine additional years of HALEU production. This contract is critical on several levels.
First, the HALEU we deliver to the Department will help support the U.S. government's efforts to support the demonstration and deployment of a new generation of advanced reactors. The Department has already made a multi-billion dollar commitment to help commercialize those reactors through the Advanced Reactor Demonstration Program. Nine of the 10 reactors the Department selected to support through that program require HALEU. Our success is critical to their success. Obviously, it will be very difficult to sell reactors commercially without a fuel supply. As is often said in the industry, no fuel, no fun. Second, this contract represents a crucial milestone in the effort to restore America's uranium enrichment capability. This will be the first new U.S.-owned enrichment plant to begin production in 70 years.
The last of America's Cold War era enrichment plants shut down permanently in 2013, leaving us for the last 10 years without a U.S. technology enrichment capability. We are about to end that streak and put America back in the enrichment business. Third, while the initial capacity of the plant will be modest, the facility itself has room for thousands of centrifuges, and the site could accommodate up to 7 million SWU per year in capacity. The capital requirements are significant and will require a strong public-private partnership, but with sufficient funding and offtake commitments, our goal is to scale up to meet the full range of commercial and national security requirements for uranium enrichment, including low enriched uranium as well as HALEU. There is growing bipartisan support for such an approach and real dollars to back it up.
The Inflation Reduction Act includes a $700 million appropriation as a down payment on establishing a domestic supply chain for HALEU. In an October sources sought notice, the Department of Energy outlined a potential 10-year program to support the construction and operation of HALEU enrichment in the United States via government purchases of up to 25 metric tons of HALEU per year. The sources sought notice is a preliminary step, not a formal request for proposals, and the department would require additional annual appropriations beyond what is contained in the Inflation Reduction Act to fully implement that program. It reflects the growing momentum behind establishing domestic HALEU production. In light of Russia's invasion of Ukraine, there have been a number of bipartisan proposals in Congress to expand the effort beyond HALEU production to include production of low enriched uranium for the existing reactor fleet as well.
People now realize that it was a historic mistake for the U.S. to fall from first to last place in the world in uranium enrichment, eroding our nation's energy security, ceding geostrategic leverage to our adversaries, and brittling our domestic supply chains, diminishing our global influence over non-proliferation, and deferring critical efforts to provide for the nation's long-term needs to produce tritium for our nuclear arsenal and naval reactor fuel for our carriers and submarines. Now is the time to correct that mistake. We also face the reality that Russia possesses 46% of the world's enrichment capacity, and there isn't nearly enough non-Russian enrichment to fuel the world's reactors.
Data from the World Nuclear Association shows that global requirements for enrichment outside of Russia total 48 million separative work units, or SWU per year. The total enrichment capacity outside of Russia is only 33 million SWU per year. If Russian enrichment were excluded from the market, the global supply gap would be 15 million SWU per year, which is roughly equivalent to the entire annual enrichment requirements of the United States. It is also roughly equivalent to the entire annual enrichment requirements of Europe. There's no easy or fast solution to this problem. The only answer is to start investing through public-private partnerships in new domestic capacity. It will take years to stand up this new capability at industrial scale, but you cannot reverse a multi-decadal decline overnight. As the old saying goes, the best time to plant a tree was 20 years ago.
The second-best time is today. With the only deployment-ready U.S.-owned enrichment technology and an NRC-licensed site that has the infrastructure custom-built for centrifuge operations, Centrus is uniquely suited to restore this vital capability for the nation. We are continuing to engage with industry, policymakers, nongovernmental organizations, and other stakeholders to develop a path forward that would enable us to deploy our Made in America technology to produce LEU for existing reactors and to meet U.S. national security requirements in addition to producing HALEU. I'll now turn the call over to Philip, who will walk you through some of the numbers. Thanks. Philip, over to you.
Thank you, Dan. Good morning, everyone. As discussed before, there's considerable variability in our revenue and margins from quarter to quarter. Last year, for example, the first and third quarters were relatively subdued, but we had a big second quarter and then a strong finish in the fourth quarter. The nature of our business is that we have strong quarters and subdued quarters, and it's not necessarily the same quarters every year. It's dependent upon our customers. As a Kansas City Chiefs fan, I can't pass up the opportunity to point out that they don't award the Lombardi Trophy until all four quarters have been played. It doesn't matter whose quarterback limped off the field in the second quarter or whether you're trailing after the third quarter. All that matters is the scoreboard says at the end of the game.
By the same token, what matters for Centrus is annual performance, not quarterly performance. Even though it was a very strong fourth quarter for us, what's more important is that it was a very strong year. In fact, our business improved year-over-year. I'm gonna focus on annual numbers initially. I'll start with the LEU segment, which involves the sale of enriched uranium to major utilities. We primarily sell the enrichment component, which is measured in separative work units or SWU, but we also have some sales of natural uranium component of enriched uranium. In this segment, we actually increased our profit margin versus 2021 and generated $235.6 million in revenue.
The cost of sales was $105 million for the year, resulting in a gross profit of $130.6 million for the segment for 2022. This compared to $186.1 million in revenue and $73 million in gross profit in 2021 for that segment. This is an improvement of about $57.6 million in gross profit for the segment. As Dan pointed out, we secured a record $270 million in new sales contracts and commitments in our LEU segment last year, helping to maintain our long-term order book at about $1 billion.
In our Centrus Technical Solutions segment, we're putting our technical and manufacturing capabilities to work, including our contract with the Department of Energy to build and demonstrate HALEU production, as well as a variety of other contract work for public and private sector customers. In this segment, we generated $58.2 million in revenue against cost sales of $70.9 million for the year, resulting in a loss of $12.7 million for the segment in 2022. I should note that this includes a one-time loss accrual of $21.3 million for the cost share associated with the HALEU operations contract that we talked about that we were awarded from the U.S. Department of Energy.
This compares to a gross profit for the segment of $41.5 million in 2021, when we benefited from a $43.5 million one-time settlement of the pension and post-retirement costs incurred in connection with a past cost reimbursable contract performed at Portsmouth. If you eliminate those one-time adjustments, the CTS segment had a $8.6 million gain in 2022 versus a $2 million loss in 2021. SG&A expenses were $33.9 million and $36 million for the years ending December 31st, 2022 and 2021 respectively, a decrease of $2.1 million. That's a reduction of almost 6% during the year when the economy as a whole saw 6.5% annual inflation. I recognize that the comparison for 2022 and 2021 is complicated.
However, when you eliminate the one-time adjustments, our business improved year-over-year. We generated gross profit of $117.9 million on revenue of $293.8 million and net income of $52.2 million. We're in a strong financial position going forward with an overall cash balance of $212.4 million, which includes $32.5 million of restricted cash for financial assurance. We won a long-term HALEU contract that positions us well for the future, and we have an LEU order book valued through 2030 of $1 billion as of December 31st. With that, let me turn it back over to Dan.
Thank you, Philip. I spoke a moment ago about the need for public-private partnership to develop domestic enrichment. Before we get to your questions, let me just say a few words about the rationale for government involvement in this and why I believe the idea is gaining traction. First, it's important to remember that the idea of government involvement in enrichment is not new. In fact, every enrichment plant that has ever been built anywhere in the world has been built with government ownership and government financing. Today, 100% of the world's enrichment plants belong to state-owned corporations controlled by foreign governments. Second, a new domestic enrichment capability would advance America's vital interest in ways that are not measured or reflected in the market price of enrichment.
Not only would it strengthen our energy security and climate goals, but it would also fill a critical hole in our national security supply chain. For example, the entire U.S. fleet of aircraft carriers and submarines, which are a linchpin of U.S. power projection and deterrence, are powered by fuel we stopped producing in 1992. We also need domestically produced LEU to produce tritium to maintain the readiness of the nuclear arsenal that defends our homeland and allies by deterring our adversaries. These missions require the use of a domestic enrichment technology pursuant to longstanding non-proliferation agreements. The Department of Defense is also developing microreactors that, if deployed at scale, would create significant additional requirements for domestically produced HALEU. The case really boils down to common sense. The United States will need a homegrown enrichment capability to support our national security requirements.
The need may not be imminent, but it is large and inevitable. Meanwhile, the world faces climate catastrophe right now, a critical choke point to maintaining and expanding our fleet of nuclear reactors providing clean energy is a robust, diverse capability to produce enriched uranium fuel as rapidly as possible. Rather than stovepipe our efforts, doesn't it make sense to have an all-in-one solution that can meet national security requirements and commercial requirements at the same time? An integrated approach to America's needs would reduce the burden that will ultimately fall on taxpayers for national security enrichment, while de-risking private sector investments in commercial enrichment by backstopping them with investments in enrichment capabilities needed for our nation's nuclear deterrent. This isn't rocket science, it's history.
In the 1950s, President Eisenhower and Admiral Hyman Rickover leveraged the U.S. government's investment in enrichment to support national security in order to provide an assured source of fuel for the first generation of commercial nuclear reactors that were based on those designed for the U.S. Navy. That ecosystem between the commercial nuclear industry and our national security establishment has kept the nation safe and strong for nearly seven decades. We should learn from the vision and the determination of those great American leaders in building the same kind of public-private partnership today needed to advance our energy, climate, and national security objectives. Centrus is well positioned to play our part. We have the only deployment ready U.S. origin enrichment technology. We have the only site in the nation licensed for HALEU production, and we're also licensed for LEU production.
We have the buildings and the infrastructure in place. I'm proud of our talented workforce, many of whose parents and even grandparents helped build our nation's deterrent, who are as dedicated and as passionate as I am about restoring this essential capability to our nation's critical infrastructure. As I said earlier, with sufficient funding and financing that could come through a robust public and private partnership, we can scale up to whatever level of production is required while creating thousands of family supporting jobs in the process. With that, we will now take your questions. Operator?
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we call for questions. Our first question comes from the line of Rob Brown with Lake Street Capital Markets. Please proceed with your questions.
Good morning, Dan Philip. Thank you for all the overview.
Hey, morning. Hey, Rob.
Just wanted to get a sense of kind of the DOE support. I think the 900 kg phase II project, I think you said there was one year that you've got a commitment for. Maybe help us understand kind of how the follow on year options take place and then kind of how does that dovetail into the new kind of proposed efforts for additional offtake agreements to support the industry?
Great question, Rob. There are in the demonstration phase that we've completed, the machines, as you probably saw in our recent release, are up and we've done initial testing. Now, we're in the new operations contract and as you suggested, that's got three phases. The phase, I which is this 50/50 cost share, we'll be contributing $30 million, we'll just produce 20 kg. As soon as we finish that phase I, we will immediately pivot into phase I. That will run about a year, and under that one we'll produce about 900 kgs . After that, the Department has, at its discretion, three three year option periods. We estimate those would run at about $90 million per year.
As we indicated in the earlier comments, it's only that phase I, that 20 kgs that's cost shared. After that, we ship to a cost-plus-incentive-fee program. Those extension periods also would be subject to the availability of appropriated funds. Those operate in three year chunks. The whole thing, if they exercise every option and there's no way to know in advance whether that would happen or not, but maximum length of that contract would be on the order of 10 years, right? How does that relate to the new efforts you alluded to?
Well, as we also indicated in the remarks, there was a sources sought notice that was issued, industry day was held, there's an expectation that there will be a draft request for proposals coming out that would address the increased need and in fact, the requirements of the Energy Policy Act of 2020 to support the Advanced Reactor Demonstration Program and U.S. advanced reactor development overall. The indications are that that could be on the order of up to 25 metric tons of HALEU per year. Of course, we don't know and we won't know until the draft RFP is issued. It has not come out yet, but we're looking forward to it.
Okay, great. Thank you. I just wanted to get more detail on the kind of the cost share accounting. You took the full cost share accounting hit in Q4, is that right? Now it'll be sort of zero gross margin business going forward. Is that helpful as to the accounting?
Yeah, that's right. That's right, Rob. Go ahead.
Rob, that's. You hit it on the head. In the fourth quarter, you know, we talked about taking that $21.3 million accrual, if you will. Then it's zero profit throughout the phase I, if you will.
Our next question comes from the line of Joseph Reagor with Roth. Please proceed with your question.
Hey, Dan and Philip. Thanks for taking the questions.
Hey, Joe.
Good morning, Joe.
Morning. I guess first on the, on the order book. I believe the number you gave was $1 billion. Is that like a rounded number or is that roughly the current number? Then, and then, you know, how does the shape of that look, you know, through 2030? I know you can't give specifics, but, you know, just a general, you know, outlook.
Yeah. That's a.
Go ahead, Philip.
Sorry about that, Dan. Yeah, that's a rounded number. That's a rounded number, Joe. Essentially, it's been very stable as we've talked about before. In terms of the way it's laid out, we haven't talked about that, but it's kinda like any backlog curve. In other words, you know, in the near term, we have more visibility, and then it bleeds out, if you will, through 2030 in kind of a natural curve. Again, it's a strong order book that does provide us visibility, you know, better visibility in the near term than it does in the longer term.
Okay.
Hope that was it.
Fair enough. If I think back to last year, you'd kinda given a, what's called a, a broad guide that SWU sales would be up 2022 on 2021. Two parts to this. One, you know, did sales come, you know, roughly in line with expectations, above, below, you know, what you were thinking a year ago? Then, you know, how do you look at 2023 compared to 2022?
The first part, you know, what we gave was guidance. You'll recall we gave the guidance back in, you know, 2020. That was the specific guidance that for the LEU segment, you know, that we saw that the margin would be about the same in 2021 and 2022, but that the revenue would increase. You know, that was exactly what happened, right? When you look back at 2021 and 2022. We've not elected to give guidance for 2023 yet, so I apologize, but we just haven't done it to date.
As a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the question and answer queue. It looks like we have reached the end of the question and answer session. I'll now turn the call back over to Dan Leistikow for closing remarks.
Thank you, operator. This will conclude our investor call for 2022. As always, I wanna extend a thank you to our listeners online and our investors who called in. We look forward to speaking with you again next quarter.
This concludes today's conference, and you may disconnect your line at this time. Thank you for your participation.