NuScale Power Corporation (NYSE:SMR) Q3 2023 Earnings Call Transcript

NuScale Power Corporation (NYSE:SMR) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Good afternoon, and welcome to NuScale’s Third Quarter 2023 Earnings Results Conference Call. Today’s call is being recorded. All participants are in a listen-only mode. After managements’ prepared remarks, there will be a question-and-answer session. [Operator Instructions] A replay of today’s conference call will be available and accessible on NuScale’s website at ir.NuScalepower.com. The web replay will be available for 30 days following the earnings call. At this time, for opening remarks, I would like to turn the call over to Scott Kozak, Director of Investor Relations. Please go ahead, Mr. Kozak.

Scott Kozak: Thanks, operator. Welcome to NuScale’s third quarter 2023 earnings results conference call. With us today are John Hopkins, President and Chief Executive Officer; and Ramsey Hamady, NuScale’s, Chief Financial Officer. On today’s call, NuScale will provide an update on our business including our continued progress on towards commercializing NuScale SMR technology both with current and new customers. Following, we will provide an update on this decision to terminate the carbon free power project and conclude the call by discussing financial results and outlook. We will then open up the phone lines for questions. This afternoon, we posted a set of supplemental slides on our Investor Relations website. As reflected in the Safe Harbor on Slide 2, the information set forth in the presentation and discussed during the course of our remarks and the subsequent Q&A session includes forward-looking statements, which reflect our current views of existing trends and are subject to a variety of risks and uncertainties.

You can find a discussion of our risk factors, which could potentially contribute to such differences in our SEC filings on Form S-1 and Form 10-Q. I will now turn the call over to John Hopkins, NuScale’s President and Chief Executive Officer. John.

John Hopkins: Thank you, Scott, and good afternoon, everyone. Our industry leading position in the SMR space continues to grow. Our pipeline is stronger than ever, and we are nearing a realization of commitment to deliver reliable clean energy at scale. We are looking forward to speaking with you about our announcement with Dana Power, and we will also provide an update on the decision to terminate work on the CFPP. A decade long partnership, which despite commercial challenges, achieved numerous successes that I will discuss later. Now to begin, as you will see in Slide 3, we have invested more than $1.8 billion to build sustainable, competitive advantages in technology, regulatory approvals, supply chain and manufacturing readiness, all of which brings tremendous credibility to our business development pipeline.

NuScale’s advanced stage of development has derisked nuclear energy for our customers, while establishing a first mover leadership position, that supports our near-term commercialization efforts. Next, on Slide 4, I will provide an overview of our strategy. We are advancing our technology and supply chain readiness, through comprehensive manufacturing trials and other measures. NuScale is focused on deploying our SMR modules and are poised to expand into new markets, applications and capabilities. Over the last year, we have taken important steps to commercialize our SMR technology, a key step with forming a strategic partnership with ENTRA1 Energy, an independent energy transition platform backed by a highly-capable team with significant energy and infrastructure experience.

Importantly, ENTRA1 supports our vision for wide scale deployment of NuScale SMRs. Through this partnership, ENTRA1 will develop, manage, own, and operate a portfolio of energy plants powered by a NuScale SMR technology approved by the U.S. Nuclear Regulatory Commission or NRC. As detailed on Slide 5, this relationship enables a business model, which is transformational for NuScale and is important to the success of our commercialization efforts. Let me take a moment to explain the structure of our industry and the profound impact of this relationship. Utilities, industrials, technology companies, U.S. States, and the international sovereigns are looking to support their 2050 Net Zero commitments, either by purchasing power or building non-greenhouse gas emitting power plants.

NuScale does not sell power. And we are not in the business of building power plants. Whether we are an original equipment designer of a U.S. NRC approved technology. We oversee the manufacturer of the equipment that we designed and provide that to our customer or a plan constructor. ENTRA1 serves as a project developer and brings together the total package, consisting of our technology with their construction, financing, operation and ownership. This is what many of our customers want and the level of interest in our technology has never been higher. As shown on Slide 6, on October 6th, we were pleased to announce an early milestone in this business development relationship. Standard Power, a provider of infrastructure-as-a-service to advanced data processing companies in partnership with ENTRA1, announced its plans develop two NuScale VOYGR 12 power plants that will together produce nearly two gigawatts of clean carbon free energy.

The facilities relocated in Ohio and Pennsylvania. These projects will power nearby data centers and represent a significant economic boost for their respective communities. We are delighted with this partnership, as it will serve as a model to be considered by other data center operators as their customers increasingly demand at these facilities rely an reliable, and resilient clean energy. NuScale scope and supply of the Standard Power project will be provided 24 modules, 12 per plant, and other nuclear equipment to collectively produce nearly two gigawatts of clean energy for Standards Power’s data centers. These projects will be located alongside existing power generation infrastructure, with access to a skilled workforce, accessible to navigable waterways and other site features favorable to realize reduced construction costs.

The economics of the VOYGR 12 generating facility are improved in comparison to the VOYGR 6 facility from an economies of scale perspective. And while one of these early tasks will be to perform a cost and estimate for these projects, we are confident economics will be cost competitive, compared with other base load dispatchable energy options. I want to pause here and set the record straight on recent and irresponsible speculation. Many in our team, myself included as well as ENTRA1 have worked in power and infrastructure development for decades. We have spoken with hundreds of potential customers. In each case, we spend time and resources vetting the individuals and organizations we speak with, including Standard Power and their stakeholders.

We are delighted to have been selected as Standard Power’s technology of choice. It is important for the investment community to understand that, these projects are complex, involve many partners and significant capital investment. No customer, not UAMPS, not RoPower, not Standard Power, no major utility, industrial or data center player, no customer walks in the door with a blank check and orders a nuclear power plant. That is just not the way this industry operates. These are multi-year and multi billion dollars projects on which regional economies depend. Discussions amongst serious responsible parties are detailed, deliberated and staged in their progression. While this is the first collaboration resulted from our commercial partnership with ENTRA1, we expect to replicate this delivery commercial model going forward.

We are incredibly proud that the developers and customers are selecting NuScale modules as their technology of choice to power their projects and meet their carbon free energy objectives. There is a growing demand for safe, reliable 24×7 and carbon free baseload energy. And it is comprehensive as we spoke financing and development solution, can more effectively and more quickly address the full suite of customer needs. Accelerating the realization of the tremendous opportunities in our pipeline with regard to RoPower, we are advancing into the next phase of development. FEED Phase 1 included more than 23 activities in a contract value at almost $28 million. This laid a solid foundation for the next contract phase. As a result of FEED Phase 1 work, we received approval from the Romanian regulator for the licensing basis document in support of the Real Power project, a key milestone that will facilitate the implementation of the licensing process for all stages of new scale project in Romania.

In addition, the global public-private funding commitments announced in May, including planned commitments from new scale strategic partners are expected to support procurement of long lead items and Phase 2 front end engineering design work in the near future. As proposed, Phase 2 FEED work will include site characterization and regulatory analysis in the development of site specific schedule and budget estimates for project execution. FEED Phase 2 and release of long lead materials position that project for final notice to proceed with plant deployment. Looking at the progress of new skills business development more broadly at Slide 7. The breadth and scale of our domestic and international pipeline is substantial. Potential customers are coming to new scale because our SMR technology remains the only one to have received design approval and certification from the U.S. Nuclear Regulatory Commission.

We are ready for near term deployment and currently produce a new scale power modules, which provide customers with unmatched flexibility for a variety of applications. Our strategic partnership with Inter One Bridges and Development Camp and many customers who wanted to integrate SMRs in their energy portfolio without developing a power plant project now have the means to do so. No one in the market offers this today, and our nearest competitors are many years behind us. And while we are certainly talking with traditional utilities, our pipeline extends far beyond that. It is data centers, it is coal plant repurposing and ammonia production, and it is hydrogen production, steel producers and industrial heat. It is the communities across America that want clean energy and they want jobs.

It is American allies around the world that seek the security of reliable green energy. The interest we have received is considerable and we are laser focused on converting those opportunities to cash generating contracts. In addition to advancing dialogue with U.S. prospective U.S. customers, we have also been talking to Potential customers globally, including in France, Turkey, Morocco, Eastern Europe, and the far East. For example, in October, new scale was picked to participate in next stage of evaluation by the UK government. A fast track measure could result in a government contract within the next 10 months as part of a strategy to deliver operational SMRs by the mid 2030s. We are also continuing to establish new skill energy exploration centers or E2 centers, both in the U.S. and abroad.

These control room simulators serve as a workforce training and development tools, and provide an important opportunity to demonstrate and socialize the advanced safety and reliability of new scale’s SMR technology. Currently, we have established or planned E2 centers in the U.S., Romania and Korea. Moving on to Slide 8, I want to highlight `a few additional updates in the context of our key 2023 milestones. In July, we announced that new scale standard design approval application was accepted for the review by the U.S. NRC. The NRC provided us with a schedule for an anticipated 24-month review process for obtaining approval for a power up rate to a 77 megawatt new scale power module, which will support the capacity needs of a wider range of customers.

The design reflected in this application includes the same fundamental safety case and features approved by the Inner Sea in 2020, which should expedite the review process. With regard to manufacturing, as you recall, we place our first long lead material order with our partner Doosan Enerbility in March. Doosan continues to produce forgings in materials associated with the manufacturing of the first due scale power modules, and we are positioned to begin manufacturing our first modules later this year. When forgings will be assembled and machined to their final dimensions, we are not aware of another North American SMR vendor that has progressed to the manufacturing phase, and we are excited to continue leading the way for the industry. We are also tracking to our commercialization program advancement expectations, completing four key milestones under our U.S. Department of Energy cost share award, including a plant protection system design, and completion of the intermediate design for a reactor vessel internals.

We continue to consistently deliver on our milestones in this area, demonstrating our team’s ability to effectively execute. The progress made here will benefit all of our future customers. Now on slide nine, I will discuss new skill and Utah associated municipal power systems or UAMs. Mutual agreement to terminate the Carbon Free Power Project or CFPP. Let me start by saying that CFPP unequivocally as has been a tremendous success for new skills. Through our work with UAMs, in partnership with the U.S. Department of Energy, new skills successfully developed a detailed level three deployment schedule, prepared and submitted a limited work authorization, prepared and ready for submission a combined operate license based on new skills SMR technology, of which approximately 50% of that application is generic, and we developed our input to a detailed and comprehensive level two project cost estimate.

During this time, we also completed the Voyager 6 standard plant design, submitted our standard design approval application for a six module plant with a power rate up rate, and receive NRC approval for a means to get to a site boundary emergency planning zone. Currently, we are in a fabrication phase of our first six modules. Through our participation with CFPP, new scales successfully advanced on new scale power modules. To the point that utilities, governments and industrials can now rely on a proven small module reactor technology that has regulatory approval, is in an active production and is ready for commercial deployment. It is new scales view the project would’ve achieved the milestone related to project economic competitiveness. Despite elevated levels of inflation, rise in financing costs, and supply chain disruptions that have impacted all infrastructure projects, capital costs of CFEP have not increased between the Class 3 and the current Class 2 estimates when adjusted for inflation.

I want to emphasize that point, because not only have overall capital cost remain stable, the cost of NuScale’s SMR technology, which is just one component of the CFPP have remained steady as well. Our ability to control costs, even in challenging economic conditions is a testament to the hard work of our engineering and supply chain teams and our EC partners at floor. CFPP targeted 80% subscription for the project by year end. On our last earnings call, we shared the three ways this target might be achieved. First, by existing CFPP participants, increasing their current subscription levels. Second, by UHAMP members who are not CFPP participants, signing on to the project. And third, by CFPP, bringing in additional Western public power utilities, investor-owned utilities and data center operators and industrial customers.

Despite significant efforts by both parties to advance the CFPP, it appeared unlikely that the project would have enough subscription to support deployment. Therefore, UAMPS and NuScale mutually determined that ending the project was the most prudent decision for both parties. Importantly, we are working to assure a successful transfer of long lead materials for the next six NuScale power modules currently under development to be used by another customer. NuScale has established our industry-leading position in large part, based on a work with the CFPP. Despite not reaching the subscription levels required for this phase of the project continued toward deployment, CFPP was a tremendous success for a business, and I couldn’t be prouder of our team and their accomplishments.

We remain bullish on the future and our agreement with ENTRA1 and Standard Power to not even scratched the surface, so to speak, of demand we see around the world. Looking ahead, we believe our partnership with ENTRA1 derisk future projects for many of the commercial challenges we experienced within CFPP. And we look forward to committing our efforts and resources to a productive new business development opportunities such as Standard Power. In summary, our competitive position is stronger than ever. Our continues world-class technology and IP, operational and regulatory excellence, deep NuScale experience, a highly capable partner and a derisk supplier ecosystem will continue to support our ability to generate long-term value shareholders.

Now I will hand it over to Ramsey to provide our financial update. Ramsey.

Ramsey Hamady: Thank you, John, and hello, everyone. Our financial results will be available in our filings, so my focus will be on explaining major line items, our cost-cutting efforts, and the basis of presentation of our third quarter financials. All figures following refer to NuScale third quarter 2023 results unless I say otherwise. First, as recently announced, NuScale and UAMPS have agreed to terminate the CFPP. While this occurred subsequent to the September 30th close, our third quarter financials have been presented to account for the significant events. As I discuss in our financial results, I will highlight key items impacted by the termination of CFPP and discuss our treatment of those items. NuScale generates cash and revenue from three sources.

The sale and delivery of NuScale power modules or NPMs, and other equipment we have developed. Licensing of our technology and services. Most of our revenue received to-date is from licensing of our technology and services for our customers. In the early phases of project development, NuScale generates revenue by supporting a number of project development activities such as sighting, licensing and front end engineering and site specific design work, and project planning. As seen on Slide 10 revenue for the third quarter of 2023 was seven million. Research and development costs during the third quarter of 63.7 million increased compared to the same period in the prior year. Due to NuScale incurring, a 35.4 million additional expense resulting from the anticipated termination of the – agreement.

Otherwise, third quarter research and development costs will have decreased 6.1 million from the same period in the prior year. Consistent with our plan to ship financial resources to sales and commercialization as we pivot from our R&D phase. Loss for the quarter of 58.3 million was larger than for the same period in the prior year due to the – charge, partially offset by lower compensation costs and in unrealized gains on the value of our warrants. NuScale ended third quarter with cash of 197 million and no debt. Approximately 79 million of that is restricted cash use this collateral for a layers of credit, and 118 million unrestricted cash. Investors will know CFPP liability of 34.5 million recorded on our balance sheet, which reflects our estimate of amounts owed to CFPP in relation to net development costs at September 30th.

A more nuanced note in the second quarter asset long-term contract work in process is now identified as long leave material working process to better reflect the nature of the assets in anticipation of the termination of the contract. We believe that the restricted cash under our letter of credit is in excess of our anticipated termination and demobilization expenses, and the unwinding of CFPP will have a net positive impact on unrestricted cash. We expect that our fourth quarter financials will reflect the final disposition of amounts paid to amps as part of closing out CFPP and remaining cash released to the company from our letters of credit. During the nine months period ending September 30th, our operating cash flow was negative 110 million.

Management remains committed to conserving cash, reducing research and development expenses and administrative overhead, and focusing on sales and revenue generating activities. During our fourth quarter earnings call, we expect to detail our work agreement standard power, as well as provide 2024 financial guidance. Apart from our ATM facility, where we realized proceeds of 7.9 million from share sales, we are not currently considering any other public offspring or debt financing. As we work diligently to advance through the development stages of our current contracts and secure new ones, we will maintain our financial discipline and selectively consider capital raising to sustain a conservative liquidity reserve. As well establish that there is an urgent need for advanced clean energy solutions that can help meet climate goals while bolstering energy security.

NuScale well positioned to meet this need through the sale and licensing of our power plants and supplying NPMs and other equipment services in connection with these sales. We are pleased with our progress in the steps we are taking towards program commercialization, especially relative to competition. With that, I would like to thank you again for joining today and for your continued support of new scale. We will now take questions. Operator?

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Q&A Session

Operator: [Operator Instructions] And your first question comes from the line of Marc Bianchi from TD Cowen. Your line is open.

Marc Bianchi: Hey, thank you. Maybe Ramsey to start with you because you were just talking about some of these items related to the UAMPS, project and the development cost reimbursable agreement. Of the 79 million of restricted cash, how much would you anticipate going back into unrestricted cash? And my understanding from this previously was that you would be taking ownership of some long lead items and some other things from CFPP, but then you would sell those to another project. Does that need to happen to really get to that net cash balance to the unrestricted cash.

Ramsey Hamady: Marc, this is Ramsey. It is great to hear from you. And thank you very much for that question. We have been working very hard to come to a release agreement between ourselves and UAMPS in relation to CFPP. As you will note, we have had 79.2 million of restricted cash on our balance sheet, approximately 77.6 in real credit commitment. The rest related to fees for the LC. We expect now it is a condition of the release agreement that we will make a payment to UAMPS of 49.8 million. That covers cost relation to the coal development EPC long leave materials. We also anticipate that we will open a new letter of credit in the amount of 5.1 million, five million effective credit commitment. Therefore, of the 79.2 million, we expect that we will have about 04.3 million released as cash.

Marc, we anticipate that there will be some demobilization costs and other costs, which we may realize most likely actually quarter one towards the end of quarter four. But the near-term impact is 24.3 million release of cash.

Marc Bianchi: Got it. And of that 49.8, is there any netting of that if you are able to sell long lead items into row power or something like that or what is the dynamic there?

John Hopkins: We are still working with CFPP and DOE. I think it is a bit early for us to comment, but our intent most certainly is to take these long lead materials that we and CFPP and the DOE have invested a lot of money in and employ them as they are meant to be employed into a new project.

Marc Bianchi: Yes. Okay, great. Another one on cash. So you reiterated guidance for cash use this year, which could imply that the cash consumption in fourth quarter, at least at the midpoint would be similar to what you did. In the third, I’m sure you are not ready to talk about 2024. In terms of cash use, but maybe if we just think about this run rate right now, if you consumed 18 million in the third quarter, excluding these items with UAMPS that we were just talking about and talking about sort of the go forward business, what would the cash flow profile look like? Should it be getting better or should it be getting worse and under what circumstances?

John Hopkins: Sure. Let me answer that in two ways. I think for Q4 is we are heading in and I will use a round number here, the real numbers197, but if we are heading in with about 200 million is at the end of September 30th. We believe that we should take in about 50 million worth of cash. Customers from work that we do. We imagine that we will spend about 50 million and about 50 million will be consumed within that 49 million payment, the 49.8 million payment I mentioned in relation to the release agreement. So we think fourth quarter will be down from the 197 to about, 147, 158. In relation to 2024, I want to be clear on something. NuScale has a lot toggles that we are able to employ to manage our cash flow. This isn’t just a fixed expense business.

There is variable expense and there is a lot discretionary spending. We spend more as we have contracts and we pull in our spending as contracts either get pushed out or delayed or whether we want to focus more on discretionary spend or non-discretionary spend. So I think that, just as a general comment, Mark, and really important here is, we feel we are a very good cash position. I want to reiterate something I mentioned in the earlier comments, we are not out in a position to raise cash, and we are not out right now with a public offering. We will selectively look at it. We are being prudent about our use of capital, and we understand that preserving value for investors is our utmost priority. So we feel we are in a very good position.

Marc Bianchi: Okay. That is helpful. The other one I had is related to Standard Power and ENTRA1. It seems like a great opportunity, but a lot of investors have mentioned that, these two entities are very unknown and when you go to their websites, there is not a whole lot there. If you try to Google them, it doesn’t appear that there is a lot of reference out there that at least, we can find as outsiders. So investors are wondering how capable they are of really getting these projects across the finish line. So maybe you could share a little bit more to the extent you are able to about, who these counterparties are and why they should be viewed as a strong developers of these projects?

Ramsey Hamady: Mark, I want to, maybe go back to some of the comments that John made earlier, in a sense that, as a management team, we spend a lot of time vetting central clients. We spend a lot of time vetting into one as a development partner. This is what we do for a living, and we feel strongly that the business model that ENTRA1 has developed has been a great enabler. That business model has resonated with customers, utilities, industrials, and others and resulted in a very significant pipeline for us. Standard Power has been speaking to for over a year. We have vetted them well, and we feel that Standard Power is a great customer for us. And we know that the sites that they are developing are real sites and we vetted those as well. I think it is unfortunate that we can’t release too much information to the market at this stage, but we expect to in the very near-term.

John Hopkins: Mark, this is John. We have been in discussion with Standard Power for quite some time. It is just coincidentally that the ENTRA1 also knew those same players and engaged in the process and Standard Power immediately gravitated to the model potentially they are offering. So the discussions are going on right now in the development of the phase. Arguably, you could say, should the announcement had been made back in October 6th, but the announcement said essentially that, that Standard Power, the customer elected to chose NuScale Technology is a technology of choice going forward. So we are in the process right now with ENTRA1 and Standard Power in developing that deal. And then hopefully, in the near-term, as Ramsey mentioned, we will be able to bring forth more data to the market.

Operator: And your next question comes from the line of Ryan Pfingst from B Riley. Your line is open.

Ryan Pfingst: So I was just wondering, when do you expect to complete a project cost estimate for the standard Power projects? Is that a near term phenomenon or even before we get there, could you give a very early stage estimate of the project cost that we are looking at for those two?

Ramsey Hamady: Ryan, this is Ramsey again. Thank you for joining us. Thank you for the questions. It is still a little bit early for us to comment on the structure and the nature of the contract with Standard Power. It is something that we are actively working with. I would mention here that really the customer is ENTRA1 and this relationship. And Clayton Scott, I think we have our Chief Commercial Officer on the line. He may be better positioned to comment on what we have coming down the line just from a timing perspective.

Clayton Scott: Yeah, as everybody stated now, those discussions and those contractual alignments are still being worked. We are in a 90-day period to put those definitive agreements together. So it will be sometime early in the first Q1 where we will have a more firm vision on this. If we are in a position to be able to release something sooner, then that is something we will certainly address. But right now, I don’t think we are in a place to kind of outline where those are going to lie. But I will say directionally, it is in a much better direction than what we have seen in other projects.