NuScale Power - Q4 2023

Transcript

Operator (participant)

Good afternoon, and welcome to NuScale's Q4 and full year 2023 earnings results conference call. Today's call is being recorded. All participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw that question, again, press star one. Thank you. 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 (Director of Investor Relations)

Thank you, operator. Welcome to NuScale's Q4 and full year 2023 earnings results conference call. With us today are John Hopkins, President and Chief Executive Officer, and Ramsey Hamady, Chief Financial Officer. On today's call, NuScale will provide an update on its business and discuss financial results. We will then open 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 statements on slide 2, the information set forth in the presentation and discussed during the course of our remarks in 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 10-K for our fiscal year 2023 and in our prior SEC filings. I'll now turn the call over to John Hopkins, NuScale's President and Chief Executive Officer. John?

John Hopkins (CEO)

Thank you, Scott, and good afternoon, everyone. First, I'd like to thank our shareholders for their continued support and belief in the future success of NuScale. I also want to recognize our global strategic partners, who have invested significant time and capital into our advanced design, supply chain, and delivery capabilities. In addition, I'd like to express how incredibly proud I am of each and every NuScale employee for their dedication, fortitude, and commitment to our values and mission. Together, I believe we have the capacity to improve and advance global power production to meet the future energy demands of our communities and businesses with clean, safe, and highly innovative small modular reactor nuclear technology. When Dr.

José Reyes, NuScale's Founder and Chief Technology Officer, started his pioneering work developing SMR technology. Few could have anticipated the growth and demand for sustainable baseload, 24/7 carbon-free energy, driven by power usage among data centers and AI, major industrial projects, transportation, and utility customers. Today, as seen on slide 3, we have invested more than $1.8 billion to develop the sole small modular reactor, or SMR, nuclear technology approved by the U.S. Nuclear Regulatory Commission, or NRC. No other technology developer, as we know, even has a design certification application under review. This process requires several years and many hundreds of millions of dollars of investment. Looking ahead, our principal objective at NuScale is on transitioning from R&D to the commercialization of our proprietary technology.

In this effort, we have engaged with our commercial partner, Entra1 Energy, to build a diverse global pipeline and deploy NuScale SMR-enabled plants worldwide. Additionally, with the investment and expertise of our strategic partners, we have de-risked the manufacturing supply chain while maintaining scope for localization of certain supplies. Moving to slide 4, last year, we made important progress on regulatory and manufacturing milestones. Let's start with the regulatory. In July 2023, NuScale's standard design approval application for a 77-MW upgrade design was accepted for review by the U.S. Nuclear Regulatory Commission. The NRC frequently reviews power upgrade applications similar to our move from a 50-MW to a 77-MW design, and we expect the NRC's process to conclude within 24 months. There are no perceived challenges to the process or timeline.

While the design is based on the same fundamental safety case and features approved by the NRC in 2020, we strongly believe the 77-MW NuScale Power Module supports a wider range of customers. In addition, we have worked tirelessly to advance our manufacturing readiness. As you will recall, we placed our first long-lead material order with Doosan Enerbility in March of 2023, and last month, we visited Doosan at their world-class factory in Korea. There, we had the opportunity to witness the tremendous investment Doosan has made in advancing our production capabilities, including developing specialized technologies to manufacture forges and other materials associated with the first NuScale Power Modules. The scale of their facilities is absolutely astounding, and we are grateful for their partnership. For all of us, it is thrilling to see NuScale technology come to life.

Our Korean, Japanese, American, and other international supply chain relationships are true competitive advantages for NuScale.... Even more so when you consider that many of these partners are also strategic investors. For over 10 years, NuScale has been working directly and continuously with more than 23 uniquely capable suppliers to jointly progress our design for manufacturing readiness. These suppliers have provided unwavering support of our efforts, and as a result, NuScale's supply chain is leading the industry in terms of manufacturing readiness. In addition to these operational milestones, we have continued to deepen our customer relationships and expand our pipeline, as you see on slide 5. First, I'll provide an update on RoPower. In the near term, we are working to advance the phase two of the front-end engineering design or FEED work. NuScale will be providing engineering support services to Fluor Corporation in this effort.

RoPower's partners, Nuclear Electric SA and Nova Power & Gas, are experienced plant owners and operators in the nuclear space. Additionally, both the Romanian and U.S. governments are highly engaged in the process. As proposed, FEED phase II work will include site characterization and regulatory analysis, and the development of a site-specific schedule and budget estimates for project execution. While NuScale contracted directly with RoPower to complete FEED phase I, NuScale is serving as a subcontractor to Fluor Corporation for RoPower FEED phase II. Moving on to Standard Power. In October 2023, Standard Power announced their selection of NuScale's SMR technology, along with their need for a one-stop-shop solution to develop and execute their projects. As you recall, Standard Power is a provider of infrastructure-as-a-service to advanced data processing companies.

As part of their responsibility, Standard Power are currently working to line up the initial phase of financing towards two SMR plants. Each will be powered by 12 NuScale Power Modules, producing nearly 2 gigawatts of energy at sites in Ohio and Pennsylvania. A project this size has a significant amount of detail that is confirmed and structured before a project begins construction, and those discussions are ongoing. We'll keep our investors and partners updated on this progress. While we are moving full speed ahead with other opportunities in our business development pipeline, we remind our investors that given the scope and impact of these projects, discussions are detailed, deliberated, and staged in their progression. Looking at the demand environment more broadly, the need for clean, reliable power is far outpacing new supply coming online.

As you see on slide 6, electrification of the transportation, building, technology, and industrial segments is contributing to a so-called land grab as the electric power industry prepares for a tripling of U.S. demand by 2050. This comes into even greater focus when you consider that the U.S. is on track to close half of its coal-fired generation capacity by 2026, just 15 years after it reached its peak in 2011. The retirement of such base load power, largely replaced by renewables, are making grids increasingly vulnerable to intermittency. Reinforcing and expanding the power grid remains an important opportunity for NuScale. Drilling down deeper, I'd like to spotlight a fast-emerging opportunity in the technology sector. Simply put, each tech company in the world is investing heavily in hyperscale data processing infrastructure. Furthermore, these planned data centers are enormous energy consumers.

Securing access to green 24/7 reliable power is critical for them to get site permitting and fulfill their clean energy commitments. As you see on slide 7, data center electricity consumption is expected to triple between 2020 and 2030, which is astonishing. That increase alone is equivalent to the electricity used by 40 million U.S. homes in a year, or almost a third of the total homes in America. NuScale is in discussions with major data center operators today. We see firsthand the significant interest from this group for dedicated, reliable, clean power solutions. Despite the growing demand, many potential customers are not necessarily interested in owning or operating their own nuclear power plants. That's where our partnership with IntraOne comes in. IntraOne will serve as a project developer and bring together the total package of our NuScale technology with their capabilities in construction, financing, operation, and ownership.

This one-stop-shop solution has opened the aperture for customers considering SMRs in their energy portfolios. Early conversations are very encouraging, and we believe this partnership has changed the commercial trajectory of NuScale. Next, I will discuss our prospects with industrial companies, including a specific emphasis on using process heat to produce commercial-scale, clean chemical production, which you see on slide 8. NuScale enjoys numerous decisive advantages relative to both SMR technology competitors as well as other energy sources relating to safety, siting, off-grid capabilities, and capacity factors, and more. Continuing on slide 9, NuScale enables clean chemical production, providing a safe, clean, reliable baseload source of energy with a very small land footprint. Our emergency planning zone allows us to co-locate with production facilities. This positions us very favorably when speaking with prospective customers.

We are currently engaged in eight separate funded projects related to NuScale integrated energy systems for chemical production. In fact, next week, Dr. Reyes will be speaking at the World Petrochemical Conference in Houston. We are the only nuclear company to have received an invitation, and reflects our leadership amongst this customer group. Given rising demand for power and the tax credits available for advanced nuclear in the IRA, we anticipate adoption of our technology to accelerate. We continue to have constructive, highly positive, and ongoing dialogues with major utilities, industrial and technology companies, as well as local and national governments in the U.S. and globally. In summary, we have significant opportunities in front of us as we continue to build momentum, grow our business, and deliver on our commitments, and we are well-positioned to capitalize in the year ahead.

Now, I'll hand it over to Ramsey to provide our financial update. Ramsey?

Ramsey Hamady (CFO)

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 expectations. I'll start by discussing our Q4 results found on slide 10, then touch on 2023 full year. All figures following are for Q4 2023s, unless I state otherwise. I will remind you that the NuScale revenue model consists of three sources. First, the sale and delivery of NuScale Power Module and other equipment we have developed. Second, licensing our technologies, and third, services. In the early stages of a project, we generate services revenue by supporting several development activities, such as siting, licensing, and front-end engineering, and site-specific design work, and project planning. Most of our revenue earned to date is from services for our customers and the licensing of our technology.

During 2024, we anticipate advancing existing customers and adding new committed customers from our business development pipeline, which will improve cash generation and revenue. During this discussion, please keep in mind our Q4 results were impacted by the mutual termination of the Carbon-Free Power Project, or CFPP, announced by NuScale and the Utah Associated Municipal Power Systems, or UAMPS, in early November. As part of this termination, a release agreement was signed, resulting in a payment of $49.8 million to CFPP. As I discuss our financial results, I'll highlight key items impacted by the termination of CFPP and detail our treatment of those items. Revenue for the Q4 was $4.6 million. Research and development costs during the period was $37.8 million, slightly lower when compared to the same period in the prior year.

However, this figure includes $11.4 million in additional expenses resulting from the termination of the CFPP-related Development Cost Reimbursement Agreement, or DCRA. Otherwise, Q4 research and development costs would have decreased $11.6 million from the same period in the prior year, consistent with our plan to shift financial resources to commercialization as we pivot from our R&D phase. Loss for the quarter of $56.4 million was larger than for the same period in the prior year due to the CFPP-related DCRA charge, partially offset by lower professional fees. Following our payment to UAMPS under the release agreement, NuScale ended the Q4 with cash of $125.4 million and no debt. Approximately $5.1 million of that is restricted cash, of which $5 million is earmarked for demobilization costs related to CFPP.

As we discussed on the Q3 earnings call, the restricted cash under our letter of credit was in excess of our anticipated termination and demobilization expenses. For full year 2023, we anticipated negative cash flow from operations range of $102 million-$142 million. Excluding expense from CFPP termination, a one-time event, we will have ended the year with negative cash flow from operations of $133.5 million. Including the CFPP termination, we ended the year with negative cash flow from operations of $183.3 million. Looking ahead to 2024, NuScale is well positioned for our next phase of growth as we commercialize our technology, which includes near-term deployment and manufacturing.

We have built a strong foundation, including world-class research and development and a powerful global supply chain, to support the advancement of our strategic and operational objectives in 2024 and beyond. In January, we executed a proactive plan to better position our company commercially, financially, and strategically. This included a prudent reduction in our cost base, which will generate substantial annualized savings and create additional financial and commercial flexibility this year. 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 may selectively consider capital raising to sustain a conservative liquidity reserve. Before we go to Q&A.

I want to note that NuScale filed an 8-K after market close today, which includes our earnings release, balance sheet, and income statement. Our 10-K will be filed Friday. With that, I'd like to thank you again for joining today and for your continued support of NuScale. We'll take questions now. Operator?

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star followed by the number 1 on your telephone keypad. Your first question comes from the line of Marc Bianchi from TD Cowen. Please go ahead.

Marc Bianchi (Managing Director)

Hey, thanks. I guess first one, Ramsey, on the cash balance, $125 million. How do you see that progressing in Q1 and for 2024? And maybe you could talk to us about, you know, what could cause that outlook to be better or worse than what your base case might be?

Ramsey Hamady (CFO)

Oh, Mark, I'd be happy to do that. I think from a management perspective, there are three main toggles when we focus on cash. One is revenues, one is cost savings, capital markets. I feel that we're entering 2024 with very solid footing in terms of visibility to revenue-generating business. We started the year with a tremendous cost-cutting effort, which I think really aligned our and optimized our resources more efficiently towards the commercialization process that we're embarking on. And finally, we have capital markets available to us. As, as disclosed, we, we have an ATM facility. It's something that we use very sparingly, and, I think that really just a focus on revenue generation and expense reduction, critically, the management is, is management's approach to 2024.

I think that puts us in a very good position towards the end of the year.

Marc Bianchi (Managing Director)

Okay, could you perhaps put some numbers around it just so we can maybe understand the boundary of outcomes?

Ramsey Hamady (CFO)

Sure, Mark. You know, I haven't. And I know that we've had this discussion before with the analyst community, where we have not provided guidance on numbers. I think that as NuScale goes towards commercialization and starts to build a stable portfolio of revenue-producing contracts, those items and those ideas of forecasting cash and revenue numbers will become a little bit more clear as we progress the business. So, Mark, we haven't provided guidance for a reason, right? You know, we're looking at a handful of contracts this year, and they'll be pretty lumpy contracts. So until we get those moving in place and understand the timing of deliveries, we're not going to give any guidance on numbers.

Marc Bianchi (Managing Director)

Got it. Okay. You mentioned the flexibility on capital raise with the ATM. Have you done anything here so far this year? I mean, the stock has had quite a run here in the last couple weeks.

Ramsey Hamady (CFO)

We will disclose in the 2023 financial use of the ATM over 2023. I don't disclose what I've done in the current quarter, but I think it's pretty evident from our stock move that management has treated the ATM with the utmost of care, you know, for, for our cash reserves requirements as well as for our shareholders.

Marc Bianchi (Managing Director)

Okay, great. Maybe just one more, if I could, on just Entra1, Standard Power. Anything to update on that opportunity? And then, you know, if there isn't, maybe you could help us frame when we might expect an update there.

Ramsey Hamady (CFO)

John, do you want to take that question? John?

John Hopkins (CEO)

My apologies.

Ramsey Hamady (CFO)

Uh, so-

John Hopkins (CEO)

No, I get it. I was on mute. I'm sorry. No, Mark, and as you, if you recall, in October, Standard Power announced that they selected NuScale as the technology of choice. We've been in discussions on a regular basis with them. It's a complicated process. They're looking at two facilities, and we've got two gigawatts of carbon-free energy from us at a site in Ohio and a site in Pennsylvania. We've been in regular discussions as Entra1 progresses along, so hopefully here in the nearer term, that we'll be able to say something, but we'll definitely keep you advised as this thing proceeds. It's very much still in play.

Marc Bianchi (Managing Director)

Yeah. Okay, thank you. I'll turn it back.

Operator (participant)

As a reminder, if you would like to ask a question, please press star one. Your next question comes from the line of Leanne Hayden from Canaccord Genuity. Please go ahead.

Leanne Hayden (VP and Equity Research Sustainability)

Hi, everyone. Thanks so much for taking my questions. Just to start, I was curious to know how confident you guys are in your ability to scale manufacturing. You know, just given that this is a pretty new technology, you're not very integrated. Just how confident are you that you can move from design to manufacturing?

John Hopkins (CEO)

You know, one thing we've done is a lot of monies. With the $1.8 billion that's been invested in NuScale, a lot of that money was de-risking our module and actually scaling up and modeling to where a lot of it's off the shelf. And as we mentioned before, our fuel comes from traditional, conventional fuel. Also, from a supply chain, we continue to build out, but I was just with—this is John Hopkins, with the CEO of Doosan, as I mentioned during the script, that they made significant progress anticipating the future of modules. Because as you know, our model is predicated not just do a one-off project, it's these are fungible assets. We're gonna build them in a factory and ship them.

And so right now, we're pretty confident we'll keep up the demand as it comes in, but we're also very cognizant we're not gonna overextend our capacity to execute, which is very key. So, you know, with our strategic partners, and the beauty of these strategic partners in Japan and Korea and the US, not only are they suppliers or OEMs, but they're also investors. So they're taking a holistic view, not looking at a one-off, which affords us very competitive rates from them. Because the way we operate is that these suppliers recognize they have to be commercially viable. It's just not viable. They're just not a given that work will come that way.

So I was just with the CEO of Doosan, my team was just out in Japan, and we stay in regular contact, and we continue to build our supply chain out, both locally within the U.S. and international.

Leanne Hayden (VP and Equity Research Sustainability)

Okay, got it. Great. Thank you for that. When can we expect an additional project announcement? And in your opinion, if you have any visibility, what are the likely markets that we should expect that announcement in? Like, whether it's international or data center related, or it's coal to nuclear reprocessing or chemical production, what do you expect to see?

John Hopkins (CEO)

Well, let me just say, you know, this time last year when we talked, it was all about coal refurbishment, working with utilities, and it quickly became more process-oriented, where industrials are looking at clean energy for process heat or hydrogen ammonia. And now there's the big push on energy consumption for data centers and AI. Where I think near term we could come from is the project we mentioned in RoPower. I'm hopeful that in April, we've pretty much—Fluor is the prime on this with a subcontractor. Fluor is operated under a limited notice to proceed. We're in the final negotiations of our limited notice to proceed, as well as our technology licensing agreement. So the timeline right now, hopefully, is by early April, we'll be doing a signing ceremony to kick off this project.

So that one could be first out of the chute, or again, as I said before, I don't want to set an early expectation, but our project with Standard Power still continues to proceed. So and then I will say I've never seen anything like it, this whole data center AI, with some of the tier one alphas in that industry. They need energy, and we're in discussions with not only tier one, but others. So it's timing is everything, but we're just seeing the market continue to build.

Leanne Hayden (VP and Equity Research Sustainability)

Okay. All right, great. Then just last one from me: How should we be thinking about OpEx moving forward, especially given the recent headcount reduction?

John Hopkins (CEO)

If you think of the headcount reduction, what we did, we went from predominantly research and development over the years, which got us through the Nuclear Regulatory Commission licensing process, and also helped us—not only helped us, but allowed us to do all the modeling and the scaling up of our equipment. Now, we're going into the commercialization and deployment, which some of it requires different skill sets. So what we are assured of and what our customers have asked us, "Do you have the capacity to execute?" And that's what the bottom line is. So we're not in a position where we don't have those people to execute these initial projects. So I'm pretty secure we're not gonna have a problem in that area.

Ramsey Hamady (CFO)

John, I may add to that. The idea is that as we went through this cost reduction exercise, you know, what we really did also was kind of right-size some of the general administrative costs within the company. I think what you'll see is that as we start to generate revenues, we'll have less of that, SG&A overhead and looking at a higher rate of profitability. That's really what we're going for with that type of idea. And when we mentioned the reduction forces, John had said that we've maintained, I think, the core DNA of the intellectual capacity of the company. That was a very well-calibrated, very well-planned action. You know, our OpEx, even today, remains very low, and I think we remain very nimble in our ability to scale as revenues come up, manage our margin, and really have a view towards cash.

Leanne Hayden (VP and Equity Research Sustainability)

Okay. That makes sense. That's all from me. Thank you, guys.

Ramsey Hamady (CFO)

Thank you.

John Hopkins (CEO)

You bet. Thank you.

Operator (participant)

Your next question comes from the line of Ryan Pfingst from B. Riley Securities. Please go ahead.

Ryan Pfingst (Senior Equity Research Analyst)

Hey, guys. Thanks for taking my questions.

John Hopkins (CEO)

You bet.

Ryan Pfingst (Senior Equity Research Analyst)

First one, looks like nuclear's been getting a lot of federal support in the news lately between the Atomic Energy Advancement Act and budget requests not only for 2024, but for 2025. Can you talk about how some of those initiatives that you've seen could impact NuScale and potential customers in the U.S.?

John Hopkins (CEO)

Absolutely. In fact, great question. We have both my CLO and my general counsel were on the Hill this week. There's a bill advancing in Congress that would allocate about $800 million to a competitive cost share award, but not more than 2 SMR deployments in the U.S. Also, an additional $100 million for SMR manufacturing that could be deployed no later than 2030. We're anticipating, if it hasn't already been approved, to be approved. So the U.S. government stays very strong behind this industry, and we also still continue to have very strong advocacy from the Department of State on international markets.

Ryan Pfingst (Senior Equity Research Analyst)

Got it. That's helpful, and that, that kind of leads into my second question internationally. Last week, FuelCell Energy talked about its participation in a private-public partnership related to ammonia production in Ukraine, where NuScale is expected to potentially supply the SMRs. I think the project was announced over a year ago, but their comments made it seem like it's progressing. Is there anything to share from NuScale's end on that one?

John Hopkins (CEO)

Yeah, that came about during COP 27 at Sharm El-Sheikh, Egypt. If you recall, I was on stage as John Hopkins with Secretary Kerry, and he announced that the US is gonna assist Ukraine in deploying an American technology NuScale for the ammonia hydrogen production, predominantly ammonia, and we're still in discussions. You know, unfortunately, until the situation gets to the point that we can actually execute and the bombs stop falling, but we are still in negotiations with that consortium. It's amazing because you can well imagine the power requirements that's gonna be required in the Ukraine at such a time that when we're allowed to get in. So does that help?

Ryan Pfingst (Senior Equity Research Analyst)

Yep, makes sense. Appreciate that, Colin.

John Hopkins (CEO)

You bet.

Ryan Pfingst (Senior Equity Research Analyst)

I'll turn it back. Thanks, guys.

Operator (participant)

We have no further questions in our queue at this time. I will now turn the call back over to John Hopkins for closing remarks.

John Hopkins (CEO)

Yeah, thank you very much. You know, it's I just believe NuScale is still very well positioned as a first mover in the SMR space, and we're poised to commercialize and deliver clean energy at scale. Nuclear technology, we believe, is absolutely essential to powering the global energy transition. We also strongly believe we continue to be at the forefront of that effort with our work to deliver safe, scalable, and reliable carbon-free nuclear power. And I wanna thank everybody on the call today and, more to come. Thank you very much.

Operator (participant)

This concludes today's conference call. Thank you for your participation, and you may now disconnect.