NUSCALE POWER Corp Q4 FY2023 Earnings Call

Good afternoon, and welcome to NuScale's Fourth Quarter and Full Year 2023 Earnings Results Conference Call. Today's call is being recorded. 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.

Thank you, operator. Welcome to NuScale's fourth quarter 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 we 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 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?

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. Jose Reyes, NuScale's Founder and Chief Technology Officer, started his pioneering work developing SMR technology, could anyone have anticipated the growth in demand for sustainable baseload 24/7 carbon-free energy driven by power usage amongst 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 only small modular reactor 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. The initial process requires several years and many hundreds of millions of dollars of investment. Looking ahead, our principal objective at NuScale is 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 derisked 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 regulatory. In July 2023, NuScale's Standard Design approval application for its 77-megawatt upgrade design was accepted for review by the U.S. Nuclear Regulatory Commission. The NRC frequently reduced power upgrade applications similar to our move from a 50-megawatt to a 77-megawatt design. But we expect the NRC 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-megawatt 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. 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 special life technologies to manufacture forgings 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 for our efforts. 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 Phase 2 of the Front-End Engineering and Design or FEED work. NuScale, we provide engineering support services before corporation in this effort. RoPower's partners, Nuclearelectrica 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 2 work will include site characterization and regulatory analysis in the development of a site-specific schedule and budget estimates for project execution. While NuScale contracted directly with RoPower to complete FEED Phase 1, NuScale has an agreement with Nucor Corporation for RoPower FEED Phase 2. 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 is 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 two gigawatts of energy at sites in Ohio and Pennsylvania. A project of this size has a significant amount of detail that must be confirmed and structured before construction begins, 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 of details are 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, the 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 baseload power, largely replaced by renewables, is 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 site permitting and fulfilling their clean energy commitments. As you see on slide 7, 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 significant interest in this group for dedicated, reliable clean power solutions. Despite the growing demand, many potential customers are not necessarily interested in owning or operating nuclear power plants. That's where our partnership with ENTRA1 comes in. ENTRA1 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 processes to produce commercial-scale clean chemical production, which you see on slide 8. NuScale enjoys numerous decisive advantages relative to both SMR technology competitors and other energy sources related to safety, siting, off-grid capabilities, 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 collocate with production facilities. This positions us very favorably when speaking with prospective customers. We are currently engaged with 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, reflecting our leadership among this customer group. Given the rising demand for power and the tax credits available for advanced nuclear in the IRA, we anticipate the 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?

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 fourth quarter results found on slide 10 and then touch on 2023 full year. All figures following are for Q4 2023, unless I say otherwise. I will remind you that the NuScale revenue model consists of three sources: first, the sale and delivery of NuScale Power Modules and other equipment we have developed; second, licensing our technologies; and third, services. In the early stage of a project, we generate services revenue by supporting several development activities such as siting, licensing, front-end engineering, and site design work and audit 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 for our business development pipeline, which will improve cash generation and revenue. During this discussion, please keep in mind our fourth quarter 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 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 fourth quarter was $4.6 million. Research and development costs during the period were $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 agreements or DCRA. Otherwise, fourth quarter research and development costs would have decreased by $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. The 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 under the release agreement, NuScale ended the fourth quarter 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 third quarter earnings call, the restricted cash under our letter of credit was in excess of our anticipated termination and demobilization expenses. For the full year 2023, we anticipate negative cash flow from operations in the range of $102 million to $140 million. Excluding expenses on CFPP terminations, a one-time event, we would 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 the 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 proven reduction in our cost base, which will generate substantial annual 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?

Your first question comes from the line of Marc Bianchi from TD Cowen.

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

I'd be happy to do that. From a management perspective, there are three main cogs to keep an eye on cash: one is revenue, one is cost savings, one is capital markets. I feel that we're entering 2024 with very solid footing in terms of our visibility to revenue-generating business. We started the year with a tremendous cost-cutting effort, which I think really aligned our sources more efficiently towards the commercialization process that we're embarking on. And finally, we have capital markets available to us. As disclosed, we have an ATM facility, which we use very sparingly. I think that focusing on revenue generation, expense reduction, and prudent liquidity management is management's approach to 2024. I think that would put us in a very good position towards ending the year.

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

Sure, Marc. We haven't provided guidance on numbers in the past during discussions with the analyst community. As NuScale progresses towards commercialization and starts establishing a stable portfolio of revenue-generating contracts, our ideas about forecasting revenue will become clearer. For now, we haven't given guidance for a reason. We are considering a few contracts this year, but they are expected to be inconsistent. Until we secure those contracts and understand the timing of deliveries, we won't provide any numerical guidance.

Got it. Okay. You mentioned the flexibility on capital raise at 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 of weeks.

We will disclose in the 2023 financials the 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 movements that we manage the ATM with great care, considering our cash flows and also for our shareholders.

Okay, great. Maybe just one more if I could on just ENTRA1 Standard Power. Anything to update on that opportunity? And then if there isn't, maybe you could help us frame when we might expect an update there?

I get it. I was on mute. I'm sorry. No, Marc, as you mentioned in October, Standard Power announced that they selected NuScale as their 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 about two gigawatts of carbon-free energy from us in a site in Ohio and a site in Pennsylvania. We’ve been in regular discussions as ENTRA1 progresses with us. So hopefully, in the near-term, we’ll be able to share something, but we'll definitely keep you informed as things develop. It's very much still in play.

Your next question comes from the line of Leanne Hayden from Canaccord Genuity.

Just to start, I was curious to know how confident you guys are in your ability to scale manufacturing, just given that this is pretty new technology and you're not very integrated. Just how confident are you that you can move from design to manufacturing?

We're very confident. One thing we've done is invested a lot of money—much of the $1.8 billion that’s been invested in NuScale was derisked in our module, allowing us to scale up and model these systems. Additionally, as we mentioned before, our fuel comes from traditional conventional sources. Our supply chain continues to build out, but I just met with the CEO of Doosan, as I mentioned during the script; they have made significant progress anticipating the future production of our modules. As you know, our model is not predicated on just a one-off project; these are fungible assets. We're going to build them in a factory and ship them. Right now, we're confident we can meet demand as it arises, but we are also very cognizant of not overextending our capacity to execute, which is key. Our strategic partners in Japan, Korea, and the U.S. are not only suppliers or OEMs, but they are also investors. They’ve taken a holistic view and are concerned with being commercially viable. So we continue to build our supply chain locally in the U.S. and internationally.

Okay, got it. Great. 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 from? Whether it's international, data center-related, coal to nuclear reprocessing, or chemical production, what do you expect to see?

Well, let me just say, this time last year, we talked about coal refurbishment working with utilities. That shifted quickly to processes where industrials are looking at clean energy for process heat or hydrogen and ammonia. Now, there's a big push for energy consumption from data centers and AI. Near-term, I foresee potential announcements coming from the project we mentioned in RoPower. I'm hopeful that by April, we can finalize the Fluor project with the subcontractors. Fluor is operating under a limited notice to proceed, and we're in the final negotiations of our limited notice to proceed, as well as our technology licensing agreement. So the timeline right now, ideally, is by early April, we will have a signing ceremony to kick off this project. That could be the first out of the shoot. Additionally, I just want to add that I've never seen a demand like this, particularly in the data center and AI sectors, with major players needing energy. We're actively in discussions with not only Tier 1 firms but others. Timing is everything, but the market continues to grow.

Okay. All right. Great. And then just the last one for me. How should we be thinking about OpEx moving forward, especially given the recent headcount reduction?

Considering the headcount reduction we made, we transitioned from a predominately research and development-focused operation, which helped us through the licensing process, to now focusing on commercialization and deployment, which requires different skill sets. Our customers have reassured us that we still have the capacity to execute, and that's the bottom line. We are secure that we have the right people to execute these initial projects.

John, I may add to that. During our cost reduction process, we also right-sized some of the general administrative costs within the company. I believe that as we begin generating revenues, we'll have less SG&A overhead, and we'll aim for a high rate of profitability. We're focusing on a well-calibrated transaction to maintain the core intellectual capacity of the company. Our OpEx remains very low today, keeping us nimble to scale as revenues come up while managing margins properly.

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

The first one looks like nuclear has been receiving a lot of federal support in the news lately between the Atomic Energy Advancement Act and budget requests not only for '24, but for '25. Can you talk about how some of those initiatives you’ve seen could impact NuScale and potential customers in the U.S.?

Absolutely. In fact, great question. Both my COO and my General Counsel were on the Hill this week. There's a bill advancing in Congress that would allocate about $800 million through a competitive cost-share award for not more than two SMR deployments in the U.S., along with an additional $100 million for SMR manufacturing that can be deployed no later than 2030. We're anticipating that if it hasn't already been approved, it will be soon. The U.S. government remains very supportive of this industry, and we continue to have strong advocacy from the Department of State for international markets.

Got it. That's helpful. And that kind of leads into my second question internationally. Last week, FuelCell Energy talked about its participation in a public-private partnership related to ammonia production in Ukraine where NuScale is expected to potentially supply the SMR. 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?

Yes. That came about during COP27 at Sharm el-Sheikh, Egypt, if you recall. I was on stage with Secretary Kerry, and he announced that the U.S. is going to assist Ukraine in deploying an American technology—NuScale—for ammonia hydrogen production, nominally ammonia. We're still in discussions. Unfortunately, we’re unable to execute until the situation stabilizes. However, we are still in negotiations with that consortium. The power requirements will be significant in Ukraine, especially when conditions allow us to get in.

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.

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

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