NUSCALE POWER Corp Q1 FY2024 Earnings Call

Good afternoon, and welcome to NuScale's First Quarter 2024 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 First Quarter 2024 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 statement on Slide 2, the information set forth in the presentation was 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. As you all know, NuScale was founded on the belief that nuclear power as a cleaner, safer, more reliable form of energy is critical to meeting the increasing global demand for carbon-free power. Today, we are seeing this belief borne out in real time. As you'll see on Slide 3, the need for clean, reliable power is significant and growing, driven by the electrification of the transportation, building, technology, and industrial segments. A recent 5-year projection for U.S. electricity demand growth has doubled from forecasts provided just 1 year ago. Overall, peak demand in the U.S. is expected to grow at least 38 gigawatts over the next 5 years. When you consider that the country is on track to close half of its coal-fired generation capacity by 2026, the vulnerability of domestic grids to intermittency comes into greater focus, particularly when you consider that in 2023, coal represented more than 16% of U.S. utility-scale electricity generation. The U.S. has made historic investments in climate progress and federal regulations in state policies have helped drive the projected greenhouse gas emissions curve further down. However, the country continues to lag behind Paris agreement targets to cut emissions by 50% to 52% below 2005 levels by 2030 and achieve net zero emissions by 2050. For example, in 2023, the U.S. added 32 gigawatts of zero-emissions electricity generation and storage. But as you see in the chart, it still falls far short of the target addition of 46 to 79 gigawatts needed to keep pace with the country's Paris Agreement goal. Let me add an additional perspective. In March, I attended CERAWeek, the flagship annual conference on the energy industry calendar, and a dominant theme was artificial intelligence and its insatiable appetite for electricity. Data center and AI-driven companies attended in mass, speaking on panels and seeking out meetings with utility executives, power developers, and power production technology companies, including NuScale. A few key takeaways from these discussions. First, NuScale's SMR technology resonates strongly with this group because our solution is scalable, reliable, near-term deployable, and aligns with their clean energy commitments. In addition, our flexible business model means they will not need to own or operate a nuclear energy plant. Second, data center and AI companies are not like traditional nuclear energy customers; the sense of urgency and the pace at which they move are clear differentiators. We are in advanced discussions with a number of these prospective customers, and several are considering commercial operation dates before the end of this decade. Third and finally, while these companies are competitors commercially, many are collaborating on energy solutions because they recognize the scope and immediate nature of their common need. As reflected on Slide 4, when you consider how the electricity needs of tech companies have evolved, the sense of urgency in their activity is justified. Most traditional data centers built 10 years ago were energy consumers of 10 megawatts or less. Today, it's not uncommon to see 100-megawatt data centers. There are data centers planned in the next 3 to 5 years that will approach 1,000 megawatts. The International Energy Agency estimates that electricity demand from data centers globally could top 1,000 terawatt-hours by 2026, more than double 2022 levels. Data centers, AI, and cloud storage are 24/7 power consumers. They require an uninterrupted, reliable power supply. At CERAWeek, an Amazon Web Services executive commented that the world has a new data center every 3 days. This need was underscored by a new initiative among Google, Microsoft, and Nucor, working together across the electricity ecosystem to develop new business models and aggregate their demand for advanced clean electricity technologies, including advanced nuclear. Initiatives like this will help bring first-of-its-kind commercial projects to the market. As you see on Slide 5, nearly every leading hyperscaler has made major commitments to reduce carbon emissions. NuScale's technology has the ability to provide baseload decarbonized energy at scale and can help meet those sustainability objectives. We, in turn, see our sales funnel for prospective data center and AI customers expanding with significant inbound inquiries from Tier 1 hyperscale computing providers. The most common sentiment we hear in meetings with hyperscalers, as well as data center operators like Standard Power, is, 'I need the power now, and how do I get it?' I want to emphasize, this is not a passing need. We already see another big energy consumer, quantum computing, on the horizon. Strain on the grid for AI-driven power demand is made even more acute due to strong growth in domestic manufacturing, as seen on Slide 6. This is driven by domestic content requirements and onshoring trends, as well as from the motion of private investment in the bipartisan investment law, the CHIPS and Science Act, and the Inflation Reduction Act. Since 2021, investment commitments for American manufacturing have exceeded $525 million. As a result, and noted on Slide 7, we continue to progress serious conversations with prospective industrial customers, including in the petrochemical industry, about identifying and incorporating clean energy options, in particular, producing clean, high-temperature, high-pressure steam for process heat applications. Related to this interest and activity, we are honored that we added Dr. Dirk Smith to our Technical Advisory Board in April. Dr. Smith recently retired from Shell Corporation, where he served as their Chief Scientist and Chairman of the Shell Science Council. I will add that NuScale is continuing to innovate in novel ways. For example, we believe we have made great progress converting brine to an effective hydrogen carrier using clean energy from a NuScale plant. In the near future, you'll see more news on the tests performed at Pacific Northwest National Laboratory that confirm our patent-pending approach. All our prospective customers value the numerous decisive advantages of NuScale technology relative to large-scale nuclear and other energy sources, as well as compared to the largely unproven claims of newly emerging SMR technology developers. NuScale enables process heat for industrial customers, providing a clean, safe, reliable baseload source of energy with a small land footprint. Our small emergency planning zone allows us to co-locate with production facilities. This positions us very favorably when speaking with prospective customers. As featured on Slide 8, the strategic partnership we formed with ENTRA1 Energy, an American independent energy producer and plant development owner with significant energy and infrastructure experience, enables NuScale to bridge the power plant development and ownership value. As seen on Slides 9 and 10, with Doosan making significant steps towards production, our readiness is far more advanced than our SMR technology peers that have aspirations for U.S. Nuclear Regulatory Commission approval, and the gap continues to widen between NuScale and our SMR competitors as we continue manufacturing our NuScale power module. It also highlights the degree to which we have derisked our modules. In April, Doosan Enerbility opened a dedicated steam generator tube bending shop. It includes the installation of new state-of-the-art tube bending machines. Recent renovations also enabled the facility to perform tube bending for NuScale power modules, a key milestone in future development. I toured the Doosan facility last month in Changwon, and I am so impressed with all that Doosan has done to support 4G and manufacturing NuScale's power modules. We also are continuing to start new forgings and expect to have all of the forgings needed to support the first 6 upper reactor press initials by the end of this year. I saw that the first 7 large forgings for our reactor vessels, which we refer to as long lead materials, have made it to the forging and initial manufacturing phase. Our reactor pressure vessels are now ready to enter the next fabrication phase. Our other strategic suppliers like IHI Japan and PaR Systems in the U.S. are also making preparations to accept customer-backed orders. This includes fabrication of prototypical NuScale plant components. We look forward to sharing more updates from our suppliers that demonstrate our readiness to deploy NuScale powered plants. On the regulatory side, NuScale’s standard design approval application for a 77-megawatt upgrade design was accepted for review by the U.S. Nuclear Regulatory Commission in July 2023. We expect the NRC's process to conclude on or before July of 2025. While the design is based on the same fundamental safety case and features approved by the NRC in 2020, we believe that the 77-megawatt NuScale power module supports an even wider range of customers. NuScale has deployed six E2 centers thus far, with four of these centers deployed at U.S. universities and two internationally. These energy exploration centers are the NRC approved control rooms for NuScale powered plants. As seen on Slide 11, we toured the E2 Center at Sole National University with NEA Director General Bill Magwood. This E2 center models operations for 12-module NuScale powered plants. Among the firsts NuScale has achieved, the U.S. NRC has approved three operators in a 12-unit control room. For the first time since the event at Three Mile Island, the NRC also approved control room operations without a trained shift technical adviser. The U.S. State Department announced that the E2 Center will be deployed in Ghana, and we are in discussions to deploy several more. Akin to Apple computers deployed in schools, this makes training on a NuScale E2 Center the standard for advanced nuclear worldwide. Next, I'll update you on the RoPower project. In late March, U.S. Ambassador to Romania Kathleen Kavalec toured RoPower's Doicesti site. Ambassador Kavalec reiterated America's commitment to deploying a NuScale SMR in Romania and underscored that the RoPower project was an important element of the U.S.-Romania strategic partnership. Planning continues for RoPower project's Phase 2 front-end engineering design work, while commercial and government stakeholders work to finalize terms. While NuScale contracted directly with RoPower to complete FEED Phase 1 as planned, NuScale will serve as a subcontractor to Fluor for RoPower's FEED Phase 2. In late April, the President of Romania and a Romanian delegation toured Doosan Enerbility's manufacturing facility and saw the NuScale power module components being manufactured there. Before I conclude, I want to reiterate that nuclear energy is such a valuable commodity in the context of the global energy transition because of its sustainable solution to execute reliably, a pairing that does not exist with other current energy solutions. Whether it's industrial electrification or process heat for the rapidly escalating demand of the data economy, NuScale's SMR technology is part of the solution. Given our ability to produce clean, reliable energy, reach customers, and help them achieve their sustainability goals, we maintain competitive advantages in technology, safety, manufacturing readiness, siting, and regulatory success, and expect to play an integral role in helping a wide range of customers meet their 24/7 energy needs while reinforcing and expanding the power grid. Now I'll turn 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. I will discuss our first quarter results found on Slide 12 and relevant factors impacting our financial position. All figures following are for Q1 2024, unless I state otherwise. I'll begin with NuScale's improved financial position. In January, the company implemented a series of strategic initiatives to better align our resources with NuScale's primary objective of transitioning towards commercialization and revenue-producing commercial contracts. These actions further NuScale's long-term financial stability by generating approximately $50 million to $60 million in annualized savings starting in the second quarter of this year. NuScale's overall cash position improved during the period and ended the first quarter with cash and equivalents of $137.1 million, $5.1 million of which is restricted; and no debt. This compares to the end of the fourth quarter of 2023, when the company had cash and equivalents of $125.4 million, $5.1 million of which was restricted and no debt. NuScale also reported revenue of $1.4 million and a net loss of $48.1 million for the 3-month period ending March 31. This compares to revenue of $5.5 million and a net loss of $35.6 million for the same period in 2023. Higher net loss reported in the current quarter was driven by a one-time $3.2 million charge associated with cost reduction efforts related to our transition from an R&D-based company to commercial operations and also a $9 million noncash adjustment to the fair value of our warrants driven by the increase in our share price. Looking forward, NuScale will maintain our financial discipline and prudently sustain a conservative liquidity reserve. I conclude my remarks with a brief view of our capitalization summary on Slide 13. Additional information may be found on our SEC Form 10-Q and the earnings release may be available prior to this call. With that, I'd like to thank you again for joining today and for your continued support of NuScale. We'll now take questions. Operator?

Thank you. The floor is now open for questions. Your first question comes from the line of George Gianarikas with Canaccord Genuity.

So, you articulated a lot of momentum in your discussions with some of the hyperscale data center companies. And I'm curious as to when you see that momentum translating and materializing into orders? I mean, it seems like it's close, but any guidance there would be much appreciated.

Yes, George, John Hopkins here. It wasn't too long ago when I noted that we were seeing significant activity with utilities concerning coal plant refurbishment. Last year, there was also a lot of conversation around hydrogen production, process heat, and ammonia. However, during my recent discussions with Tier 1 companies and others regarding AI and data centers, I'm noticing a genuine demand that is immediate and growing. This is in addition to the ongoing interest in coal plants and hydrogen production, compounded by new requirements from data centers and AI. We have non-disclosure agreements in place, which we established quickly because many are eager to explore options and see who can deliver first. I recently visited Doosan and was impressed by the progress, particularly with seven of our forgings now in operation, along with their advancements in tube bending and testing. These capabilities are crucial for us because if someone needs to move quickly, we could potentially save over a year on the schedule due to having long lead items already in process. To answer your question, the current pressure from utilities, data centers, and AI companies is significant: the demand must be met now, or they'll seek alternatives. I've never witnessed the pace of change as fast as what we're experiencing now, especially with the impact of the Inflation Reduction Act and earlier initiatives. Overall, we're optimistic about the market's potential. We needed a catalyst, and I believe this will be the factor that propels the industry forward.

And maybe just as a follow-up. Are there any implications to you of the restrictions on Russian uranium imports?

No, there are none at all. Our Chief Technology Officer, Dr. Jose Reyes, back in the year 2000, made a conscious decision to stay as an advanced light water reactor, predominantly because that's what the nuclear regulators all over the world know: light water. And so, we're typically what we call conventional fuel, less than 5% enriched. Our fuel is actually manufactured by Framatone here in the United States. So, fuel is not an issue for us.

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

John, I wanted to follow up on that last discussion about the data center demand. You mentioned there were several that wanted to have commercial operation before the end of the decade. How many do you think could be awarded to the industry? So, I'm curious about how meaningful this would be, and I know you probably don't want to get into saying how many you could get. But just what are the real prospects that are out there? Is it like 2 or 3? Is it 10? Help us understand how much that could be?

It really comes down to our ability to execute without overextending ourselves. What I'm currently focusing on is straightforward. We will take risks with first-of-a-kind projects to secure long-term power purchase agreements, and that's what we're pursuing. At the moment, we have six modules going offline. Doosan has indicated that they can produce 20 modules annually, and they are ramping up operations, as I mentioned earlier. The flexibility of these movable assets is a great advantage. We are setting up in a factory, and as a reminder, our approach is not to engage in one-off projects, although we have one or two in the works. We can either set up or relocate these from our factory. While we are constructing, we are also simultaneously handling commercial tasks in the field, allowing us to act swiftly. Right now, I’m not seeking too much; I just want one plant to kick things off. This is the first time I’ve genuinely seen progress. When people inquire about Standard Power, they are still active, but large financial transactions take time to finalize. Standard Power is not out of the picture. Additionally, companies like Amazon and Google are still engaging, as indicated by their recent collaboration with Nucor and Microsoft. At a recent conference, a senior executive pointed out that while we’re competitors in the market, we collaborate on energy, which is a common necessity and requires timely action.

Right, right. Okay. I guess just two others for me. One, in the quarterly filings for the last few quarters, there's been a sales and marketing agreement. I think it started out at about $20 million a few quarters ago, and it's been amortized lower as time goes on. Is that the agreement with ENTRA-1? And if not, is there some expectation for some sort of an award to occur because of this agreement? And if an award doesn't occur, to get the money back or something like that? Maybe you could just talk about what's going on there.

Yes. I don't know if I can really stay with that money other than it is for development purposes. Again, these are complicated transactions. But I will say, our partner, ENTRA-1, is in discussions with the top 5 tier banks. I mean, I'm in discussions with them as well. What they're looking for is bankable projects; as I commented before, they don't just want to go and finance a nuclear power plant. These banks are looking for assets under management. What ENTRA-1 brings is the overarching infrastructure, not just nuclear, but it could be LNG, hydrogen, ammonia, etc. So, we're assisting in some development costs and making this market happen, and I'm glad we did it because I'm starting to finally see hope; this is going to come to fruition.

Okay. Good. And then the last. Sorry, go ahead, John.

Go ahead. No, I'm sorry, I interrupted. Sorry.

I was just going to ask one for Ramsey on cash. So, the Q has a $33 million cash use and you talked about in the slides here of the $50 million to $60 million of annualized savings that will happen in the second quarter. So that's like $13 million a quarter of savings. Should the implication then be that like the cash use in second quarter and beyond should be in that ballpark of $20 million bucks?

So, Marc, when we announced our cost savings plan in January, we did mention savings of $50 million to $60 million on an annualized basis. Our cash from operations for this quarter was, I think, about negative $33.5 million. I anticipate that our cash burn on an ongoing basis will be sub $10 million. We took a number of one-time charges during the first quarter. So, you would be in the ballpark if you're thinking $20 or low 20s as a quarterly cash burn rate just based on where we stand today.

Okay. And to confirm that doesn't contemplate any further ATM sales? I know you could do those, but the numbers we're talking about here, that's before any benefit from ATM.

I'm talking about cash flow from operations.

For our understanding that the timing for RoPower is out of your control, can you just remind us what the final steps are there to finalize terms for the Phase II FEED work?

Yes, Ryan. This morning, we received an update regarding the RoPower client. I had the opportunity to meet with the President of Romania two weeks ago in Korea, where he visited the Doosan facility. We have completed our collaboration with Fluor Corporation on FEED Phase 1. We are now moving into the limited notice to proceed for FEED Phase 2, where NuScale is working as a subcontractor to Fluor Corporation. The shareholder vote was scheduled for April 17 for RoPower. However, it has been postponed to June or July for reasons that remain unclear, although we were informed it is not related to NuScale Technology or the contractors but is politically motivated given the election year. We were updated this morning that the process is still moving forward and it is not a financial issue. So, that is the latest information we have. The limited notice to proceed phase, as I mentioned, is under Fluor's management, and it is expected to last about one year before transitioning to the final notice to proceed. Does that clarify things?

Got it. Yes, sure it does, John. And then just one more. Wondering if you had any update on the two SMR preparations programs that we spoke about a little bit on the last call.

Yes, we're still waiting for the request to come out. The initial discussions have occurred for $800 million, and our talks with the government suggest that the award will likely be postponed until the next administration. Meanwhile, there's another award for $100 million that relates to manufacturing and supply chain. We've been informed that the turnaround time for that contract is generally about 90 days, so we are still waiting. Hopefully, we will receive an update on that $100 million soon. It's important to note that this is an election year.

We have reached the allotted time for questions. I will now turn the call over to NuScale's CEO, John Hopkins, for closing remarks.

Yes. Thank you, operator. As we stated before, NuScale is the only SMR design certified by the U.S. Nuclear Regulatory Commission. We, along with our strategic partner, ENTRA-1, have built, we believe, a very robust business development pipeline. NuScale has industry-leading manufacturing readiness and is well positioned to commercialize and deliver clean energy at scale. Nuclear technology is essential to powering the global energy transition, and we believe we are at the forefront of that effort with our work to deliver safe, scalable, and reliable carbon-free nuclear power. I believe we're off to a good start in 2024 with progress on all fronts. Forward, and I look forward to what we will accomplish together throughout the remainder of the year. I'd like to thank everybody for their interest in NuScale and for participating on the call today. Operator?

Thank you. This concludes today's conference call. You may now disconnect.