Q2 2023 NuScale Power Corp Earnings Call
Good afternoon, and welcome to new scale second quarter 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.
We would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one.
A replay of today's conference call will be available and accessible unused scales web site at IR got new scale power Dot com.
The web replay will be available for 30 days following the earnings call. A telephone replay will also be available for seven days through a registration link also accessible on new skills website.
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.
Thanks, Operator, welcome to the scale second quarter 2023 earnings results conference call with US today are John Hopkins, President and Chief Executive Officer, and Ramsey Kennedy, New scales, Chief Financial Officer on today's call New scale will provide an update on our business and discuss financial results.
Then open up the phone lines for questions.
This afternoon, we posted a set of supplemental slides on our Investor Relations website, that's reflected in the safe Harbor on slide two the information set forth in the presentation to discuss 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 on.
Certainties.
Can find the discussion of our risk factors, which could potentially contribute to such differences in our <unk>.
Please see filings on form S. One and Form 10-Q.
Now I'll turn the call over to John Hopkins These scales, President and Chief Executive Officer John .
Thank you Scott and good afternoon, everyone.
Today's call I'll cover our continued progress towards commercializing new skills as tomorrow.
This includes our momentum with our committed customers as well as our business development activities, including customer pipeline expansion.
I'll also provide an update on our financial results and outlook.
So before we dive in I want to take a moment to discuss the leadership changes announced recently.
As we progress from being a research and development focused company to advancing our commercialization our project delivery efforts.
This transition is supported by incorporating an important new skill sets throughout the organization.
Continuing with the appointment of our new CFO Robert Ramsey.
As we announced earlier this week Ramsey brings an extensive portfolio of financial experience, including on the public company side.
This includes previously serving as CFO of the U S or Canadian listed industrial Technology company.
Sure and magnesium Corporation and working as an investment banker for J P Morgan and Lehman brothers.
Ramsey is the snake experience will be a huge asset to new scale as we seek to deploy our technology across the globe.
Importantly, our balance sheet remains strong and we look forward to maintaining our solid financial position under Ramsey's guidance as we continue to grow as a clean technology leader.
Ramsey, who is with me here on the call today and before we take your questions I'll turn it over to him for a few minutes and CLO and introduce himself.
We also announced two additional appointments our own executive Vice President of business development, Scott, It's been elevated to the role of Chief commercial officer.
Quaintance deep familiarity with the intricacies of our growing business pipeline.
Lewis has decades of global experience make him the perfect person. It takes on this important role.
Pivotal time of growth for new scale.
Pains assumption of the Chief commercial officer role is a cornerstone of our transformation to a commercialization of project delivery focus.
These leadership updates following the announcement of Carl Fisher, as our new Chief operating Officer, which we announced in July .
Carl it's more than two decades of experience in the nuclear industry started out in the United States Navy nuclear propulsion program.
Continuing his career with Duke energy International and Framatome.
With his extensive industry experience will play an essential role in leading our engineering licensing and other functions in support of the deployment of our Voyager power plants, and we are thrilled to have him onboard.
Finally, Chris Colbert he served as CFO of the company since February 2021, as the part of new scale.
We wish Chris and the very best in his future endeavors.
Now, let's turn it back to our earnings presentation, starting with our 2023 milestones which are shown on slide four.
In July we were pleased to announce the new CEO standard design approval application was accepted for review by the U S Nuclear regulatory commission oriented.
DNR, Steve provided us reschedule for anticipate in 24 months review process for obtaining approval for our power up rates were 77 megawatt new scale power module, which will support the capacity needs of a wider range of customers.
It has not been reflected in this application includes the same fundamental safety case and the features approved by the NRC in 2020.
With our track record of regulatory approvals at the NRC and more than one $6 billion invested to date derisking that new scaled module do comprehensive casting scaling and more we are familiar with the NRC process and look forward to working with him to secure the successful approval of our operated design.
Hi.
I would add that the new CEO standard plan design completed in 2022 provides a comprehensive plan designed for potential customers to leverage deploying new scale voyage rest of our power plants. This means significant savings for our customers that they can focus their investment and engineering resource.
As oxides specific design changes.
Moving on to slide five and our committed customers to carbon free power project with CFPB and ROE power looking first the CFPB, we are producing <unk> and materials essential to the manufacturing of the first new scale power modules. We're also finalizing the class II cost estimate for the CFPB.
Furthermore, new scale is working with carbon free power project to finalize the combined license applications or Cola.
A reminder, the Cola is both a construction permit and operating license application per part 52 of titles here in North Dakota Federal regulations.
As a single step licensing process.
It means our design will be licensed to operate even before it's built.
In comparison the older part 50 process involves two steps.
Struction permit in preliminary phase III Court, and then licensing process to improve plant operations. Once the plant is built.
Opening up the plan odor to risk that plant operations could be delayed possibly significantly.
Even more seriously there is potential that the plan will never received a license to operate efforts have already been built.
These concerns do not exist with our part 52 process.
In July a limited work authorization or <unk> was submitted to the NRC for review and approval.
Which will authorize commencement of early construction activities at the site.
This submission is a milestone not only for new scale as it's the first <unk> for one of our voyage power plants, but also a milestone for the industry because it is the first NRC application to initiate construction activities for our commercial after tomorrow.
<unk> is targeting 80% subscription for the project by year end 2023.
We are working to achieve this target in three ways first existing CFPB participants can increase their subscription levels second <unk> members, who are not CFPB participants sign onto the project and third carbon free power project can bring in additional western public power utility.
<unk> investor owned utilities, datacenter operators and industrial customers.
The expense and challenge of accessing natural gas in our region rapid retirement of coal plants in the acute need to add dispatched for power generation to complement renewable resources are primary consideration for CFPB participants.
<unk> members and utilities operating in the Western U S created opportunities across all three of these groups.
Moving onto our second committed customer row power, we had a busy quarter in Romania.
The G. Seven leaders summit in May the by the administration announced the multinational public private partnership.
And it tends to provide up to 275 million to advancing the deployment of a new scale voyage or small module reactor in Romania.
Commitments were made by entities in the United States, Japan, The Republic of Korea.
<unk>.
Funding is expected to support a number of important activities for procurement of long lead materials to completion of front end engineering and design or feed work and more.
In addition, the U S export import bank in the U S International Development Finance Corporation issued letters of interest from potential sport of up to $3 billion and 1 billion respectively for project deployment.
This exciting news comes as new scale and real power are in the late stages of completing the phase <unk> study to analyze the preferred site.
Former coal plant in Dorchester, Romania.
And we are already in advanced discussions on our next phase of the project.
Low power secure the funding the needs to complete the phase <unk> study.
And announced in July these private equity signed a term sheet agreement with Newco Africa, and Novo power and gas with shareholders of rural tower with the intention to invest 75 million euro for the development of the study.
Also in May new scale, and low power opened our first international New scale energy exploration Center or <unk> Center in Romania and.
Collaboration with the U S and Romanian governments.
The control room stimulator of our <unk> technology was installed at the University Polytechnic Bucharest.
We'll further romania's goals to become a leader in a safe and secure deployment of small modular reactors and serve as a workforce development tool for the Romanian nuclear workforce.
Looking at the business development pipeline more broadly on slide six we are pleased and confident with the breadth and scale of our opportunities.
I'll start on the international side.
By briefly spotlight in case, the AGM at call it a process company.
In July <unk> receive a decision in principle from the Polish Ministry of climate and environment.
Create a pathway to make investments in support of its SMA program.
This is a positive development.
Painting this decision entitled K G HN to acquire property decided future plans as well as apply for a number of further administrative arrangements, including a construction license.
Turning to the U S. As noted in recent quarters, we expected to see interest accelerate as prospective customers better understood. The impact of the inflation reduction act or IRA.
Especially for Repurposing coal plants producing hydrogen.
And our prediction has proven to be true.
With various degrees of advanced conversations taking place with Investor owned utilities municipal utilities Tech companies with data centers to support as well as groups involved in carbon capture initiatives in hydro production.
In addition, major industrial companies want to take advantage of the IRA as they scale $24 seven clean reliable energy and processes for various applications.
Interest is growing and we are pleased to see the types of opportunities that are diversified.
Turning to slide seven we highlight another significant business development opportunity in the U S. A.
Memorandum of understanding that we signed with Nucor Corporation.
Largest and most diversified steel and Queen skilled products company in North America.
As part of this Mou Archie comp base will explore opportunities for deploying <unk> to power Nucor's electric wire fence bills to produce clean steel.
BMO you also envisions an expanded partnership do which nucor will supply a new scale with its net zero steel products for new scale projects.
I also want to discuss new research that we believe will help drive further business development, which brings me to slide eight and nine.
It shows new skills capabilities for the industrial sector using superheated steam.
First of all I wanted to ask Smart technology.
A few months ago. The U S Department of Energy has stated that the greatest challenge facing our nation and our planet is the climate crisis.
To avoid the worst effects, we need to do everything possible to achieve net zero carbon emissions by 2050.
Achieving these net zero targets require a massive build out of clean power resources that touch numerous aspects of the economy.
To make real progress, we must decarbonize sectors beyond electricity market.
Let's just process industries and transportation each of which produce a similar amount of emissions.
New scale technology addresses electricity market <unk> seen in this recent research.
Also enable industrial de carbonization across a broader stretch of applications by efficiently providing high temperature high pressure carbon free steam.
This is a meaningful step towards potential reduced emissions and whereas previously better hard to decarbonize space and when critical to achieving global climate goals.
As seen on slide nine our compact and cost competitiveness approach can therefore offer oil refiners and chemical companies with new options to decarbonize their operations of products using carbon free nuclear energy.
We started presenting this value proposition of companies in the industrial petrochemical and oil refining sectors around the world.
As a reminder, new scales Voyager plants maintain significant competitive advantages and a safe reduction of superheated steam near major industrials.
For example, our plants could operate off grid.
Also we can achieve a site boundary emergency plan in zone for most plant locations.
Therefore, Voyager plans can be located closer to end users, which reduces heat loss due to steam transport and resulted in a higher efficiency industrial energy system.
To be clear new scale is the only as some of our supplier do you have any regulators approval for a means to achieve exciting boundary emergency planning zone.
Moving on to slide 10, I'd like to highlight a few additional updates for the quarter.
First while the fiscal year 2024 appropriations process remains ongoing in Congress. We are encouraged by activity on Capitol Hill, So far.
With positive developments in both the house and Senate to demonstrate financial support for new scale and advanced SM ours.
The amount is provided by the FY 'twenty for health energy and water Appropriations Bill Mark would be sufficient to fully fund both the remaining federal cost share on the you asked a new scale grants.
Although less generous in the house Bill the FY 'twenty for the Senate energy and water appropriation Bill provides significantly more funding for the advanced SM or program than any previous Senate Bill.
This filing will be sufficient to cover all planned FY 'twenty four activities for both <unk> and new scale brands.
We believe that this incremental progress positions new scale well as we look to the conference Committee that will finalize appropriations later this year.
As we have said previously this lending was one of the critical mechanisms to support our participation in the CFPB.
We are pleased to continue receiving strong bipartisan and bicameral support as well as backing from the by the administration.
Second we look at Heidrick developments.
Back in March we placed our first long lead material order with our partner <unk> ability.
<unk> is now producing <unk> and materials associated with the manufacturing of the first new scale power modules.
The integral steam later part of the new scale power module was our first forging produce.
It had an ingot weight of 272 times it will have a final machine weight of 24 times.
These activities also includes steam generator tubes that will be installed in your scale power modules.
<unk> placed an order for 200 kilometers of steam generator tube with global manufacturer of media in the second quarter deliver.
Deliveries are scheduled during 2024.
This activity positioned us to begin manufacturing of our first modules later this year.
<unk> will be assembled and machine to their final dimensions.
We are not aware of another north American aftermarket vendor that has progressed through the manufacturing phase.
We are excited to lead the way for the industry.
In summary, we are satisfied with our growth and development in the first half of 2023, we have significant opportunity in front of us. So as we continue to build momentum.
So our business and deliver on our commitments to our customers.
New scale has numerous competitive advantages and is years ahead of our competitors in the industry.
We are proud to be leading the way in such an important industry that is helping drive the global energy transition.
Now, let's move to our financial update for the quarter the.
The company's financial results are available in our press release and filings. So my focus will be outperformance drivers.
I'll start by discussing second quarter results on slide 11.
All figures following referred to new scale second quarter 2023 results unless I state otherwise.
New scale ended the quarter with a cash balance of approximately $215 million.
Assistant with past quarters, our primary use of cash is related to operating expenses as we continue our pivot into manufacturing and commercialization.
Operating expenses slightly increased in the quarter, although our R&D costs decreased due to shifts of project schedules.
While G&A cost increased due to compensation costs associated with a growing head count and higher business development costs as we continue to market our brand globally.
While the shifts impact quarterly results they are not meaningful for our overall project timelines.
As you all know there are several additional factors critical to the CFPB moving forward and our working assumption is that CFPB will hit US subscription goal agreed upon to class II cost estimate and secured <unk> funding.
It remains our first customer.
But it is possible that conditions arise that the project could terminate a new Ams could recover a portion of its net development costs and expenses associated with long lead materials, some new scale.
As of June 30.
New scale has $59 million and letters of credit.
Collateralized by $60 million in restricted cash to cover this possibility.
These costs will be partially offset as new scale has an agreement in principle to take ownership of the long lead equipment contract work in progress stayed at 26 billion as of June 32023.
As well as other intangible assets the value, which cannot reasonably estimate at this time.
While we are unable to estimate the full value of all assets that would be acquired we feel the Max and expense the company would be approximately $15 million for the development cost reimbursement agreement as of the end of June .
Turning back to the financials revenue for the quarter was limited as expected in a year.
Early phases of projects I guess, we are generating revenue by supporting sighting.
Licensing and front end engineering and site specific design work.
As we pivot to manufacturing our modules, we will see payments from customers for equipment orders.
Looking ahead, we reiterate our forecast for full year cash flow from operations in a range of negative $102 million to $142 million.
Importantly, the house Appropriations Bill generally funds the final year of new skills BOE cost share award, while the Senate Appropriations Bill funding would be sufficient to cover all planned FY 'twenty four activities for the new scale grant.
We note that before we have certainty about doughy awards for new scale and CFPB.
Also Senate Appropriations Bill will have to go through the reconciliation process and the President signed the final appropriations measure into law.
Now lets you mentioned a few additional items.
New scale has always been disciplined with regards to capital management and it.
As part of that strategy the company filed a form S three or shelter suri when it became eligible to do so in June .
Further demonstrating our prudent approach and to enhance our financial flexibility.
We have a plan to file an aftermarket facility or ATM facility.
Like the shelf S. Three we consider putting this ATM in place as a prudent measure those procedurally efficient to do even if we are ready to put it to use.
I also want to address recent executive sales of company's stock. It is normal and expected for executives a newly publicly traded companies to sell a small portion of their overall stake to diversify as well as cover taxes with the exercise of expiring options in our shoes.
Recent sales also reflect program that it can be five dashboard players importantly, our executives continue to maintain very significant stakes in new scale.
Also note the board stock ownership policy, which requires our top executives to hold equity valued at two times, our base salaries to ensure the alignment of executive and shareholders' interests.
I speak for myself as well as our management team when I say, we believe deeply in new scale.
Distinct competitive advantages and its future leading the usually important SME space.
Finally as seen on slide 11, we are pleased to inform you that we will hold an analyst day on October 6th at the New York Stock Exchange.
In person attendance will be limited due to capacity constraints at the exchange however.
However, there will be a webcast of management presentations, we look forward to connecting with you all at that time.
Before we go to Q&A I'd like to hand, the call over to Ramzi quickly say, Hello, and introduce himself Ramsey.
Thank you John and Hello, everyone.
Honored to be joining my first new skill earnings call today, and thrilled to be part of an exciting Trailblazing company like new scale, especially as the business moves deeper into such a critical part of its journey the commercialization of <unk>.
I've been following the company closely and it's clear to me that can you scale technology has the ability to completely reshaped the energy sector hub combat climate change and fulfill the absolutely critical need for clean energy.
This work is so important and I could not be happier to be a part of it I look forward to getting to know you all better soon.
Now ill pass the call back to John to answer your questions operator.
At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.
Your first question comes from the line of Marc Bianchi with PD Cowen Your line is open.
Hey, Thank you.
I guess I wanted to start with.
Trying to understand a little bit more around sort of the cash flow scenarios.
As you're exiting this year and then into 2024.
I think if you hit the guidance here, you'll have maybe $150 million to $200 million of cash.
On December 31st and then there is John you mentioned the.
Scenario with CFPB, if that ends up not going forward I wanted to just clarify how much cash could be going out the door there.
And then on the appropriations.
If the Senate version ends up happening.
Maybe that's sort of a way to think about a low end case.
What would that mean on a year over year basis in terms of your cash flows how much cash flow is coming in fiscal 'twenty four versus our fiscal 'twenty three versus fiscal 'twenty four.
Yes, Mark as it relates to projected cash of 23 and <unk> 20.
24, we're not really providing any specific guidance at this time.
As I mentioned.
We're about $260 million of debt cash included and we did set aside a reserve of $60 million and.
And we did also as I mentioned before filed a form S. Three that provides us the flexibility if needed.
At this point in time as it relates to the ATM, we see no needs but.
But I will say, we worked to he'll really hard this year and on both sides of the aisle and I was extremely impressed that.
The both on the house and Senate.
What has come through and if it is in fact approved I think we're in a pretty good stead going forward as it relates to.
Fulfilling the grants from the government and keep it there.
Acquired cash filling out our our award that we received as well as the <unk> Award. So if you don't mind I'll just leave it at that.
Okay.
Well I guess then on the I guess part of the.
Sort of the outlook for <unk>.
24 relies on the signing of these three more customers that you've.
You've kind of got us as one of your action plans is there a point, where if we get here. We are in August and we haven't seen anything announced yet is there a point. This year. If you haven't announced anything that then it starts to risk 24 or is the cash flow just so variable that the timing isn't.
As important as just however, the cadence of milestones is or something like that.
Actually Mark what were seeing as I commented before about we're seeing a lot of activity in fact, Clayton Scott right now is with a major utility.
And discussions.
A lot of this has been prompted by what we talked before people are starting to come to a realization of the impact of inflation reduction Act.
And they need to be in construction by 2032, So we're seeing a lot of activity customer wise, both on the major utilities, but also I commented on we're seeing this market dynamics continues just to the change in the fact that a year ago I would not have anticipated.
Well I call the industrials, which are as I mentioned in my report oil and gas chemicals.
Large data centers, all trying to look at how to decarbonize themselves and what we're finding is.
Is that with the emergency planning zone that we have.
Think of large industrials typically they are not in close proximity to a nuclear plant because of the nuclear plant with a trip they don't want to.
Business interruption that occurred to their facilities, however, with an emergency planning zone.
With that at the fence line.
And then also not needing to be connected to the grid and also another big area of interest is the fact, we're air-dry cool. So the amounts of water typically 14% to 20000 acre feet. We're in the 4% to 600, we're gleaning a lot of interest.
Here is the third leg of the stool as I commented before.
Many of these customers they need $24 seven reliable clean energy, but they don't necessarily want to own and at the nuclear asset.
If we can come up with a model, which we're working on currently have been able to help finance to do wraparound. These cultures, where the customers will provide us long term power purchase agreements and also in some instances, even though willingness to help us develop the cost.
This is going to open the aperture significantly and I'm hopeful.
Coming quarters were going to be able to roll out exactly what I'm talking about so we would have the ability to go in and lets say baytown or Geismar, Louisiana, we have multiple industrials that share a fence line. If we could go out there and energy energy solution to provide them the energy requirements.
It's four process heat.
Hydrogen ammonia or whatever it is and where they share the fence line and provide those customers with what they need.
And that is moving forward, so I'm pretty bullish that we're going to meet our three if not more customers by the end of this year.
Uh-huh, Okay, that's great.
I wanted to ask a couple more just on CFPB and rail power. So as it relates to <unk>, we've got this 80% subscription level.
The class two cost estimate.
Both need to be sort of achieved by year end can you talk to us if theres any more color around how those are going.
And then what sort of timeline should we be looking forward to be getting updates on that is this something that would all be sort of coming together in December January kind of like it did this past year or could we be getting some nuggets before then.
Mark we continue to make progress on CPP.
As I commented, we just submitted a limited work authorization to the NRC review. This will early this will authorize the early start constructions.
As it relates to subscriptions, we are working with <unk> because they are targeting 80% subscription for CFPB by 2023, and as I mentioned before we believe there are three ways you can get it.
Under the existing <unk> participants could increase their subscription levels. We believe they are undersubscribed currently.
We can sign you have some members that are not participating and as I mentioned before there's a lot of discussions we're having right now with western public utilities that are faced in rapid coal retirement or they're looking at the expense of accessing natural gas. So we're working with them in.
As it stands right now things could change, but we see that they will continue to be our first customer where they will get a subscription we believe the funding will come through.
And we're working diligently to make that happen from a timing perspective were watching it very closely.
We have weekly conversations with our customer at <unk> door informing each other we're trying to say this.
This is a near term deployable project.
And our timelines Havent change, we're still looking at the 2029 2030.
Timeframe, which I believe is the only project in this country is going to make that timeline.
Mhm.
Okay, Great and then just one more on real power. So I think phase one feed is sort of the it seems to me maybe thats the next.
Piece to get updated what when should we be expecting an update there and what sort of.
Information type of information would be revealed at that time actually I talked to the customer today, the CEO of nuclear electric cosmic <unk> in Washington D. C. Today in discussions, but youre right. We are in the late stages of completing the first feed and we're in advanced discussions on phase II.
As you know phase two consists of the preparatory work for contract in construction.
And we've got we have begun engagement with the local suppliers. So we should be coming out here near term I'd say over the next couple of months on our progress as it relates to completion of phase, one and phase and going into phase III, but right now the customer is very bullish I commented before also that the U S government.
And with raw power or with.
Romania, we're seeing moneys hopefully coming in from Japan Korea.
<unk>.
Two and a $275 million and Thats to advance the deployment of the <unk> in Romania and for the funding for.
The second phase and in talking with the CEO of one of our Korean.
A term sheet for $75 million and other moneys looks become the XL <unk> supporting us and also the Dfc is supporting us.
Finally, as you know a former OPEC now the Dfc had a nuclear moratorium, which they've dropped so there seems to be a lot of focus right now.
Ensuring that that Romanian project continues to go forward. It is important to our country and it is important to the Romanians I'll be over there in September meet with the Romanian Prime Minister and energy Minister and again to talk about the progress of the project.
Great. Okay. Thanks, John I'll turn it back.
Alright, Thank you Buddy.
That is all the time, we have today I'd like to turn I'll call back to CEO , John Hopkins for closing remarks.
Thank you operator.
As mentioned, we believe new skills, well positioned as a first mover in the <unk> space.
And poised to commercialize and deliver clean energy upscale.
Nuclear technology, we believe is essential to power in the global energy transition and we are on the forefront of that effort with our work to deliver safe scalable and reliable carbon free nuclear power.
We are pleased as I stated with our progress in 2023 across all fronts and I look forward to what we will accomplish together throughout the remainder of the year, but I'd like to thank all of you for interest in new scale and participating on our call today and we hope as I stated to see many of you at our analyst day in New York on October six thank you operator.
This concludes today's conference call you may now disconnect.
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