NuScale Power Corporation (NYSE:SMR) Q1 2024 Earnings Call Transcript May 9, 2024
NuScale Power Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to NuScale’s Fourth Quarter and Full-Year 2023 (sic) [First Quarter 2024] Earnings Results Conference Call. Today’s call is being recorded. All participants are in a listen-only mode. After managements’ prepared remarks, there will be a question-and-answer session. [Operator Instructions]. A replay of today’s conference call will be available and accessible on NuScale’s website at ir.NuScalepower.com. The web replay will be available for 30 days following the earnings call. At this time, for opening remarks, I would like to turn the call over to Scott Kozak, Director of Investor Relations. Please go ahead, Mr. Kozak.
Scott Kozak: 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 up the phone lines for questions. This afternoon, we posted a set of supplemental slides on our Investor Relations website. As reflected in the Safe Harbor on slide two, the information set forth in the presentation and discussed during the course of our remarks and the subsequent Q&A session includes forward-looking statements, which reflect our current views of existing trends and are subject to a variety of risks and uncertainties.
You can find a discussion of our risk factors, which could potentially contribute to such differences in our SEC filings on Form 10-K for our fiscal year 2023 and in prior SEC filings. I’ll now turn the call over to John Hopkins, NuScale’s President and Chief Executive Officer. John?
John Hopkins: Thank you, Scott, and good afternoon, everyone. As you all know, NuScale was founded on the belief that, nuclear power, 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 five-year projection for U.S. electricity demand growth has doubled from forecast provided just one year ago. Overall, peak demand in the U.S. is expected to grow at least 38 gigawatts over the next five 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, and state policies have helped to bend 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, still falls far short of the target addition of 46 gigawatts 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 the dominant theme was artificial intelligence and AI’s insatiable appetite for electricity. Data center and AI-driven companies attended event 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 so 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, a sense of the 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 a 100-megawatt data centers. There are data centers planned in the next three to five years that will approach 1,000 megawatts.
The International Energy estimates that electricity demands 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 adds a new data center every three days. This need was underscored by a new initiative between Google, Microsoft and Nucor working together across electricity ecosystem, develop new business models and aggregate their demand for advanced clean electricity technologies, including advanced nuclear. Initiatives like this will help to 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 base load 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 hyperscaler computing providers. The most common sentiment we hear in meetings with hyperscale’s as well as data center operators like Standard Power, 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 from AI-driven power demand is made even more acute due to strong growth in domestic manufacturing as seen on Slide 6. Driven by domestic content requirements and on showing trends as well as promotion of private investment to the Bipartisan Investment Law, the CHIPS and Science Act and the Inflation Reduction Act, investment commitments for American manufacturing now since 2021 have exceeded $525 billion.
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 Schmidt to our Technical Advisory Board in April. Dr. Schmidt 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 a test that formed 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 base load 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 Inter One Energy, an American independent energy producer and plant development owner with significant energy and infrastructure experience enables NuScale to bridge the power plant development plus 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 Committee 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 to Doosan’s facility last month in — and I am so impressed with all that Doosan has done to support forgings and manufacturing new scales power modules.
We also are continuing to start new forgings and expect to have all of the forgings needed to support the first six upper reactor press initials by the end of this year. I saw that the first seven large forgings for upper reactor vessels, which we refer to as long lead materials, have made it through the forging and initial manufacturing phase. Our reactive pressure vessels are now ready to enter the next fabrication phase. Our other strategic suppliers like IHI of Japan and PaR Systems in the U.S. we’re 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 up rate design was accepted for review by the U.S. Nuclear Regulatory Commission or NRC in July 2023. We expect the NRC’s process to conclude on or before July of 2025. While the design is based on a 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 US 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 Seoul National University with NEA director general Bill Magwood.
This E2 center models’ operations for 12 module NuScale powered plants. Among the first 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 US State Department announced that E2 Center will be deployed in Ghana, and we are in discussions to deploy several more. Akin to Apple Computers deployed to 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, visited RoPower’s Dorchest 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 raw power projects to 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 — for Row Power’s FEED Phase 2. In late April, the President of Romania and a Romanian delegation toured NuSign’s Enerbility 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 it’s a sustainable solution that executes reliably, a pairing that does not exist with other current energy solutions.
Whether it’s industrial electrification, process heat, or 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 to 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 Hamady to provide our financial update. Ramsey?
Ramsey Hamady: Thank you, John, and hello, everyone. Our financial results will be available in our filings, so my focus will be on explaining major line items. 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 Q2 of this year.
NuScale’s overall cash position improved during the period and in 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 fourth quarter of 2023 when the company had cash and equivalents of $125.4 million, $5.1 of which was restricted and no debt. NuScale also reported revenue of $1.4 million and net loss of $48.1 million for the three-month period ending March 31st. 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 is driven by a one-time $3.2 million charge associated with cost reduction efforts related to our transition from the R&D-based company to commercial operations and also a $9 million non-cash 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 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?
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