NuScale Power Corporation (NYSE: SMR) Third Quarter 2022 Results Conference Call November 14, 2022 08:30 AMm. ET
Participating companies
Diane Hughes, Vice President of Marketing and Communications
John Hopkins – President and Chief Executive Officer
Chris Colbert – Chief Financial Officer
Conference Call Participants
Marc Bianchi-Cowen
Operator
Good morning and welcome to NuScale’s third quarter 2022 earnings convention call. Today’s call is recorded. All participants are in listen-only mode. After the feedback ready through management, there will be a response session. [Operator Instructions]
A replay of today’s convention will be available on NuScale’s online page in ir. nuscalepower. com. The webcast will be available for 30 days after the effects are called. There will also be a seven-day phone replay via a registration link, also available on the NuScale online page.
At this time, for opening remarks, I’d like to speak with Diane Hughes, VP of Marketing and Communications. Go on, Mrs Hughes.
Diane Hughes
Welcome to NuScale’s third quarter 2022 earnings convention call. We appreciate your interest in NuScale and thank you for joining us. With us were John Hopkins, president and chief executive officer; and Chris Colbert, Chief Financial Officer.
On today’s call, John and Chris will provide an update on our activities and talk about our results. Then we will open the phone lines for questions. We have posted a number of additional slides on our investor relations website. As reflected in Safe Harbor on slide 2, the data presented in the presentation and discussion about our comments and the following Q&A inquiry includes forward-looking statements, which reflect our existing views on existing trends and are subject to a variety of threats and uncertainties. You can locate a discussion about our threat factors, which may potentially contribute to those differences, in our filings with the SEC on Form S-1 and Form 10-Q.
I will now pass the floor to John Hopkins, president and CEO of NuScales. John?
John Hopkins
Thank you, Diane, and good morning everyone. I am pleased to speak to you from Sharm el-Sheikh, Egypt, at COP 27, where we participated in meetings and panels on the critical role nuclear energy plays in decarbonizing our global energy ecosystem to achieve our goal of reducing carbon emissions targets through 2050.
We are discussing the use of SMR generation to supply Ukraine with critical carbon-free energy. The discussion included the announcement of the U. S. government. UU. de orders for a pilot assignment in Ukraine that will demonstrate the production of blank hydrogen ammonia generating of NuScales SMR through a public-private consortium from the United States, Ukraine, Japan and the Republic of Korea.
This is another example of how SMR generation can not only ensure some energy security, but also provide a diversified energy platform from which to decarbonize sectors and enable countries to solve disruptions such as long-term food security and energy scarcity. What also stands out is that the point of enthusiasm around nuclear power has never been higher.
Recent geopolitical advances have highlighted the need for more clean and reliable energy resources. As a result, more and more governments, utilities and businesses around the world are turning to nuclear power as a viable way to force the future. For example, at the recent International Atomic Energy Agency (IAEA) Nuclear Energy Ministerial in Washington, D. C. , government leaders from Japan, Ghana and the United States announced a strategic collaboration for the deployment of SMR generation in Ghana.
As part of this agreement, the government of Japan funded a feasibility study and supply chain investigation for the prospective deployment of a NuScale VOYGR SMR power plant in Ghana. This collaboration is the first of its kind on the African continent, a market that we can simply be well served through our technology.
Administrations in the UK, France and South Korea are also expanding the alliance of existing plants, building more internal nuclear plants as a component of a longer-term framework for meeting net-zero emissions targets, and it has been encouraging to see countries like Germany. reassessing its stance on nuclear power. Similarly, in the United States, states are asking to extend the life of the existing fleet or expand the use of nuclear power.
In California, for example, Governor Newsom signed legislation to keep the Diablo Canyon power plant running for five years after the previous plan closed. and require that the nation’s first SMR advertising facility be installed in southwest Virginia within 10 years.
At the federal level, the recently passed Inflation Reduction Act represents the most significant pro-nuclear law since the Atomic Energy Act of 1954. We are also seeing the concept of coal to nuclear being adopted as a key strategy for building a new path. for our communities of power. Chris will expand on any of his comments.
It is clear that this is an exciting time and that NuScale’s VOYGR small-module reactor power plants offer a cleaner, safer and more competitive path. Modular design that can be manufactured entirely in the factory. By moving to full factory production and meeting the on-site structure, we have the ability to reduce and stabilize prices while reducing the threat of schedule by moving the most expensive oblique structure activities to a factory environment.
NuScale is a carbon-free power source that is only capable of generating reliable baseload electricity, but it is also designed for flexible operations that complement intermittent renewable energy generation resources and can provide process heat for programs such as desalination, hydrogen production, and oil refining. District heating circuits.
The protection of NuScale’s design is unrivaled by the ability of our force modules to securely close and cool indefinitely. Without the need for AC or DC force, operator or PC action, or any other water, this provides what is known as an unlimited adaptation period, the first for generating soft water reactors days a week for other designs.
And finally, in terms of load competitiveness, NuScale’s SMR design is the only scalable technology. In this sense, the installation can be operated from an unmatched NuScale module, from force modules to as many modules as the reactor structure is able to contain them. Scalable capacity allows consumers to expand facilities and capacity over time to meet load expansion or other economic considerations, and the facility does not want to have all modules installed to operate.
As we shared the last quarter, our generation is hypothetical. We put in position the basic elements for marketing. We are the first and only SMR generation supplier in the world to obtain U. S. design approval. U. S. Nuclear Regulatory Commission or NRC. This approval is critical to validating the cutting-edge protection of our design and has boosted public acceptance of SMR generation at home and abroad.
As far as we know, none of our competitors have submitted a design approval application to the NRC, which means we are at least 3 years ahead of the festival for technologies interested and implemented in the United States. In addition, our generation is supported by an established supply chain. We are aligned with proven and highly professional production partners, and have developed a strong supply chain control organization to monitor and track suppliers. years of life of our plants.
With that, I’ll move on to an operational upgrade. As we prepared to list our company earlier this year, we set five short-term goals that NuScale needed to achieve by the end of the year. As you can see on slide 15, we are making wonderful progress on our priorities for 2022. As a reminder, our five-year short-term goals are; one, safe from our next engaged visitor; second, to publish specifications for long lead fabrics for the reactor’s upper deformation vessel; third, to complete the design of the reactor building; fourthly, to the whole design of our people’s plan, which I will also refer to as the SPD my comments; and five, submit a popular design approval application to the U. S. Nuclear Regulatory Commission. The U. S. Department of Homeland Security for the VOYGR-6 module power plant that our visiting Utah Associated Municipal Power Systems plans to implement.
Now, let’s address each of those elements one by one. Secure our next engaged visitor first. Last quarter, I shared details, but attractive opportunities in Romania and Poland. We continue to make progress with potential consumers in both markets and are confident that we will be able to secure our next engaged visitor until the end of the year.
In Poland, we have made significant strides with KGHM, a leading producer of copper and silver in Poland. KGHM has signed a state agreement to release the deployment of the first SMR in that country. We have issued invoices for additional progression paints and KGHM continues to have fruitful discussions with the regulatory government in Poland, where initial feedback has been positive.
In Romania, the U. S. Trade and Development Agency (FDA) is not allowed to do so. The U. S. Department of State awarded a grant for initial engineering and design paints to RoPower Nuclear S. A. , a subsidiary of Romania’s State Nuclear Energy Corporation SN Nuclearelectrica. The eight-month scope of the paints includes responsibilities in the production of deliverables that will describe the customer’s express inputs for the VOYGR-6 SMR power plant such as the Doiceşti power plant in Romania, with a disused coal plant and herb-based fuel chimney brigade assemblies and represents another step towards a signed commitment.
In addition, we are moving forward with the deployment of an energy exploration center or an E2 room simulator at the University of Bucharest, which lays the foundation for Romania to serve as an SMR education center for young aspiring engineers in Eastern Europe.
Finally, we recently participated in a series of Supplier Day events in Romania in partnership with Nuclearelectrica in Fluor. Commitments like this are a first step to harness the resources of the local Romanian supply chain in production and improve our technology.
Meanwhile, in the U. S. , we continue to move forward with our number one customer, Utah Associated Municipal Power Systems and its carbon-free force project, we will deploy a VOYGR-6 SMR power plant by the end of the decade. Earlier this year, the CFPP finished geotechnical paintings at the site to license activities, totaling more than 47,000 hours of paintings.
Site knowledge and data were used to complete seismic, hydrological and volcanic investigation of the allocation required for the NRC combined license or COLA application to be submitted in January 2024. Work at the site continued this fall with drone surveys. Equipment recently mobilized to conduct groundwater sampling, calibrate weather tower tools, and install grounding rods.
In addition, key contracts are being developed for OE engineering, infrastructure procurement and operations.
Looking ahead to 2023 and beyond, our consumer portfolio remains strong. As I mentioned earlier, interest in our generation intensified the quarter as industry leaders outside our sector continue to adopt complex nuclear responses to global blank energy needs. Our recent NuScale symposium in Washington, D. C. , D. C. il a few weeks ago is one example. We bring together more than one hundred high-level leaders from a wide diversity of domestic and foreign utilities, energy users, and ministerial-level leaders from interested and contracted countries through SMR generation. We’re also joined by federal and state officials, a cross-section of the foreign supplier community, as well as analysts and investors who reported broad interest and stakeholder assistance needed to finance, manufacture, build and deploy NuScale’s SMR power plants worldwide.
Let’s move on to our pace for now. As we reported last quarter, we have published long-term curtain specifications for the reactor’s upper stress vessel, which is a critical component in the NuScale force module acquisition and production process. Lately we are working with our key suppliers on other pre-production processes activities to make sure the origin chain is in a position to function in anticipation of long-term parts placed in the short term. Therefore, we are in good shape here and will continue to advance our production and preparation of the origin chain.
We talked on last quarter’s call that our third level of reactor construction design was completed in July. The reactor construction is a large, physically powerful design that houses NuScale force modules and is used to ensure overall operations of maximum protection and mitigate the consequences of any prospective protection incident. Given the importance of this design, complete the design with a vital step and assist our efforts in the plant’s broader popular design procedure.
This brings us to the fourth step on our list. Our purpose is to complement our factory design or SPD. Our suppliers shipped more than 12,000 deliveries, added floor plans, source specifications, pipe tension calculations, and heat loads. These deliveries, along with a full three-dimensional style of the plant, shape the design of the NuScale plan. The final touch of the SPD will generate a comprehensive plan design for prospective consumers to operate and implement NuScale VOYGR SMR power plants.
This means significant savings for our clients, as they can invest their investment in engineering resources into site-specific design changes. year.
Finally, our fifth and final step is to submit the Standard Design Approval Application or SADS to the U. S. NRC for the VOYGR-6 plant SMR. Il is a workflow that concentrates our 77-megawatt technology. This deserves not to be with our 50-megawatt technology, which has already won NRC’s popular design approval. As a reminder, we have begun R’s efforts
However, through valuable engineering efforts, we found that the same NuScale module can deliver up to 77 megawatts, which would increase the use case for our technology. This forced update requires relatively minor modifications in the physical style and some revisions in the analytical. styles that have since been approved or are being recently reviewed by the NRC. There’s nothing new about those methods on track to ship AADS by the end of the year. Overall, I am pleased with the progress the NuScale team has made toward our 2022 goals and our broader work toward commercialization.
Before I give the floor to Chris, I’d like to highlight some other significant accomplishments we made in the quarter. We continue to seek informed strategic partnerships with entities that can help us provide our clients with an integrated solution for financing, creation and development. manage SMR projects. These partnerships are vital because they reduce barriers to access for prospective consumers by allowing us to offer a single-source solution for financing and building a NuScale VOYGR power plant.
We are also proud to note that the NRC released its latest protection assessment report, which approved NuScale’s method for determining the emergency planning zone or EPZ for NuScale VOYGR SMR plants. Unlike classic large-scale nuclear power plants, which will have to have a 10-mile EPZ in the U. S. In the U. S. and using a deprecated method, NuScale’s VOYGR plants can achieve a limited EPZ at the site boundary.
This is because it demonstrates the unprecedented security of NuScale’s SMR design. A smaller EPZ also particularly reduces plant operating costs and also allows NuScale generation to be cited where it is needed most. For example, our VOYGR SMR power plants can be installed in retired coal-fired power plants near high population areas, unlike other technologies.
Last but not least, the NRC voted unanimously to certify NuScale’s SMR design and noted that it meets the agency’s safety requirements. especially since we have established an alignment with NRC staff on what a popular design approval application deserves to contain. Upon being certified, the design now has the approval of NRC personnel, the reactor safeguards advisory committee within the commission itself. As the first NRC-SMR model approved, this achievement is a reminder of the unprecedented progress we have made toward commercialization. No other SMR generation supplier has submitted an application for study and design approval to NRC. Even less approved and certified. So, a lot of positive developments in the quarter.
Now I’d like to speak with our CFO, Chris Colbert, to review the monetary highlights. Chris?
Chris Colbert
Thank you John and good morning everyone. I’d like to start with our third-quarter monetary highlights. With the detailed data found in our repositories, I’ll focus on the main drivers of functionality. In terms of results, we generated $3. 2 million in profit in the quarter, compared to $0. 3 million in the third quarter of 2021. The construction of functionality was driven through activities to assist the engineering, procurement and structural progress agreement for the Carbon Free Energy Project, complementary consulting facilities around nuclear technologies. While the trend is positive, profit is again a small component of our story at this point. And our purpose is to manage our expenses well.
Operating expenses have increased and will continue to increase in line with efforts to drive our go-to-market plan. Higher professional fees related to designing popular plants and increasing headcount for our licensing efforts resulted in R expenses.
Investments in advertising and marketing are an integral component of building the popularity of our logo around the world. Due to temporary differences with our federal funding, DOE’s price share decreased slightly in the quarter. It was $13. 6 million higher than the same era in 2021 as we continue to advance our research.
Overall, our net loss for the quarter was $22. 5 million higher than the comparable loss in the third quarter of 2021. In terms of other uses of cash, CapEx was minimal and basically consisted of software and hardware up to R.
Before I remind John again, I’d like to talk about some other major advancements that will have an effect on our business. All commercial projects face emerging financing costs and uncooked curtains, due to supply chain disruptions, emerging interest rates, and other macroeconomic dynamics. Price tension in key fabrics such as steel, copper and mineral commodities has intensified year-on-year and compared to the pre-COVID period.
While this charge inflation is something we’ll have to handle, I must emphasize that it’s unique to NuScale or the nuclear industry. All categories of power generation, adding solar, wind, LNG and traditional fossil fuel projects, are efficient. The line is for SMR nuclear projects to remain competitive with the rest of the power generation bureaucracy, which is at the core of our history at NuScale.
The passage of the Inflation Reduction Act, to which John referred earlier, is an incredibly important breakthrough for the nuclear industry. This will benefit our business style and reduce the localized energy load for our generation. Previously, government investment only for blank generation implemented for wind and solar.
With the passing of ERI levels, the rules of the game now include nuclear power as a component of the government’s blank technologies. The salient point here is that complex nuclear power will now gain advantages from significant relief in investment prices from 30% to 50%. While utilities and other stakeholders are still assessing the broader implications of the IRA, we expect to see a significant increase in interest from our generation as a result of this legislation. We see this as an obviously positive detail for a NuScale business style and our long-term track record.
With that, I would like to forward the call to John for final comments.
John Hopkins
As pioneers in the SMR nuclear industry, we are incredibly proud to have the opportunity to create, build a unique commercial style that will supply carbon-free baseload power and help deliver blank power at scale. We value the voluntary interest of our investors and will continue to diligently execute our operational and financial milestones as we work to replace the blank energy landscape. Now, more than ever, the world wants more blank energy resources and NuScale is critical to assembling that need in a meaningful way.
With that, we move on to the questions.
Q&A session
Operator
[Operator Instructions] The first comes from Marc Bianchi’s lineage with Cowen. Your line is open.
Marc Bianchi
Hey thanks. I guess, Chris, just because you discussed that at IRA, maybe we can communicate about what that means in terms of visitor demand. and communication from the announcement of IRA. Me would like to know if you can quantify that to some extent and give us a broader concept of when we would hear more about those kinds of conversations.
Chris Colbert
Of course. And John, you have to start and I’ll follow you on.
John Hopkins
So go ahead, Chris. I asked you. Follow.
Chris Colbert
It is ok. It is ok. For example, the Reduced Inflation Act offers the option of 30% to 50% relief on the burden of a NuScale plant, and this has generated a lot of interest and demand from American industry, as they perceive what this means for them in their non-public circumstances. Therefore, the inquiries we have won come from both the app investor and other public sector or municipal electric power agencies to ERAM and even regional electric power cooperatives like Dairyland Power.
Therefore, we anticipate that it will take some time for other people to digest how ERI applies to their specific scenario if they start factoring it into their implementation decisions in the future. But suffice it to say that we’ve won a lot of consultation from everyone who supplies power, as well as from state policymakers who have asked us to come and talk about the generation and effect of the IRA, which you may see falling in your states.
So with that, I’d say it’s a very exciting opportunity that we see accelerating the deployment of complex reactive technology, adding NuScale in the US. , how are you moving forward to launch projects that take advantage of those technologies and the benefits of the IRA. John?
John Hopkins
Marc, I just have to stand firm and say, pull out an IRA. As Chris said, we’re getting a lot of interest because we’re seeing a lot of potential forced plants go offline here over the next decade. Major utilities are now looking out at ERIs as it says, as it looks like it will be phased out around 2032, so they’re looking to take credit for the savings. This can constitute up to 30% of the cost. So, that’s more: what else do I see here at COP27 with debates on European taxonomy, etc. Are we seeing a significant movement in terms of consumers not needing to develop their agenda as soon as possible?Thank you.
Marc Bianchi
Thank you for that, John. I guess one of the milestones here is the customer’s safe time. Can you remind us what criteria are applied to claim the good fortune of a safe moment from the client?We see a lot of memoranda of understanding and announcements moving the ball on the court, but I don’t know what that cause is to somehow count the visitor as a safe visitor.
John Hopkins
Marc, what we are looking for is, in fact, let’s take a country like Poland or KGHM, there we see what the regulatory framework is, what is the investment, where does the investment come from, where does the government come from?And most importantly, once cash starts replacing hands, we have an agreement in place and now it’s multi-million dollar to help KGM on a variety of sites, a variety of sites, a helper and others. Front work.
So once cash starts moving, we tend to be seen as a safer customer. The same applies to Romanians. Again, they are: we have agreements in place with them, so the exchange of cash in the hands, the government supports there at the highest levels. The U. S. government The U. S. supports that, as I said. We made a chain of sources. In fact, we have accumulated all our suppliers here in recent weeks. Therefore, the momentum is greatly strengthened and moving forward.
Marc Bianchi
Okay, wonderful to hear. Perhaps, if you could slip one more on the Department of Energy’s cost-sharing appropriations, there’s a Senate appropriation there that turns out to siphon off some of NuScale’s funding. I’m curious about what these end results would mean and how we deserve to think about it in the context of the loose money forecast you talked about when adjusting for positive loose money in 2024.
John Hopkins
Let me start and I’ll pass it on to Chris. Each and every year we reviewed the original Senate bill and, as Chris said, this year we raised $13 million more than last year. on both sides of the hill right now with credits to remain safe and then to make sure that this generation in our CFPP assignment moves forward. So, the feedback we are getting on both sides of the hills is very positive. So we’ll let you see what the end result is, yet we’re diligently executing it like we do each and every year. Chris?
Chris Colbert
That sums it all up, John. Es a process, is it rare?So there’s a request for a presidential budget, there’s a house logo, a Senate brand. And then there’s a conference, and it takes place every year. So, we’re going to have to see what comes out of that process. But if you look at it historically, you see that regularly – it takes a while for it to work. We have succeeded, or at least been appropriated to the degrees we expected in the past. It is not a predictor of the future. But right now, we’re working with the Department of Energy and the other committees to make sure they understand what we’re looking to accomplish and that it’s funded in the future. I’ll leave it at that.
Marc Bianchi
It is ok. Thanks Chris. I guess I had a few more questions while we were on the phone here. Can you tell us about the timing of Ukraine’s announcement here with hydrogen?I guess what’s the timeline for this to potentially become a chore for you. And I know he mentions the use of forged oxide electrolysis, which, according to my wisdom, is still an emerging generation for hydrogen electrolysis. Are there any technological achievements you want on the electrolysis side, which is something that needs to be solved to move this task forward?
Chris Colbert
Oui. Je will tell you that I am incredibly proud. I was on the same level as President Kerry’s special envoy for climate and Ukraine’s Energy Minister Halushchenko when he announced this blank fuel SMR pilot project. infrastructure and the U. S. The U. S. and other countries must be behind.
And specifically on the energy side, I have an idea of what was vital when they announced this specific allocation for ammonia and hydrogen, many of NuScale’s key suppliers in the U. S. were able to do so. The U. S. , Japan, and Korea are all committed to this allocation. So, it’s at an initial level and we’re going to sit down and start talking about how it works. But in a forged rust, it would possibly be a little more complex than you think and I’ll have to leave it at that.
Marc Bianchi
It is ok. I will confine myself to nuclear generation on this subject.
Chris Colbert
Yes, however, it is attractive to be at that stage. It’s a room full of people. And then also, if you remember, he announced another task called Project Phoenix. And, essentially, it is about accelerating the transition from European coal-fired power plants to SMRs. And the key to that is maintaining local jobs. Now, it’s none other than what we’re doing in Romania, Poland, as well as what we’re going to do in the United States. Coal restoration is going to be a great opportunity globally for the complex nuclear community.
Marc Bianchi
Perhaps the latter, just in warranties, is there any color you can provide in redemption plans or how do you plan to update the market about it?Is there anything you’re interested in or just a general color you can provide?
John Hopkins
I’ll pass it on to Chris. Chris, please.
Chris Colbert
Therefore, we are aware of the scenario and the triggers that have been found in this regard. And again, it all comes down to a verbal exchange within the company that we think is the most productive given all the other major points about our capitalization. in the future. But we will continue to monitor it. And we will continue to compare the opportunity that presents itself either in terms of exercising those redemption rates or errors.
What I will point out is that in the third quarter, you will realize that about $27 million of capital was raised as a result of the renegotiation of guarantees and options, which was not expected. , at least in the third quarter, it solved some of it and provided more capital to the company that, honestly, we did not anticipate or plan, but it is there and it is a positive thing to have.
Marc Bianchi
It is ok. That’s great. Thank you very much for the answers. ‘Ll.
Operator
[Operator Instructions] At this time, there are no additional questions. Now I would like to call John Hopkins for closing remarks.
John Hopkins
Thank you, operator. Thank you very much to everyone who answered the questions as well. I had two more presentations, and I will say this, I at COP 26 and discussed the last quarter. I felt like we had a seat at the table. I can tell you about NuScale’s interest in having six opportunities to speak here at COP 27. And this has generated a lot of interest, strongly motivated by the obvious climate disruptions, but also by energy security. Also, many discussions, as we said earlier, about hydrogen. production and how to get it, how to get it to scale your fertilizers like Romania.
In addition, another key detail that has been discussed here is the fact that NuScale through the NRC now has an emergency site boundary on, necessarily, the plant fence line. It is the first industry and there is no other nuclear power plant in the world. So if you think about what we’re talking about coal renewal while those plants are offline, the population density is higher and there’s a significant charge to say we can do it at the site boundary. So, with that, I would like to say thank you very much. We appreciate it until next time.
Operator
That concludes the convening of today’s convention. You can now log out.