Good afternoon, and welcome to NuScale's Third Quarter 2023 Earnings Results Conference Call. Today's call is being recorded. After management's 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.

Thanks, operator. Welcome to NuScale's Third Quarter 2023 Earnings Results Conference Call. With us today are John Hopkins, President and Chief Executive Officer; and Ramsey Hamady, NuScale's Chief Financial Officer. On today's call, NuScale will provide an update on our business, including our continued progress toward commercializing NuScale's SMR technology, both with current and new customers. Following, we will provide an update on the decision to terminate the carbon-free power project and conclude the call by discussing financial results and outlook. 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 2, the information set forth in the presentation we discussed during the course of our remarks and the subsequent Q&A session includes forward-looking statements, which reflect our current views of existing trends and are subject to a variety of risks and uncertainties. You can find a discussion of our risk factors, which could potentially contribute to such differences in our SEC filings on Form S-1 and Form 10-Q. 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. Our industry-leading position in the SMR space continues to grow. Our pipeline is stronger than ever, and we are nearing a realization of commitment to deliver reliable clean energy at scale. We're looking forward to speaking with you about our announcement with Standard Power and will also provide an update on the decision to terminate work under CFPP, a decade-long partnership, which despite commercial challenges, achieved numerous successes that I will discuss later. Now to begin, as you'll see on Slide 3, we have invested more than $1.8 billion to build sustainable competitive advantages in technology, regulatory approvals, supply chain and manufacturing readiness, all of which brings tremendous credibility to our business development pipeline. NuScale is a vast stage of development has derisked nuclear energy for our customers. While establishing a first-mover leadership position that supports our near-term commercialization efforts. Next, on Slide 4, I'll provide an overview of our strategy. We are advancing our technology and supply chain readiness through comprehensive manufacturing trials and other measures. NuScale is focused on deploying our SMR modules and are poised to expand into new markets, applications and capabilities. Over the last year, we have taken important steps to commercialize our SMR technology. A key step was forming a strategic partnership with ENTRA1 Energy, an independent energy transition platform backed by a highly capable team with significant energy and infrastructure experience. Importantly, ENTRA1 supports our vision for wide-scale deployment of NuScale SMRs. Through this partnership, ENTRA1 will develop, manage, own and operate a portfolio of energy plants powered by NuScale SMR technology approved by the U.S. Nuclear Regulatory Commission, or NRC. As detailed on Slide 5, this relationship enables a business model, which is transformational for NuScale and is important to the success of our commercialization…

Thank you, John, and hello, everyone. Our financial results will be available in our filings. So my focus will be on explaining major line items, our cost-cutting efforts and the basis of presentation of our third quarter financials. All figures following refer to NuScale's Third Quarter 2023 Results, unless I say otherwise. First, as recently announced, NuScale and new UAMP have agreed to terminate the CFPP. While this occurred subsequent to the September 30 close, our third quarter financials have been presented to account for the significant events. As I discussed in our financial results, I'll highlight key items impacted by the termination of CFPP and discuss our treatment of those items. NuScale generates cash and revenue from 3 sources: the sale and delivery of NuScale Power modules or NPMs and other equipment we have developed, licensing of our technology and services. Most of our revenue received to date is from licensing of our technology and services for our customers. In the early phases of project development, NuScale generates revenue by supporting a number of project development activities such as citing, licensing and front-end engineering and site design work and project planning. As seen on Slide 10, revenue for the third quarter of 2023 was $7 million. Research and development costs during the third quarter of $63.7 million increased compared to the same period in the prior year due to NuScale incurring a $35.4 million additional expense resulting from the anticipated termination of the release agreement. Otherwise, third quarter research and development costs would have decreased $6.1 million from the same period in the prior year, consistent with our plan to shift financial resources to sales and commercialization as we pivot from our R&D phase. Loss for the quarter of $58.3 million was larger than for the same period in…

[Operator Instructions]. And your first question comes from the line of Marc Bianchi from TD Cowen.

Maybe, Ramsey, start with you because you were just talking about some of these items related to the UAMPS project and the development cost reimbursable agreement. Of the $79 million of restricted cash, how much would you anticipate going back into unrestricted cash. And my understanding from this previously was that you would be taking ownership of some long lead items and some other things from CFPP, but then you would sell those to another project. Does that need to happen to really get to that net cash balance to the unrestricted cash?

Marc, this is Ramsey. It's great to hear from you. And thank you very much for that question. We've been working very hard to come to a release agreement between ourselves and UAMPS in relation to CFPP. As you'll note, we've had $79.2 million of restricted cash on our balance sheet, approximately $77.6 million in real credit commitment, the rest related to fees for the LC. We expect now as a condition of the release agreement, so we will make a payment to UAMPS of $49.8 million. That covers cost relation to the coal development, EPC, long-lead materials. We also anticipate that we will open a new letter of credit in the amount of $5.1 million, $5 million effective credit commitment. Therefore, of the $79.2 million, we expect that we'll have about $24.3 million released as cash. Marc, we anticipate that there will be some demobilization costs and other costs, which we may realize most likely actually quarter 1 towards the end of quarter 4, but the near-term impact is $24.3 million release of cash.

Got it. And of that $49.8 million, is there any netting of that if you're able to sell long lead items into row power or something like that? Or what's the dynamic there?

We're still working with CFPP and DOE. I think it's a bit early for us to comment. But our intent, most certainly is to take these long-lead materials with we and CFPP and the DOE have invested a lot of money and employ them as they're rent to be employed into a new project.

Yes. Okay. Great. Another one on cash. So you reiterated your reiterating guidance for cash use this year, which could imply that the cash consumption in fourth quarter, at least at the midpoint, would be similar to what you did in the third. I'm sure you're not ready to talk about 24 in terms of cash use, but maybe if we just think about this run rate right now, if you consumed $18 million in the third quarter, excluding these items with UAMPS that we were just talking about and talking about the go-forward business, what would the cash flow profile look like? Should it be getting better? Or should it be getting worse and under what circumstances?

Sure. Let me answer that in two ways. I think for Q4, as we're heading in, and I'll use a round number here. The real number is $197. But if we're heading in with about $200 million as at the end of September 30, we believe that we should take in about $50 million worth of cash for customers from work that we do. We imagine that we will spend about $50 million and about $50 million will be consumed within that $49 million payment, the $49.8 million payment I mentioned in relation to the release agreement. So we think fourth quarter will be down from the $197 million to about $147, $150. In relation to 2024, I want to be clear on something. NuScale has a lot of toggles that we're able to employ to manage our cash flow. This isn't just a fixed expense business. There's variable expense, and there's a lot of discretionary spending. We spend more as we have contracts, and we pull in our spending as contracts either get pushed out or delayed or whether we want to focus more on discretionary spend or nondiscretionary spend. So I think that just as a general comment, Marc, and really important here is we feel we're a very good cash position. I want to reiterate something I mentioned in the earlier comments, we're not out in a position to raise cash, and we're not out right now with a public offering. We'll selectively look at it. We're being prudent about our use of capital, and we understand that preserving value for our investors is our utmost priority. So we feel we're in a very good position.

Okay. That's helpful. The other one I had is related to Standard Power and ENTRA1. This seems like a great opportunity, but a lot of investors have mentioned that these two entities are very unknown. And when you go to their websites, there's not a whole lot there. If you try to Google them, it doesn't appear that there's a lot of reference out there that at least we can find as outsiders. So investors are wondering how capable they are of really getting these projects across the finish line. So maybe you could share a little bit more to the extent you're able to about who these counterparties are and why they should be viewed as a strong developers of these projects?

Marc, I want to maybe go back to some of the comments that John made earlier in the sense that as a management team, we spend a lot of time vetting potential clients. We spend a lot of time vetting into one as a development partner. This is what we do for our living. And we feel strongly that the business model that ENTRA1 has developed has been a great enabler. That business model has resonated with customers, utilities, industrials and others, has resulted in a very significant pipeline for us. Standard Power has been speaking to for over a year. We've added them well, and we feel that Standard Power is a great customer for us, and we know that the sites that they're developing are real sites, and we've vetted those as well. I think it's unfortunate that we can't release too much information to the market at this stage, but we expect to in the very near term.

Yes, Marc, this is John. We have been in discussion with standard power for quite some time. It's just coincidentally that the ENTRA1 also knew those same players and engaged in the process and Standard Power immediately gravitated to the model potentially their offering. So the discussions are going on right now in the development of the phase. Arguably, you could say should the announcement had been made back in October 6. But the announcement essentially that, that standard power of the customer elected and chose NuScale's technology is a technology of choice going forward. So we're in the process right now with ENTRA1, Standard Power in developing that deal. And hopefully, in the near term, as Ramsey mentioned, we'll be able to bring forth more data to the market.

And your next question comes from the line of Ryan Pfingst in from B. Riley.

So I was just wondering, when do you expect to complete a project cost estimate for the standard power projects? Is that a near-term phenomenon? Or even before we get there, could you give a very early stage estimate of the project cost that we're looking at for those two?

Ryan, this is Ramsey. Again, thank you for joining us. Thank you for the questions. It's still a little bit early for us to comment on the structure and the nature of the contract with Standard Power. It's something that we're actively working with. I would mention here that really the customer is ENTRA1 and this relationship. And Clayton Scott, I think we have our Chief Commercial Officer on the line. He may be better positioned to comment on what we have coming down the line just from a timing perspective.

Thanks, Ramsey. Yes, I'm on. So thank you, Ramsey and thank you for the question. Yes, as everybody stated, those discussions and those contextual alignments are still being worked we're in a 90-day period to put those definitive agreements together. So it will be sometime early in the first Q1 where we will have a more firm vision on this. If we are in a position to be able to release something sooner, then that's something we'll certainly address. But right now, we're in a place to outline where those are going to lie. But I will say directionally, it's in a much better direction than what we've seen in other projects.

Ryan, again, this is Ramsey. I want to remind our analysts and our investor community. Standard Power, ENTRA1 announced NuScale as their technology provider of choice. And that was a great announcement for us. And we know that there have been doubts in the market and we look forward to dispelling those doubts. We're working very hard to get agreements in place where we can we can show revenue coming. We can show the structure of the agreements, and we can push forward. Its beat up our stock price and we understand that. And let me assure you that management is working very, very hard to come forward with more information as we're able to support the deal that we have.

Got it. That's helpful. And then turning to CFPP. Obviously, the learnings are very positive, helped the development process for NuScale going forward. But can you talk about the key headwinds a little bit more between the subscription model and the site and maybe some others that ultimately didn't lead to that project getting built that you don't expect to face in subsequent projects from here?

Sorry, this is John. If you look at the tenure of that project over the years, a lot of great successes came from that project. NuScale was able to get through the rigor of the Nuclear Regulatory Commission. We put together a standard plan design. We've got our [indiscernible] submission that was going in January and probably 60% to 70% of that construction operate and license agreement can be moved to another customer. We get the 4 gens that are ongoing currently with our partner in Doosan, our key supplier. Those are fungible assets. And we're in discussions with DOE and the owner currently about moving those assets to another customer. So if you look at what I'd call sun coasts, most of the achievements are going to benefit our next customer. There's some direct site-specific engineering obviously, that won't. But in the totality of it, that was really minimal. There's a site characterization and he's putting up fencing and doing some volcanic geological assessments for seismic. The majority will move elsewhere.

Maybe to further articulate on this, what are the reasons or the reason that we mutually decided to terminate CFPP was subscriptions. And both NuScale and UAMP and the DOE have worked very hard to keep this project moving along. And ultimately, subscriptions are something that we're not our control. I think in future projects, we learned from CFPP, we learned from some of the hurdles. We learned from some of the development risks that've come along with that. And I really think that the model that we have now with ENTRA1 where we step away from the development role and focus on what this business is designed to do, which is sell NuScale power modules, license the technology and sell services associated with those. As long as we focus on that, I think we can steer clear some of the pitfalls that we have previously.

Yes. A lot of the issues we face at CFPP are really unique to CFPP such as an issue of subscription. The customer had made it very clear that they had to achieve 80% of their total for this project to move forward. And with all the hard work that went into it, it was just not achievable. So looking at ongoing costs, we mutually determined it's probably the best thing to collectively we move on. It's the old Dakota Indian, "once you're on a dead horse, you dismount quickly and move on to others", and that's where we are here. So I'm very proud of the cost accomplishments over the years that we've had with that customer and that project and that business is business.

And just to buckets John's earlier point, we anticipate half approximately of the costs that we incurred, the development that incurred the generic development. That moves with us to other projects that informs our future business. We really made a lot of great accomplishments with CFPP. I think everyone is really very proud despite the fact that we didn't get to the finish line, I think we're all very proud of where we got and what it needs for the business overall.

I think what's critically important is if you look at the dynamics in the industry right now, the market trends continue. We do have another customer in Romania, RoPower. I've been in discussions with our CEO in this weekend. And that project continues to progress. They're keenly interested and continual be with NuScale is a technology of choice for that project. We continue to get great support from our government. So all the indicators, the industrials that we talked before, Jose Reyes, Dr. Reyes is in 17 to 20 industrials have approached us for different areas of either being hydrogen or ammonia or process heat. So we're not seeing any slowdown in the market [indiscernible] anybody off from this project. We're reallocating resources. So we just got to get our next couple of customers in the door and get some firm contracts.

I think, John, just to add around the demand profile. The exciting thing around standard power in the data centers is that the demand profile is extremely different. It's very robust. The need for reliable available power is extremely important. And the demand value for what they need in order to provide into the market space of AI is far different. So we anticipate that, that profile and that need is a much different experience than what we're seeing with the subscription model of UAMPS.

Got it. That all makes a lot of sense. Thanks for all that details. If I can just sneak one last one, and John, you started to talk about it a little bit. But if I'm thinking about the customer pipeline in the near term, maybe what geographic regions or customer types do you think have the best shot of converting into committed customers from the pipeline today?

Yes, I still believe particularly with coal plant refurbishment requirements within this country, and you know how many coal plants are forecasted to come off-line just by 2030, it's still a very good model. Our ability from a scalability we can offer 46 up to 924 megawatts that whole coal refurbishment. Overseas is still pretty much the same, heavily driven by energy security needs, particularly Central and Eastern Europe. One thing we are doing with the limited resources, it's the vetting of the opportunities is pretty important. It gets into the Class 1. And that's heavily oriented to what's the regulatory framework and where is the funding coming from? So the lack of activity, I'll be at top 28, I'm looking forward to it. I've been to the last 3 tops. And I think that's going to be interesting just to hear because you're going to hear a lot more about nuclear coming out of 28, I feel, Advanced Nuclear.

Your next question comes from the line of Shahriar Pourreza from Guggenheim Partners.

It's actually James for Shar. Just a quick follow-up. I just want to come back to some of Ramsey's comments on showing more detail. Can you give us any more color on what you expect to be able to provide with regards to guidance on the 4Q coal? Would it be revenue and expense save points? Or will it just be the cash from ops like to sell this year?

Yes, I'm sorry, I didn't hear that very well.

So you had indicated that you will be able to give some more guidance on the 4Q call. I guess, can you just give us any more color on what you expect to be able to provide? Is it just another year of cash from ops? Is it revenue and expense data points? Just how are you thinking about updating us with the next cycle?

I think there's two points on this. I know that I have engaged our analyst community with more qualitative feedback than hard forecasts. I think at the early stage, the development of our business, we rely on a handful of major contracts as we get moving. I think because of the variability in start timings the work that's involved in early stage, it is a bit difficult to stick to a prediction on future earnings or future revenue. That being said, I'd like to engage that for 2024. I think on the Q4 call, we'll look to do that. But the preference has been really to focus on cash because I think that accounting treatment for some of the work that we do skews the numbers a little bit. And that's why you'll notice that, as I discussed, I think with Marc Bianchi's question, as I discuss what Q4 looks like are really focused on cash. And I think that's what's important for us now, cash management, conservative cash management being responsible to our investors and bringing cash in from contracts. And so it's likely I'll stick with a strong cash view as I engage the analyst community, but I'd like to help people build out their models and build a proper GAAP revenue model as well. So we'll be doing both. But my focus really is on the cash management and cash flow.

Thank you. And that is all the time we do have today for Q&A. I will now turn the call back over to NuScale CEO, John Hopkins, for final comments. John?

Yes. Thank you, operator. Again, as we stated before, NuScale, we believe, is well positioned, and we are a first mover in the SMR space. We are opposed poised to commercialize and deliver clean energy at scale, and our technology is essential to powering a global energy transition and we believe we are at the forefront of that effort, and we will work to deliver a safe, scalable and reliable carbon-free nuclear power going forward. So I do appreciate everybody's time. Thank you.

Thank you. And this does conclude today's conference call. You may now disconnect. Have a great day.