NuScale Power Corporation — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited; dollar amounts below are in millions unless stated otherwise. NuScale is developing and commercializing small modular nuclear reactors. Its May 2, 2022 merger with Spring Valley was accounted for as a reverse recapitalization, so year-to-date 2022 results include pre- and post-merger periods and are not fully comparable with 2021.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $3.2 | $0.3 | $8.4 | $1.3 |
| Gross margin | $1.4 | $0.1 | $3.7 | $0.5 |
| Operating loss | $(66.1) | $(45.8) | $(162.6) | $(123.2) |
| Net loss | $(49.6) | $(27.1) | $(94.4) | $(74.4) |
| Net loss attributable to Class A stockholders | $(10.7) | — | $(13.3) | — |
| Basic and diluted loss per Class A share | $(0.23) | Not presented | $(0.30) | Not presented |
- Revenue growth reflected work under the Carbon Free Power Project engineering, procurement and construction development agreement and nuclear technology consulting. Revenue remains immaterial relative to development costs; management does not expect meaningful revenue until commercialization.
- Q3 expenses included R&D of $34.3 million, G&A of $18.5 million and other expenses of $14.7 million. Year-to-date R&D was $87.3 million, G&A $44.4 million and other expenses $34.5 million. The filing attributes increases to design-related professional fees, higher staffing, marketing and insurance, and completion-bonus and equity-compensation costs.
- DOE cost-share income was $18.4 million in Q3 and $64.0 million year to date, versus $18.8 million and $50.4 million in the comparable 2021 periods. The filing reports no income tax provision for the presented periods and a full valuation allowance against NuScale Corp deferred tax assets.
- Cash and cash equivalents were $268.6 million at September 30, 2022, with $50.0 million of short-term investments and $18.9 million of restricted cash. Current assets were $347.9 million versus current liabilities of $42.4 million; restricted cash is collateral for a project letter of credit and is not freely available.
- For the nine months, operating cash use was $104.7 million, investing cash use $51.7 million and financing cash provided $366.9 million. Financing included $341.5 million of net transaction proceeds and $27.5 million from warrant and option exercises. Cash, cash equivalents and restricted cash increased by $210.4 million.
- The company reported no debt at quarter-end; the $14.0 million year-end 2021 convertible note was converted into equity in April 2022. Warrant liabilities were $38.2 million and are remeasured at fair value, causing potential noncash earnings volatility.
- Gross margin was $1.4 million on $3.2 million of Q3 revenue (about 45%); year-to-date gross margin was $3.7 million on $8.4 million of revenue (about 44%). These small revenue bases do not indicate mature commercial economics.
Material changes and business developments
- Revenue increased versus 2021, but operating losses widened as development and public-company costs rose. Year-to-date operating cash use also increased from $73.4 million to $104.7 million.
- The May 2022 transaction brought in $341.5 million net cash, converted Fluor’s $14.2 million convertible loan to equity, and established the public-company Up-C structure. At September 30, Class A holders owned 23% of the combined economic interests; legacy NuScale LLC unitholders held 77% as noncontrolling interests.
- Q3 net loss attributable to Class A holders differs materially from consolidated net loss because most post-transaction losses were allocated to noncontrolling interests.
- All merger earn-out shares vested during Q3 after the stock-price conditions were met. Outstanding warrants, options, exchangeable Class B units and registered resale shares create potential dilution and market-supply risk.
Outlook, risks and contingencies
- Management says available cash should fund R&D and operating needs for several years, but warns that costs may rise, customer-sourced income is not assured and additional funding may be needed in future years. No specific financial guidance is provided.
- The NRC directed its staff in July 2022 to issue a final rule certifying NuScale’s current design; certification becomes effective 30 days after publication. The planned 77 MWe enhanced design still requires NRC approval, which the company said could occur in 2024.
- NuScale targets module delivery as early as 2027 and anticipates first UAMPS project operations in 2029, with remaining modules in 2030. These are plans, not binding delivery commitments. The filing says the company had not yet entered into a binding contract to deliver NPMs; deployment depends on agreements and customer financing, construction, licensing and project economics.
- Under the UAMPS development cost reimbursement agreement, NuScale may have to reimburse eligible development costs if specified performance conditions are not met. The current-stage cap is $57 million; $15.6 million of UAMPS net development costs had been incurred, and an $18.0 million letter of credit was secured by $18.9 million of restricted cash. The company said it was compliant with, and expected to remain compliant with, the performance criteria.
- A purported class action filed in September 2022 alleges that amendments to the NuScale LLC operating agreement in connection with the merger required separate class consent. The company said it did not believe a loss was probable and recorded no liability; outcome remains uncertain.
- Other significant risks include nuclear licensing and deployment delays, unproven commercial demand and cost competitiveness, dependence on Fluor and suppliers, DOE funding and appropriations, supply-chain inflation, public acceptance and safety perceptions, and possible need for additional capital. Fluor is the majority owner and the company qualifies as a controlled company.
- The company must pay certain legacy holders 85% of qualifying future tax savings under the Tax Receivable Agreement; no projected liability was recorded at quarter-end. Payments could be substantial if applicable tax benefits arise, and specified events can accelerate obligations.
Investor facts to verify
- Progress toward binding UAMPS scope-of-supply and Fluor EPC agreements, project financing, site approvals and the planned 2029 operating date.
- Publication and effective date of the NRC design-certification rule, and status, timing and cost of the separate 77 MWe design approval.
- Cash burn, DOE cost-share reimbursements and appropriations, customer-sourced funding assumptions, and the portion of reported liquidity restricted or committed.
- Whether UAMPS project economics and DCRA performance tests are met, and changes in reimbursement exposure, letter-of-credit requirements or restricted cash.
- Developments in the operating-agreement lawsuit, the Tax Receivable Agreement exposure, and potential dilution or resale supply from warrants, options, exchangeable units and registered shares.