NuScale Power: Cash Burn, Dilution And Insider Selling (NYSE:SMR)

Introduction and Background

NuScale (NYSE:SMR) is an overhyped but well-timed 2022 SPAC which raised $380m from a $1.9bn valuation at the time. On a fully dilutive basis, the company trades around $1.85bn (Market cap) currently with shares priced around $7.59. The company designs “NuScale Power Modules” which are uranium fed light water reactors for nuclear power plants.

These are SMRs (Small Modular Reactors) which have been newly implemented by some global superpowers as part of their clean energy mix. The US has over 50 nuclear power plants with over 90 nuclear reactors but no SMRs. NuScale is one of the few US OEMs at the forefront of winning a US SMR project. Energy consumption from electrical grids is expected to climb gradually into the 2030s, partly due to increased electricity data centre demand, which Goldman Sachs forecasts will grow 160% into 2030.

The US doesn’t have any SMRs in construction, or in fact any new nuclear reactors being built (most recent was unit 4 at Vogtle). China, Russia, India, Turkey, South Korea plus many more all have multiple new nuclear power plants being built. However, there are only 4 SMRs in advanced stages of construction globally and 3 operational SMRs globally.

NuScale is now waiting for a design approval on a 77mw SMR, which is expected to be approved in 2025. This was upgraded from the originally approved 50mw SMR, where NuScale engineers realised they could increase the power to 77mw without any significant design changes.

The modules can be used in an array of 4, 6 and 12 modules.

1. VOYGR-4 = 308mw

2. VOYGR-6 = 462mw

3. VOYGR-12 = 924mw (design expected to complete EOY) – competes with large reactor technologies such as Vogtle electric plant modules in Georgia which put out more than 1000mw+ per reactor.

NuScale is yet to build and install a project. In 2014, NuScale announced they’d been selected by UAMPS (Utah Associated Municipal Power Systems) to build the first SMR project in the US, known as the Carbon Free Power Project in Idaho.

After 7 years and several design changes, in November 2023 the project was cancelled. UAMPS and NuScale mutually agreed to end the project, seeing too much financial risk as costs surged 53%.

This is a common theme in nuclear energy, the new reactors at Vogtle in Georgia faced extreme delays (7yrs longer than expected) and were way over their original budget. This has likely worsened post-2020 due to supply chain shortages and higher commodity costs. Today, NuScale’s key project is the RoPower nuclear power project in Romania. The project is considering 6 NuScale reactor modules and is in the Feed (Front-End Engineering Design) phase, which can last several years.

Analysts expect NuScale to grow revenue YoY to $78m, $316m and $648m for FY25, FY26 and FY28 respectively. It’s important that NuScale announces more Pre-FEED and FEED work over the years, or at least sees progress with the RoPower project to meet these estimates. A large red flag, however, is the cash burn, suggesting the company may go through several equity raises in the years ahead. NuScale only has $130m in cash.

Technology & Competition

SMRs aren’t the new hot buzz, they’ve been in discussion globally since the late 2010s, which those following the uranium mining sector will know about. The underlying SMR technology was invented by a group at Oregon State University in 2007, but the 2011 Fukushima disaster in Japan put the world off of nuclear energy for many years which hammered the uranium market into a decade long decline with 100s of uranium miners decommissioning or consolidating around the world.

SMRs are safer, efficient and smaller nuclear reactors that use nuclear fission to produce high-pressure steam that rapidly passes through a turbine, creating electricity. A key factor that makes SMRs interesting is that they can be partly built at a factory, then transported and pieced together on the plant site. Nuclear is a type of “baseload” energy, meaning it can provide electricity to the grid immediately, it doesn’t need additional time or wind/sunlight like renewable energy. Feel free to read more on SMRs here.

Without a nuclear engineering background, it’s hard to draw comparisons between different SMRs. There are more than 80 SMR technologies in development globally. Unfortunately, I cannot comment on how NuScale is positioned vs. competitors, however in speaking with analysts it seems potential customers are waiting to see how SMR technology evolves before talking with OEMs. In the short term, it doesn’t seem new customer commitments are imminent.

Some Concerning Signs

Overall, NuScale is interesting; however, there is reason to believe this company is struggling under the hood. Even if they are successful, years of cash burn could force the business to become over leveraged or dilutive for shareholders. The current cash level is $130m, but analysts are suggesting FCF burn of $123m this year and $85m in FY25.

The share count increased over the last 4 quarters:

Q3 2023 – 74.84m

Q4 2023 – 76.84m (+2.7%)

Q1 2024 – 79.59m (+3.6%)

Q2 2024 – 89.55m (+12.5%)

LTM dilution = 19.6%

What makes this more concerning is the continuous aggressive selling from insiders after the rally from a low 2023. In the table below, all ‘Net Buys’ are all exercises of options or grants, except for Mundy Thomas purchase of 100 shares near the bottom in November 2023.

Also, the lifecycle of taking a project from Pre-FEED to having a site operation is the best part of the decade. Without NuScale having scaled up manufacturing, at what point do they become profitable?

This is a very rough timeline for an SMR from start to finish:

1. Pre-FEED (1-1.5 years) = $0-$10m revenue.

2. FEED (2-3yrs)

3. Investment decision – Ordering materials/fuel & manufacturing in South Korea (1-2yrs)

4. Site prepared, components shipped, installation site and regulatory approval (2-3 yrs)

5. Site operational

This is if all runs smoothly, the last nuclear reactor built in the US was unit 4 at Vogtle in Georgia which came online this year. Please see the website extract below from the EIA in reference to the 2 new Vogtle reactor sites.

“Construction at the two new reactor sites began in 2009. Originally expected to cost $14 billion and begin commercial operation in 2016 (Vogtle 3) and in 2017 (Vogtle 4), the project ran into significant construction delays and cost overruns. Georgia Power now estimates the total cost of the project to be more than $30 billion”

That being said, experts argue SMRs should be easier, faster and cheaper to build than traditional large nuclear reactors.

Conclusion

Things I like:

• VOYGR can be configured to old coal power plants, making VOYGR a strong SMR solution in that specific case, however outside of this it’s hard to know how NuScale stacks up amongst larger US OEMs GE-Hitachi or Westinghouse.
• Thematic nature of nuclear energy and more SMRs to be built in the future.
• RoPower Project – Seems like a strong commitment from Romania, which is known to be proactive in terms of energy policy. The project has a good chance of getting the green light.
• Spring loaded shares – With the 20% short interest (FINRA data), a positive announcement such as a new customer project or RoPower advancing past FEED phase could cause a bit of a short squeeze as shorts move to cover.

While the NuScale’s technology certainly deserves merit, there’s a large difference between developing an SMR and successfully selling/negotiating back-and-forth with US states or municipalities for a nuclear project.

I question the balance sheet health of the company as the path to profitability appears vague, with the quarterly cash burn and highly active insider selling I would recommend investors “sell” as this pattern (especially for SPACs) usually signals even more dilution (20% dilution already over LTM).