Lightbridge Corporation (NASDAQ:LTBR) Q2 2020 Results Earnings Conference Call August 11, 2020 4:00 PM ET
Matthew Abenante – Director, IR
Seth Grae – President, CEO
Lawrence Goldman – CFO
Andrey Mushakov – EVP, Nuclear Operations
James Fornof – VP, Nuclear Program Management
Sherry Holloway – Accounting Manager
Conference Call Participants
Greetings and welcome to the Lightbridge Corporation Business Update and Second Quarter 2020 Conference Call and Webcast.
As a reminder, all participants are in a listen-only mode. And the conference is being recorded.
It is now my pleasure to introduce your host Mr. Matthew Abenante, Director of Investor Relations for Lightbridge Corporation. Thank you. Sir, you may begin.
Thank you, San and thanks to all of you for joining us today. The company’s earnings press release was distributed after the market closed yesterday and can be viewed on the Investor Relations page of the Lightbridge website at www.ltbridge.com.
Joining us on the call today is Seth Grae, Chief Executive Officer; along with Larry Goldman, Chief Financial Officer; Andrey Mushakov, Executive Vice President for Nuclear operations; Jim Fornof, Vice President for Nuclear Program Management; and Sherry Holloway, Accounting Manager.
I would like to remind our listeners that any statements on this call that are not historical facts are forward-looking statements. Today’s presentation includes forward-looking statements about the company’s competitive position and product and service offerings.
During today’s call, words such as expect, anticipate, believe and intend will be used in our discussion of goals or events in the future. This presentation is based on current expectations and involve certain risks and uncertainties that may cause actual results to differ significantly from such estimates. These and other risks are set forth in more detail in Lightbridge’s filings with the Securities and Exchange Commission. Lightbridge does not assume any obligation to update or revise any such forward-looking statements whether as a result of new developments or otherwise.
With that, I would like to turn over the call to our first speaker, Seth Grae, Chief Executive Officer of Lightbridge. Hello, Seth.
Hello, Matt, and thank you. Thank you, everybody for joining us this afternoon. I hope that each of you and your families are healthy and well. Lightbridge is well aligned with the support the US government is providing to develop advanced nuclear technologies, that can help the existing large reactors and new smaller plants.
This quarter, we continue to make progress on developing our proprietary next-generation nuclear fuel. In early June, we commenced work under our cooperative research and development agreement with Idaho National Laboratory or IML.
The scope of the project, which we expect to be completed within 12 months, includes experiments designed for irradiation of metallic fuel material samples in the Advanced Test Reactor at IML. We will establish the test plan for the measurement of what are called thermophysical properties, such as heat capacity and thermal conductivity of our fuel materials, both before and after irradiation in the reactor.
From there, INL will perform the detailed design and establish the safety case for the experiment in the Advanced Test Reactor. We expect these steps will lead to the complete design and safety case needed for insertion of our fuel materials into the Advanced Test Reactor.
We continue to see strong bipartisan governmental support for the types of benefits that our fuel will bring. In June, the House Select Committee on the Climate Crisis issued its report on addressing climate change, regarding advanced nuclear, the report recommends that Congress should direct DOE to provide support for first of a kind or early deployment, nuclear power technologies through R&D and federal financing, provided the technology meets high standards of safety and minimizes proliferation risks.
In July, the US International Development Finance Corporation lifted its ban on investment into advanced nuclear energy projects for export. In lifting the ban, the International Development Finance Corporation recognizes advances in technology which can make nuclear energy particularly impactful in emerging markets.
This policy change recognizes the vast energy needs of developing countries and can bring additional US government support to advanced nuclear technologies. Lifting the financing ban was a key recommendation in the Nuclear Fuel Working Group’s report in April.
After the International Development Finance Corporation announcement, Lightbridge’s Chairman Tom Graham, was quoted in a Reuters article on how lifting the ban will lead to a boon in US nuclear investment and discuss the importance of greater American participation in the global nuclear industry, particularly in terms of safeguards against proliferation. Lightbridge fuel has been independently validated to be the most proliferation proof nuclear fuel there is.
Also in July, the US Senate passed the Nuclear Energy Leadership Act, and it was included as an amendment to the National Defense Authorization Act. This legislation will focus DOE efforts on the demonstration of Advanced Reactor concepts, including fuel technology.
As we said on prior calls, government support for nuclear has become one of the few bipartisan issues in American politics, which is helpful for America’s global competitiveness in nuclear. Since our next call will not be until after the election, I’m happy to say that Lightbridge has relationships on both sides of the aisle.
There was a recent article in Forbes that discussed how boosting US nuclear energy sector competitiveness has support from both the administration and the bipartisan group in Congress, which we shared on social media channels yesterday. In the article, Zheng Dongdong, the Director of China’s Department of Energy Research was quoted as saying, “whoever dominates the technology leads the world on global nuclear energy. Technology is the primary productive force”.
Turning to our strong patent portfolio. During the second quarter, we received the decision to grant from the Japan Patent Office, which covers metallic fuel assembly design for using CAND- type reactors. We then received a patent from the Australian Patent Office that covers an alternative embodiment for an all metal fuel assembly design, which incorporates Lightbridge-designed 4-lobe helically twisted fuel rods for use in pressurized water reactors.
Following that announcement, we received a patent from the Eurasian Patent Office that covers an all metal fuel assembly designed with a mixed grid fuel rod arrangement inside the fuel assembly. Patenting the technology that we develop helps assure that our shareholders will fully benefit from commercialization of our technology.
With that, I’ll turn the call over to Andrey Mushakov, Executive VP for Nuclear Operations, who will review our near term research and development opportunities. Andrey?
Thank you, Seth. As Seth mentioned already, we have begun our collaboration with INL on the GAIN voucher project to design an irradiation test of the Lightbridge uranium-zirconium fuel alloy. DOE’s GAIN voucher program provides crucial support and access to world-class nuclear expertise as well as state-of-the-art facilities and capabilities available across the DOE complex.
These expertise and facilities are indispensable for US companies, such as Lightbridge, developing new and advanced nuclear technologies. As part of this GAIN project, we plan to benefit from new US government support for advanced nuclear technology.
Together with INL we are exploring the application of INL’s Fission Accelerated Steady-state Testing, or FAST, methodology to this experiment as a means of reducing the time and cost to achieve high burnup in the fuel material. Although the COVID-19 pandemic has disrupted the normal way of working for many American companies, Lightbridge and IML have maintained frequent communication to ensure this first GAIN project is completed in a timely manner.
We believe demonstrating success on this initial project will position us well to seek further DOE funding opportunities and additional government support, which can further accelerate the development of our advanced fuel technology.
In parallel without efforts under the GAIN voucher, we expect the – to produce the sample coupons for the in-reactor experiment. Our goal is to have these sample coupons available for insertion in the Advanced Test Reactor when its planned maintenance outage is completed next year. The actual experiment insertion date is subject to the final duration of the outage, the availability of testing positions in the reactor and INL’s prior commitments for testing.
Once the required fuel burnup is achieved in the reactor, we plan to perform postradiation examination of the coupons, which will provide data on the properties of the fuel material.
As we look ahead, the DOE and national – U.S. national labs have demonstrated significant progress in the area of accelerating fuel qualification, including developing methods to perform irradiation tests more quickly than ever before and in the development and use of advanced modeling and simulation capabilities, which enable faster validation of advanced technologies. We believe both of these areas can be beneficial to accelerating the demonstration of Lightbridge’s technologies and will continue to work toward that end. Back to you Seth.
Thank you, Andrey. Now, I will turn the call over to Larry Goldman, our Chief Financial Officer to summarize the company’s financial results for the quarter, Larry?
Thank you, Seth. And good afternoon, everyone. For further information regarding our second quarter 2020 financial results and disclosures, please refer to our earnings release that we filed at the close of market yesterday and our Form 10-Q that we will file with the SEC later today.
Regarding our Q2 financials, as of June 30, 2020, we had $17.1 million of cash and cash equivalents compared to $18 million of cash and cash equivalents at December 31, 2019. We have no debt and a working capital surplus of $16.4 million at June 30, 2020.
We have taken the necessary steps in reducing our corporate overhead this year. And we anticipate preserving our current cash runway to the end of calendar year 2021. We will continue to strive to obtain additional DOE funding in the future, either from their GAIN program, or other funding opportunities made available within the DOE, with the primary goal of furthering our fuel development in a most cost-efficient manner for our shareholders to support our future financing requirements with respect to our fuels development.
Total cash used in operating activities increased by approximately $0.6 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019, primarily due to an increase in professional fees due to the arbitration matter and employee compensation and benefits, offset by a decrease in our research and development expenses, as a result of ended R&D activities in Enfission in 2019 and transitioning our R&D work to US National Labs.
Cash used in investing activities decreased by approximately $3.6 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. This decrease was primarily due to ending our equity financing into Enfission in 2019.
Cash provided by financing activities decreased by approximately $0.2 million for the six months ended June 30, 2020, compared to the six months ended June 30, 2019. This decrease was due to a decrease in net proceeds from the issuance of our common stock in 2020, which was $2.7 million for the six months ended June 30, 2020, compared to $2.9 million net proceeds for the six months ended June 30, 2019.
I will now turn the call over to Sherry Holloway, our Accounting Manager who will go over some select P&L financial information for the second quarter of 2020.
Thank you, Larry. Total corporate R&D costs amounted to $0.1 million in the second quarter of 2020 compared to $0.5 million for the second quarter of 2019, primarily due to transitioning from work related to Enfission to developing a new fuel development strategy.
G&A expenses for the second quarter of 2020 were $2.0 million compared to $1.2 million for the second quarter of 2019 due to a total increase in employee compensation, and employee benefit of approximately $0.6 million, an increase in professional fees of approximately $0.2 million and an increase of patent write-offs of $0.1 million.
These increases were offset by a decrease in stock based compensation of approximately $0.1 million, due to the decrease in stock option expense for prior stock option awards that have become fully vested in prior reporting periods.
Other operating loss was $0 [ph] for the second quarter of 2020 compared to $1.7 million for the second quarter of 2019. This decrease was a result of our stopping work in Enfission.
Total net other income was approximately $0 and point $0.1 million for the second quarter of 2020 and 2019 respectively, which represent interest income on our cash balances. Net loss for the three months ended June 30, 2020 was $2.1 million compared to $3.3 million in the second quarter of 2019.
Now, over to you, Seth.
Thank you, Sherry. And with that, we will go to the question-and-answer session. Thank you to everyone who has submitted questions. Matt?
Q – Matthew Abenante
Okay. Our first question, can you discuss the overall size of the nuclear fuel market in terms of dollars spent by utilities for fuel rods that Lightbridge fuel will compete with in the future?
Yes, it’s about $22 billion per year. According to the World Nuclear Association, there are 439 commercial reactors in operation and another 56 under construction around the world. In the United States, there are 95 reactors in operation and another 200 construction. All these reactors average about 1000 megawatts electric.
Historically, an average annual spend on nuclear fuel for 1000 megawatt electric reactor has been about $50 million. As a result, the total addressable market annually for nuclear fuel is approximately $22 billion globally, including almost $5 billion per year in the United States.
Thank you. Our next question, how does the scheduled year long outage for INLs in ATR affect Lightbridge fuel irradiation efforts towards commercialization?
James, we’ll take that.
Yes, Seth. We’ve anticipated the core internals change-out outage in our planning. The Advanced Test Reactor CIC outage is currently scheduled from spring of next year 2021 through the end of the year, and our plan is to insert the fuel material test samples into the ATR after the outage is complete. Assuming that INL completes the outage according to the schedule, and the capsule positions in the ATR remain available as we expected, the outage should not affect our longer term efforts.
Will the sample for irradiation contain HALEU mixture or a surrogate?
The fuel samples will be made of an alloy of uranium-zirconium, which is the same as the Lightbridge fuel material. And the exact enrichment level to achieve the required fuel burnups will be determined as part of the experiment design work that we’re currently conducting under the GAIN Voucher.
Is there any feedback on the GAIN Voucher process for Lightbridge fuel testing design that can be mentioned?
Yes, our work at the ATR experiment design under the GAIN Voucher began in June and is progressing, as Seth mentioned. The conceptual design of the experiment is underway using engineers from both Lightbridge and INL. This work involves the scoping goals and limiting parameters of the experiment and the conceptual design phase is scheduled for completion in about two months from now in October and will be followed by a detailed design and analysis phase. And then finally, we plan to complete all this work under the current GAIN Voucher on schedule in the second quarter of 2021.
Thank you. Other than INL, are there other research reactors that could be utilized for irradiation testing of Lightbridge fuel?
Yes, the answer is yes. While the Advanced Test Reactor at Idaho National Laboratory is one of the most useful best reactors available for Lightbridge for irradiation testing of our fuel, there are others as well that are also in DOE’s National Laboratory Complex.
The Transient Reactor Test Facility or TREAT, which is also located at Idaho National Laboratory could be used for testing the fuel under excellent conditions. We plan to test fuel samples in the future in TREAT to demonstrate how well our fuel performs under excellent conditions.
At Oak Ridge National Laboratory, the High Flux Isotope Reactor or HFIR could also be part of our materials testing program for our fuel components. Well, that’s a good term. Longer term, the Versatile Test Reactor that DOE plans to build at INML would allow for testing in the FAST near-term spectrum, which may be particularly beneficial for testing the fuel design and product creation in test reactors that may be deployed in the future. Each of these test reactors has a different purpose that could be utilized as a component of an overall fuel qualification program.
Do we have a contract with the fuel company to produce our fuel in time for insertion into the Idaho test reactor in 2021?
The fuel samples for the experiment in the Advanced Test Reactor at Idaho National Laboratory are planned to be fabricated at Idaho National Laboratory. Discussions are currently underway regarding contracting for production of these samples.
Thank you. In April, the Nuclear Fuel Working Group proposed several items that would help support the nuclear industry and production of HALEU. Have there been any specifics in terms of the mechanisms that will enact these proposals? And how much support do you see in this current political environment for either the executive or legislative branches of the federal government to enacting the Working Groups proposals?
As the question said, in April the government issued the Nuclear Fuel Working Groups report. The report is the result of a whole of government approach that included consultation with stakeholders, including an industry. We were honored to participate in some of those meetings. The report reflects bipartisan support for nuclear power, including for advanced fuel technologies.
One recommendation of the reports that has been enacted is lifting the prohibition on the US International Development Financing Corporation financing nuclear exports. Lightbridge intends to take advantage of this change when we are selling our fuel to existing reactors or bundled with exports, such as small modular reactors exported with our fuel.
The Nuclear Fuel Working Group report also recommended government support for production of High Assay Low Enriched Uranium or HALEU, and we will use that HALEU in our fuel. We’ll make an announcement when we finalize the contract for supply of HALEU from the government for our use in the Advanced Test Reactor.
There are bills that have already been signed into law supporting aspects of the Nuclear Fuel Working Group report and more bills moving through Congress now, all with bipartisan support. There are also actions called for in the report that are proceeding with bipartisan support that don’t require legislation.
One of them that we’re seeing support from people in both parties is for the appointment of a senior administration official to help coordinate government action supporting nuclear power. Regardless of the results of the election in November, we expect to continue to see the legislative and executive branches enacting support for nuclear power call for in the report.
Thank you. And our last question. You’ve spoken in the past about the heightened interest in government financing of advanced nuclear. Can you comment on the current state of private financing for advanced nuclear?
Many of the companies developing advanced reactors are private. So there’s limited publicly available information on investment into them. One window is through publicly available data on government grants, which the companies must match with private funds, which are usually a smaller amount than the funding the DOE provides.
We also hear from DOE officials a bit of what these advanced reactor companies tell DOE about what their investors are looking for. And we know people at these advanced reactor companies.
Private investors leverage their investments in advanced nuclear technologies with DOE funding. DOE funding helps provide some validation of the technology and reduces the amount of private funding that is needed. DOE funding generally also is tied to the companies benefiting from gaining access to government facilities, such as the Advanced Test Reactor and gaining access to expertise of scientists and engineers and national labs.
DOE can provide a material percentage of funding for R&D, often over 50% of the total required for the project. The government benefits since nuclear is strategic to the country, as detailed in the Nuclear Fuel Working Group report, and the investors benefit by having the financial upside in the event that the advanced nuclear technologies are successful in their commercial deployment into the market.
With a new change by the government, allowing the US International Development Financing Corporation to provide financing support to US nuclear exports. The government’s support doesn’t stop with the development of the commercially viable product, but continues to help finance global sales.
This interest in private funding for advanced nuclear is also tied to increasing interest around the world to deploy more nuclear power. This interest stems from increasing energy needs and desire to carve decarbonize energy resources and for strategic reasons, such as not relying on Russian supply of natural gas.
Most of the countries looking at new reactor programs are interested in small modular reactors, other advanced reactor designs and advanced fuels. As these countries move forward towards ordering reactors, growing the global industry, investors become more interested. We believe our advanced HALEU-based fuel will fit well with this growing customer and investor interest in advanced nuclear technologies.
And that’s the last question that we have.
Well, thank you, everybody for participating on today’s call. We’ll look forward to speaking with you on our third quarter call. You can reach us at ltbridge.com. Stay safe and well. Good-bye.
This concludes today’s conference call. You may disconnect your lines. Thank you for participating. And have a pleasant day.