Lightbridge (NASDAQ:LTBR) Q1 2020 Earnings Call

0:01 Greetings and welcome to the Lightbridge Corporation Business Update and First Quarter 2020 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Matthew Abenante, Investor Relations for Lightbridge Corporation. Thank you, sir. You may begin.

0:34 Thank you, Michelle. And thanks to all of you for joining us today. 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, Executive Vice President for Nuclear Operations, Jim Fornoff, Vice President for Program Management, and Sherry Holloway, Senior Staff Accountant. 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.

1:26 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 involves 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 the call over to our first speaker, Seth Grae, Chief Executive Officer of Lightbridge.

2:09 Hello, Seth. Hello, Matt, and thank you. Thank you all for joining us today. I sincerely hope that each of you and your families are healthy and safe. We ended fiscal year 2019 on a high note winning the GAEN voucher, our first U.S. Department of Energy funding award for the project, which helps position the company for the next phase of fuel development. We were delighted to announce the Cooperative Research and Development Agreement, CRADA, with Battelle Energy Alliance, LLC, the operating contractor of Idaho National Laboratory, with DOE in mid-April, which was the major milestone for Lightbridge.

2:54 The CRADA is for $845,000 with three quarters of this amount paid by DOE or $633,000 for the scope performed by INL with the remainder comprising in-kind or non-cash contributions from Lightbridge for its scope of work in support of this project. In terms of the size of the gain voucher, the DOE states that it only allocates awards over $500,000, quote, in cases with a clear need and involving a truly exceptional technology or innovation, unquote. We are now a government contractor in developing our metallic fuel.

3:39 The scope of the project, which is 12 months in duration, includes experiments designed for irradiation of metallic fuel material samples in the advanced test reactor at INL. We will establish the test plan for the measurement of key thermophysical properties of our fuel materials, both before and after irradiation. 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.

4:25 Why is this all important? Successful performance under this CRADA is a necessary first step toward insertion of our fuel material samples into the Advanced Test Reactor. This irradiation testing will provide valuable data on the fuel's behavior during irradiation, which we'll use to support regulatory licensing. The next step which we are already working on is to manufacture our fuel material samples. We have identified suitable facilities within the U.S. National Laboratory Complex that we believe have the relevant capabilities and equipment to manufacture these samples. In the coming months, we will provide further updates on our progress toward this significant milestone as we advance our discussions toward a definitive agreement.

5:20 Once the fuel material samples are manufactured, they will be placed for irradiation testing in the advanced test reactor. And finally, after the irradiation testing is complete, a post-irradiation examination of the fuel materials will be performed in hot cells at Idaho National Lab. In parallel, we are also evaluating suitable fabrication facilities for the next phase of our co-extrusion fabrication technology demonstration work. As previously announced late last year, we successfully demonstrated our co-extrusion process using surrogate materials. The next step is to evaluate the surrogate rods using non-destructive and destructive examination and perform any process optimizations that may be required.

6:12 We will provide updates on this fabrication process demonstration milestone as we make further progress over the coming months. We believe that engaging with DOE through the GAIN program could not have come at a better time for Lightbridge. This CRADA allows us to form a close working relationship with DOE, gaining access to world-class facilities, world-class equipment, and world-class experts. As an aside, I was happy to provide a quote to GAEN for inclusion in the fact sheet for the GAEN program that is on their website. In the quote, I stated that, quote, the GAEN initiative is helping American companies move development of advanced nuclear technology into the fast lane. Through GAEN, Lightbridge can leverage the unique world-class facilities at the US national laboratories to demonstrate our advanced metallic fuel a key step on the path to market."

7:14 Quotes like this, as well as several referenced in our recent announcements, reflect the potential opportunities we see before us in partnering with DOE, particularly when combined with recent federal policy commitments. These commitments to funding and supporting next generation nuclear fuel technologies are made in the Nuclear Fuel Working Group Report on Restoring America's Competitive Nuclear Energy Advantage, a Strategy to Assure U.S. National Security. I was happy to be a part of the discussion with President Trump at the White House that helped lead to the Working Group. This historic report has paved the way for advanced nuclear technology to be driven by the federal government for the foreseeable future. I thought Secretary of Energy Dan Briette did a brilliant job of making the case for U.S.

8:14 support for nuclear innovation. Importantly, we do not see the bipartisan support for nuclear power changing, regardless of the results of elections this fall. The thrust of new pieces of legislation is geared to be bipartisan. These new policies are forward-looking to the United States competing and winning. not just domestically but globally with new technologies. Over the years, America has gradually ceded its leadership position in nuclear energy to Russia and China, which threatens American competitiveness and national security. In fact, just today, the Office of Nuclear Energy at DOE announced the launch of its Advanced Reactor Demonstration Program, which will provide $160 million for initial funding to build two reactors that can operate within the next five to seven years.

9:12 One of the hallmark policies that came from the Nuclear Fuel Working Group report was the support for production of high assay, low enriched uranium, or HALU. HALU production is necessary to meet industry and defense needs in the coming decade. While HALU is broadly defined as uranium enriched above 5 but less than 20 weight percent in isotope uranium-235, most next generation reactors and advanced fuels, including light bridge fuel, require HALU with uranium-235 enrichment between 10 and 19.75 percent. Our strategy is very well aligned with the recommendations of the Nuclear Fuel Working Group report and the prevailing US nuclear policy.

10:02 We are working towards being one of the companies that will help implement these new policies. In addition to bipartisan support for nuclear power at the federal level, Virginia, Lightbridge's home state, is an example of the growing support for nuclear power at the state level. On April 30th, the Virginia Nuclear Energy Consortium, of which I am a board member, issued a press release highlighting a recent bill signed by Governor Northam that worked towards incorporating nuclear energy for its carbon-free goals in Virginia. I think Virginia sees the large and growing federal support for nuclear power, particularly for advanced technologies, and wants to help position companies and universities within the state to receive that federal support.

10:52 The legislation is also part of a trend in other states and countries to recognize nuclear as part of clean energy. I recently read an article by Mark Andreessen, co-founder of Netscape and co-founder and general partner of Silicon Valley venture capital firm Andreessen Horowitz, where he discusses how we can rethink and redesign many of our social and economic norms in a post-COVID-19 world. In the article, he references solving the climate crisis saying, quote, Energy experts say that all carbon-based electrical power generation on the planet could be replaced by building a few thousand zero emission nuclear reactors.

11:37 Maybe we could start with 10 new reactors, then 100, then the rest." I bring this up because the recognition of nuclear power as a source of zero carbon emission energy is growing in our society from the halls of the federal government to a growing number of states to Silicon Valley. They recognize the massive energy challenges that the world faces, reducing carbon emissions while increasing energy capacity to power a growing world population and economy. Renewable energy will only be able to address a fraction of the future energy capacity that will be needed over the next 30 years while needing to comply with mandates that call for reduced emissions.

12:26 There are currently 419 reactors operating in the world. Lightbridge has calculated that all energy used in the world today is the equivalent of 8,900 large reactors, with 84% of that energy actually generated by fossil fuels, 11% by hydro and renewables, and only 4.5% generated by nuclear. In 2050, total energy use in the world is expected to be the equivalent of over 21,000 large reactors. Nuclear energy needs to be a major component of future capacity if we're going to achieve these shared goals. This is the opportunity we are working towards for Lightbridge Fuel. The average annual fuel spend per light water reactor per year is about $50 million.

13:19 With 419 reactors operating worldwide today, such reactors operating worldwide today, this creates an addressable market of $21 billion at today's capacity. Lightbridge fuel can help the existing and future new large reactors compete against natural gas and renewables. Furthermore, the deployment of new smaller safe reactors, which our fuel can further optimize, opens the door for the next generation of reliable nuclear power and a larger addressable market. Lightbridge Fuel is designed to operate with virtually every reactor in the world. Once we are in commercialization, nuclear fuel supply agreements will generate long-term, high margin recurring revenue.

14:09 Earlier this month, we were notified by the Japan Patent Office of a patent grant related to a light bridge metallic fuel assembly design for using can-do type reactors, further strengthening our worldwide patent portfolio. We have worked to expand our patent estate and will be exploring opportunities in the can-do fuel market. And with that, I will turn the call over to Andrey Mushakov, Executive VP for Nuclear Operations, who will discuss the can-do market. Andrey.

14:41 Thank you, Seth. We are starting to explore potential opportunities in the candle fuel market. Candle reactors are pressurized heavy water reactors which have online refueling, making it look less risky from a technical standpoint for our lead test rods assemblies and their reactors. With online refueling, lead test rods or lead test assemblies with our fuel rods can be inserted and removed without having to shut down the reactor. There are currently 49 candle reactors in operation in the world, with about half located in Canada. While we are in the early stages of evaluating this opportunity, we are hopeful of the potential economic benefits, improved safety, and reduced spent fuel to candle utilities based on our previous analyses for pressurized water reactors.

15:34 Particularly in Canada, utilities are taking steps to refurbish and extend the lives of candle plants. Thank you, Seth.

15:42 Thank you, Andrey. Now I'll turn the call over to Larry Goldman, our Chief Financial Officer, to summarize the company's financial results for the first quarter. Larry.

15:52 Thank you, Seth, and good afternoon, everyone. For further information regarding our first quarter 2020 financial results and disclosures, please refer to our earnings release that we filed at the closer market yesterday. and our form 10-Q that we will file with the SEC later today. Before I discuss our financial results, I'd like to review our response to COVID-19 and how it has impacted our business. In response to COVID-19, we have taken the necessary steps to preserving our current cash runway to the end of 2021, which required making significant budget cuts to our corporate overhead spend with an approximate 50% reduction in our employee headcount, which took effect on May 1, 2020.

16:42 We have converted many of these former employees to now part-time consultants. We felt these budget cuts were prudent and necessary to what is currently a very challenging environment due to COVID-19 that could last for an unknown period of time. Despite COVID-19, our operations continue to move ahead and we look forward to beginning the work on our recently announced CRADA with Patel Energy Alliance, the operating contractor for the DOE at Idaho National Lab. We were very pleased to find in the recent Nuclear Fuel Working Group Report released by the DOE last month, the working group strategy to supporting the U.S.

17:27 nuclear energy industry, in particular the exporting of U.S. Civil Nuclear Technology in competition with foreign state-owned enterprises, while assuring consistency with U.S. nonproliferation objectives and supporting U.S. national security. 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. The primary goal of furthering our fuel development in the most cost efficient manner for our shareholders. To support our future financing requirements with respect to our fuel development, we will also be seeking to form new strategic alliances in which we will work to obtain cost sharing contributions in order to help fund future R&D milestones leading to the commercialization of our nuclear fuel.

18:26 Regarding our Q1 financials, as of March 31, 2020, we had $16.3 million of cash and cash equivalents with no debt and a working capital surplus of $16.2 million. We currently project our future monthly spend to average approximately $0.7 million for both our G&A and R&D expenses. The total projected expenditures of approximately $8 million to $8.5 million for the next 12 to 15 months, preserving our current projected cash runway to the end of 2021. $16.3 million in cash and cash equivalents at March 31, 2020, compared to $17.9 million on December 31, 2019, resulted in a total decrease of $1.6 million in cash and cash equivalents for Q1 of 2020.

19:25 Total cash used in operating activities for Q1 of 2020 was $2 million compared to $1.5 million for Q1 of 2019. The net increase in cash used in our operating activities was approximately $0.5 million for Q1 of 2020. This increase in cash used in operating activities was due primarily to employee comp, professional fees, and other G&A expenses, which was offset by changes in certain operating working capital accounts. We anticipate that spending on employee comp, professional fees, and certain other G&A expenses will decrease in future periods due to the COVID-19 actions taken regarding our recent budget cuts. Cash use and investing activities decreased by approximately $1.5 million for Q1 of 20 compared to Q1 of 2019.

20:19 This decrease was primarily due to the fact we are no longer making equity investments in InVision. as Lightbridge is no longer conducting its R&D activities with Framatone through incision. Cash provided by financing activities decreased in Q1 of 2020 by $1.6 million compared to Q1 of 2019. This decrease was due to the decrease in cash proceeds from the issuance of our common stock. I'll now turn the call over and introduce you to Sherry Holloway, our senior staff accountant who will go over some select P&L financial information for the first quarter of 2020 and also discuss our Form 10-K-A filing and the recent implementation of the new Lightbridge Employee Stock Purchase Plan.

21:10 Sherry, over to you.

21:13 Thank you, Larry. Total corporate R&D costs amounted to $0.4 million Q1 2020 compared to 0.9 million for Q1 2019. This decrease of 0.5 million is primarily due to the decrease in R&D work, reframatone and infusion as LightBridge is no longer conducting R&D activities, reframatone and infusion. R&D expenses consist primarily of employee compensation and related fringe benefits and allocable overhead costs related to the research and development of our fuels. G&A expenses for Q1 2020 were 1.9 million compared to 1.3 million for Q1 2019.

22:03 This increase of approximately 0.6 million was due to an increase in professional fees of approximately 0.4 million, an increase in employee compensation and employee benefits of approximately 0.1 million, and a severance payment accrual of $0.2 million due to the employee layoffs at March 31, 2020. 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 had become fully vested in prior reporting period.

22:49 Other operating loss was $0 for the Q1 2020 compared to $0.9 million for Q1 2019. This decrease of $0.9 million was a result of the inactive status of the Envision Joint Venture at March 31, 2020 and December 31, 2019. Total net other income was approximately $0.1 million for the Q1 2020 and Q1 2019, which represents interest income on our cash balances. Net loss for the Q1 2020 was $2.3 million compared to $3.1 million for Q1 2019.

23:38 We also filed a Form 10-KA with the SEC on April 28, 2020, which included the disclosures that will be included in our future proxy filing. Due to COVID-19 and the resulting logistics issues with the financial printer that works with our transfer agent, we were forced, like many other public companies, to postpone our 2020 Annual Meeting until later this year. Within this 10-KA filing, we disclose the new Lightbridge Corporation Employee Stock Purchase Plan, or ESPP, which was recently adopted by our Board of Directors.

24:25 The ESPP facilitates executive and employee ownership of Lightbridge stock by permitting all eligible Lightbridge employees to purchase Lightbridge shares on the open market through their payroll deductions at the prevailing market price of our stock at the time of purchase. The Board expects all main executives to participate in the ESTP. Now over to you, Seth.

25:00 Thank you, Sherry. Before we get to your submitted questions, I want to thank our stakeholders, including our shareholders, employees, and vendors, for your continued support. Since our last call, there has been a flurry of activity within the company as well as the industry, which has led to a greater awareness and attention for LightBridge. We recently presented at the HALU webinar that was hosted by the DOE through the GAEN program, the Electric Power Research Institute, and the Nuclear Energy Institute. I had the opportunity to be interviewed by Newsmax TV and TV Ameritrade Network to discuss American nuclear energy policy after the Nuclear Fuel Working Group report was issued, as well as our contract under the GAIN voucher.

25:54 News from our CRADA announcement was picked up in leading trade press, including World Nuclear News, Power Magazine, Nuclear Energy International, and the Energy Daily. At the same time, we have taken steps to improve our communications with investors. Last month, we rolled out our redesigned corporate website where you can find our interviews and media clippings and also provided an updated slide presentation. We have had discussions with current and prospective investors through virtual roadshow meetings, which have enabled us to tell our story and build greater awareness. We will continue to hold these virtual meetings while the current social distancing measures are in place.

26:41 In closing, I want to reiterate that the LightBridge leadership team is dedicated to creating long-term shareholder value, and we remain focused on our pursuit of full-scale commercialization of LightBridge fuel as quickly as possible. Thank you for your support and belief in our vision to capitalize on the opportunity before us in the nuclear power industry. And with that, we will go to the question and answer session Thank you to everyone for submitting your questions ahead of today's call. Matt?

27:15 Thank you, Seth. Our first question is, has LightBridge applied for a PPP loan?

27:24 While we considered it, we decided not to apply. We have cash in the bank that should last at least through the end of 2021, and we didn't think we should try to take the money when there was a finite amount available with so many people who need it more than we do.

27:43 Thank you. The next question, have you considered selling and or leasing patent rights to one or more nations in order to fund Lightbridge beyond December 2021?

27:58 We're not doing that now. But we are starting to explore opportunities relating to other countries. For example, we've mentioned possible opportunities relating to fuel for CANDU reactors. Every power reactor in Canada is a CANDU. We're exploring the possibility of having more accelerated timelines to commercialization in Canada. We are also exploring other non-dilutive funding opportunities, including additional funding from DOE. We believe we'll have many opportunities to fund the company beyond December 2021, including work with companies and governmental entities in the US and in other countries.

28:44 Great. Our next question is a technical one. A critical piece of Lightbridge Fuel is its technical ability to handle LOCAs far more efficiently than current accident-tolerant fuels. Will Lightbridge Fuel be tested at TREAT or ORNL as part of the current Gain Voucher or is that a totally separate Gain Voucher submission?

29:12 Okay, first LOCA is Loss of Coolant Accident. TREAT is the Transient Test Reactor at Idaho National Laboratory. ORNL is Oak Ridge National Laboratory. There's a lot of acronyms, but why don't we turn it over to Andrey to answer the question.

29:28 Absolutely. Yes, you're correct in your comments regarding the ability of metallic fuel to handle design-basis loss of coolant accidents compared to conventional titanium dioxide fuel or even accident-tolerant fuels. This particular safety benefit appeals considerably to nuclear utilities and our Nuclear Utility Fuel Advisory Board. Well, we expect to evaluate opportunities for training and testing of the TREAT reactor at Idaho National Laboratory and material irradiation testing in the high flux isotope reactor at Oak Ridge National Laboratory in the future. That work is outside the scope of the recently announced GAIN Voucher Award.

30:14 Thank you. The next question, what specifically was it about LightBridge's application and or technology that led to being awarded the GAIN voucher and contract.

30:27 Andrey?

30:30 Well, the GAIN office does not share the detailed results of the evaluation of applications for vouchers. They do apply a merit review criteria, including technical merit, which accounts for 50% of the total score, business and market impact, which accounts for an additional 40% of total rate, Team Qualifications and Experience, that's another 10% of the total score, and Consideration for Small Businesses, that's an additional 5% on top of the previous weights. In our application, we emphasize the following technical merits of light-bridge fuel. Energy generation economics and competitiveness, enhanced safety, reduced environmental impact, Improve Management of Used Nuclear Fuel, Reduce Proliferation Risk, and the Development of New Processes and Materials.

31:32 Additionally, we discussed our engagement with leading U.S. utilities, as well as how a GAIN voucher award may reduce our time to market, advance HALU U.S. manufacturing capability, reaffirm U.S. global nuclear industry market leadership. Further details of the GAIN Program's Merit Review Criteria can be found at gain.iml.gov.

32:11 And Matt, you have another question? Oh, my apologies, yes. What variables are you seeing in the next three to five years as pivotal milestones to cross to bring the company to the next level and dramatically increase the market cap? Is it the underlying demand in nuclear fuels? Is it turning on existing unfractured or completions of SMRs?

32:42 We value the advice that utilities give us. helping to ensure that our fuel will meet their needs in existing large reactors. We're also evaluating opportunities for using our fuel in small modular reactors. The SMR market doesn't yet exist, but with US government support, it may also become a large market for us. We believe the US government has become a valuable partner for success of advanced nuclear technologies, We believe Lightbridge's technology will be able to help the government meet its strategic goals, including competing and winning against Russia and China in selling reactors overseas, establishing long-term relationships with customers in countries of strategic importance to the U.S.

33:32 Many investors in advanced nuclear companies want to leverage their investments with DOE support. We've worked to make sure that what we're doing is aligned with U.S. policy goals, and we believe our recent win-of-a-game voucher is the first of our major achievements with the government. One of the hallmark policies that came from the recent Nuclear Fuel Working Group report is the support for production of high-assay, low-enriched uranium, or halo. Halo production is necessary to meet industry and defense needs in the coming decade, While HALU is broadly defined as uranium enriched above 5 but less than 20 weight percent in the isotope uranium-235, most next generation reactors and advanced fuels, including light bridge fuel, require HALU with uranium-235 enrichment between 10 and 19.75 percent.

34:30 Our strategy is very well aligned with the recommendations of the Nuclear Fuel Working Group report and the US Nuclear Energy Policy. Through deployment in existing reactor fleets, our metallic fuel can facilitate early market demand for HALO, providing a bridge between existing reactors currently in operation and Generation IV advanced reactors that are still in development and may be deployed in large numbers in the next several decades. Our market cap should reflect the discounted present value of future cash flows. As we make progress relating to existing large reactors as well as new reactors, both large and small, we believe investors will see large future cash flows and value the company accordingly.

35:25 Thank you. Our next question, when must LightBridge provide the metallic fuel material samples for the advanced test reactor. Jim, take that one.

35:39 Yes, thank you for the question. As Seth mentioned in his prepared comments, our current gain voucher with INO is for the design of an irradiation experiment in the advanced test reactor, or the ATR. The output of that project will be the complete design and safety case needed for insertion of the experiment into the ATR. In parallel with our efforts under the GAIN voucher, we expect to separately contract with INEL or others for the HALU material and for the fabrication of coupon samples for the experiment. Our goal would be to have these coupons available for insertion into the ATR when its planned core internals change or CIC maintenance outage is completed in the latter part of 2021. The actual experiment insertion is subject to several factors, including the final duration of the CIC outage, the availability of testing positions in the ATR core, and INOS prior commitment to testing. Once this required burn-up is achieved in the ATR, we would further expect to perform post-irradiation exam of the coupons at INOS facilities as well.

36:54 Thank you. My next question, are there similar and or the same CRADA project that LightBridge is interested in in the near future? And in addition, is the advanced test reactor distinct from or the same as the versatile test reactor?

37:14 Jim, take that one too.

37:16 Sure. Yes, as I mentioned, in the near future, we plan to procure the HALU material and fabricate coupon samples for the ATR experiment. These samples are planned to be irradiated in the ATR to levels typical of a commercial reactor operation. And following this post-irradiation examination, sometimes called PIE, of the samples will be performed in order to characterize the key properties of the fuel for continued design and licensing activities. Regarding the second part of the question, the advanced test reactor is one of the principal research reactors located at The Idaho National Laboratory Facility. It's generally considered to be the workhorse for nuclear fuels and materials testings.

38:06 In addition to the ATR, the Transient Reactor Test Facility, or TREAT, also provides testing of fuel materials in the short duration high neutron flux experiments. The Versatile Test Reactor, or VTR, is a completely new reactor being designed for the lab. It's a fast-spectron test reactor intended to support nuclear reactor research and development. And the Department of Energy is expected to decide sometime in 2022 whether to proceed with building a fast-spectrum test reactor in the United States.

38:48 Thank you, Jim. And for our final question, since Lightbridge is getting attention from DOE, which is great, would you entertain funding opportunities from utilities?

39:02 Yes, we would entertain funding opportunities from utilities. We'd want to protect the interests of Lightbridge's investors, including protecting our ownership of our intellectual property rights. We value the advice of the four utilities on our Nuclear Utility Fuel Advisory Board. We intend for the fuel to bring value to utilities, which could lead to funding opportunities from them.

39:35 That's our last question.

39:39 Well, thank you, Matt, and thanks to the operator, Michelle, and in particular, thank you to everybody for participating on today's call. We hope you and your families are healthy and safe. We'll look forward to providing future updates. Thank you very much, and goodbye. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.