Greetings. Welcome to the NET Power Inc. Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. At this time, I would like to hand the call over to Bryce Mendes, Director, Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to NET Power's second quarter 2023 earnings conference call. With me on the call today, we have our Chief Executive Officer, Danny Rice; our President and Chief Operating Officer, Brian Allen; and our Chief Financial Officer, Akash Patel. This morning, we issued our earnings release for the second quarter of 2023, which can be found on our investor relations website, along with this presentation at ir.netpower.com. During this call, our remarks and responses to questions may include forward-looking statements. Actual results may materially differ from those stated or implies by forward-looking statements due to risks and uncertainties associated with our business. These risks and uncertainties are discussed in our SEC filings. Please note that we assume no obligation to update any forward-looking statements. With that, I will now pass it over to Danny Rice, NET Power's Chief Executive Officer.

Thanks, Bryce. Hello, everyone. Welcome to NET Power's inaugural earnings call. Many of you have been following the NET Power story since we announced the transaction should take NET Power back in December 2022. But for all the new investors in NET Power, I would like to provide a brief introduction to the NET Power story and an overview of our technology. Brian and I will then provide an operational update and discuss our corporate strategy, before passing the call over to our Akash to discuss our financial results for the quarter. We are going to reference a few of the slides in the presentation we posted to our website this morning, so I advise you to have those slides open and follow along. But first, let me set the stage a little bit and give some background to the opportunity as we see it. It's been six years since my last earnings call, back then during my time running Rice Energy, we unlocked the supply potential of U.S. natural gas, which has become the lowest-cost source of energy in the U.S. and the world. As a result, here in the U.S., natural gas replaced coal as the number one source of power generation, and has been the number one driver of lowering U.S. CO2 emissions. Lowering the cost of power and lowering emissions from power that is our North Star. So, we hear again on the public stage, continuing this mission with technology that gets us even closer to that North Star. NET Power, a technology that transforms natural gas into one of the cleanest sources of low-cost power, anywhere on the planet. So, before we jump into the details of the technology and the process we are making on commercialization, let's start with a little background on how…

Thanks, Danny. Looking at slide 12, we're hard at work advancing our technology for the 300-megawatt class utility scale plan. Our technology development encompasses three main areas. First, we are advancing and optimizing our process design to ensure that our technology can deliver the energy trifecta. This work is informed by our prior testing results and lessons learned at La Porte. The joint development work with bakery use is progressing well and we have implemented cycle process improvements based on their turbo expander and other key rotating equipment design progress. Second, we are taking advantage of our La Porte facility to conduct additional demonstration testing over the next few years. We're currently retrofitting La Porte to conduct future Baker Hughes Combustor and Turbo Expander demonstration tests. These demonstration tests will de-risk the first utility-scale project and allow us to refine our plant control system with the baker used equipment. Third, we're developing the standard utility-scale plant design through our front-end engineering and design for feed work with Zachary. And by integrating other key major equipment suppliers, the utility-scale technology will be deployed at our first site project Permian, ultimately leading to full technology validation, which will open up the floodgates to move into mass deployment at scale. It's important to note that, all three of these areas I discussed are linked and in development in parallel with the ultimate goal of delivering the energy trifecta at utility scale. Moving to Slide 13. In late 2022, we announced development that commenced on our first 300-megawatt gas plan near Midland Odessa, Texas, which we are now calling Project Permian. The goal of this project is to demonstrate clean, reliable, safe operations which sets the stage for further deployments. We are currently progressing through the feed with Zachary Group, a fantastic partner and…

Thanks, Brian. The NET Power team is very excited to begin this next chapter as a well-capitalized public company. As mentioned by Danny at the outset of this call, we successfully completed the business combination of NET Power and Rice Acquisition Corp. II on June 8 and had the honor of ringing bell our New York Stock Exchange on June 9th. Through the transaction, we have received gross proceeds of more than $670 million, consisting of approximately $133 million from RONI's trust down and approximately $540 million in upsized pipe capital received from both strategic and financial investors. Net of transaction expenses and company operations since close, we ended Q2 with approximately $649 million in cash on the balance sheet. The proceeds from the Go Public transaction are expected to fully fund our corporate build out, and provide ample capital to not only anchor the equity capital required for our first utility scale plan, but also to accelerate the origination efforts for future deployments. The final slide of our presentation provides a detailed breakdown of the company's fully diluted share count of approximately 246 million shares as of June 30th. This is comprised of approximately 210 million Class A and Class B shares currently outstanding. 19.5 million shares issue both upon the exercise of outstanding public and private warrants, 2 million shares subject to earn outs or vesting, and over 14 million shares issuable pursuant to Baker Hughes joint development agreement. That concludes our prepared remarks for this call. We'll now turn it back over to the operator and open it up for Q&A. Thank you.

[Operator Instructions]. Our first questions come from the line of Thomas Meric with Janney Montgomery. Please proceed with your question.

Good morning everyone. Just a couple for me, and maybe I'll start with Project Permian. Just if you could update us on the current strategy for financing the project? I know you mentioned the 270 grant applications submitted, but beyond that, what's the consortium contemplating? And then maybe specifically if you have any update for the LPO application.

Yeah, so, just to go back to where we ended the transaction, we ended up with $650 million on the balance sheet. And primarily, we do fully fund our corporate operations with that capital. But obviously, we outsize the raise in order to ensure that we have an anchor equity investment for the first project. So, the first project will be the most expensive one we ever build. Our current estimate is roughly $950 million, and we're going to hone in on what the actual capital is once we get the fee right. So, as we finalize the CapEx and we finalize the gap supply, the power off-take and the commercial contracts associated with that, we'll have a really good understanding of where the project returns are and what the actual required funding is beyond our equity investment. And then simultaneously with that, we did apply to the DOE grant program in May. And so, we'll be hearing back on that in the coming months. So, long-winded way of saying, we are building a consortium, we're waiting to hear back on the grant program and as we hone in on the total capital required and what the actual returns are of the project, we'll be able to build a consortium. But importantly, we have all existing strategic investors as well as future customers that recognize really two things. One is the importance of a successful first project and the market that unlocks. And two, they view SSM one as a vehicle to deploy multiple projects thereafter. And so, we feel pretty confident in our ability to get that project funded. We just got to go through the methodical process of what's required to get there.

Helpful thanks. And maybe more medium-term, just on delivering a class two estimate to potential customers. Is there any updated view on when that could potentially come out?

So, what do you mean by class two estimate?

Just a commercial CapEx estimate to potential commercial licensees.

Yeah, this is Brian. So, we're in the feed right now for the first project and really, we need to advance that in order to be able to support the downstream project estimates. So, our goal coming out of feed as we're doing the joint development work is to develop a class two estimate to move forward with the first project financing. We don't really have a date to share at this moment of when that would be ready for a standard design to start sharing with other customers. But certainly, that will follow after we complete the feed for the first one.

Got it. And then the last one for me, just kind of more regulatory in nature and a little bit high level, but on Class six primacy applications from what states do you think are far along in that application? I know Louisiana has their application in, but thinking of other states like Illinois, Texas, or even California, do you have any updates or expectations for those applications?

No. I mean, we don't have any additional information other than what's out there publicly. I think just to provide just context for everybody. So, right now, North Dakota and Wyoming have Class 6 primacy, and Louisiana is on the doorstep of receiving it. And then there's a bunch of states in that process right now to take over primacy from the EPA. I think, when we take a step back and look at just like what are some of like the timing risks on plastic sequestration, I really don't think it's going to be Class 6 permitting long term. Right? And I think if we were sitting here today needing Class 6 permits for projects that we had coming online in 2024 or 2025 or 2026 that would make us a little bit squeamish. But we're really talking about as we look at projects in 2027, 2028, and beyond, there's more than enough time between now and those dates for one state to take over primacy and two, for companies to go through that permitting process through the EPA right now. But I think one of the other things that we're really looking at that is really important here is really looking at being able to co-locate these -- locate these plates where there's both class 2 and class 6 sequestration potential, right? And that's certainly like what we're going to be doing with this first plan it really expedites through the sequestration process being able to tap into doing Class 2 sequestration, which is what we have with the project per in West Texas, right? There's no new permitting that needs to happen. The CO2 is going to be going into Class 2 wells, and typically in most states that have primacy over Class 2, that permitting process…

Thanks. That's it for me.

Thank you. Our next questions come from the line of Leo Mariani with Roth MKM. Please proceed with your questions.

Yes. Thanks, guys. Wanted to focus a little bit on some of the numbers here. Just wanted to kind of get a sense of when you guys think you will start to see a little bit more, meaningful revenue. I am guessing that it's kind of a number of years out. I don't know if that needs to coincide, with the startup of the first plan at Project Permian, or there might be revenues and the year or two leading up to that. I just kind of wanted to get a little bit of a sense of kind of revenue projection, knowing that it's a handful of years out.

No. Great. Great question, Leo. I think for budgeting purposes, and this is really for us people to go in with running, like, the most conservative forecast and the most conservative just budget plan possible. But really just for capital allocation purposes. We are in good all the way through 2027 with revenue coming in. And that was really a function of why we upsized the pipe the way we did to $670. And so that doesn't -- that obviously does not mean that we are not going to be bringing in revenue before then. But I think what it really means is, it gives us a ton of runway, on building the right backlog of projects. And I think, like, that's the most important thing for me is one of the pitfalls you really see some of these other early-stage energy technology companies is, they're kind of forced to commit to doing projects that would otherwise derail them from their long-term vision of where they want their company to be and where they think their projects need to go. We are not going to have that problem at all because we do have such a long runway. But I think, like, as I look out in time as we get close to commercialization of serial number 1, as it really starts to build this commercial backlog, over the next couple of years, and a lot of that, as I mentioned in the prepared remarks, is really going to come from the origination angle. Where we are the ones actually going out there and catalyzing development, that's where you are going to start to see us, a certain line of partners, and more likely than not begin to see some revenue coming in. But there is main focus for us is really less on revenue near-term and more on building the right backlog of projects. So, when serial number 1 does come online, we have a really healthy pipeline of deployments to get us through the end of the decade. And so, if that means, revenue coming in '25 or '26, that's great. But I think our real focus is on finding the right areas where these projects make the most economic sense because if that's really what we are focused on, that will inevitably lead to really healthy revenue growth in the future years.

Okay. That's helpful. Obviously, you guys have your site, located for plant number 1. Can you maybe just talk about kind of where you guys are, in discussions for sort of plant number 2 or plant number 3? I realized that you are doing, a fair bit of testing on some of the new Baker Hughes equipment in 2024, but just kind of wanted to get a sense of the kind of where you guys are in the commercial discussion other than the first one here.

Yeah, the only one we're really talking about publicly is what serial number one's going to be. Or going to West Texas to that Oxy-hosted site, I think we kind of have a ton of flexibility with where, where serial number two's going to be. We're working on some early-stage things that we're not willing to share with folks yet just because it's still early at this point. But those projects are going to have a real shot at being the next plant after serial number one. And in addition to that, I think as people saw from the December pipe presentation, we have other early adopter projects that are interested in getting into that queue. But ultimately, these first dozen or so projects are going to be the most important ones for our company because it's really going to put a spotlight on what this technology can do, right? And so, we're going to be very selective about what project ends up as the second plant. What project ends up as that third plant? I think like what our real, what we really want to get to, and again, I kind of mentioned this, the top of the call, we don't want to be in a place where we're just doing one-off projects for the next 30 years. And it's both because I think it's just not a great use of our resources and it's really just not a great use of just the potential of this technology like this. This really is sort of a grid skill technology. And so, what we're really focused on are those opportunities where we can lay out a master plan for like, let's just call it a state. We identify where we want to put the first plant and we really have it all mapped out with where the next 20 plants or 30 plants are going to go from there. Just to give some context to it. You know, the average state in the United States has around 30 to 40 equivalent power plants is what the potential could be. So, we're really talking about laying out plans where we have a pathway to broad commercialization in the deployment of these NET power plants within these areas. And so, if I had to wave my magic wand and pick out the ideal scenario, serial number two is going to be a plant where we have a pathway to delivering 20 plants to 30 plants in that given area where the consortium of strategic stakeholders is.

Okay, that’s helpful guys. And then just on the cost side wanted to see if maybe you could help out a little bit there, kind of looking at second-quarter financials. I'm seeing around $11 million of R&D for the second quarter on the SG&A. Looks like I'm seeing something around just over $30 million bucks. Just wanted to get a sense, are those kinds of the right kind of run rate quarterly numbers? Going forward here, I imagine there might be some one-time costs in the SG&A for the SPAC transaction and all of that, but just any help you can kind of give on thinking about some of these key costs.

I'll take that. You're right. There is a lot of noise in Q2 as it relates to the transaction. And so, what I'd point you to is if you look at the year-to-date predecessor cash burn, that's -- year-to-date through June 7th the cash burn from operations was roughly $11 million. And so, you, annualized, that's roughly $25 million. And then we also had about $2 million in CapEx, which reflected La Porte modifications and the started speed. And we do expect both the cash income operations and the investing activities to ramp up in the second half of the year. But there's a lot of noise in Q2, and there are a lot of non-cash items in there, so just keep that in mind. But one other point I'd make is we again did size the capital raises to ensure we had all the capital we needed from the corporate perspective to get through 2027. And so, we feel pretty good about where we are here. And I do note that we're sitting on $650 million in cash on the balance sheet and in the current interest rate environment, our talent our balance sheet cash is being put to work and is in the near term, materially offsetting the corporate spend. And so, that's also a pretty great tool we have in our toolkit right now.

Thank you, guys.

Yes, Leo, just put numbers to it. When we're sitting here with $650 in cash and interest rates are 5.5%, 5%, I mean, we're talking about $30 million or more coming in an interest income. So, I mean, that's offsetting the majority, if not all of our SG&A right now. And that obviously changes this time as we're spending this money on serial number 1 on the Baker Hugs JDA, but it puts us in a much more unique position. Having this much liquidity on our balance sheet today just gives us additional runway than others.

Yeah, thank you, guys.

Our next questions come from the line of Ryan Levine with Citi. Please proceed with your question.

Good morning. A couple of questions in terms maybe to follow up on that last point. So, with your cash generation from interest currently exceeding your cash burn, are you going to be providing guidance around what your burn rate will be in future time periods? And does the incremental interest allow you to accelerate any development efforts or build out more of a team to pursue additional customer opportunities?

Yes, I think just kind of given our conservative nature all around -- we're really not banking in the -- we're not betting on this yield curve continuing to just snowplow and stay at 2.5%, 2%. I mean, we are expecting it to go back to 2.5%, 2% on the 10-year. So, we're really just we're obviously taking advantage of this money and putting it on the balance sheet, but we're not banking on that money being available as we've seen about just capital allocation longer term. And then Ryan, to your question on the SG&A piece, we are still growing. This time last year, NET power had six or seven full-time employees. We're now at 36 and on pace to get to 39 by the end of September. And these are all supercritical folks, especially on the engineering side, really in advance of supporting the development of the utility-scale plant. And so that had kind of the course of the next 12 months, we'll continue to go up. And certainly, as we come up publishing a 2024 budget in a forecast, we'll certainly update everybody then with what our ongoing cash trends going to be.

Thank you. And then in terms of the Texas Power Plan, where are you in the ERCOT interconnect application process, and how long do you expect it to be? And are there any other changes that you anticipate with the recently passed Texas legislation regarding generation in the state?

Yes, I mean, we've made the interconnect application and we are following that legislation. So, all I can say is we're in the process and waiting to receive feedback on the next month or two from the state.

Do you state any [indiscernible]?

No, this is Danny. I was just going to say, I think when you look at like the two biggest permitting items for a NET Power plant, it's the permits to sequester in the permit to send your power into the grid. And we don't need permits for sequestration because we're going to be tapping into a very extensive CO2 network with Class 2 wells already in hand at Oxy. So, that that takes that risk off the table is a really unique place for us to be in a really isolated just to the plan at that point in terms of really the commercial risk. And then as far as just the interconnect, we are talking about at least being three years ahead of when we would actually want to connect into the grid. So, because we have we already have the site picked, that's what allowed us to get into the next queue at the time we did. So, I think when you pass forward to -- when you just look ahead, the CO2 permitting, the power permitting on the interconnect are not going to be the long lead items for us here.

Thanks for the color.

Our next questions come from the line of Wade Suki with Capital One. Please proceed with your questions.

Good morning, everyone. Thank you for taking my questions. Just first on, the Baker equipment, if I could. I just want to make sure, I'm understanding this right. Are these going to be scaled-down versions of the equipment that you will see on a full-scale utility project?

Yeah. There is a parallel development program. So, we are developing both the utility-scale that will go to the Project Permian at the same time as we are developing a demonstration scale. We already have the La Porte facility built. So, it's just an awesome opportunity to use one of a kind location in the world where you can do R&D and demonstration testing at this scale. So, there is a parallel program to develop both a demonstrator turbo extender and a combustion system. And then as well, we are developing the utility-scale system, to be validated at Project Permian.

And just in terms of timeline, any sense for when the test equipment gets on-site, I know you are going to start testing next year sometime and going into '25. But, just any kind of color you can give us on timing when that equipment gets on-site, start testing, those kinds of things, and whether you will be doing independent testing of the combustor versus the expander and then presumably combine testing?

Yes. That's exactly right. So, some equipment will begin arriving next year. There is separate testing of combustion systems, which is typical for turbine development, component testing, and then the integrated turbo standard with combustion system to follow later. So, to answer your question, first testing starting next year, we're already updating and modifying our site for that specific equipment, and that will take place next year, then all the way through Project Permian, starting up.

Fantastic. Thank you. Just switching gears, it's kind of dovetailing on one of the questions that came up earlier on costs. Not to press y'all too much here. But, in terms of the Project Permian cost, I guess we will get a better sense by what, midyear third quarter when FID is that still a decent timeline to think about?

Yes. That's a decent timeline. Our focus right now is working with Zachry, on the feed while in parallel, we are developing the technology. So, these things complement each other and are iterative. So, yes, before I got shared our target estimate, and as we come out of the feed next year with determined next steps going into FID. So, it'll be next year.

And then just otherwise, in terms of all the – you all were very detailed in your Investor Day, in the spring in terms of timelines, all still feeling pretty good about the timelines for funding and I guess progression along the way and along those lines, just the commercialization you all laid out some pretty good guidance on licensing deployments and things like that, particularly in the late latter part of the decade. And how feeling about that today relative to where you were in the spring?

Yeah, look, I think, we feel great about where we are. I think, when we take a step back and we look at -- when we approach NET power, the thing that was most exciting to us is we knew that this is also going to be a market that comes to us in terms of the market is inevitably going to have to change because there is going to be real value in having that energy trifecta, as we call it. And so, you're seeing new regulations being proposed that quite frankly would be beyond transformative to NET power. You know, really the EPAs propose section one 11 B and D rules on emissions from coal gas-fired power plants. That in and of itself just transforms the opportunity set. And so, yes, focusing on licensing is, is really, really important. Everything that we really said about the origination piece is equally if not, if not more important, because I think we're kind of sitting here in a place where I don't think anybody understands the real value and the real power of NET power better than us. And because we own the IP to this, it gives us a real sense of latitude as to how do we commercialize this, as I mentioned before. So, I feel really good. I think it's really hard to put numbers to it as to what the backlog or the number of licenses that we're going to sell looks like over the next couple of years. We really just today are sitting here today saying, we know it's going to be really big especially once they're on number one online. So, let's make sure we're prepared for that. And I think that's why there's as much of a focus on standing up the…

Perfect thank you so much. Appreciated.

Thank you.

Thank you. There are no further questions at this time. I would like to hand the call back over to Danny Rice for any closing comments.

Hey, thanks everybody for joining us today. It is not every day that public investors have a front-row seat to see the development and commercialization of a breakthrough technology like this. Most of the time it occurs behind the scenes of a large company or within a private one. But this technology, it's so important to broadcast this one to the world, even at this stage. And we're really looking forward to bringing you all along on this journey as we develop our technology, build the backlog, and build the supply chain to transform natural gas into that energy trifecta. So, thanks again for your support, and we'll see you all again next quarter.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.