Greetings and welcome to the NET Power Incorporated’s Fourth Quarter and Year End 2023 Earnings Conference Call. At this time all participants are in 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 will turn the conference over to Bryce Mendes, Director of Investor Relations. Mr. Mendes, you may now begin your presentation.

Good morning, everyone, and welcome to NET Power's fourth quarter and year end 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. Yesterday, we issued our earnings release for the fourth quarter and year end 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 differ materially from those stated or implied 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. Hi everyone. Thanks for joining us today. I'll provide some thoughts on the encouraging macro setup for NET Power and how it plays into our three pillar corporate strategy. I'll recap 2023 highlights and I'll share what's in store for 2024 and then I'll hand it over to Brian and Akash for operational and financial updates. Starting with the macro, we are continuing to see very positive signals that future load profiles will require more low carbon generation for two distinct but related applications. First generation that can load follow to balance intermittent renewables while in other instances serving as 24X7 clean, reliable power for base load industrial and behind the meter applications. What makes NET Power very attractive is that our power plan is designed to serve both of these growing markets and because low cost natural gas, the feedstock to our patented process, we believe NET Power plants will be the lowest cost option to do so for both. Anecdotally, our first plant project Permian, which will inevitably and unsurprisingly be the most expensive plant we ever billed, is expected to have our lower levelized cost per kilowatt hour than new nuclear, new geothermal, and new hydro. And as we move from Project Permian to SN2 and into full scale manufacturing mode, we'll expect to quickly begin moving down the CAPEX curve and really begin to differentiate NET Power’s affordability from other forms of reliable clean generation. On the topic of reliable generation, one fairly nascent segment that has gotten the market's attention lately is data centers and hyper scale data centers in particular, given the robust load projections for AI. These data centers are hungry for power, they're expected to become one of the largest segments for load growth in the U.S. through 2030 and…

Thanks Danny. The team continues to make steady progress developing Project Permian and our NET Power technology. On Slide 8, we highlight several key milestones completed in the last few months as well as milestones we plan to achieve in 2024. For Project Permian in the fourth quarter of 2023, we signed our limited notice to proceed or LNTP with Baker Hughes for the release of long lead material for the utility scale turbo expander. Issuing LNTP for the primary turbo machinery of a power project is one of the key critical paths of the overall project schedule and it allows Baker Hughes to release orders to its major material sub-suppliers in support of our schedule. More recently, we initiated engineering work with our selected ASU provider and executed our land lease agreement with Oxy for our plant site in West Texas. These achievements allow us to remain on schedule for the project with initial power generation expected to occur in the second half of 2027 to the first half of 2028. As Danny mentioned, this year we expect to complete project Permian feed and to form the project consortium. This year, we'll also negotiate key supply and offtake contracts and solidify our financing strategy with our strategic partners and owners. It's important to note that NET Power's capital will be the first dollars into the project, ensuring long leads are secured at the appropriate time to maintain schedule ahead of additional capital commitments by our consortium partners. We will order additional long lead components including the recuperative heat exchanger, and major electrical equipment throughout 2024. As it relates to technology development in the fourth quarter, we signed our strategic supplier agreement with Lummus Technology, which designates Lummus as the recuperative heat exchanger supplier for NET Power utility scale plants.…

Thanks, Brian. Turning to Slide 13, NET Power ended the fourth quarter of 2023 with a strong balance sheet including approximately 637 million of cash and short term investments. For the quarter our total capital expenditures were approximately 8 million, comprised of approximately 5 million capitalized costs associated with the ongoing Project Permian development activities and approximately 3 million spent at La Porte on modifications and upgrades ahead of testing, which is expected to begin this year. Under the current interest rate environment, we continue to benefit from putting our balance sheet cash to work to materially offset our corporate spend. In the fourth quarter our cash flow used in operations was approximately $3 million. As mentioned last quarter, we expect cash flow used in operations to continue increasing as we build out our organization, progress with joint development program with Baker Hughes and ramp up activity at La Porte. Moving to the right side of Slide 13, we have shown an illustrative use of existing capital through the end of 2027 when we expect initial power generation for our first utility scale project. Of the approximately 637 million on balance sheet, we expect earmarking approximately 200 million for our equity contribution to project Permian, approximately 175 million for the CAPEX and OPEX at La Porte, as well as Baker Hughes joint development agreement, and approximately 265 million towards corporate G&A, origination work, and other expenditures. NET Power's fully diluted share count was approximately 247 million shares as of December 31, 2023. This was comprised of approximately 212 million Class A and Class B vested shares currently outstanding, 19.5 million shares issuable upon the exercise of outstanding public and private warrants, which will give NET Power an additional $225 million in cash, 1.6 million shares subject to earn out or vesting requirements, and approximately 14 million authorized shares issued both pursuant to the joint development of renewal of Baker Hughes. For a detailed breakdown of our diluted share account, please refer to Notes 10 and 11 of our 10-K. That concludes our prepared remarks. I'll now pass it back to the operator to open up the line for Q&A.

Thank you. [Operator Instructions]. And our first question will be coming from the line of Noel Parks with Tuohy Brothers. Please proceed with your questions.

Hi, good morning. I just had a couple -- just a couple I wanted to run by you. When you were talking about the different phases of testing I think in the fourth one there was a mention of with the turbo expander that you'll use that process to sort of confirm your analytics that you and Baker Hughes will be using. I was wondering when you talk about analytics for that stage of evaluation, are those proprietary metrics you are going to have to build or are they just more sort of standardized benchmarks you'll be using?

Yeah, Noel, this is Danny. So, the question's really around like the configuration and the design of the components, is that right?

Yes, yes.

Yeah, no, these are custom built Baker components. But I'm going to turn it over to Brian to give you some of like the technical details of the components.

Sure, yeah thanks Danny. Yeah, Noel, so the analytical tools definitely are proprietary to ourselves in the cycle design and to Baker and their various tool sets on how they design, compressors, expanders turbines, etcetera. So with any model or any simulation, right, you're making some assumptions. So just I'd say typical engineering, good practice. As you get data, you always go back to your analytics and simulations and verify them or update them.

Great. Thanks for the clarification. And, as you talked a good bit about the steps involved in securing the supply chain and I was also thinking about with the Lummus relationship is -- I wouldn't expect you necessarily to get into details, but does Lummus have incentives for adhering to your schedule or timetable, I was just curious if you could just generally characterize what those would be like, just sort of your ability to manage that?

Sure, yeah, I can take that Danny. Yeah, they absolutely do. I mean, this strategic supply agreement really aligns our incentives together. There's incentive for them to pursue a cost down reduction program with us. There's incentives to build out the capacity required to ramp up into manufacturing mode. There's incentives to standardize, so it really aligns with our three pillars, which any supply agreement, that's really what we're trying to do is, is not optimize just for one order Project Permian, but to build out really alignment through all three pillars with these partners.

Great. Just what I was wondering. Thanks.

Thank you. [Operator Instructions]. Our next question is from the line of Thomas Meric with Janney Montgomery Scott. Please proceed with your questions.

Hey, good morning everyone. Dan, you mentioned the power plants as an option for data center power, and I'm curious about unpacking that a little bit more, mainly just curious on how you think or how we should think about the challenges and the opportunities for this kind of power offtake, specifically with respect to CO2 infrastructure build out and sequestration opportunities?

Yeah, no, certainly. I mean, like I mentioned in the prepared remarks, I mean, putting these plants in the right location is the first piece. And so, again, it starts with the geology. It starts with mapping it out. I think, when most people think of data centers and hyper scale data centers, they only really think of data center alley in Virginia, just because that's where the largest concentration is. But if you look at just across the United States broadly, I mean, data centers are everywhere. There's more data centers I think in Texas at this point, than they're on that West Virginia DC Metroplex area. And the reason for that is that's where population trends are going, that's where data demand for AI and protons are going. And so when you actually start to map all this stuff out and you map out where is the data center demand for future deployments and where there is natural gas infrastructure on getting access to that gas, and you map out just the subsurface piece, it really starts to illuminate some really interesting areas that I think most people aren't totally appreciative like the Northern MISO region from Illinois, Indiana, Ohio into Kentucky, West Virginia. I would say why couldn't West Virginia become data center alley Version 2.0 with even lower cost natural gas, and lower cost power that's lower carbon intensity than what's in Virginia right now if you could put NET Power there. So these are all like sort of like paradigm shifting opportunities where it really opens up the landscape for where you can start to establish even lower carbon intensity, lower costing power for these data centers. And it just so happens that the design that the teams wanted to bring to market in terms of the size of this NET Power plant, the first utility scale one really, really correlates fairly well with the power load for these data centers. So we think it'll be a, a really good match made in heaven, conversations with a lot of the big tech guys that have been going on over the course of the last few years in early stages. But I think just like why we thought it was so important to put NET Power in the public spotlight for the utility potential customers, it's to ensure that they understand this pathway that NET Power creates before they commit to a much higher cost much, much less reliable option. And so, we're designing this plant for reliability, we're designing this plant for affordability and inherent to that cycle is a 100%, almost a 100% capture of that CO2. So we think from just a respectability and sustainability perspective, NET Power is going to -- we think be the top choice for a lot of these potential applications.

Thanks for that. Super helpful. Brian, on the strategic partners, you went into good detail on Lummus and the heat exchanger, so I won't ask for any more from that, but how do I think about that in terms of a control system partner and just what should I or investors look for over the next couple quarters?

Sure. Well, on that one, it's not -- it is really critical, but it's not a long lead as similar to let's say the heat exchange or a turbo machinery. So we have a little time to get this right. But what we'll look for is, again, a partner aligned with our three pillar strategy. And if you think about the NET Power process, what we're really doing is bringing together best in class combination of equipment that all have to work together in unison. So really the control system called the code on how you operate this plant is really some of our key technology development and IP. And we develop that at La Porte, but it'll be modified and enhanced as we go to Project Permian. So we'll be looking for a partner similar to the others that we can have repeatable scaling with that respects our IP, that wants to grow with us. And we'll focus on cost reduction programs, all the key elements that we want to embed in the other partnerships.

Perfect. That's it for me. Thank you all.

Thank you. Our next question is from the line of Wade Suki with Capital One. Please proceed with your questions.

Good morning everyone. Thank you for taking my questions. I just wondering if you might be able to give us a little more detail or color to the extent you feel comfortable on the commercial pipeline, geography. I hate to push you in geographies or type of customers. Any additional color would be great, if you don't mind?

Yeah, Wade, I think, as we kind of said in like the opening remarks, the primary application for NET Power is power to the grid. CO2 gets permanently sequestered in the geology. And that right now is the biggest market for us. And a lot of it happens to be in a lot of just the regulated power markets, you know, MISO, PJM, ERCOT, Kaiso, Alberta, the Middle East, and so that's obviously the primary market. That's where really where we're focusing a lot of the origination efforts. That's where we're starting to see just a lot of inbounds. And, and I think that's really just because that's where the geology is very conducive to sequestering the CO2 where it's been proven. I mean, that sequestration piece is not just the entirety of the environmental proposition of a NET Power plant, but in places like the U.S. where you get that 45Q, it's a huge, huge part of the economic proposition too and in some of those places, you can actually make more money on sequestering the CO2 than you do on generating 24X7 clean power. So, those conversations continue to pick up. I would say like the one thing that has been surprising is, I think, a lot of countries, a lot of companies have come out and commit to these net zero ambitions without really doing the calculus to figure out what is that pathway to actually get there. And so we're starting to have more and more conversations with potential customers who are coming to us saying, alright, we've done the math and it just doesn't pencil out trying to get there with just renewables alone. It doesn't pencil out with some of these other options without causing a doubling or tripling of the power prices that…

Fantastic, thank you. Not to put you on the spot here, but would your expectation be that I don’t know, within a couple of years of Project Permian coming online, we might have SN2 or OP2 coming online shortly thereafter or somewhere in that timeline, is that a fair way to think about it?

Yeah, that's right. I think the way we're looking at all of these origination projects, because we do have the benefit of time, because the first plant will be coming online mid-2027, end of 2027, beginning of 2028, that range there. We're really figuring out now where do we want SN2 to be, the second utility scale plant. So with OP1 that project that we announced, we'll be in the MISO region, we're going to be filing our interconnect application there. I think that MISO window opens next week and it'll be open for 30 days. And so we'll get our interconnect application in there during that window. We're working on our Class 6 permits with our partner up there. And so we're going to be in a place where we're going to have all permits in hand to do power to the grid sequestration under the ground well in advance of that plant. If we said we want it to be SN2, it's going to be in a position to be SN2. I think the determination of if it is SN2 or if it's SN3 or SN4 is really a function of other, other really economic, more strategic projects that could leapfrog it and become SN2. So where you are really going to be seeing from us doing over the next few years with origination, but also with licensed opportunities, is just continuing to build up this backlog of projects and we'll be able to slot them according to their importance to the NET Power strategy, into the long term proposition for the shareholders.

Fantastic. Thank you so much. Appreciate it.

Yep. Thanks Wade.

Thank you. [Operator Instructions]. Our next questions coming from the line of Betty Jiang with Barclays. Please proceed with your questions.

Good morning. I have a question for Brian. Just wondering if you could provide a bit more color around how you think about the risk profile for each of the validation phases at La Porte on Slide 9. Just trying to understand basically is Phase 1 and 2 just testing the equipment designed by Baker and like what are the most important pieces that needs to get derisked? And then also, once you've proven the operation at the demonstration scale, is it relatively less risky to scale it up to utility scale? Thanks.

Sure, thanks for the question. So, the phases are sequenced in order with each phase of testing validating and retiring key technical risks, which are shown on the slide. So in this way there's no specific test that let's say that's the highest risk, but they're building upon each other. So they're all important, I guess to say, a reminder that we're developing the utility scale, or Baker is developing the utility scale turbo expander in parallel. So really this is about validation. Yeah, it both happened completely in parallel. I don't know if I answered your question fully, but I would say that all the phases are important. They all build on each other. Each one retires certain risks or certain results that Baker is looking to see and each one builds in order from there.

Got it. So the demonstration equipment is actually what's currently on the plant right now?

So the plant, yeah, the plant was built, it exists, it's there. We are making modifications to it that are specific to the Baker Hughes turbo expander and the testing for the combustors. So, Baker's equipment will be shipping in this year and over the future years. So, it basically be placed where the prior turbo expander was located.

Got it. When would the Baker's turbo expander be arriving on site and when will it get connected to the plant?

Yeah, that'll be in the 2026 timeframe. So between now and then we're doing, combustor testing, which is a major component of the turbo expander. So again, what we're doing is really, yeah, we're demonstrating the combustion system, both for the demonstrator size, which happens in Phase 2 and the utility scale combustor size. So in essence, before we start Project Permian, we will have already operated the full utility size can at La Porte.

Got it. Understood. And the follow up on the licensing fee, just on the licensing fee that's related to Lummus, is it incremental to the fees that you have originally laid out for the NET Power cycle technology, and if so just how material is it relatively?

Yeah, I can take that Betty, it is Akash. Yeah, it is additive, right, but as we said before, we're going to go through a pricing for each license we sell. It's all going to be predicated upon plant economics. If you see a plant that is earning 20% plus returns, once we come down the CAPEX curve, we should be charging more for a license. So it really is the license fee for operating, constructing and operating in NET Power plant will be done on an individual project by project basis. As far as the Lummus and any other equipment licensing fees, it is too early for us to go out and say what that number is going to be, but it is a fraction, I'd say of what our plant license is, and it's really formulaic to incentivize and to come down the cost curve and share in the benefit of that. So, it is too early for us to say what that number is given we haven't placed an order yet for any third party heater changers, but there is a formulaic way of us approaching what that equipment licensing fee will be.

Got it. No, that's clear. Thanks for the color. Thank you.

Thank you. At this time, we've reached the end of our question-and-answer session, and I'll turn the floor back to Danny Rice for closing remarks.

Thanks everybody for joining us today. Really excited to share this update with you, share the key 2024 milestones really in the foreground for the next few years. We're really focused on steady progress through COG on Serial Number 1, which continues to stay on schedule. And really as we talked about in the prepared remarks and some of the Q&A, in the background we're seeing significant step changes in market sentiment and total addressable market that really set us up for long-term success. So it's critically important we do it right with Serial Number 1, and in doing it really unlocks what we think is going to be one of the largest, most valuable total addressable markets, for really any company in the world today. So, huge expectations for us, and this team is up to the challenge and we are deeply appreciative of your support on this mission to deliver the energy trifecta. Have a good day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.