New Era Energy & Digital, Inc. (NUAI) Earnings Call Transcript

At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lincoln Tan, Investor Relations at New Era. Please go ahead.

Thank you, operator, and good morning. My name is Lincoln Tan, Investor Relations for New Era. Thank you for joining our third quarter fiscal 2026 business update call. Joining me today are Charlie Nelson, Chairman and CEO; Ted Warner, President and CFO; Jose Rodriguez, Chief Operating Officer; and Evan Pierce, Chief Development Officer. Before we begin, I'd like to remind everyone that today's call is being recorded and will be available on the investor relations section of our website. If you dialed in by phone, you can elect to ask a question through the moderator after our prepared remarks. Certain statements made on this call that are not historical facts, including those related to our future plans, objectives, and expected performance, are forward-looking statements. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements made on this call are reasonable, actual results may differ materially because these statements are based on our current expectations and subject to risks and uncertainties. These risks and uncertainties are discussed in our filings with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q. You should refer to and consider these factors when relying on such forward-looking information. Any forward-looking statement made speaks only as of the date on which it is made, and we do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. So with that, I'll now turn the call over to Charlie Nelson.

And thank you, Lincoln. And again, thanks everyone for making the time here. So we're going to go over everything to date at TCDC and where we are as a company during this call. We've made a lot of important progress at TCDC during Q3 and into Q4. We've secured the power in our own name, we're rapidly progressing lease negotiations, and strengthening the team and balance sheet really needed to move this project towards final delivery. That progress comes against a challenging backdrop. We've had multiple black swan events, the capital markets have been volatile, and investors are asking harder and harder questions about how data center projects will be funded and delivered. And, you know, communities want to understand what these developments mean for their electricity supply, water resources, local infrastructure, and essentially a social license to operate in these different communities that we're in. And we believe that environment makes the quality of our power position and our development and contracting approach increasingly important. And so since our last update, we've signed a 20-year PPA for up to 207 megawatts. In conjunction with that, we put up an $118 million cash-collateralized letter of credit to be able to hold that power, which we have already completed. The power availability is expected in Q3 of '27. And this power, again, just to remind everyone, is through an existing grandfathered private use network, which is not subject to batch-zero constraints within Texas, and it allows us to have this ready-for-service date in Q4 of '27. And, you know, we believe that we have one of the more valuable power positions at a time when customers have kind of limited alternatives on that timeline. Additionally, there are many of those in the batch-year process who are facing uncertainty around the magnitude and the timing of their power. And so, you know, we're just looking at the rest of the market adding and compounding risk with these countless data center projects that are up for permitting, and we're sitting here relatively insulated. And so with our permits pertaining to Phase 1 in hand and Phase 1 power as part of an existing and seasoned private use network outside of the batch process, we believe the timing and certainty of our project have made TCDC an even more attractive asset going forward. And so the task now is to translate our position into a definitive plan. And we can go through what we're doing there. This is a financial development plan, and ultimately we want to communicate what this means in terms of earnings to our shareholders. Shortly after the PPA announcement that we made in September, we signed a non-binding LOI that covers both TCDC's Phase 1 and Phase 2 with the same prospective tenants. We are now in advanced negotiations with the Phase 1 lease, and the Phase 2 lease documentation is being worked on concurrently but separately. And it's important to note that Phase 1 can proceed without Phase 2 documentation being fully complete. So they are not mutually exclusive; they're not reliant on each other. And so for Phase 1, you know, we believe that the proposed modular approach that we've referenced in our business updates historically speaking will offer a substantially lower build cost as well as an accelerated timeframe. And, you know, we've added experienced development and construction professionals that will go over the whole new team to what we believe is already a best-in-class team to support our work on both phases. We also strengthened our balance sheet. Recently, we did a $64 million PIPE, and that was used to pay down debt and support leasing and development activities. So now we sit here with a clean balance sheet and a project that we believe is arguably one of the most favorable in the country in the current market and beyond. And we believe that what we have done has given us a strategic advantage heading into the next phase of the company. So today we want to connect all these pieces for everyone because a lot's been going on: the power that we've secured, how we plan to deliver the project, our partnership model, how we intend to fund it. And our immediate priority is completing the lease, obviously, and putting the financing and delivery arrangements around it, giving shareholders a clearer view of the capital required and ultimately what the potential returns are. And so before going into this project detail, I'm going to hand it over to Evan right now to address directly our approach to responsible development and how we're approaching power, water stewardship, and, you know, giving the local community a seat at the table, which is really the world that we've been planning and living in, and we're excited to just talk through this. So with that, I'll hand it over to Evan real quick. Evan, go ahead.

Thanks, Charlie. I was born in Texas, I was raised in Texas, and my family lives in Texas. So these issues are important to me. Our team has deep experience in both data center development and sustainability. That experience has reinforced how critical it is to strategically address power, water, and community needs at all stages of development, including site selection, land development, design, construction, and operations. New Era's approach to TCDC is aligned with Governor Abbott and Governor-elect Hinojosa's priorities and concerns for utility ratepayers, water, and local communities. This is not reactionary; this is how we approached TCDC from the outset. Stewardship was core to our development philosophy well before these issues became a prominent part of the data center debate. Regarding power, our strategy is designed to avoid increasing transmission costs for Texas ratepayers. Phase 1 uses an existing utility connection via a behind-the-meter private use network. For Phase 2, we plan to bring new islanded onsite generation to power the rest of the site. Addressing water, we simply plan on deploying closed cooling to limit consumption at TCDC. That being said, I want to highlight a unique and underappreciated feature of the Permian Basin. This region generates a significant amount of produced water from the oil and gas industry, and we're partnering with Texas regulators and the University of Texas to evaluate how it can be treated and reused for industrial cooling, with the aim of reducing demand on local freshwater supplies while also lowering the volume sent to disposal wells. Finally, we agree that Texans should have a seat at the table. New Era continues to engage directly with Ector County, the City of Odessa, as well as local businesses and community organizations. We're aiming for maximum transparency, want residents to understand the development, and provide opportunities to raise questions as our plans take shape. Our project is supporting local jobs, and we want to continue to work with local suppliers and contractors whenever that makes sense. These principles will continue to guide us as we develop TCDC. Now, let me explain Phase 1 power in more detail. Phase 1 will be served via an executed PPA for up to 207 megawatts. This power is part of an existing registered private use network supplied by Vistra's adjacent Odessa Ector Generating Station. It's essentially a behind-the-meter arrangement with further meter reliability, and Phase 1 power is not contingent on progressing through ERCOT's batch-zero process. During Texas Senate Bill 6 implementation, the Texas Public Utility Regulatory Act, or PURA, was amended and exempts net metering arrangements registered with ERCOT prior to 2025 from the batch process. This is why we feel that TCDC is both unique and valuable. Our recent commercial discussions continue to reinforce the value of near-term power. Across the United States, new data center capacity in '27 is extremely constrained due to power. We believe the combination of contracted supply, scale, and expected Q3 '27 availability makes TCDC particularly relevant to those customers. Additionally, our partnership with Vistra supports future power development, and there's an alignment of interest here. Vistra has been a great partner, and once power delivery begins, they will receive a 5% non-voting stake in Phase 1 power. Our goals are aligned, and they have a direct interest in the long-term success of the development. Customers understand this, and it is a relevant consideration for how they could expand their footprint at the campus over time. And of course, delivering on that opportunity takes an experienced team. Charlie, over to you.

And thanks, Evan. You know, at our Q2 update, we introduced several of the new senior leaders who had joined the team here at New Era. Since then, we've continued to add technical depth around them. The roles span everything from development, engineering, construction, power, operations, et cetera. These are people who understand firsthand what needs to happen between just securing a site and bringing a facility into full service, and these are obviously giant projects. So just to highlight a few examples, we brought on Erin Henderson, our Senior Vice President of Energy and Policy, who joins us from Microsoft, where she was the Director of Data Center Flexibility and Energy Infrastructure. We've got Marlin Billington, our new Vice President of Engineering and Operations, who joins us from Meta, where he was a critical operations manager. We have Morgan O'Connor, our new VP of Construction, who joins us from AWS, where she was Senior Manager of Construction, running projects along the Eastern Seaboard. We have Doug Hoffmuckle and Maria Rodriguez, electrical engineering leads bringing experience from Meta, ByteDance, Amazon, and Microsoft; and Dan Herrick, our Director of Physical Security, who previously led global security operations at CyrusOne, who's obviously a fantastic legacy operator. And finally, just this week, we're excited to announce Ashley Alleman, our new General Counsel, who joins our executive leadership team from CleanArc Data Centers, who has also had previous roles at CyrusOne and Vistra. So just a whole ton of relevant experience here. And look, we need this collective experience as a company throughout project planning, site preparation, construction, and commissioning. And our team needs to fully understand the detail and nuance around delivery obligations that we are taking on. And really, the intent of this is to test whether the proposed schedule is achievable and to coordinate with many of the other parties that are involved to aid in this seamless execution. And we're building these capabilities obviously for TCDC, but it's not exclusively for TCDC. We're building this platform, and I know we've talked about it before, but we're building a platform that enables us to continue to execute confidently with our counterparties and tenants that will not require us to rebuild the team every single process. And so just to talk through some of the Phase 1 delivery approach, I'm going to hand this over to Jose, and then he can cover some of that.

Thanks, Charlie. The theme you just introduced brings direct experience building and operating large data center campuses. Let me explain how we're applying that experience to our own delivery approach. We are in advanced negotiations on a definitive Phase 1 lease around a proposed modular approach, which we think makes sense for a number of reasons. From a physical construction perspective, modular means completing more work offsite while site preparation progresses in parallel. That gives us better visibility of our production schedules and can shorten the path to commissioning. It also reduces our reliance on large onsite construction crews, helping us manage the risk of labor shortages as competition for skilled data center workers remains elevated. We're working with multiple vendors across various parts of the supply chain and designing for flexibility as customer hardware requirements evolve. We're also working through long-lead equipment requirements, including transformers and other enabling electrical infrastructure. The networking and physical security specialists we have onboarded are also involved in the design, and we're planning for testing and commissioning from the outset. The aim is to identify and manage dependencies early on to reduce the risk of late changes impacting delivery timelines. Ted, over to you on the economics and capital requirements.

Thanks, Jose. Based on our initial estimates, we expect Phase 1 build costs to be less than half that of a comparable traditional development. At the same time, we're negotiating what we believe are attractive lease economics that reflect the value of our near-term power and the current state of the market from a cost of capital perspective, focusing on maximizing our return on equity dollars. Alongside the build cost and lease economics, we're also seeking to negotiate favorable timing for capital outlays, leveraging tenant relationships for design and supply chain, all with the aim of limiting the funding New Era needs to provide, even in the near term post-signing of a Phase 1 lease. Ultimately, the overall funding requirement will depend on our agreed scope, payment timetable, and allocation of delivery responsibilities. Once the agreements are finalized, we'll be able to explain these commitments and the economics in far more detail. What we can say now is we are working tirelessly to get all the details finalized for Phase 1 lease execution.

Charlie, over to you for an update on the site itself. Thanks, Ted. Alongside the commercial work, we're making tangible progress on site and continue to de-risk the asset. We own 493 acres and are under contract with Grow Odessa to acquire another 99 acres. We have an executed PSA, we've paid the deposit, and expect to close in the coming weeks. That acquisition is expected to reduce easement constraints and increase the site's capacity potential. We've secured key site approvals, and site preparation is already underway, including clearing and grading. The team has also carried out significant cleanup remediation and removed thousands of feet of pipeline. The photographs on this page show some of that progress. Our next major commercial milestone remains the definitive Phase 1 lease, and we are in advanced negotiations on that documentation alongside the financing and delivery workstreams. Our timing remains unchanged. Power availability is expected in Q3 '27 with initial ready-for-service targeted for Q4 '27. That brings us to the expansion opportunity alongside Phase 1. Turning to Phase 2, we're planning for approximately 550 megawatts of new onsite generation with Thunderhead Energy Solutions. The intention is to create an islanded solution supplying power directly to the campus that is not subject to the risk associated with the ERCOT batch process. Together with Phase 1, that would take plant capacity across the first two phases to approximately 757 megawatts gross. A Thunderhead subsidiary has filed the standard air permit application with the Texas Commission on Environmental Quality, and we still believe that permit will be approved. From a timing perspective, we expect commercial deliveries in Q4 '27 and Q1 '28. Commercial negotiations continue to progress with the same prospective tenant as Phase 1, and we're working through separate lease documentation for Phase 2. We anticipate a similar build cost for Phase 2, which, as Charlie mentioned, would be substantially lower compared to a traditional development. Beyond the first two phases, we're evaluating the campus layout as a whole to maximize the capacity the site could support. Phase 3 remains in design, and its ultimate capacity will depend on the layout and the density we can achieve. Our immediate focus remains on Phases 1 and 2. Now I'll hand it back to Ted to discuss our financial position and approach to funding development.

Thanks, Evan. How we fund TCDC will have a direct bearing on the value we create for shareholders. In a volatile market, we have to balance the capital needed to move the project forward with the cost and risk of raising it. A couple of weeks ago, we closed a $64 million PIPE to repay Macquarie borrowings that helped fund the credit support for our PPA, preserve cash for the next stage of development, and ultimately support our leasing workstreams. Turning to the balance sheet, we believe we're in a strong cash position post capital raise, giving us ample flexibility as we work toward lease execution and arrange project financing. As of October 31st, we had a total of $187 million in cash, comprising $49 million of unrestricted cash and $138 million of restricted cash, including collateral supporting the PPA letter of credit. We also have $20 million outstanding debt on our Macquarie facility, which is fully cash-collateralized. After lease execution, we believe we will have various options to restructure the LC arrangements with the aim of releasing some of our restricted cash while maintaining the required credit support, allowing us to put more of our existing cash to work on development. On project funding, we retain the option for up to $200 million in financing under the Macquarie facility following lease execution, subject to the applicable conditions. We are also in discussions with other potential lenders on larger pre- and post-lease debt funding partnerships with the aim of getting credit instruments in place that fit the agreed development scope and timing of both Phase 1 and Phase 2. That covers our financial update. Operator, let's open the line for questions. As a reminder, to ask a question...

Please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 again. Please stand by while we compile the Q&A roster. Our first question comes from Michael Grondahl with Northland. Your line is open.

It was highlighted that you expect Phase 1 build cost to be about 50% below traditional builds, and that the timing of capital outlays was kind of limited up front. With that, this color kind of alludes to a similar structure that Riot had with a powered land lease we saw a week or two ago. Can you just walk us through how we should think about that commentary for Phase 1, and if this is a structure we should expect to be replicated across Phase 2 and potentially Phase 3?

Yeah. Hi, Mike. Thanks for the question. Yeah, I mean, the short answer is yes, it's a similar-looking structure, right? We saw that announcement, a modular build with a cost per megawatt that was half of the low end of a traditional build, and we're in the same place. We're seeing a lot of the leading global technology companies, like the one we're working with, that are trying this modular approach because speed to compute is becoming the most important thing. With the capital markets where they are, they're getting more creative. And, yeah, we feel that the returns that we're going to get off of a project like this are great given what's happening in the credit markets. And as for Phase 1 versus Phase 2, yes, we're still trying to figure out what we'd like Phase 2 to look like. We're working closely with the client, but I think as Evan alluded to earlier, yes, there's a good chance that Phase 2 looks remarkably similar to Phase 1, but that hasn't been completely ironed out yet. We're far more focused, as Charlie said, on just finalizing Phase 1.

Got it. And then one more with Phase 1. Can you just clarify, are there any remaining approvals, permits, regulatory issues? And then can you give us a little bit of insight into any Phase 2 approvals or how TCEQ air permitting is progressing?

And actually, I might chime in here real quick, and then Evan. But, you know, one thing to kind of state, when our team sort of took over development a few months ago, we really just started knocking down every single outstanding item and really taking all of the risk off the table in terms of the development and construction constructibility of this, that was reflected in the permits that we talked about in the last call, as well as securing the power in the manner that we did secure it as well, and the quality of that power. And so, but yeah, I'll let Evan kind of chime in a little more on detail.

Thanks, Charlie. No, great question. We're fully permitted. We have been for a while. I mean, we included the pictures—we've already started site work. For Phase 1, there's nothing in between us and delivering the project at this point. As far as the question about standard air permits, as I stated in the last call, we still anticipate that's going to be approved by end of year. It does appear like TCEQ is open for business again. They are accepting new permits. And so, you know, we did file that permit rather early. I wish I had filed maybe a week earlier, we would not be having this discussion, but we don't anticipate that's going to impact our project at all.

And then just lastly, it looks like you picked up an incremental 99 acres. Where are those 99 acres, and what was the reason for the acquisition?

Yeah. I mean, it was just one of these little pieces of land that's contiguous to the property that we have. You know, we've done this once before, picked up an extra 50-some acres just to—it essentially creates an ease of utility build-out. And so, you know, we worked with the City of Odessa on this, which is who we bought the original acreage from to begin with. And so basically it's some connective tissue. It's usable, and so it just bolsters the position and makes all the execution of getting power from A to B even easier.

Okay. Thanks, guys.

Our next question comes from Nicholas Giles with B. Riley Securities. Your line is open.

Just was curious, you know, you mentioned you're in advanced negotiations on Phase 1 at this stage. And so what would you say is really still being worked through? Is this more of a technical or design nature? Is it economics? Just curious on anything more you might be able to say on kind of where things stand.

Yeah. I think we've got a full agreement on what the economics are going to look like, so we're really excited about that. And these modular builds are fairly simple from an SLA perspective. But yeah, you're right, I mean, there are a few more technical things to work out. And yeah, I mean, we feel really good about where we are at the moment.

Good to hear. Okay, thanks for that, Ted. I guess it sounds like you've already made a lot of progress in de-risking the supply chain. I just—I struggled to catch it all. Can you just walk us through kind of what remaining long-lead-time items still need to be secured for Phase 1, and what kind of—if there's any deposits you might need to make on that? And then how are you thinking about, you know, reserving capacity for Phase 2?

Yeah, maybe I'll let either Evan or Jose touch on the long-lead-time items, but what I can say is, you know, the tenant has been—the prospective tenant has been extremely helpful, you know, as it relates to procurement of any long-lead-time items that we may not have on hand. Leveraging their supply chain has been something that we've really wanted to do. But Evan, Jose, I'll let one of you go.

Yeah, Nick. And as we're working to finalize the design of what it looks like—which, not to put the cart before the horse, we have to finish the lease in order to understand those technical specifications completely—we are talking in parallel to various equipment providers to understand the supply chain to make reservations. We know the electrical equipment that is going to enable the delivery. We're working on that to secure that. And there are no blockers for us to be able to execute once our final design is complete.