Oklo Inc.

Moat: 1/5

Understandability: 4/5

Balance Sheet Health: 1/5

Oklo Inc. is an early-stage clean energy company focused on developing and commercializing advanced fission power plants, specifically microreactors, with the aim to provide reliable and sustainable energy sources.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

Oklo operates in the emerging nuclear energy industry, with a focus on advanced microreactor technology. The company’s core business is the design, development, and eventual commercialization of small-scale fission reactors that are intended to be safer, more efficient, and more cost-effective than traditional nuclear power plants. These microreactors are targeted at power-intensive applications, such as military bases, remote communities, and heavy industry, thereby trying to reduce carbon emissions and provide a reliable energy source in areas with limited access to a stable power grid.

Revenue Distribution:

The company is currently pre-revenue as it is still in the development phase.

Oklo’s plan is for revenues to be derived from the sale and operation of its microreactors, as well as potential licensing of its technologies. Therefore, the revenue is currently based on non-binding letters of intent that have been obtained from interested parties, which include the Department of Energy. Their primary project involves the building and deployment of the Aurora Powerhouse, a compact nuclear microreactor, in Idaho.

Industry Trends:

The nuclear energy industry has been under significant change. It’s currently experiencing a renewed interest due to the global push toward decarbonization and energy independence. Microreactors represent an approach with a much more modular and scalable design than traditional nuclear plants that are more suited to smaller needs and applications, with reduced capital costs and construction time compared to more conventional reactors. Also, new designs and advancements are focused on the need for increased safety and sustainability. The company’s focus on advanced recycling of nuclear fuels and its planned microreactor design positions it at the forefront of these industry changes.

Competitive Landscape:

Oklo operates in a competitive landscape of energy and power generation companies, including other nuclear reactor developers, renewable energy companies, and traditional power producers. The main competitive advantage over other nuclear developers comes down to using advanced recycling, meaning they would be using spent nuclear fuel and turning it into reusable fuel, plus the company’s microreactor is expected to be cheaper to install and require a small footprint.

But overall, this industry is still at its nascent stage, making it difficult to assess true market position and competition.

What Makes Oklo Different:

Oklo differentiates itself from traditional nuclear energy companies and from other startups through several key elements:

Advanced Fission Technology: Their use of a novel reactor design that recycles spent nuclear fuel, reduces waste, and has increased power density provides a competitive edge. They are targeting both existing markets of established energy companies but in more versatile sizes.
Microreactor Focus: The company’s emphasis on small, modular microreactors has implications for smaller applications, reduces overall construction time, and makes the technology more versatile.
Waste Reduction: Using advanced recycling with spent fuel, they aim to greatly reduce the need for new fuel. This focus on waste reduction and nuclear recycling also adds more security to their fuel cycle and is more sustainable.
Focus on Commercialization: The company is structured to not only engineer novel power plants, but also to commercialize its products globally for a variety of different uses and applications.

Financial Analysis:

Oklo’s financials at the time of this report are not very detailed but, mainly consist of very high R&D expenses and little to no revenue.

Operating Expenses:

As a pre-revenue company, Oklo has sustained significant losses in recent periods, largely driven by the high costs associated with research and development, product design, engineering, and regulatory compliance. These expenses are expected to increase as development continues and the company approaches commercialization. For the six months ended June 30th, 2022 and 2021, they had operating losses of ($36.2) million and ($1.8) million, respectively.

Cash Position: The company had cash and cash equivalents at $574 million at the end of June 2022, and the cash has been accumulated through different private and public transactions. They also have a large loan of $145 million. This cash position, although large, will be needed to finance ongoing operations and development costs.
Equity/Debt: The company has raised capital primarily through the issuance of equity and private placements. The company has an existing high debt/equity ratio. Given that Oklo will be undergoing a long period of investment and testing, its debt will likely need to be refinanced before positive cashflows are realized.
Net Income (Loss): The reported net losses for the six-month periods were ($14.8) million in 2022 and ($1.5) million in 2021.

The company is unprofitable, and it will take more time and capital investment before it becomes profitable.

Book value: The company has a negative book value because of large accumulated deficits which means that this company has liabilities and obligations greater than its assets. This is common for early-stage companies who spend a lot on research and development and thus can be expected given the current stage of the company.
Revenue: The Company has reported that they started generating revenue, for the nine months ending September 30, 2023 and 2022, the revenue for the Company was $110,000 and $31,000 respectively. As stated before, the revenues of the company are currently based on small prototype sales. The revenues of the company are minuscule.

Moat Assessment: 1 / 5

Oklo currently exhibits almost no economic moat. While the company possesses innovative technology, it does not possess significant barriers to entry:

Intangible Assets: They have some patents surrounding their tech, but those could be circumvented.
Switching costs: There aren’t really any switching costs, as there aren’t any customers currently using their product yet.
Cost Advantages: Although their reactors are supposed to be very cheap to install and operate, they have not yet proved that.
Network Effects: The company has no network effects

The lack of a traditional revenue stream and the company’s technological innovation is still untested, and no competitive advantages have yet been proven. Additionally, the industry is incredibly regulated and that introduces further risk, where the company might not gain the necessary approvals to even conduct its business.

Risks to the Moat and Business Resilience:

Oklo faces multiple risks that could affect its moat and business, mainly due to it being a highly volatile early-stage company.

Technological Risk: Development of new technologies and manufacturing processes is prone to delays and potential setbacks. If the company can’t execute its plans, it may prove very difficult for the company to make a profit, let alone succeed.
Regulatory Risk: Nuclear energy is very highly regulated, and it can be difficult to receive the necessary approvals. It’s also very difficult to predict the regulatory landscape for nuclear energy, as any changes could completely upend Oklo’s plans. This introduces a significant risk for the business.
Funding Risk: The company requires ongoing funding to execute on its strategy. There is no guarantee that it will continue to receive funds from investors. If the funds dry up, then this will be the end of Oklo as they need capital to survive as a pre-revenue company.
Commercialization Risks: Even if the company produces a functional plant, there is no assurance it can be sold to potential customers. Its product must have proven economic viability in order to be sold to customers.
Competition: The nuclear energy industry is highly competitive and although the company tries to differentiate itself from the competition, its tech may still lose market share.
Financial Risk: As can be seen from their financial statements, Oklo has large amounts of negative cashflow, high debt, and high levels of operating losses, that means the company is burning through its cash reserves, which could lead to bankruptcy in the worst-case scenario.

The resilience of this business will depend on continued funding as well as being able to successfully commercialize the technology. Any setbacks in either can have severe consequences.

Understandability: 4 / 5

Oklo’s technology is complex. While the concept of fission is relatively easy to grasp, the details are very advanced and technical, which makes it difficult to grasp what their competitive advantages will be. The company’s business is relatively easy to understand from a customer’s point of view: it provides electrical power, which is a common need in many industries. The biggest difficulty in understanding Oklo comes from the various technical and regulatory hurdles that it will have to jump through.

Balance Sheet Health: 1 / 5

Oklo’s balance sheet is extremely weak. Their current and long-term liabilities significantly outweigh assets, especially since the value of their technology has yet to be proven. They also have a high burn rate with little or no revenue generation at the current stage. They are also heavily reliant on the market for the funding of their operations. A low score of 1 reflects the high financial risks.

Recent Concerns/Controversies/Problems

The main challenges currently involve the company’s ability to continue to receive funding as well as execute its plans to commercially operate nuclear power plants.

Regulatory Hurdles: The biggest challenge for the company is receiving all the regulatory approvals to be able to operate and commercialize their technology.
Dilution: Since they are a pre-revenue company, their stock is at risk of being diluted. Management has acknowledged that stock dilution is an important factor that could reduce the value for its shareholders.
Operational Execution: The execution of the company’s strategy may be difficult, due to being a pioneer in its industry, the difficulty of building out complex reactors, and the potential of market saturation or market shift.
Macroeconomic environment: The volatile macroeconomic environment could create headwinds. With increased inflation and borrowing costs, early stage companies like Oklo are greatly affected since they depend heavily on funding from the market.
New Financing: The company has a current plan to obtain a private placement, the terms and nature of which may be detrimental to current investors.

In general, this is still an early-stage company, and the main concern is not necessarily the company’s business model but its ability to secure funding and overcome regulatory hurdles. This company has a long way to go before it can show that its technology is sound and profitable.