Fermi Inc. (FRMI) Earnings Call Transcript & Summary

Good afternoon. Thank you for standing by, and welcome to the Neugebauer and Fermi Analysts Live Town Hall. [Operator Instructions] Legal disclaimers for this call are on the screen, and you are encouraged to read them in their entirety. I'd now like to turn the call over to Toby Neugebauer, the co-founder and largest shareholder of Fermi America for live opening remarks.

Well, good afternoon, everybody. And I almost want to correct something. My wife is the largest shareholder. I just get to speak for her today. When I think about June 30, and I think it's the #1 question, we anticipated June 30 to be a big day for Fermi. We anticipated at the time of our departure that this would be the day that we would announce 2 tenants. And we always -- our friend, Nick, with Evercore always say, Toby likes to announce things on holidays. And this one was the birthday of one of our key negotiators for tenant 1 and tenant 2. And so before we just start this call, I really do think as shareholders, we have to move on beyond are we getting a tenant. That's not what this call is about. That should not be what's in your thought process. Again, we were planning on June 30 being the announcement of our first 2 tenants, but at least our first one. As I was reflecting on if it's not about the tenant, then what is the call about? And what is Toby want? And what is Toby worried about? And I didn't sleep last night, and I came up with a slide that really sums up what I think we're all worried about, the 10 of us that have left. And frankly, we've just gotten some wonderful support today from 2 of the top investors on the planet. I'm just so humbled, is a key concept when we're having these questions today is this. Contracts are either an asset or a liability of a company. And that's what when I woke up at 3, and I know a bunch of Fermi people are listening, they know that's true. Contracts are either an asset or a liability. And it's exponentially true for huge complex contracts that Fermi has and must enter into in order to fulfill its mission. And it's exponentially true when you weigh Fermi's balance sheet against the size of the contracts that it must enter into. And as I worried about this all night, the #1 contract that came to my mind is EPC contract. The EPC contract that Fermi enters into is either a wonderful asset for the company or a huge potential liability. And I almost feel bad in Jacobo, that we announced the Primoris contract. Go back one. This is either an asset or a liability. But to say that the Primoris contract is a Fermi 2.0 contract, that was not -- is not the case when I was there. And so obviously, I promised [ Melissa ], everybody that wouldn't go into greater detail, but these are the things that I'm worried about. And I hope for sure that the Board -- and hopefully, it's a new contract with the refunds that were promised and the new wage rates, et cetera, were included in that. Another example is a gas contract. The supply of gas for Fermi is either a wonderful asset of Fermi or it's a potential liability. Another example is our grid connect. That is either a wonderful asset -- let me be clear, I'll give you a little biased on this one. Our grid contract is a wonderful asset and our grid relationship is and -- or it's a liability. And for some people, it will be a liability. And then there's just the dozens of other contracts that affect execution, and they're either an asset or a liability of Fermi. And frankly, these contracts, whether they're assets or liability are only as good as the people stewarding over these contracts. These people are either an asset of Fermi or they're a liability. And what I hear all the time is a tenant, tenant and a tenant. A contract with a tenant is an exponential asymmetrical asset or liability. And what I did when I killed Fermi 1.0 was I looked at in December, these types of contracts and determined that they were an asymmetrical liability for the company. And all I'm wanting to do -- and when you look at the penalties associated with these contracts, if you execute these contracts with these tenants, these are some of the most highly economic contracts on the planet. I believed we could do that. But if you fail to perform these contracts, and there are some wonderful examples. I don't know, I don't want to say names, but anyone can look at the landscapes of failed contracts. I mentioned many times the [ Stargate ] ones on the roadshow. So the important thing is to have the right team of contract and stewards to guarantee that we are asymmetrically successful and aren't exposed to the liability. I'm going to quickly go through some of the slides like quickly. I was on the phone yesterday with one of our largest new shareholders. And I realized we've had such turnover in the shareholder base that not everybody even understood what I was asking for. And I just want to state an obvious key concept, competitive tension, my lawyers had to say, I had to say could. Everyone here knows, could create substantially greater value for the shareholders. That's what I want. And I want to go straight to the -- who I believe tenant #1 is, who may be on the call. You know how the family feels about you. You know we'd help you be successful for free. If staying away is the best thing for you, we're great with that. So this presentation isn't directed at you because we -- as I wrote in a letter, we have nothing but great affinity for you and wished we were announcing a deal together today. Having said that is this is the decision. This contract is the decision for the shareholders of Fermi, and that's who we need to stay focused on. And what we've just asked for is to make sure that we're dealing with real issues through a proper Board governance of our leasing pricing risk, the financing risk in terms of the cost of capital associated with this, the dilution risk and as I've just talked about, the execution risk. For those -- like I said, I talked to one of our largest shareholders yesterday who didn't understand that we were for all offers. I am not interested in coming back. I've got my new company purpose. And I'm -- the entire 10 of us that were Fermi 2.0 have gone and we're not trying to come back. And all we wanted to do is have an independent committee with a real Board governance, not the many committees that currently exist. We want a banker-led market test, and we are the one who appointed Broadhaven. And they absolutely serve a purpose, but they're not -- they don't have the broad relationships with all of the potential deals. It's been all the potential people who are interested in Fermi. We've been for a dual track process. We love tenant #1, who we think is tenant #1. Let's put the tenant #1 we left with. But we also know this is too big of a decision. And we just want evidence-based decision-making. Quickly, I'm not going through all of these. The last one was 33. I cut it down to 8. I don't believe that the Board -- and I literally before -- I know Marius, I got a call from one of our most important stakeholders saying he reached out -- I mean, I get calls from serious, serious people and serious investment banks all the time saying that you will not entertain any other offer. That is not in your fiduciary duty. And this has happened between 3 major investment banks who I just got a call from literally, I guess you heard I was having this. And this is someone who has been a massive investor, massive supporter into Fermi. And they're so far along on the due diligence, they're asking my questions like what's the salinity of the water at the site. And we're turning these people away. I just want an open process. And again, I'm going to get quickly because this is all about -- all of us know we sit on peak, probably highest concentration of permittable gigawatts in the world in -- at least the Western world on a great lease with tons of water, and we control -- no one controls more available electron generation capacity than we do. No need. You all heard me brag about Fermi enough. I think everybody is tired of that. I'm almost tired of hearing myself. Okay? Our thesis for the strategic go-to-market, again, I wouldn't be reviewing these slides. I did it on May 21, is it's the 3 Cs, okay? My background is energy and these 3 Cs applied in my entire career, capital. The natural steward of Fermi has the lowest cost of capital or a low cost of capital. The natural steward of Fermi is either a customer or has customer. The natural steward of Fermi is excellent at construction because as you all heard me say the last time I was on this webinar is, I absolutely, if my kids will have children, intend to be there at 2035 with the grandkids, showing them what we started in '25 and '26. Next one, I'm trying to go through here so we can get to the questions quickly. I think these are it. I know my adviser has called the company up. We have hyperscalers. I thought the oil and gas majors were going to be in. I was so disappointed Chevron didn't do us and did the Microsoft deal, but they're going to be natural players into this. The data center developers with the infrastructure, the sovereign wealth funds, those guys are very interested. Obviously, we have Neo clouds very interested as well. One of the most preeminent ones has reached out and the chip makers need us. And I actually think when you look at who the natural thing is, we showed this chart to you all last time, and it just shows you those who have the -- this is a big fight over that AI pie. And Fermi is so well positioned to grab a bunch of it. And some of these other players who already have a big piece, it makes incredible sense for them to grab up Fermi so that they can maintain their big, big piece of the pie. I don't -- [ Nate ], let's see what else we have. Obviously, you guys know the multiples better than us. These may even be dated. But the point is there are people that trade at multiples of what we are that gobbling up us as a piece of the pie, expands their piece of the pie and allows their pie to grow faster. Again, I want to get to the questions. Hey, this whole rumor out that Toby is just trying to get a 20% premium or 30% premium and take his money off, why would I do that? I didn't work so hard with this team to gobble up all of the critical components to basically control the supply of the pie growth to give it away for a 20% premium over a ridiculous share price. And I'm not opening up options. Again, love tenant, who I believe tenant #1 is, I hope is that group and everybody else, my goal is to maximize value for all of the shareholders. This also is about governance. And this is the last thing I'll do. I'll put the slides away and get ready for the questions, is this is a joke, okay? And what is sad, Governor, is -- Miles, I bet you're on, is we actually started what is this Texas Renaissance and the Texas Stock Exchange at my ranch. I think the Governor was in 2014, and we brought the DTCC, the Fed, the head of the FDIC, everybody came to Barefoot. And what we -- and they just had Hurricane Sandy and we said, hey, at least your stock certificates, if they're safely in Dallas, won't be flooded out. And here we are on the cusp and why, what's going on at Fermi has huge implication for governance from SpaceX to all of the other companies looking at coming to Texas. Is this the Wild West? Or is this a place where shareholders and Board members can come together in a serious way, not to second-guess business decisions, but to govern and steward over the nation's largest companies. And so this is way bigger than Toby. This is way bigger than, frankly, this is a really historic situation. The judge in Dallas fully recognizes it. The federal judge also recognizes it that's not a tactic that what happens here has huge implications for capitalism in America. With that, Cathy or whoever, I wanted everyone to have the opportunity to get the tough questions. I had the world's largest investor questioning me today that [ might ] going on here. Did -- I'm obviously getting to do a bunch of one-on-ones. I had hoped that the Governor would join, and then I offered Jacobo who was there at the beginning, the opportunity to join, but that didn't happen, but I am happy to take all of the tough questions so that every shareholder has the most informed view of what's the best path for Fermi moving forward.

[Operator Instructions] Our first analyst with questions today is Stephen Gengaro from Stifel.

I think my first question is really -- it's probably twofold, but it's around your time at Fermi and then your departure from Fermi. And when we think about the amount of demand out there right now, what we struggle with is why an agreement or a contract hasn't been reached? And then maybe as part of that, post your departure, Fermi had noted that the interest from customers had picked up. So I'm just kind of curious if you could kind of address those 2 issues.

Well, obviously, that question revolves around tenant #1. And the stories around tenant #1 are just not accurate at all. As you all remember, December 12 is when we had a big webinar after tenant #1 had dismissed the KAYAK. Literally, while we were having that call, I was still texting and negotiating with tenant #1. We had no less than 10 meetings through into February with tenant #1. And the reason we did not get there with tenant #1, as I have said and as it's fixing to be in the record for everybody to see, tenant #1 absolutely used the fact that we had a 185% -- a shareholder representing 185% of our float come into the market in November when we were negotiating this transaction. And again, the text will show all of that, that will be in the record very soon. And they used that to dramatically -- yes, the rent was part of it, but that wasn't the part that scared me. The part that scared me was they dramatically increased the penalties if we failed. And everyone on the deal team that was in that city in the Northwest that day, just the bad feeling that, wow, we need to go look underneath the hood. So we didn't say like they say, it was the lease tension, they walked me to the car, okay? I needed to go back and look underneath the hood and see exactly where we were with the contracts that I've discussed with my letters the last few weeks. And I am so glad that we did not sign that day and commit. And we kept working throughout the holiday into January. And Anna knows she was the last people in the room with tenant #1 for the last week with the other negotiator. At the same time, we had 2 other tenants because our exclusivity. So that happened on the 5th. Our exclusivity was up on the 7th. The bad call that we all had, not my best day was the 12th, the Friday after the 5th. And what we came to the conclusion was is that the other tenants which would have been 2 offered much better SLA and LD terms with more money. And so I don't buy this argument at all. And what I know is if it is all of these other customers, why are we still focused on the customers that we intended to announce today? I've been honest about Oracle. That meeting did not go well if they wanted us to be the star of their show of their annual report, wasted a bunch of our time. And everything I told Oracle, the call that I know Marius is very upset about, every one of those things came true. But I'm not aware, and I definitely know a bunch of people are. So if there's a bunch of new tenants, it feels like we're just dealing with the tenants that we had. And if anything, my understanding is we lost 1 of the 2. But the point is the tenant we had, the tenant we hope to announce today is a great tenant. Their partners are great partners. And there is no doubt that Marius has a close personal relationship with this group, which to me begs even more for him to make sure that everyone had an opportunity to participate. But I know through our own process with our own bankers, I'm unaware of anyone other than Oracle, that's a hard no in working with us bluntly.

Great. And the other question I had was simply as you think about the next couple of years, like what would -- from your seat, what would you like Fermi to look like 24 months from now?

I think I want Fermi and what I've always wanted is we're the world's best expert at building a private utility. Diversity of loads is critical, and I don't see who's advocating for that at Fermi today. Fermi was never about hooking up some gensets to some buildings, okay? Fermi was about creating one of the world's largest or largest private utility that could handle a diversified loads where you've got economies of scale where 1 plus 1 on gensets nameplate production capacity equals 2.5 to 3.5. That's what I envisioned Fermi to be. And I think that's what this market needs. And that's what I got up every morning and my colleagues that left with me, we got up every morning to create that.

And your next analyst to ask questions will be [ Jeremy Schoikkett ] from [ Rand Capital ].

I appreciate you sharing all your thoughts. Yes, I just wanted to understand from a tactical standpoint, if it doesn't make more sense to just kind of wait if the company is already near completion with like an initial kind of signing of the tenant, why not just kind of wait and then go with the governance after? Because I agree governance is very important. But I just wonder if all the noise doesn't create some challenges if they're -- let's say, they're at the finish line with the current tenant, why not have that? And then wouldn't that be a stronger place to start with any kind of strategic alternatives position as having an existing tenant?

Well, the answer is, it's like, do you have my house bugged because this is what me and the boys are talking about all the time. And the answer is you're right, but maybe you're wrong. There is a very strong argument again, since we like tenant #1 and if the economics are good, it's the other contracts that bother us too, is if we had a high degree of confidence on not just the contract with tenant #1, but all of the contracts that are required to execute on tenant #1, we would overwhelmingly be in your court. I definitely think that we've at least and if we haven't, then we've got the wrong team negotiating, have added competitive tension to this negotiation that didn't exist before. But I hear you. We have the most scarce -- one of the most scarce assets in the world, and that is power gen that can come on quickly and that value diminishes quickly and the terms of that contract, the ROFR associated with that power. I mean, the Primoris thing did not make my day today. You will see in the next 2 weeks when these -- this was a mess. And so I do not want to disrupt the baby. I want the baby to grow strong. I want it to grow fast. I want it to be everything it can possibly be. I don't understand how at least 7, probably 8 companies who've already done due diligence on the company, having the right to submit offers immediately harms that. But your point is well taken. I read your material this morning. And welcome to the conundrum, I feel. I want what is best, but I am concerned about the process. And if I had a crystal ball, I just don't understand what was a big deal about letting all 7 companies who had already done due diligence put forth the proposal at the same time. Did I answer your question?

Yes. No, appreciate it.

And I believe we'll be taking further questions at this time.

Yes, with no further questions from Jeremy or Stephen, we do have a few questions provided by people on the phone today, Toby, that are on the webinar. So the first one is from Taylor. They say, it's all about the tenant. If you had a tenant, the stock would have been higher. Just why not sign a deal at slightly worse economics and you wouldn't be in this situation.

Well, I shouldn't say it. I had no intention of being a crusader, okay? And I believe signing a tenant is not the hard part. I believe executing on a tenant and being able to honor the contracts, which is why I started with the contracts is the right answer. And I absolutely -- when I was in the Northwest on December 5, where they were throwing the stock price had gone down 56%, even though we had nothing but positive news in this, I knew I was taking the hit, but I knew I was creating a long-term company -- wanted to sign contracts that I knew we could excel at and be successful at it because the asset is so great, it deserved execution so great. And you know what, look at me, I lost my job over it, not really, but let's call it that. And I still have no regrets at all and neither do the 9 other people who left. It was the right call. And so we are in for the long haul. And I almost wish that the stock would pop for the tenant and then we that want to stay in for the long haul can make the long-term right decisions for Fermi. So I hear you, is the point. I'm just letting you know, Taylor, how I thought about it.

Another question from Nick. If you lose the proxy contest, will you do what's best for shareholders and allow the company to become REIT compliant or make it difficult for the company to obtain REIT status?

I've been crystal clear, Nick. I don't know if this is our friend, Nick from Evercore. I have zero interest in not making the company REIT compliant and have proposed a solution to all of the shareholders. We were incredibly -- blah, blah, blah, sorry, too much Red Bull. We're incredibly blessed at Fermi. And I have set up, I think, 4 foundations already that are ready to receive these shares with independent boards. And I think the securities accounts are already open. So I don't -- I'd like to see how all this goes, but we're 100% have already taken actions to make sure that we -- I look back and I'm paying a heavy price for making it a REIT. I definitely still think it was the right decision. But boy, it's been a thorn in my side today. But I also don't intend to lose the -- we've had a really, really good day with 2 of the highest profile investors.

A question from Simon. Do you expect any dilution to raise more financing for the project?

Yes, that's what scares me. That's what the presentation was about. And when I look at why the tenant deal matters, is it will require, I think, potential dilution. And that's why I talk about the 3 Cs a lot.

Question by [ Manadep ]. Why do you give the market the impression that Fermi's management is incapable or doesn't have Fermi's best interest at heart?

I believe that Fermi management has its best interest at heart. What I have said all along is Fermi lost not me, but 9 other critical people that were, I would call the leadership behind Fermi 2.0. And as I said in the most sincere way, I'm so concerned about it that I propose John Sellers and Cody Campbell to move into leadership positions because what we need are people that can execute large energy projects at scale. And I don't -- this is not a character attack a little bit in that I think the leadership knows they're missing it. And I think it's time for them to be completely honest and let's get a CEO, let's replace the 9 critical people we lost and let's march forward. So that we can ensure, again, everyone needs to understand these contracts have real penalties in them and with real consequences. And that's what kept me up, not up. That's what got me up at 3:00 a.m. every morning was to make sure that we can execute. So if I'm coming across that I think there's bad intention, I apologize for that. That's not it. I have been with these men, and I know exactly that they're fully -- and well, the women have left, but with these gentlemen and that's why I invited Jacobo to come. Happy to discuss this with Jacobo in person in front of all of you.

A question from Jack. You were terminated. The company cited misrepresentations to the Board and conduct that violated company policy. During your tenure, the stock fell roughly 82% from its high, and Fermi lost at least one $150 million tenant deal with the company on record saying your conduct damage relationships with business counterparts. Given all of that, why should shareholders trust your judgment over the current Board's on what is best for this company?

Well, let's go through the 80%. 56% of the stock share price came because [ Minister Meisel ], Penncross Energy, he's close friends with the Governor Perry's son, magically shares became available to sell within 30 days after the IPO. That represented a 185% increase in float in 30 days. The record is going to show that, that absolutely influenced the negotiations with tenant #1. I chose not to accept tenant # 1. And again, you'll see it in the record soon. And again, I'm not blaming them, tenant #1, for using what they had to tough trade us. I chose to take the additional share price hit so that we could put ourselves in a position to be successful long term. The week I was terminated that Monday through Thursday because the market realized that we were going to get tenants, and we were going to get partners. You've heard me talk about the stake and adding the lobster, adding dramatically to the scope that we were going to perform, the stock was up 36%. As it relates to these issues of conduct, this is the funny thing. There will be not a text. There will not be an e-mail, and there will not be a Board meeting minute where any of these accusations were brought to my attention. If you work at McDonald's and you're doing something wrong, your manager is required to be there. Cathy, you're on the phone. You were there the last conversation I had with Marius, and he made none of these accusations. He just said basically the guns as a Texas Tech term, as I've already alluded to. And so all of these nonsense things are going to be revealed in the next 21 days. And there will not be a text, there will not be an e-mail. There will not be a Board minute where I was a participant in that says anything related to these matters. And we'll deal with those accordingly after we get a tenant or after we get a sale.

Ben asks, what has surprised you most in shareholder conversations since launching the campaign? And are holders more focused on governance, sale value, dilution risk or execution risk?

I think the most surprising thing has been the misinformation that I somehow want to take a 20% to 30% profit and run. And anybody who knows me knows that's just not who I am as a human being. So -- but it's been interesting. The company has done a really good job perpetuating that. I think the second thing is that's come across that I'm anti-tenant when no one benefits more from something that transforms the share price more than me. And my love for this company and for what we accomplished and my appreciation for the value of what had happened is higher than anyone else's. So that caught me off guard. I have gotten in with -- obviously, I spend my time on one-on-ones. Interesting, the dilution hasn't come up as much as I'm worried about, which surprised me. The vote count, I think, comes up. Are we going to back a winner and 70-30. I will just tell you where I am on that. I think this judge -- I don't know if I'm allowed to say this, but 2 of their law firms have already left the case. I think the judge thinks we deserve a fair hearing. I'm not going to read into -- everybody can read the transcripts. They're out. The -- and that's it is why are we voting on the 70 -- why are you asking us to vote before the 70-30 is decided? And that's something, Cathy, that I'm questioning myself. Do we just go get the ruling on the 21st or the 23rd and let everybody vote knowing the full facts? Maybe that is the answer. That's been where I have gotten a lot of questions in that. But having said that, I've had a great day. As you know, [ Angela Matiesteph ] just got her voting card yesterday. You just got yours Friday. I think it's real early to get all of these decisions in.

Perfect. I know we're coming to a close here for you to make your closing remarks. So I'm just trying to see if there's any last question that we can bring on before that. Maybe this is a good one. A.J. has asked, if the proxy vote is not successful, how do you think the situation plays out from here? What do you see as the likely next steps? That almost kind of goes to your closing anyway. Toby?

Yes. Here's the deal. What I have said is that I hear so much about this project. And we were so blessed as a family to get to be a part of birthing this and really love our first year of stewardship. I am concerned about the overhang. And it's not me, I am concerned about the Perry overhang. I know the effect of the [ Meisel ] overhang, having personally lived through it. I know people on this call from Fermi would constantly complain to me, every time we do something good, Stephen sells. And so I hate that. It's a really big buzzkill in terms of the leadership. My prayer, if I lose the proxy, is that the company would find a leadership team that is very experienced at executing large-scale energy projects. And that is it. And you're right, Cathy, that's probably -- we've gone even over here. But the point I would close with is this. I want you all to make the right decision for yourself. I do not want to come back to the company. Our family literally has completely moved on. Even when I suggested on the John and Cody deal that 9 of the guys go back at Cody and John's discretion, there were no takers. There were no takers. I think everybody on that is. So that is not -- I have no economic or personal incentive to do anything, but hope that the company is incredibly successful. The only thing I would add to that, Cathy, as I've had conversations today, as you know, with some of the biggest investors on the planet and you and I's own personal experience is I am going to extend the proxy -- and I haven't even told my lawyers who are on the phone, we have to extend this after the judge rules. And no one wants to have a proxy fight over America's 250th birthday. Cathy, you and I know what we wanted to do on America's 250th birthday with the Koreans and the NRC announced our groundbreaking on our nuclear reactors, which absolutely could have occurred. And so my deal is to be constructive. My deal is to maximize value. I really want you all to cogitate on why I started with the key concepts of these contracts. And I -- the only thing I would add that makes news today is I didn't send out mailers like the company did this week because who wants to deal with the Fermi proxy fight on America's 250th birthday. Everyone knows I'm a patriot and my family is very patriotic. And so what we're going to suggest doing is moving the voting until after the judge rules. And that way, every investor will have the opportunity to read the facts and understand what really has past, present and future of Fermi. So with that, I wish all of you a -- it feels so -- I don't know, let's pick up the pace in our patriotism and celebrating our 250th birthday. And I hope each and one of you enjoy your families. Thank you.

Toby, we had one last question as a follow-up. Just because of your overhang comment there, you keep saying that you're the one aligned with shareholders. This was the follow-up. Is that because you haven't sold and you said you hadn't sold post-IPO, and then they said you sold, but it was pre-IPO? Can you just clear that one up, please?

Yes. Pre-IPO, we're going into the ownership. I think I owned 41% or 42%, okay? And it was hard not to create an overhang issue going into the IPO if my family owned almost the 5/50 rule in and of itself. I mean, only left 8. Miles calculated, I think at one time, we were like pre-IPO like 67% under our 5/50 rule, it was like a really high number. I took the advice of investment bankers, even though at the same time, I was arguing for -- you obviously know where I thought the valuation should be, a much higher valuation. I agreed to sell to what I thought were investors who are going to support the company in its IPO moving forward and giving them a toehold investment with a sell-down by my family. I look back now and we should have even done that in light of what all has happened, but I did it with the best intentions.

Thank you for that clarity. Thanks, everyone, for joining today's call. I know it took a good hour of your time, and we appreciate your interest in...

Especially this week, I feel bad bothering people on their 4th of July week. You can see we're getting ready to celebrate.

We appreciate everyone's support of Project Matador and joining us today. And with that, the call is now over. Thank you. Have a great day.