Meanwhile, melt butter in large nonstick skillet on medium-low heat. Add flour; mix well. Cook 2 min. or until hot and bubbly, stirring constantly. Gradually whisk in milk; cook on medium heat 2 to 4 min. or until sauce comes to boil and thickens, stirring constantly. Add cheeses; cook and stir 2 to 3 min. or until cheddar is completely melted and sauce is well blended, stirring constantly. Add squash purée, nutmeg and pepper; mix well. Cook and stir 2 to 3 min. or until heated through. Remove from heat.