Nauticus Robotics Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
April 10, 2024

There are 8 speakers on the call.

Operator

Good day, everyone, and welcome to today's Nauticus Robotics 2023 Q4 Earnings Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time Please note this call is being recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Kristin Moorman, Nautica's Special Project Leader.

Speaker 1

Thank you, and good morning, everyone. Joining me today and participating in the call are John Gibson, CEO and President Vicki Hay, Interim CFO Nick Bigney, General Counsel and other members of our leadership team. On today's call, we will first provide prepared remarks concerning our operations, vehicle testing and financial results. Following that, we will answer questions. We have now released our results for the full year and Q4 of 2023, which is available on our website.

Speaker 1

In addition, today's call is being webcast and a replay will be available on our website shortly following the conclusion of the call. Please note that comments we make on today's call regarding projections or our expectations for future events are forward looking statements. Forward looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review our earnings release and the risk factors discussed in our filings with the SEC.

Speaker 1

Also, please refer to the reconciliations provided in our earnings press release as we may discuss non GAAP metrics on this call. I will now turn it over to John.

Speaker 2

Thanks, Kristin. Good morning and thank you for joining us on the call this morning. I'm pleased to be presenting our quarterly results for the first time as CEO. A great deal has transpired since the last conference call. First, over the last 4 months, we've initiated a transformation of the company from being a research and development organization to being a customer centric innovation for profit enterprise.

Speaker 2

During the Q4, we added an interim CFO, Vicki Hay, 17 years public company reporting and operational cost management skills and we added a General Counsel, Nick Bigney with public company experience well as complex deal and financing expertise. We've recently added to the team sales leadership with Jorge MacNeese. Jorge has experienced in domestic and international sales including in Brazil and Norway, 2 important countries to us and is captain of 9 digit multiyear software and service sale in Latin America for previous company. He brings superior skills and collaboration with customers combined with the full alignment of our company effort to deliver the contractual requirements we've signed up for. We also have an incredible team of engineers, mechanical, electrical and software who are currently certifying the Aquanaut Mark II for commercial work during the fall of 2024.

Speaker 2

As the year progresses, we will have the leaders from each of our business units present during the earnings call. With a great team, you can expect great results as you will see in a moment. Those results are beginning to be realized. First, let me address a few historical matters. Previously, we announced a merger with 3dAdept.

Speaker 2

When the announcement was made, the share price for Nauticus exceeded $2 and the structure was an all stock deal. After much consideration, both parties agreed the best path forward was to terminate the prior agreement as the situation has materially changed. We remain collaborative with 3dAdept and continue to seek ways to work together on customer projects. I believe this termination best allows us to focus on transforming our own business. A stronger Nauticus benefits our shareholders in any transaction and we intend to build a stronger Nauticus.

Speaker 2

We built an excellent working relationship with 3dAdept leadership and we intend to maintain that as we go forward. Now speaking of transforming our own business, we've changed our internal structure over the past few months. We've reorganized into 4 business units, autonomous solutions, Electrical Manipulators, Autonomy Software and Government Solutions. Autonomous Solutions, Electric Manipulators and Autonomy Software were previously part of what was the bigger Aquanaut team. We changed them into 3 components because each has addressable markets and can grow independently.

Speaker 2

The capital required to deliver software manipulators is also significantly less than the capital needed to complete Aquanaut vehicles. Let's start out by talking about the Autonomous Solutions Group. The Autonomous Solutions team has accountability for the Aquanaut Mark II vehicle. The Aquanaut vehicle is designed for subsea inspection, maintenance and repair commonly called IMR work for projects including oil and gas, wind, telecommunications, midstream and aquaculture. The level of difficulty increases as you move from inspection to repair.

Speaker 2

Our initial efforts are focused entirely on inspection. We have contracts currently with an international oil company and a super major oil company, both early adopters to demonstrate the value of autonomy to the oil and gas operations. These untethered autonomy champions are providing regular guidance on what is required to replace their current methodology. The efficiency gains, decreases in staff, reductions in vessel size and hence submissions, the move to electrification and away from hydraulics to minimize the potential for hydraulic fluid leaks and the ability to work at depth regardless of weather make our AUV platform compelling to the industry. So where are we?

Speaker 2

We're currently doing full system testing in the Gulf of Mexico. And last week we did testing exceeding 1300 meters with an ROV monitoring our activity. We've made the transformation from idea to product. During these dives, we're doing numerous systems tests to include practicing and improving our launch and recovery, testing acoustic communications, emergency procedures to recover, descending and ascending optimization, station keeping and many more tests to prove the capabilities of the Ophronaut vehicle. It is going well thus far.

Speaker 2

The Nauticus team is performing well above expectations as is the vehicle. We have much to learn and need to validate our ability to conduct several operational tasks to move from testing to commercial work later this summer. We posted a video of some of our testing to our YouTube channel, best video I've ever posted by the way. You can find the link to the video in our earnings release issued last night. It is also linked in the webcast for those of you listening online.

Speaker 2

Please take a moment to watch the video, which shows our Aquanaut Mark II vehicle diving to depths of greater than 1300 meters, performing maneuvers and hovering less than a meter above the seabed among other things. The Aquanaut we're testing in the Gulf I'd like to introduce you to a great leader and our Chief Engineer, Steve Donnan to make a few comments on the testing thus far. Steve?

Speaker 3

Thanks, John. Over the last few days, we've made a lot of great progress confirming the functionality of Aquanaut Mark II in the Gulf of Mexico. Our initial testing has been focused on tugless commanding and navigation in the deepwater environment. We have performed test dives while recording data from all systems to analyze performance and identify any potential issues. Tetherless commanding of the vehicle has been demonstrated at depths greater than 1200 meters, where we have executed various survey patterns and autonomous behaviors.

Speaker 3

We've also verified functional navigation at these depths. Analysis of the data will continue this week while we wait for the weather to

Speaker 4

improve and return for more testing. Well, I

Speaker 2

guess that's the end of yours, Hugh, turning it back to me. So let's pick up with talking about the autonomous software to what we call toolkit. Now what we've realized in the last couple of months is the value of our toolkit software platform. The architectural decisions during the design of toolkit software allows this system to be platform independent. It can be deployed on numerous subsea platforms, both tethered and untethered.

Speaker 2

We've already successfully used the toolkit software on several subsea robots both Nauticus developed and 3rd party developed. In short, imagine having numerous different robotic form factors operating on your infrastructure with a standard software system rather than having proprietary unintegrated platforms on each of the deployed robots. This facilitates a multi agent robotic future treating an array of fit for purpose robots as an organism rather than as independent operators. To be the operating system of choice, we need to transform our service where into commercial software. We're currently addressing the enhancements required to have a commercial software product.

Speaker 2

The primary enhancements are improvements in the user interface and user experience and a couple of features. Much of the needed knowledge to drive this development is being gained while we are testing the Aquanaut vehicle. If we move to the electric manipulators, that's what differentiates Nauticus from its competitors. The ability to interact with objects rather than only gathering data sets us apart from our other AUV suppliers. We're striving to offer a path to transition subsea's work to autonomous untethered replacement for the current generation of light duty ROVs.

Speaker 2

The manipulators are necessary for us to move up the value chain from inspection to maintenance and repair. Given the power and size of Aquanaut, we will be limited to doing light duty work. Heavy duty ROVs are needed especially for construction related work. We're discussing with other subsea service providers the possibility of supplying our manipulators for integration into their vehicles. We also see a move by all subsea providers to electric manipulators.

Speaker 2

Like ours to reduce the environmental impact of potential hydraulic fluid leaks, Conventional ROV operation has no autonomy associated with arms. Our arms are entirely autonomous. We have an outstanding team working on autonomous electrical manipulators and the same team is investigating how to employ our autonomy on hydraulic manipulators as well. This is a market where we can have an immediate impact. Our government business.

Speaker 2

While the government market segment is enormous, it's believed to exceed $1,500,000,000 in 2025. The portion of the total available market we can address is much smaller. We do not have sufficient capital to undertake larger projects. Therefore, we are focused on projects matching our capital and competencies, which are seeking breakthroughs, new concepts, true innovation, which often gets stymied in larger organizations. We have the talent and leadership to succeed in providing innovation.

Speaker 2

During the Q4 of 2023, we completed a project for the Defense Innovation Unit of the Department of Defense, DIU, completed a second project in the Q1 of 2024. We anticipate receiving a letter from DIU and indicating we've successfully completed both projects. Both projects were innovation related. We do not currently believe any future work will be awarded related to these projects to Nauticus. Nauticus needs consistent revenue and cash flow and government contracts are often awarded sporadically.

Speaker 2

We sometimes call that lumpy and hence the pipeline and cash flow are hard to project. Consequently, the government team to augment the pipeline for revenue has the freedom to pursue non government projects that demand our talents and competencies. Our government team is extremely talented and is pursuing new non government related opportunities, both domestic and international. We're currently having discussions with companies seeking insights into their robotic programs. We are well suited to assist a variety of larger companies seeking robotics expertise.

Speaker 2

Work will be taken if it does not disqualify us for U. S. Defense industry opportunities. We have a total available market assessment being conducted for each of our core business units, which should be completed and we can communicate at our next call. Now with that, I will turn it over to Vicky Hay to review our financials.

Speaker 5

Thank you and good morning. As John mentioned, I joined the organization as Interim CFO in December last year. I will be covering an overview of our financial performance for the full year and Q4 of 2023. Revenue for the Q4 was $1,100,000 which is down $2,100,000 from the previous year. Full year revenue for 2023 was $6,600,000 which is down $4,800,000 from 2022.

Speaker 5

Revenue in 2023 primarily came from government contracts mentioned earlier. Operating expenses for the Q4 were $35,300,000 which is a $24,900,000 increase from the same period in 'twenty two. This included a onetime impairment charge of $25,300,000 with $15,100,000 being taken on the Aquanaut unit after updating the future projected discounted cash flows for these units. We also recorded a $2,500,000 loss on the contract relating to testing of the Aqua Nord vehicle for an oil and gas commercial contract, the revenue for which will be recognized during 2024. Additionally, in 2023, we recorded a $1,500,000 severance charge relating to the executives that departed in the Q4 of 'twenty three and the Q1 of 'twenty four.

Speaker 5

Net loss attributable to common stockholders for the quarter was $39,500,000 $50,700,000 for the full year. This is a $31,300,000 increase from Q4 'twenty two and a $17,500,000 increase from full year 'twenty two. Adjusted net loss for the Q4 was $8,800,000 compared to $5,700,000 for the same period in the previous year. We reported a full year adjusted net loss of 34 $18,700,000 larger loss than the previous year. As we have been working through the transformation of the business, we have taken a close look at the balance sheet and disposed of items that do not fit the future vision.

Speaker 5

To that effect, we have moved $2,900,000 worth of assets into assets held for sale, which include the 3 Hydronauts, the DRIP and numerous smaller excess assets. 2 of the Hydronauts were sold in the Q1 of 'twenty four and the 3rd vessel is still being actively monitored. These assets were collectively impaired by $9,900,000 to reflect the actual or anticipated sales price. Cash at the end of 2023 was $800,000 However, during the Q1 of 2024, we secured $13,400,000 of additional funding from current investors, which puts us in a stronger position going forward. With the recent organizational changes, we have evaluated additional opportunities to reduce costs.

Speaker 5

As a result, we are expecting to reduce G and expenses in 2024 by more than 50% year on year through reduced headcount, enhanced cost management and streamlined efficiencies. Although these financial results are not very positive, the cost management efforts combined with the rightsizing of the organization are key pillars and the overall transformation of Nauticus to a customer centric innovation for profit enterprise. I will now pass the call back over to John.

Speaker 2

Thank you, Vicki. And as prone to do, I would like to take a few questions. So I'll turn it back to the operator. And if you would like to ask, please get in the queue and we look forward to responding.

Operator

And we'll take our first question from Brian Dobson with Chardan Capital Markets. Your line is open.

Speaker 6

Hi, good morning. Thanks for taking my question. So we've been from our context in the industry, we've been hearing that 2025 could be a meaningful upgrade or meaningful year in the upgrade cycle for ROVs. What are you seeing for next year? And what are the some of the key areas of opportunity, meaning which industries do you find most exciting in 2025?

Speaker 2

Appreciate the question, Brian. Appreciate your dialing in today. So ROV market, oil and gas industry and commodity prices have really kept the offshore environment from having a lot of growth over the last 5 or 6 years. That's apparently also true for the ROV industry. So not a lot of new ROVs have been sold.

Speaker 2

So you're looking at an up cycle for all the manufacturers, probably shelling, Perry, Oceaneering would all be looking at excellent growth in 2025 for sales of their ROVs to begin to replace the aging fleet. I think that also creates a good opportunity for us as we move forward because you're going to see people making a change in their capital infrastructure and we should have a tested vehicle that's ready to go here during 2024. So we're looking forward to that 2025 market uplift for ROVs in general. I think we'll be able to step in and get our toe in the water and enjoy some of that uplift.

Speaker 6

Yes, very good. You delved into some of the government related business during your prepared remarks. I guess could you give us a little bit of an update or any additional color on some of those DoD contracts you had been working on and received certificates related to?

Speaker 2

Yes, sure. I mean the DoD side, we really like that business. We think that our skills and our technology are really suited to providing innovation for that marketplace. However, for our shareholders and our company, it's pretty lumpy and it's really sporadic. And so we need to get continuity in revenue and cash flow.

Speaker 2

And so we do need to branch out and do other projects with that group as long as it does not exclude us from doing defense related work. We did complete 2. We completed 1 in December. We completed another in January. And I've personally spoken to them and I believe we're going to receive our certificates indicating successful completion And then a conversation as well, they were very encouraging on us participating in future projects and wanted to make sure that we were excited about submitting proposals as we go forward.

Speaker 2

So I think we have a great opportunity there, excellent customer. But any American would realize that when you're dependent upon the U. S. Government coming to conclusions and funding, that's not a place where you want to bet all of your money when you're a startup company like we are.

Speaker 6

Yes, thanks for that color. We noticed that you've been making some changes to call it SG and A and also R and D expense moving forward. Can you speak to some of the key levers you've been pulling to reduce those expenses and how you envision those that line item, I guess, over the next call it year or so?

Speaker 2

We see if I can do that, Brian, for you. So It's a difficult question because in this organization, the next product is what would have been the case if you were here a year ago. And now our entire focus is on the current product. And so while people might be interested in what are our comments on switching from lithium batteries to fuel cells, that's not what we're doing. We're not currently doing R and D.

Speaker 2

We are testing, certifying and ensuring that the product we have is commercially ready. And so I'd say we've got the R is small and the D is large. It's not quite silent, but it's close to silent. So the majority of our spending is shifted entirely to development and delivery as opposed to doing any future related work. We're at that point where we have a great product that needs to be completed.

Speaker 2

We shouldn't start working on anything that would distract us from getting the Aquanaut Mark II in the market and successful. So anticipate us when you say R and D, they are silent and the D stands for delivery as opposed to development. So I think that's where we're going at the moment, right.

Speaker 6

Yes, very good. And speaking of deliveries and clients, can you give us a little bit of color on how your relationship with Petrobras is evolving?

Speaker 2

I could do that. Jorge McNish is with us too. I'll start out by saying just a couple of things, I'll turn it over to Jorge for a comment. I've never seen such enthusiastic champions for this technology is I have with our current set of customers. I mean, they've been entirely engaged, supportive, understand where we are and continue to talk about the amount of work that we'll win when we get the product Jorge?

Speaker 7

Thank you very much, John. I can echo that in the context of the customer. Customer is extremely supportive of what we're trying to accomplish offshore Brazil. As you know, that's a major area of offshore development in deepwater as its complexities and significant company

Speaker 2

that's great at delivery and our customers want that too. And company that's great at delivery and our customers want that too. And I'm personally as well as Jorge, we're meeting with them in person, having discussions. We've got tremendous support. They see the future, they see the value we'll bring and we just have to bear down on getting this done.

Speaker 2

And that's what we're doing in the testing. That video is pretty powerful testament to the fact we have a vehicle that works. We have some enhancements that need to be made and some additional testing, but we are getting very close to being in the commercial revenue model for the core of the business.

Speaker 6

Yes, thanks. And final question, I know I've asked a lot here. As you're taking those steps to make the company more customer focused rather than R and D focused, I guess what do you see as the most important factors for your team to focus on?

Speaker 2

Actually, the contractual requirements we have is probably number 1. The alignment of our culture to be customer centric as opposed to technology centric. We've got some work to do there. It's a big cultural transformation here. Another one is just cost be cost conscious.

Speaker 2

I think we probably haven't had a call on this or written a paper, but we have brought in number of employees down from over 100 to less than 50. We've reduced our G and A costs by more than 50%. We're incredibly focused on being good stewards of the money that we have and returning value to our shareholders and to our lenders and creating tremendous value for our customers. So I mean we really intend to be great stewards and to turn this into an investment of note. And so that's where the focus is today.

Speaker 6

Thanks very much.

Speaker 2

Thanks very much, Brian. Is there another question?

Operator

We'll take our next question from David Marron with David Trading. Your line is open.

Speaker 4

Hi, good morning. How many OXONauts do you currently have as of today? And how many do you see us making in the near future?

Speaker 2

Excellent question. We currently have one that is completely assembled and in the water and being tested and that's vehicle number 2, a little confusing, but vehicle number 1 is here in our shop and it's being assembled and we have all of the pieces and the parts we're just putting in the batteries and the sensors and completing the vehicle and making cost and the time to certify down as from the learning and experience we gained with vehicle 2. Vehicle 3 is still in Connex boxes and pieces and we will begin assembly of that in probably sometime in Q1 of 2025 unless we see a tremendous pickup in business and can contracts here as we move forward with vehicle 2. We do not have any plans on building a vehicle 4, 5 or 6 at this point in time. We really need to see commercial success with the 3 vehicles we have to really provide some cash flow and some confidence that those vehicles are going to be hugely successful in the market in the near term.

Speaker 2

So vehicle 2 in the water, 1 in the shop, 3 in a box and no 4, 5 or 6 on the drawing board at this time.

Speaker 4

All right. Thank you. One more question. Everyone sees this company, everyone sees the intellectual property, the technology. You guys were saying investors were amazed by this.

Speaker 4

And I'm just wondering, I am too, but I'm just wondering why don't we see any insider buying? You see the filings and on the contrary, sometimes you see insiders maybe selling some shares. I mean at a $10,000,000 valuation, the stock $0.20 $0.30 just at the very least to instill confidence in the shareholder, why isn't there anyone buying

Speaker 2

it? Excellent question. I would actually maybe put it a little differently. If you take a look at my compensation, I've taken off a huge portion of it in shares. And that's because I think that's the greatest opportunity for me to earn what I'm accustomed to.

Speaker 2

And so I'm putting the risk of return here for myself and my own compensation in shares and it reduced what I would normally consider my base salary. I think other executives are doing the same here, including our CFO or General Counsel. This is a share based management team where we think the future is in the shares and not in our base salaries. And so while I'm not buying, I am definitely putting the weight of the arrow on stock. Now why others aren't buying, I think there's some opportunity, but the windows been closed for quite a long time as a result of the potential merger with 3 d Adapt and other material, non public information.

Speaker 2

And so we're only going to open the window up here in the near future and we'll see what transpires after that.

Operator

And it appears that we have no further questions at this time. I will now turn the program back over to John Gibson for any additional or closing remarks.

Speaker 2

Well, I just I want to thank everybody that joined the call. I'm incredibly appreciative people that do own shares and that are committed to the vision of this company long term. I think we're on track to really make a difference. I'm also appreciative to the lenders and also like to thank our board who's been very patient in this transformation and our employees in particular. We have a great group of employees here that are dedicated to seeing this become a huge success and transform the market.

Speaker 2

So we've got a lot of people that we're blessed to have on board with Autocass and I'm blessed to be here. Thank all of you and we'll talk to you again soon.

Powered by Quartr
Earnings Conference Call
Nauticus Robotics Q4 2023
00:00 / 00:00