Nauticus Robotics Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 14, 2024

There are 10 speakers on the call.

Operator

Please note this call may be recorded. I'll be standing by if you should need any assistance.

Operator

It is now my pleasure to turn the conference over to Kristin Morman, 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, Outgoing General Counsel John Climington, Incoming General Counsel and other members of our leadership team. On today's call, we will first provide prepared remarks concerning our operations and financial results. Following that, we will answer questions. We have now released our results for the Q2 of 2024, which are 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

Well, thank you, Chris, and good morning and thank you for joining us on our conference call today. It's going to be a short call today. We're currently really focused on the 2025 backlog, and we have opportunities, both commercial and defense work that are being worked on and we'll be press releasing our progress on those contracts as they close. We continue to receive strong support from our existing lenders as they're converting debentures, which has the dual impact of reducing our leverage and increasing our market cap. So thank you to our lenders.

Speaker 2

We finished Phase 1 for the largest South American deepwater operator and build and received payment recently. We received a letter also for the completion of a DIU project, successful completion, and we'll send that final bill in Q3. We're planning to go to the Gulf of Mexico with the Aquanaut Mark II vehicle this month and are finalizing requirements to scope for with customers now. Daniel, our Head of Operations, is going to cover more of that in this section. Before we turn to our operational and testing though, I want to update you on our progress with meeting NASDAQ's continuing listing standards.

Speaker 2

I want to thank our shareholders for approving the reverse split proposal at our June 28 shareholder meeting. This key vote allowed us to perform a reverse split on July 22, which has brought our stock price over the $1 minimum bid price required by NASDAQ. We are continuing to work with NASDAQ on our plan to meet the market capitalization requirement and have engaged advisors who are experts in NASDAQ hearings and extensions. Now with that, I'm going to turn the call over to Daniel Dehart, our field operations leader, to give you an update on our operations. Daniel?

Speaker 3

Thank you, John. Let me bring you up to date on the Aquamanak Mark II vehicle. We have partnered with Florida Atlantic University this summer to test our vehicle so that we can more efficiently progress the technology towards commercial application. The FAU campus located near Fort Lauderdale, Florida is extremely cost effective and provides access to a campus that has immense knowledge of AUV technology. This location has provided the ideal setup to develop the AquanaX system in a controlled environment and is easily accessible to open water off the coast of East Porto.

Speaker 3

We have completed survey missions with integrated sensor implementation, began leak detection testing to satisfy an existing contract and continued testing obstacle collision avoidance movements. We are mobilizing Vehicle 2 from FAU to return to the Gulf of Mexico and plans to deliver to Vehicle 1 to FAU for testing during Q4. We are currently on schedule to mobilize back onto the vessel in August to begin the field application of the Akhenag vehicle to complete a general field inspection of the oil and gas subsea structures. We are committed to completing the project safely and efficiently. We are eager to introduce the market to supervised economy and believe it is the first step to increase commercial activity.

Speaker 3

I'll now turn it back over to John.

Speaker 2

Thank you, Daniel. We're really excited to be headed back to the Gulf of Mexico this month and look forward to revenue generating work while we're there. Now I would like to turn the call over to Vicki to discuss our financial results.

Speaker 4

Thank you, John, and good morning. As John mentioned earlier, the 36:one reverse split was completed on July 22. All references in our 10 Q and press releases in regard to equity and related items are now stated on a post split basis. I will now discuss in more details results for the Q2. Revenue for the Q2 was $500,000 which is the same as the Q1 2024 and down $600,000 from the same period last year.

Speaker 4

Revenue recognized in the second quarter is primarily related to our work with the largest South American deepwater operator. Operating expenses for the 2nd quarter were $6,500,000 which is a $1,500,000 decrease from Q2 2023 and a sequential increase of $500,000 Notably, the Q2 results include a $500,000 expense for a loss on contract, which will be incurred in Q3 'twenty four, while Q1 benefited from a $2,500,000 expense for loss on contract that was recognized in Q4 'twenty three as part of our percentage of completion accounting. Net loss for the quarter was $5,400,000 This is a $26,000,000 reduction from the Q2 of 2023 and a $4,900,000 increase sequentially. The large variance between the periods primarily relate to non cash $29,000,000 change in fair value of outstanding warrants in Q4 'twenty three versus a $4,400,000 non cash change in fair value of warrants in Q2 'twenty four. Adjusted net loss for the Q1 was $8,900,000 compared to $7,400,000 for the prior quarter $6,800,000 in the same period prior year.

Speaker 4

The Q1 benefited from the Q2 Q4 'twenty three accrual of $2,500,000 relating to the loss making contract that otherwise would have hit in Q1 'twenty four. G and A costs for the Q1 were $3,200,000 which is a decrease of $2,300,000 compared to the same period of 'twenty three and a $200,000 decrease from Q1 'twenty four. We are actively working to reduce G and A costs as we continue throughout 24. Cash at the end of Q2 2024 was $8,100,000 compared to $700,000 at the end of 2023. This is a result of funding received in January of $13,300,000 along with raising $9,500,000 to our at the market facility in the Q2.

Speaker 4

During the Q2, we moved our DriX out of health for sales back to PPE as we now have the DriX working on a revenue generating contract that started in July. Additionally, we have a signed offer on our Hydronaut vessel, which has been in house for sale since December 23. This is expected to close prior to the end of Q3 of 2024. I will now pass the call back to John.

Speaker 2

Well, thank you, Vicki. Before opening it up for questions, I just wanted to take a few moments to address one more matter. As you may have seen from our public filings, Nick Bigny will be leaving us at the end of this week. When I came over to Nauticus, I reached out to Nick to help me. I happened to catch him between jobs and he was willing to come over and put us on the right track here.

Speaker 2

I'm incredibly grateful to Nick. He's been a good friend, a good sounding board and a good commercial mind. And we've enjoyed having him here and we're incredibly pleased that Nick, because of the relationship we have and what he sees in the company, has agreed to stay on and transition to our new General Counsel, who are introduced in just a moment. Nick, any comments you'd like to make?

Speaker 5

Thanks for the kind words, John, and I'm incredibly grateful for my time here. I'm leaving up some real mixed emotions. I'm a big believer in Nautilus' technology, its potential and its future, but moreover, the leadership team, John has been a mentor and friend for many years now, and it's been a pleasure to work with him. And I believe from the direction the team is setting here. Nauticus is really fortunate to have John Simonton coming in as the incoming General Counsel.

Speaker 5

He's very experienced. He's a legal leader with expertise in SEC and NASDAQ matters. And we've been fortunate enough to have a handover this week to make this transition as seamless as possible. I'll continue to watch and support Nautic closely from the sidelines as a shareholder and cheerleader. And I've agreed to make myself available through the coming months to the entire team here to make sure that it's as seamless as possible and we don't have a gap in institutional knowledge.

Speaker 2

Well, Nick, thank you. And I really appreciate what you've done here. And now I'd like to introduce John Simon. John, why don't you introduce yourself?

Speaker 6

Well, thank you, John. I am delighted to be here and I look forward to helping this team grow the company. I believe my experiences with growth and transformation at other companies will be helpful to me here. And I believe we really have a rare chance provide something new and different for our customers here at Nauticus. And it's an exciting place to be.

Speaker 2

Well, John, it's good to have you here. I do think that John joining really emphasizes the fact that we've got a great plan and a great mission. John's quality talent could be anywhere he chose to be here. A strong NASDAQ resume, really strong background with large companies and successful ones. And I'm delighted to have John on board.

Speaker 2

With that, I'd like to just open it up for any questions if there are any. And so I'll turn it back to you, operator.

Operator

Thank you. We'll take a question from Robert Mondralla. Your line is open.

Speaker 7

Good morning. Yes, the question was around what's the current market cap and the number of outstanding shares total that would be available to float to the public and then those held inside?

Speaker 2

So this is Nick. I can answer that

Speaker 5

for you. We've got roughly about $4,600,000 in the market, market cap of approximately about 11, I think, on just what's outstanding, with the ventures converting the real true market cap of the company is closer to about 40 to 50, varies based on the day of the share price.

Speaker 7

Okay. So the market cap is closer to 40,000,000 to 50,000,000 is that my understanding?

Speaker 5

On a fully diluted basis, that's correct.

Speaker 7

Okay. So does that meet then the NASDAQ requirement?

Speaker 5

We're working with them on that. They will look at certain criteria.

Speaker 7

Revenue. I noted in some of the prior press release that for one of the AUVs, the daily rate would be about 25,000 to about 75,000. Is that a pretty set schedule for revenue? In other words, once it's deployed kind of that revenue for 5 to 7 days a week or could you provide a little more color on that, please?

Speaker 2

Well, I've got Daniel here too who can fill in or correct me whichever one is required. When we say 25,000 to 75,000 that's really an all in price to the customer, which includes the consumables, the diesel on the vessel. The vessel, if we have to have an ROV, that would be built in as well. And as we're going through this transition to full autonomy, we're likely to be carrying an ROV for some customers because they're going to want the verification of the performance of the Aquanaut. It's more of a transition to full autonomy.

Speaker 2

They won't sort of supervisory autonomy.

Speaker 3

And so when

Speaker 2

you look at that, the build, you sort of break out the vessels, the consumables, potential for a small ROV and then the Aquanauts. I'd say here in the Gulf of Mexico, we would be modeling 200 days a year for work. They're due to weather losses and storms, one thing and another. Internationally, it'd be the same. It just has to be the flip season.

Speaker 2

So it's summertime in South America when it's wintertime here. And the day rate in non U. S. Work are higher. But that doesn't mean the margin is any higher.

Speaker 2

You have very similar margin. It's just that you're going to be running at a higher day rate. But that's the right numbers. And so the model is 200 days a year. And our hope is we go into 2026, 2027 is that you're operating vehicles in the Gulf of Mexico during the good weather for the Gulf.

Speaker 2

And you're in the Northern Hemisphere. And then in the bad weather for the Northern Hemisphere, you're in the Southern Hemisphere, whatever you get. So we're looking at trying to get in the full year, but you are going to lose weather next.

Speaker 7

I understand. So the thank you. So the other vehicle that's being tested at FAU, I guess, set to deploy sometime in Q4. Would that be on a similar type of a daily per diem charge?

Speaker 2

Great question, Robert. The one we have at FAU now is actually vehicle 2 that was in the Gulf of Mexico. It's just about ready to be put back in the box and carried back to the Gulf. So it will come over to Port Busan and go out this month. Vehicle 1 is the one that we're working on here and assembling in the shop.

Speaker 2

It will replace vehicle 2 at FAU and we'll do the certification and testing and trials there in the Atlantic. And then we are working on contracts for that vehicle. It will lead from there and go and we should complete we can get it there and begin all the certification this year so that we would have that vehicle available to us next year for revenue. And then we'll begin assembling Vehicle 3 in the Q1 of 2025. And so imagine what we've got now going in the next week, 2 weeks back to the Gulf, Chase revenues.

Speaker 2

1 will go from here to FAU and then with the third one will be assembled starting Q1 next year.

Speaker 7

And then let me ask a quick question on Toolkit. I know that's kind of an industry game changer. How are you looking for revenue there? What could we expect as Toolkit is more and more adopted and rolled out to the industry?

Speaker 2

Your questions are you could be a director here, Robert. It's an excellent question. We're very excited about Toolkit. We had a break through this week. One of the things that we do with Toolkit is we simulate Toolkit and our simulation had been slow.

Speaker 2

And so we weren't getting in the number of runs that we wanted. And so we had one of our developers here, outstanding young man, came in and modified our stem work so that we were able to increase it by order of magnitude to speed. That's significant in our ability to test the software without having to have a vehicle in the water. And it performs almost identically to the vehicle when the vehicle is in the water. We are working with an ROV company right now that's excited about deploying toolkit on their ROVs.

Speaker 2

And we're working through the contract in working with them. And I think that's a press release and a discussion that we'll be able to have in the very near future. I think the software itself is going to be, I think, the core of the company if we look out in future years because you're able to move that so much more quickly than you are the vehicles themselves, it's higher margin and it requires a lower capital, faster delivery capability. And so we're focused on making that a commercial product. In fact, I have with me the gentleman doing that here.

Speaker 2

Would you want to make any comments on it?

Speaker 8

Sure. I think we've been engaging a lot with oil and gas operators, service companies who go and acquire data using ROVs as well as ROV manufacturers and providers. And as John mentioned, we have quite a lot of interest with all the different parties and we're looking forward to taking those partnerships forward. Yes.

Speaker 7

I think that's a wonderful pivot. I agree with the AI and the software. It's a great revenue stream. And as you mentioned, it can be rolled out very efficiently and effectively fairly easily. While the other part of the business

Speaker 2

I would say there's no pivot here. Without that toolkit, we can't operate the vehicle. It's just that the vision of the company when it started to be platform agnostic and be able to run on anything is facilitating us looking to others to really help them springboard their operations and get them going and us taking care of the testing and the certification of the system itself. It's a good exciting opportunity for, but no pivot. We must have toolkit in order to operate Aquanaut.

Speaker 2

So it's just fundamentally core to our business. I probably need to jump to another question, Robert, but you feel free to call anytime. I really appreciate your insights in the company. Operator, do we have another anybody else in the queue?

Operator

We do. We'll take our next question from John Mannion of Geneva Enterprises.

Speaker 9

Hey, John. How are you doing? Good so far. So I'm just a regular retail investor in the stocks and I had a few questions. Well, not really a few, but just one primarily.

Speaker 9

I know back in 2022, you guys announced a contract bid with the Marines, and I think it was through the IUD program specifically for defense contracting. Is there anything else coming down the pipeline in regards to that specific contract, any movement or any updates that you can provide in terms of development, cost, revenue, anything relating to that contract specifically? And is there anything in the future that you're looking towards to build on for defense contracting and so on and so forth with regards to obviously the EUV?

Speaker 2

Okay. So it's another excellent question. And I'm sitting here looking at my new General Counsel, and he's shaking my head about saying anything. We're trying hard not to give any sort of forward looking statements until we get everything closed. But we are actively negotiating on a potential defense contract right now.

Speaker 2

And I use all of those waffle words because until we have ink on it, I'm prone not to try to make promises at this point. It looks extremely good. The discussions are ongoing technically and commercially. And so as soon as we have something that is concrete, then we'll get a press release out to you on that. But the right thing to say is extremely interested in defense work and pursuing that and believe that we'll have information on that for you as we go forward.

Speaker 2

Awesome.

Speaker 9

That was the main question that I had. So thank you very much for

Speaker 2

your time. You're quite welcome. Operator, do we have any more calls?

Operator

We have no further questions at this time. I'd be happy to return the call to John Gibson for closing comments.

Speaker 2

Thank you. We're excited about the company. We're excited to have John join. We're excited about the work we're about to go do in the Gulf of Mexico now for customers. We've got calls later today working on how we're going to execute that.

Speaker 2

We have some really good partnerships that are developing with other service providers. And I think we're at that crucible where we're at an inflection point and we're working to turn the corner. It's not that point where I can really say much, but I think all of the indicators are there that we're on the right track. We have the right vehicle. We have the right operating system.

Speaker 2

We've got the right team in place here. We've augmented the team with another real professional and John Simonton joining us and so we won't lose any momentum. And we look forward to trying to create wealth for everybody involved in Nauticus including our employees and our shareholders and our lenders. So we just and we want to do a great job for customers. And I think that's how you build a fantastic company.

Speaker 2

And just stick with us. This is we're right there at that point where I think we're about to come through the inflection point for the company. Appreciate you guys. Take care.

Operator

This does conclude today's program. You may now disconnect your lines and everyone have a great day.

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Earnings Conference Call
Nauticus Robotics Q2 2024
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