Nauticus Robotics Inc (KITT) 2022 Q4 法說會逐字稿

Hello, and welcome to the Nauticus Robotics earnings conference call for the fourth-quarter and full-year 2022 ended December 31, 2022. My name is Joe, and I will be your operator today.

Today's press release, including the financial tables, is available at the Investor Relations section of the Company's website at www.nauticusrobotics.com. The company also plans to file its Form 10-K with the SEC later today.

Nauticus's Founder and CEO, Nicolaus Radford; and it's CFO, Rangan Padmanabhan join us on today's call. Following the remarks, we will open the call for questions.

Before management begins their formal remarks, we would also like to remind everyone that some statements we're making today may be considered forward-looking statements under securities laws and involve a number of risks and uncertainties. As a result, we caution you (technical difficulty) many of which are beyond our control, which could cause actual results and events to differ materially from those described in the forward-looking statements. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and public filings made with the SEC.

We disclaim any obligation or undertaking to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made except as required by law. We will also discuss non-GAAP financial metrics and encourage you to read our disclosures in the reconciliation tables to applicable GAAP measures in our earnings release carefully, as you consider these metrics. We refer you to our filings with the SEC for detailed disclosures and descriptions of our business as well as uncertainties and other variable circumstances, including but not limited to risks and uncertainties identified under the caption Risk Factors in our filings. You may get Nauticus's SEC filings for free by visiting the SEC website at www.sec.gov.

I would also like to remind everyone that this call is being recorded and will be made available for replay via a link available in the Investor Relations section of Nauticus's website.

Now, I will turn the call over to Nauticus's Founder and CEO, Nicolaus Radford.

Thank you, and welcome to our fourth-quarter and full earnings call. I'd like to begin by giving a brief overview of the remarkable opportunity that lies ahead and, more importantly, how we capitalized on it during 2022. After that I'll pass it off to our CFO, Rangan Padmanabhan to discuss our fourth quarter and full earnings for 2022 in detail. To finish, I'll provide closing remarks before taking your questions.

Nauticus was born out of this idea of taking space flight robotics technology essential to exploring the unknown in our solar system and applying it to our oceans as they cover 70% of our planet, remaining largely unexplored and are mostly untapped in their potential for sustainable economic activity. Despite being estimated at a massive $2.5 trillion of value, the ocean economy has lagged in technology innovation.

Let me give you an example. The most common legacy solutions for offshore services are mainly unchanged since their inception over 50 years ago. They are costly at up to $100,000 per day or more, riddled with operational inefficiencies, and endanger our planet by emitting up to 70 metric tons of CO2 into the atmosphere daily. That's the equivalent emissions of more than 5,000 cars. And when you multiply that by all the vessels doing work in the ocean, you can see how significant an impact removing this greenhouse gas could have.

In contrast, Nauticus's pioneering new technologies that can not only be performed at a lower cost than the incumbent offerings, but are more environmentally friendly, removing over 90% of the emissions. While we want to be known by our big orange robots, at our core, we're an AI company employing more software engineers than any other category of personnel. We are deeply committed to being a technology-forward company that can lead the way with advanced software-enabled solutions.

Through our premier software platform tool kit, we use artificial intelligence to power autonomous, untethered surface and subsea robotic platforms. Tool kit unifies all our products into a single control architecture, allowing for controls, user interfaces, sensor integration, simulation, data analysis, and communication frameworks that are purpose built to enable subsea work. We're on a mission to create a future where more autonomous and intelligent robots like Aquanaut are used to reduce the environmental impact and human safety issues significantly. We want to revolutionize the way in which services are performed in the ocean and lead the industry's transformation to an economically efficient and environmentally sustainable model.

As I mentioned, our service offerings result in not only a meaningful cost and safety improvement, but also significant carbon footprint reductions. Our mission is supported by a massive acceleration in interest from customers and investors in the emerging $30 billion industry of ocean robotics and their applications in ocean data in the services market as innovative and sustainable solutions like ours becomes a reality.

Our go-to-market strategy is twofold. First, we have partnered with the defense industry and the US government to help fund the maturation of our groundbreaking technologies as well as aid in national security. In doing so, we are developing and validating our technology in one of the most demanding use cases.

Second, we are commercializing the ensuing broad IP portfolio that comprises our solutions for the private sector in order to innovate ocean services. The market for our technology is immense and covers numerous market segments including offshore renewables, oil and gas, defense, telecommunications, aquaculture, mining, ports, and shipping just to name a few.

Let me start with an update on our collaboration with government. The US continues to invest billions in autonomous naval capabilities, and the ongoing geopolitical tensions are accelerating that investment. The budget for research, development, testing, and evaluation for solutions like ours continues to increase. And the Maritime Services, US Navy, US Marine Corps, and the US Coast Guard have expressed a commitment to the deployment of AI-driven technologies into their fleets.

Just last week, Air Force general Glen VanHerck said at a Senate Armed Services Committee hearing on fiscal 2020 for spending that quote, the future of homeland defense is vastly different than what we see today. It's likely including autonomous platforms, airborne maritime platforms, unmanned platforms with domain awareness sensors and effectors that are kinetic and non-kinetic, end quote. This is a testimonial for the priority the US government assigns to our mission and capabilities and bodes well for future demand for our technology.

We continue to work with Leidos, a significant prime, to apply technology derived from Aquanaut to build a new class of vehicles. This cutting-edge vehicle has the potential to tackle a wide range of tasks that would be hazardous and impossible for humans and has the potential to enhance our national security. As previously announced, we have been awarded two contracts by the Defense Innovation Unit or DIU, the most recent of which was a multi-million dollar award that we announced in October for the development of a derivative robot based in part on our advanced software capabilities.

This unmanned, amphibious robot called Terranaut utilizes our premier autonomy software package toolkit for more intelligent command and control of the mine countermeasures technology. Terranaut could be used in the surf zone and beach areas to support US Marine Corps during critical beach landings and has the potential to save lives. We have successfully passed the first phase of the project and are advancing towards the next rigorous milestone.

We also have good news from our other DIU contract. We have successfully completed live testing of our AI-enhanced underwater response vehicle for the US Navy. We are committed to supporting DIU through its process of bringing autonomy to the forefront of defense problem-solving in order to reduce risks to the US Navy divers and mitigate disruption to global supply chains, logistics, and critical sea lanes. We will provide further updates on the next steps as soon as they become publicly available.

Let me dive into how we are utilizing our advanced robotics to innovate the Blue Economy commercially. Our core commercial offering is called the Nautical Fleet, a pair of robotic assets comprised of an 18-meter optionally crude small surface vessel named Hydronaut and Aquanaut, its undersea counterpart. The deployment of the Nauticus Fleet in multiple offshore industries represents one of the most promising operational and technological step changes in the industry. We continue to make excellent progress with the production of our commercial Aquanauts.

While we've been impacted by material shortages, we've successfully resolved these challenges and currently expect all three units to be completed by the end of the second quarter with the first unit starting in-water commissioning this week. As for Hydronaut production, we're also expecting them to be ready in the third quarter. We're eager to get the fleet in the water and our potential customers are as well as we continue to experience strong demand signals for our offering.

To better service one of the key geographical areas, the North Sea, we've recently initiated operating bases in Stavanger, Norway and Aberdeen, Scotland. We expect at least one of our Aquanauts to be deployed in this region following commissioning.

Another great news, we're successfully progressing through the phases of our previously announced contract with Shell and look forward to growing this collaboration. We are extremely honored to be testing our technology with customers of Shell's caliber and are delighted to share the results with investors in the future.

With that, I'll hand it over to our CFO. Rangan?

Thanks, Nick, and hello, everyone.

For the year, we generated revenue of $11.4 million, equating to year-over-year growth of 33%. The increase is primarily attributable to revenue from four new contracts and increased performance on an existing contract. For the fourth quarter, we generated revenue of $3.2 million, which is slightly above the guidance we gave on our last earnings call. For the year, we reported total operating costs of $29.8 million. And for the fourth quarter, we reported total operating costs of $10.4 million.

Our full-year operating expenses include $3.5 million of one-time deal-related expenses, all of which occurred in the third quarter. Drivers of the year-over-year increase are primarily related to higher cost of revenue and higher G&A, which is largely due to the cost required of a public company.

Our net loss for the quarter was $8.2 million or $0.21 per share compared to a net loss of $11.2 million or $1.17 per share in the prior-year period. For the year, we reported a net loss of $33.2 million or $1.75 per share compared to $15.1 million or $1.57 per share in the prior year. Excluding nonrecurring items, our adjusted net loss per share for the quarter was $0.19 compared to $0.18 in the prior-year period. Our adjusted net loss for the year was $0.96 compared to $0.75 in the prior year.

Now moving on to our balance sheet and capitalization. As of yearend, we had $23 million of cash and short-term investments. This includes $5 million of short-term T-bills that were included in short-term investments but would now be back to being classified as cash and equivalents. Our net working capital position at the end of the year was $33.1 million.

Our total principal amount of debt outstanding at quarter end was approximately $36.5 million, which is entirely attributable to our convertible notes. The accounting treatment of the convertible notes requires a portion of the amount to be treated as a warrant liability. As a result, only $15.9 million of the principal amount of the notes was recorded as debt on our books.

As of December 31, 2022, we had approximately 47.3 million shares outstanding. This includes 7.5 million shares in an escrow account that won't vest unless the stock price reaches at least $15. You may have noticed the GAAP rules don't include these shares in our weighted average number of shares used to calculate earnings per share. For the first quarter of 2023, we expect revenue to be slightly more than $2.5 million coming mostly from our defense segment. While we expect this segment to continue to provide a stable base of revenue this year, we're looking forward to complementing it with revenues from our commercial services division.

As Nick mentioned, material shortages have resulted in production delays, and this has delayed the delivery of our Aquanaut and Hydronaut units. Thankfully, we have resolved these and are now in full swing to deliver the Nauticus suite. With delivery and commissioning of all units expected to be completed by the end of the third quarter, we expect to be in a position to begin generating commercial revenue by the fourth quarter of the year. And with each Aquanaut-Hydronaut pair having the potential to generate $6 million to $10 million of revenue per year, this should lead to strong revenue growth.

That completes my financial summary. Now I will turn the call back to Nick.

Thanks, Rangan.

In summary, the future looks exceedingly bullish for Nauticus. We're continuing to progress on our defense contracts, and we're getting closer to decisions that could result in significant revenue growth from this segment, as we move more to pronounced product sales. And while we're disappointed by the delays we've experienced in the delivery of our commercial units, demand for our offering remains very strong. We're currently in negotiations with potential customers on multiple continents, and we're negotiating with customers about putting down deposits to reserve services from future fleet serial numbers.

As Rangan mentioned, each Nauticus Fleet pair has the potential to generate between $6 million and $10 million of annual revenue. So just the units we're currently building have the potential to quadruple our revenue and do this at very high margin. While 2023 may be a transition year before our growth really accelerates, we couldn't be more optimistic about the opportunity in front of us.

With that, I'll turn it back over to the operator and would be more than happy to take your questions. Thank you.

(Operator Instructions) Troy Jensen with Lake Street Capital Markets. Please proceed,

Congrats on decent results in a tough environment. But maybe for you, Nick, could you go over deployments scheduled again? I heard three units by the end of Q2. Sounds like one of the end of this week or soon. Could you just go over the deployment of these three units that you have right now?

Yeah. So as we mentioned, we've had to reshuffle some of that. And great news, we've got one of them hitting -- one of our Aquanauts hitting the water this week. The stage is there, right, we've got a commission and then they're involved in different qualification programs after that. So we our having the first one in the water, and then they'll be staggered after that as they just come off the assembly line.

So they're serial in nature, and they're currently being produced in Vancouver as you and I have talked about in the past. And then they'll be heading out to their different geo locations after that. So as we mentioned, that process, you're thinking anywhere between 30 and 60 days per unit before they head out to their customers.

Okay, and you said Aqua. But just to be clear, it's Aqua and Hydro, right? You got both pairs [through]

Yup, as we've mentioned, our Aquanauts are being produced in Vancouver, and the Hydronauts are being produced on the Isle of Wight in the UK with the shipbuilder there called Diverse Marine.

Perfect. Okay. And then thoughts on just the visibility beyond this. I know it has been hard, right? You thought you're going to get these three in water previously, but when do you think the next tranche of robots comes online for you guys?

We're looking at that pretty extensively at the moment, and we're looking at different ways to handle that expansion. I'd say the North Sea is a very quick first mover market for us that's why we are bracketing that section with both the offices in Stavanger and Aberdeen. So I think the uptick is going to be -- based on everything that we're currently negotiating and in discussions with, the uptick is going to be pretty quick.

And so we're going to get back on the saddle right after that and start looking at plans for the next ones. I don't want to give a number on the tranche of the next size. It's going to be variable depending on the number of factors, but we are as eager as you are to get the metal cutting. Now it will be in stages as well because we're -- one of the risk-mitigating strategies we've been looking at to speed up certain parts of the production is staging the long lead items. And so it will first be staged with the purchase of the things that we're really pacing the production so that we can have a smoother assembly.

Okay, very good. Last question, and I'll cede the floor. You may have said this a little bit in your prepared remarks, but could you speak specifically about the big program of record that you and another vendor were advanced into and just where we are on that?

Yeah. So the Navy owns a lot of fleet of ROVs. And these are the more older style that we've talked about in the past. And there's a lot of different sizes of these. And so for this particular unit, the Navy owns a substantial amount of a smaller class of ROV.

And what they found with Nauticus is a lot of our advanced software was improving the operations and specifically being able to make these assets untethered. It's one of the biggest hindrances to keeping servicemen and women out of harm's way is removing the proximity from which the operator is compared to the asset. So we obviously -- that's a bedrock capability to the essence of this company. And so the Navy was quick to want to trial out the software that we've been using internally and see if it could be deployed across their class of assets.

And so we've been very successful. It has been a fairly extensive program. It is connected to a program of record where the Navy is purchasing quite a large quantity of this. So what we're excited about is we've got a pretty large defense funnel. This is included in it, of course, and one of the bullish outlooks on that is how this is connected to actually licensing out our software into already existing fleet systems. So that is something that we're really interested in.

But in general, our defense funnel, which makes predicting the future a little hard because it's a little lumpy in nature, but we're really progressing through how -- some of these programs with the government entities we've been involved with for three to five years. And those are finally starting to, I would say, parlay and compound into bids where we're getting into eight figures net to us. And so I think we are soon to see the results of that. And that's when you're really going to see a step change in how our tech is utilized and how it's pulled up into the broader portfolio of services.

Great.. A lot of good stuff, Nick, keep up the good work. Good luck this year.

Brian Dobson, Chardan.

Hi, it's Greg Pendy in for Brian Dobson. Can you just share any color that you're seeing on maybe your cost per vehicle? I know there are tracking at the higher end of the range, I believe, last time you spoke given the supply chain. Any chance that comes out to maybe more of the middle of the range by, say, 2024? Is there any signs of normalization there?

Yes, the good news is I think people are settling down, and there was a bit of a churn there for a little while. None of us are wearing masks anymore practically speaking, but the supply chain still acts like it sometimes. And so the good news is, I think we're really beyond that wave, and so things are becoming much more predictable and certain.

So the cost is a tricky question because we build internationally. The pound has been depressed against the dollar. So that's helped in certain cost structures that we have since we build in the UK, but there are certain raw materials have appreciated no doubt. And we do build internationally, and so there was a little bit of start-up costs associated with getting manufacturing up and going so that this would be repeatable process. And we can produce these units with the quality that we demand.

So it is trending towards a little bit at the higher range, but nothing that's going to eat appreciably into the margins that we will see on this. I think one of the main benefits is that we could have some -- we could do that around on costs significantly, but because we don't sell these, we actually own and operate these assets, we realize and monetize the asset over its depreciable life, which is eight years. And so we have income-generating potential of anywhere between, call it, $60 million, $70 million, $80 million over that life. So if our manufacturing costs go up, say 10%, 15%, even 25%, that's not going to eat into the long-term margins and therefore the profitability of the business at all.

Very helpful. Thanks.

(Operator Instructions) Jeff Grampp, Alliance Global Partners.

On the earnings release today, you guys talked about a high case of up to $10 million in annual revenue potential for the units, which I believe kind of $8 million was the higher end you guys have talked about. Is it fair to say you're getting more conviction in pricing upside given the value proposition you guys bring to the table?

Hey, Jeff, it's wonderful to see you on the other side, ,and congrats on your on your change. So, yeah, that price that, that revenue potential comes from direct bids that we've been making and affirmation from the customers about what we've been able to negotiate. So we were pleasantly surprised on a bit more of that upside. We'd modeled it low and happy that it's coming out a little bit on that on that side.

Got it. Thank you. And on the Shell and water demonstrations, was there anything you guys learned that was surprising positively or negatively? Or was it kind of down the fairway from your standpoint and just something Shell needed to see for themselves?

I think down the fairway on the capability intrinsic to the machine. I think the surprise, and I won't speak for the customer, but this was my impression, the data that we produced just by nature of the robot was something that they weren't necessarily used to and the quality and the timeliness in which it was processed. And I think, from my impression, it started getting the wheels turning on the far-reaching application we might have based on the sensor suite that's just inherent to the robot.

And so, yes, we love the fact that we're able to intervene in a much lower cost profile. But we can't forget that the data the robot generates is the value proposition for that and which, oftentimes has a longer tail, is probably more valuable.

Got it. That's really interesting and helpful. Last one for me. Down the road, after you guys get these first units in the water, I assume there's going to be a point in time where you want to click go to start going on the next batch. Do you have any estimate when we normalize for some of the supply chain noise you experienced last year? What kind of cycle times do you think from when you make that decision to when you could have units in the water for batch two, if you will.

Yes. So that's what we are taking into account is how to shorten that. And what I had alluded to earlier with Troy is that in this first batch, just based on how we were capitalized, we just went after it all at the same time when in fact, a more methodical and measured approach is to stage the long leads that fit and dovetail a little bit more into their natural production schedules. So that's the tact we're going to take this time.

And so -- I mean, we're obviously -- the reception we've received from this at the customer base is enormous. And, yes, we're getting our first, say, production quality machines in the water. We have machines in the water now. And so we're eager to augment that fleet longer term.

But as far as the heart of your question is concerned, production schedules. I think this is the -- the good news is I think we know what the upper end and the worst-case scenario is. Good news moving forward is it's going to be far better than this.

Yeah, no, that makes a lot of sense and appreciate the time and the update, guys. Thank you.

Thank you. There are no further questions at this time, and this will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.