Nauticus Robotics Inc (KITT) 2023 Q4 法說會逐字稿

Good day everyone, and welcome to today's Nautica Robotics' 2023 Q4 earnings call. (Operator Instructions)

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, Nauticus' Special Project Leader.

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 operation, vehicle testing and financial results. Following that we will answer questions. We have now released our results for the full year and fourth quarter of 2023, which is available on our website.

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. 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.

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 four 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.

During the fourth quarter, we added an interim CFO, Vicki Hay for 17 years public company reporting and operational cost management skills. And we added a General Counsel, Nick Bigney with public company experience as well as complex deal and financing expertise.

We've recently added to the team sales leadership, Jorge Machnizh. Jorge has experience in domestic and international sales, including in Brazil and Norway -- two important countries to us -- and has kept on a nine digit multi-year software and service sales in Latin America or previous company. He brings superior skills in 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 offer not mark to for commercial work during the fall of 2024. As the year progresses, we will have the leaders from each of our business units present during the earnings call with the great team, we can expect great results. As you will see in a moment, both results are beginning to be realized.

And first, let me address a few historical matters. Previously, we announced a merger with three D it that when the announcement was made, the share price from Arcus 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 three D at depth 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 market benefits, our shareholders and any transaction and we intend to build a stronger not because we've built an excellent working relationship with three D Adept leadership, and we intend to maintain that as we go forward.

Speaking of transforming our own business. We've changed our internal structure. Over the past few months, we've reorganized into four 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 offer.

19, we changed some of the three components because each has addressable markets and can grow independently. The capital required to deliver software manipulators is also significantly less than the capital needed to complete offer not vehicles.

Let's start off by talking about the autonomous solutions group. The autonomous solutions team has accountability for the offer, not mark to the vehicle you asked about vehicle is designed for subsea inspection, maintenance and repair, commonly called IMR work for projects, including oil and gas, wind, telecommunications, midstream and a culture.

The level of difficulty increases as you move from inspection to repair. Our initial efforts are focused entirely on inspection. We have contracts currently with an international oil company and a supermajor 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 what is required to replace their current methodology, the efficiency, the efficiency gauge decreases and staff reductions, investment 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 whether make our AUV platform compelling to the industry.

So where are we currently doing full system? Testing in the Gulf of Mexico. And last week, we did testing exceeding 1,300 meters with an ROV monitoring our activity. We made the transformation from idea to product during the staff.

We're doing numerous systems test 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 prove the capabilities of the offer, not vehicles. It is going well thus far.

And office team is performing well above expectations as is the vision that 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, the best video of ever posted.

By the way, you can find the link to the video in our earnings release issued last night and is also linked in the webcast. For those of you listening online, please take a moment to watch the video, which shows our offer not mark to begin by diving to depths of greater than 1,300 meters performing maneuvers and hovering list and a leader of both the seabed among other things, yes, we're not we're testing in the Gulf of Mexico is vehicle two.

Vehicle one is being assembled in our shop now, and vehicle three is being prepped for assembly in early 2025. I'd like to introduce you to a great leader and our Chief Engineer, Stu Donnan, to make a few comments on the testing thus far. Stu?

Thanks, John. Over the last few days, we've made a lot of great progress confirming the functionality of Ocwen out MARC two in the Gulf of Mexico. Initial testing has been focused on DOUGLAS commanding in navigation. In the deepwater environment.

We perform test times while recording data from all systems to analyze performance and identify any potential issues. It was commanding of the vehicle has been demonstrated at depths greater than 1,200 meters where we have executed various survey patterns and autonomous behaviors.

We've also verified functional navigation at these depths. Analysis of the data will continue this week. While we wait for the weather to improve and return for more testing.

Well, I guess that's the end of your turn, Stu, I turn it back to me. So that's picked up with the talking about the autonomous software, what we call toolkit and now what we've realized for the last couple of months, just the value of our tool kit software platform.

The architectural decisions during the design to get software allows the system to be platform independent, it can be deployed on numerous subsea platforms, both tethered and untethered. We've already successfully used the toolkit software of several Subsea Robotics, both non-US developed and third party developed is your.

Imagine having that numerous different robotic form factors, operating on your infrastructure with a standard software system rather than having proprietary on integrated platforms will need to deploy robots this facilitates a multi-agent robotic future, creating treating an array of fit-for-purpose robot as an organism readiness 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, the primary enhancements or 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 offer, not vehicle. If we move to the electric manipulators, that's what differentiates nautical from its competitors.

The ability to interact with objects rather than only gathering data sets us apart from our other AUB suppliers. We're striving to offer a path to transition subsea work to autonomous untethered replacement for the current generation light duty ROVs, that manipulators are necessary for us to move up the value chain from inspection to maintenance and repair, given the power and size of off, we're not 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 like ours to reduce the environmental impact of potential hydraulic fluidly conventional ROV operation has no autonomy associated with Arch. Our arms are entirely autonomous. We have an outstanding team working on autonomous select manipulators, and the same team is investigating how to employ our autonomy of hydraulic manipulators as well. This is a market where we can have an immediate impact.

Our government business. While the government market segment is enormous, it's believed to exceed $1.5 billion by 2025. The portion of the total available market we can address is much smaller. We do not have sufficient capital to undertake larger projects, the projects.

Therefore, we are focused on projects matching our capital and competencies, which are seeking breakthroughs, new concept, true innovation, which often get stymied in larger organizations. We have the talent and leadership to succeed in providing innovation.

During the fourth quarter of 2023, we completed a project for the defense innovation unit of the Department of Defense, DRU completed a second project in the first quarter of 2024. We anticipate receiving a letter DIU. and indicated 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 market.

Marcus, nice consistent revenue and cash flow and government contracts are often rewarded sporadically. We sometimes call that lumpy enhanced pipeline and cash flow were 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 robotics programs.

We are well suited to assist a variety of larger companies seeking robotics experience expertise work will be taken if it does not disqualify us for US defense industry opportunities. We have a total available market assessment being conducted for each of our four business units, which should be completed and we can communicate at our next call.

Now with that, I will turn it over to Vicki Hay to review our financials.

Thank you and good morning. As Dan mentioned, I joined the organization as interim CFO in December last year, and I will be covering an overview of our financial performance for the full year and fourth quarter of 2023. Revenue for the fourth quarter was $1.1 million, which is down $2.1 million from the previous year. Full year revenue for 2023 was 6.6 million, which is down $4.8 million from 2022 revenue in 2023 primarily came from government contracts mentioned earlier.

Operating expenses for the fourth quarter were $35.3 million, which is a $24.9 million increase from the same period in '22. This included a onetime impairment charge of $25.3 million with $15.1 million being taken on the Equinox units. After updating the future projected discounted cash flows for these units, we also recorded a $2.5 million loss on the contract relating to testing of the Equinox vehicle for an oil and gas commercial contract.

The revenue for Elekta will be recognized during 2024. Additionally, in 2023, we recorded a $1.5 million severance charge relating to the executives that departed in the fourth quarter of 23 and the first quarter of 24 net loss attributable to common stockholders for the quarter was $39.5 million and $50.7 million for the full year. This is a $31.3 million increase from Q4 22 and a $17.5 million increase from full year '22.

Adjusted net loss for the fourth quarter was $8.8 million compared to $5.7 million for the same period in the previous year, we reported a full year of debt adjusted net loss of $34.3 million, which is an $18.7 million 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 to that effect, we have moved $92.9 million worth of assets into assets held for sale, which includes the three hydro off the tracks and numerous smaller access assets during the height. Lots were sold in the first quarter of 24, and the third vessel is still being actively marketed.

These assets were less definitely impacted by $9.9 million to reflect the actual or anticipated sales price. Cash at the end of 2023 was $800,000. However, during the third quarter 2024, we secured $13.4 million 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.

As a result, we are expecting to reduce G&A expenses in 2024 by more than 50% year on year through reduced headcount, enhanced cost management and streamlined efficiencies. Although the financial results and not very positive, the cost management efforts combined with the rightsizing of the organization, pocket key pillars and the overall transformation of North Coast to a customer centric innovation for profit enterprise.

I will now pass the call back over to John.

Thank you, Vicki. I'm proud to do a last few questions. So I'll turn it back to the operator and if you'd like to ask, please get into queue and we look forward to responding at this time.

(Operator Instructions)

Brian Dobson, Chardan Capital Markets.

Good morning.

Thanks for taking the question. So we've been from our from our contacts in the industry. We've been hearing that 2025 could be a meaningful upgrade or meaningful year in the upgrade cycle. We 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 25?

I appreciate the question, Brian.

Appreciate not live today is so ROV market to oil and gas industry and commodity prices have really kept the offshore environment from having a lot of growth over the last five or six years and apparently also true for the ROV industry.

So not a lot of new ROVs have been sold.

So you're looking at an up cycle for all the manufacturers, probably Schilling, 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 the 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.

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

Yes, yes, sure. I mean, but the DoD side, we really like that business. We think that our skills and our technology are really suited to providing innovation to that marketplace. However, for our shareholders and our company is pretty lumpy and it's really sporadic. And so we need to get to continuity of revenue and cash flow. And so we do need to fresh out and do other projects with that group's loans.

It does not exclude us from doing defense-related work. We did complete two. We completed one in December. We completed another in January and up partially spoken to us, and I believe we're going to receive our certificates indicating successful completion and had a conversation as well.

They were very encouraging on us participating in future projects then and wanted to make sure that we were excited about submitting proposals as we go forward. So I think we have a great opportunity there.

Excellent customer, but any American would realize that when you're dependent upon the US government coming to conclusions and funding, that's not a place where you want to bet only for you're money when you're a start-up company like we are.

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

Should I do that, Brian, for you should 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 water, our combat So switching from lithium batteries to fuel cells.

That's not what we're doing. We're not currently doing R&D. We are testing certified and ensuring the product we have commercially ready.

And so I'd say we've got the they are small and the biggest large, it's not quite silent, but it's close to silence.

So the majority of our spending is shifted entirely to development and delivery as opposed to doing any future related work.

We are at that point where we have a great product that needs to be completed.

We shouldn't start working on anything that would distract us from getting the offer not mark to market and successful. So we anticipate as the others, when you say our data, our silent and the D stands for delivery as opposed to development. So I think that's where we're going at the moment run.

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

I could do that. Jorge Machnizh 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 not happy with our current set of customers. I mean, they've been entirely engaged, supportive, understands where we are and continue to talk about the amount of work that will win when we get the product certified for me.

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

Brian, we really are trying to shift from sort of being a company that was great at marketing to being a 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 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. 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 and the commercial revenue model for the core of the business.

Yes, thanks in her. Final final question, an annual event to last year and as you're as you're taking those those steps to make the company more customer focused rather than R & D-focused.

I guess what do you see as the most important factors for your team to focus on?

It is actually the contractual requirements we have is probably number one, the lab, but of our culture to be customer centric as opposed to technology-centric.

We've got some work to do there. It's a big, our cultural transformation here another one is just the cost big cost projects. I think we probably haven't had a call on this written paper, but we have brought in a number of employees down from over 100 to less than 50.

We've reduced our G&A cost by more than 50%. And 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 are we really intend to be great stewards and to to turn this into the investment of note. And so that's where the focus is today.

Thanks very much.

Thanks for at my front, sir. Is there another question?

[David Marin, David Trading.]

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

Excellent question. We currently have one that is completely assembled and the water being tested in that vehicle number two little confusing, but vehicle number one 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 the modifications that are necessary as a result of the testing of the vehicle to to ensure that it will be quicker to certify.

We're trying to take the cost and the time to certify down as from the learnings and experience we gain with vehicle to vehicle three is still electronics boxes and pieces, and we will begin assembly of that in probably sometime in Q1 of 2025 unless we see a tremendous pickup and in business and came contractures, we move forward with the vehicle to we do not have any plans of building a vehicle for five or six.

At this point in time, we really need to see commercial success with the three vehicles. We have to really provide some cash flow and some confidence that the that those vehicles are going to be hugely successful in the market in the near term. So people won't be able to in the water wanted to shop three in a box and know for five or six on the drawing board at this time.

I thank you for one more question on everyone in this company, everybody who's the intellectual property and technology. You know, you guys were saying investors were amazed by this. I'm just wondering I am too, but I'm just wondering why don't we see any insider buying sometimes you see the filings. And on the contrary, sometimes you see insiders maybe selling some shares. I mean a 10 million valuation effect, $0.2, $0.3, which is at the very least to instill confidence in the shareholder. Why is there anyone buying side?

The actual question, I would actually maybe put it a little differently. If you take a look at my computation uptake of huge portion of it in shares.

And that's because I think that's the greatest opportunity for me to do or what I'm accustomed to. And so I'm putting the risk of return here for myself and normal compensation in shares and reduce what I would normally consider my base salary.

I think other executives are doing the same here, including our CFO, our General Counsel. This is a share based management team where we think the future is in the shares and modeling and our base hours. And so it does fall. I'm not buying.

I am definitely put the weight of the the aero own phone start map.

Why others aren't buying? I think there's some opportunity, but the window's been closed for quite a long time as a result of the potential merger with 3P at depth, another not particularly material non-public information. And so we're only going to open the window up here in the near future, and we'll see what transpires after that.

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?

Well, I won't go through those joint recall, incredibly appreciative.

People is the Rogers are committed to the vision of this company long term. I think we're on track to really make a difference of also appreciative to the lenders. And I'd 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.

So we've got a lot of people that we're blessed to have on board of the data center, and I'm blessed to be here like all of you, and we'll talk to you again soon.

That concludes today's teleconference. Thank you for your participation. You may now disconnect.