Good day, everyone, and welcome to today's Nauticus Robotics 2024 Q2 Earnings call. Please note, this call may be recorded. I'll 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, and Nick Bigney, Outgoing General Counsel; John Simington, 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 second quarter of 2024, which are 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.

Well, thank you, Kristin. 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. We finished Phase 1 for the largest South American deepwater operator and billed and received payment recently. We received a letter also for the completion of a DIU project, the successful completion and we'll send that final bill in Q3. We're planning to go to Gulf of Mexico with the Aquanaut Mark 2 vehicle this month and are finalizing requirements and scope of work with customers now. Daniel, our Head of Operations, is going to cover more of that in his section. Before we turn to our operational and testing activities, though, I want to update you on our progress with meeting NASDAQ's continuing listing standards. 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 advisers 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.

Thank you, John. Let me bring you up to date on the Aquanaut Mark 2 vehicle. We have partnered with Florida Atlantic University this summer to test our vehicle so 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 Aquanaut system in a controlled environment and is easily accessible to open water off the coast of East Florida. We have completed several missions with integrated sensor implementation, we 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 place to deliver 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 Aquanaut 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 toolKITT, supervised autonomy and believe it is the first step to increase commercial activity. I'll now turn it back over to John.

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.

Thank you, John, and good morning. As John mentioned earlier, the 36:1 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 detail our financial results for the second quarter. Revenue for the second quarter was $500,000, which is the same as the first quarter 2024 and down $600,000 from the same period last year. Revenue recognized in the second quarter is primarily related to our work with the largest South American deepwater operator. Operating expenses for the second quarter were $6.5 million, which is a $1.5 million decrease from Q2 '23 and a sequential increase of $0.5 million. Notably, the second quarter results include a $0.5 million expense for a loss on contracts, which will be incurred in Q3 '24, while Q1 benefited from a $2.5 million expense loss on contracts that was recognized in Q4 '23 as part of our percentage of completion accounting. Net loss for the quarter was $5.4 million. This is a $26 million reduction from the second quarter of '23 and a $4.9 million increase sequentially. The large variance between the periods primarily relate to noncash $29 million change in fair value of outstanding warrants in Q4 '23 versus a $4.4 million noncash change in fair value of warrants in Q2 '24, adjusted net loss for the first quarter was $8.9 million compared to $7.4 million for the prior quarter and $6.8 million in the same period prior year. The first quarter benefited from the Q4 '23 accrual of $2.5 million relating to the loss-making contracts that otherwise would have hit in Q1 '24. G&A costs for the first quarter were $3.2 million, which is a decrease of $2.3 million compared to the same period '23 and a $0.2 million decrease from Q1 '24, we are actively working to reduce G&A costs as we continue throughout 2024. Cash at the end of Q2 '24 was $8.1 million compared to $0.7 million at the end of '23. This is a result of funding received in January of $13.3 million, along with raising $9.5 million through our at-the-market facility in the second quarter. During the second quarter, we moved our Drix out of held for sale 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 held for sale since December '23. This is expected to close prior to the end of the third quarter of 2024. I will now pass the call back to John.

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 Bigney will be leaving us at the end of this week. When I came over to Nauticus, I reached out to Nick to help me. And I happened to catch him between jobs and he was willing to come over and put us on the right track here. 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 I'll introduce in just a moment. Nick, any comments you'd like to make.

Thanks for the kind words, John. And I'm incredibly grateful for my time here. I'm leaving with some real mixed emotions. I'm a big believer in Nauticus technology, its potential, and its future, but moreover, the leadership team, John has been a mentor and friend for many years now. It's been a pleasure to work with him, and I believe in the direction the team is setting here. Nauticus is really fortunate to have John Simington coming in as the incoming General Counsel. 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 Nauticus closely from the sidelines of the 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 is as seamless as possible, and we don't have a gap in institutional knowledge.

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

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 to provide something new and different for our customers here at Nauticus and it's an exciting place to be.

Well, John, it is 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, strong NASDAQ resume, really strong background with large companies and successful ones, and I'm delighted to have John onboard. 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.

We'll take a question from Robert Mendrala. Your line is open.

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.

So this is Nick. I can answer that for you. We've got roughly about 4.6 million in the market, market cap of approximately about $11 million, I think, on just what's outstanding with the ventures converting the real true market cap of the company closer to about $40 million to $50 million, varies based on the day of the share price.

Okay. So the market cap is closer to $40 million to $50 million. Is that my understanding.

On a fully diluted basis, that's correct.

Okay. So does that meet then the NASDAQ requirement?

We're working with them on that. They will look at certain criteria. But yes, we think we have a path forward there.

Okay. Very good. And then the other question I have was on revenue. I noted in some of the prior press release that for one of the AUV's 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 on at that revenue for five to seven days a week or could you provide a little more color on that, please.

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 vessels, the vessel. If we have to have an ROV that would be billed 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 some verification that the performance of the Aquanaut is more of a transition to full autonomy. They want full supervised autonomy, and so when you look at that, the bill, you sort of break out the vessel, the consumables, the potential for a small ROV and then the Aquanaut. I'd say here in the Gulf of Mexico, we would be modeling 200 days a year for work either due to weather losses and storms, one thing and another, internationally be the same. It just has to be the flip season, so it's summertime in South America when it's winter time here, and the day rate in non-U.S. work are higher, but that doesn't mean the margin is getting higher. 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 I hope as we go into '26, '27 is that you're operating vehicles in the Gulf of Mexico during the good weather in the Gulf and you're in the Northern Hemisphere and then in the bad weather for the Northern Hemisphere you are in the Southern Hemisphere with our vehicle. So we're looking at trying to get in the full year, if you are going with the weather today.

I understand. Thank you. Regarding the other vehicle being tested at FAU, is it expected to deploy sometime in Q4, and will it have a similar daily charge?

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 into the box and carried back to the Gulf, so it will come over to Fort Bucon and go out this month. Vehicle 1 is the one that we're working on here and assembling in the job, 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 leave from there and go and we should complete, we can get it there and again 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 first quarter of 2025, and so imagine one we've got now going in the next week to two weeks back to the Gulf, to chase revenue, one will go from here to FAU and then the third one will be assembled starting Q1 next year.

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

Your questions are excellent, Robert. We're very excited about toolKITT. We had a breakthrough this week; one of the things we do with toolKITT is simulate it, and our simulation had been slow. We weren't getting the number of runs we wanted, so one of our outstanding developers came in and modified our simulation, allowing us to increase the speed significantly. This is important for our ability to test the software without needing a vehicle in the water, and it performs almost identically to the vehicles when they are in the water. We are currently collaborating with an ROV company that is eager to deploy toolKITT on their ROVs, and we are working through the contract with them. I believe this will lead to a press release and a discussion soon. I think the software itself will be the core of the company in future years, as it allows for much quicker movement compared to the vehicles, offers higher margins, and requires lower capital investment, enabling a faster delivery capability. Therefore, we are focused on making it a commercial product. I have Jason here with me, who is leading this effort. Would you like to add any comments, Jason?

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.

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...

I would say there's no pivot here. Without that toolKITT, 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 an exciting opportunity for us, but no pivot. We must have to get in order to operate Aquanaut. So it's just fundamentally core to our business. I probably need to jump to another question, Robert, but you feel free to call any time. I really appreciate your insights in the company. Operator, do we have anybody else in the queue?

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

Hey, John. How are you doing?

Good so far.

I am just a regular retail investor in the stock, and I had a few questions. Well, not really a few, but just one primarily. 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 for to build on for defense contracting and so on and so forth with regards to, obviously, the AUV's.

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. 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.

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

You're quite welcome. Operator, do we have any more follow-ups.

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

Thank you. We're excited about the company and pleased to have John join us. We're looking forward to the work we're about to initiate in the Gulf of Mexico for our customers. Later today, we’ll discuss how we’ll implement that. We are developing strong partnerships with other service providers, and I believe we're at a pivotal moment, working to make progress. While I can’t share everything at this stage, the signs indicate we’re moving in the right direction. We have the right tools and a solid team in place, bolstered by the addition of John Simington. We intend to maintain our momentum and aim to create value for everyone involved with Nauticus, including our employees, shareholders, and lenders. We are committed to delivering excellent service to our customers, as that's the foundation for a great company. Please bear with us as we stand on the brink of significant progress for the company. Thank you all, and take care.

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