Nauticus Robotics, Inc.

Hello and welcome to the Nauticus Robotics Earnings Conference call for the third quarter ended September 30th, 2022. My name is Paul and I will be your operator today. Today's press release, including the financial tables, are available at the investor relations section of the company's website at www.nauticusrobotics.com. The company also plans to file its Form 10-Q with the SEC later today. Joining us on today's call are Nauticus' founder and CEO, Nicholas Radford, and its CFO, Rangan Padmanabhan. Following their remarks, we will open the call for questions. Before we begin, Jeff Grant from the Gateway Group will make a brief introductory statement. Mr. Grant?

Thank you. Hello, everyone, and welcome to the Nauticus Robotics third quarter 2022 earnings conference call. Before management begins their formal remarks, we would like to remind everyone that some statements we're making today may be considered forward-looking statements under securities law and involve a number of risks and uncertainties. As a result, we caution you that there are a number of factors, 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 Securities and Exchange Commission. 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 and 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 Securities and Exchange Commission 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 or risk factors in our filings. You may get Nauticus' Securities and Exchange Commission filings for free by visiting the SEC website at 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' website. Now I will turn the call over to Nauticus' founder and CEO, Nick Radford. Nick?

Thanks, Jeff. And welcome, everyone, to our inaugural earnings conference call as a public company. And we sincerely appreciate your interest in Nauticus. Since this is our first call, I thought it'd be appropriate to start with an overview of Nauticus' history, our mission, and our business strategy. I'll then cover some of our most recent important business milestones before passing it off to our CFO, Rangan Padmanabhan, to cover some of our financial highlights before my closing remarks, and we'll take some questions. First, a bit of background on myself. I'm the founder, the president, and the CEO of Nauticus Robotics. I have over 25 years of robotics experience, and I was a principal at NASA, where I led many of NASA's robotics efforts. Becoming inspired to bring spaceflight robotics tech to the ocean world, I retired from government service, and I set out to build a world-class team and company. Our mission is to create the most impactful ocean robotics company using the latest advancements in autonomous systems. This will bring about a much needed change for our world's precious oceans. They are the epicenter for our energy, communication, minerals, and food resources. Specifically, our service offering not only results in a meaningful cost and safety improvements, but also significant enhancements to the sustainability of the offshore services industry, as we can eliminate nearly all of their carbon footprint by removing the large vessels that burn fuel and emit greenhouse gases into the atmosphere. Our mission in groundbreaking technology attracted world-class strategic investors, including Schlumberger and Transocean, as well as technology sponsors from the U.S. government. And we have supplemented our initial high-caliber team from NASA with other industry experts in the offshore and energy sectors. Our technology, market opportunity, and business progress over the last several years towards commercializing our robotic solutions culminated in the business combination with Cleantech Acquisition Corporation. which closed on September 9th of this year. This resulted in Nauticus listing on the NASDAQ, trading under the symbol KIT, of course, as a homage to the 1980s TV show Knight Rider, and somewhat of an inspiration to our own artificial intelligence and autonomy ambitions, which is to say, at our core, we are an artificial intelligence company. And our autonomy software platform is aptly named Toolkit and provides our entire ecosystem of surface and subsea robots, We believe this combination of transformative ocean robots and autonomous technologies can disrupt the current ocean services paradigm. Now let me take a moment to discuss the vast ocean economy we operate in. It is our view that while the global ocean economy is massive at an estimated $2.5 trillion of value, it is largely unsung and frankly has typically lagged in innovation over the decades. However, we are witnessing an acceleration in sustainability solutions. including the introduction of increased levels of robotics and autonomy that play right into what we are pioneering here at Nauticus. The market for our technology is immense and covers numerous market segments, including offshore renewables, oil and gas, telecom, aquaculture, mining, defense, ports, and shipping, just to name a few. The near-term opportunities we plan to execute on are primarily in the offshore renewables, oil and gas, and defense and government markets. These three foundational segments underpin our strategy. Offshore wind is a rapidly growing market as the world looks to decarbonize its energy production and the industry will see upwards of a trillion dollars of investment over the next 10 years. There are currently 120 active offshore wind farms around the world with 170 estimated to be under development over the next few years. 25 gigawatts are expected to be added to Europe by the end of the decade. And then Biden administration's 30 gigawatts by 2030 will add to the U.S. offshore winds. Let me put some context behind some of the numbers using offshore wind in the U.K. as an example. It is estimated that each gigawatt of installed offshore wind capacity requires about $22 million of annual inspection, repairs, and maintenance within Nauticus' capabilities. The U.K. currently has about 12.7 gigawatts of installed capacity and is adding about 2.5 gigawatts per year. So the annual UK offshore wind service market alone is estimated to be about 280 million and growing, which equates to a demand of about 35 aquanauts. By the end of the decade, that is estimated to nearly double, again, just for offshore in the UK. Globally, there are about 56 gigawatts of installed offshore wind capacity today, and that would imply a worldwide market opportunity of about 150 aquanauts. a number that will only grow with the ambitious offshore wind installations planned around the world. Additionally, our growing tandem robotics fleet is generating strong interest in the offshore oil and gas market, where there are thousands of offshore oil and gas trees and tens of thousands of kilometers of flow lines and pipes around the world. All of these assets require inspection, maintenance, and repair throughout their usable life. With thousands of ROVs and AUVs in the industry today supporting this infrastructure, there is a significant market available for Nauticus to disrupt. The defense and government markets are incorporating autonomous ocean robots rapidly, and many of Nauticus's robotics platforms are dual use, serving in this growing domain. The U.S. continues to invest billions in autonomous naval capabilities, and the current geopolitical tensions are accelerating that investment. Nauticus is front and center building autonomous platforms that aid to national security. Our core offering is the Nauticus fleet, which is comprised of a tandem combination of autonomous robots, an 18-meter optionally crewed vessel called Hydronaut, and Aquanaut, its undersea robotic counterpart. The primary objective of Hydronaut is to support the launch and recovery of real-time ops of Aquanaut. Hydronaut ferries Aquanaut to and from the worksite and supports battery recharges, as well as the communication link from the local remote ops center for supervised autonomous operations. Aquanaut is an autonomous underwater robot that utilizes machine intelligence and a suite of autonomous behaviors for interaction with the subsea world around it. Our key operational technologies collectively allow us to substantially improve the efficiency, safety, and carbon footprint of operations at a significantly reduced cost over legacy methods. As I mentioned earlier, the Nauticus fleet is powered by a proprietary software suite toolkit, which operates the Aquanaut, other Nauticus robotics vehicles, and other third-party vehicles. Toolkit unifies all of Nauticus's products into a single control architecture, allowing for robotic controls, user interfaces, sensor integration, simulation, data analytics, and communication frameworks purpose-built to enable subsea work. Aquanaut also utilizes our Olympic arm, an all-electric work-class manipulator. Being all-electric allows for more delicate, perception-driven decision-making for autonomous tasking. The advanced sensing and control techniques offer improvements to reliability and operating efficiency, while the lack of hydraulics compared to legacy solutions eliminates the risks of oil spills, which are costly, they cause delays, and harm the environment. While Toolkit and the Olympic Arm are core components of our overall offering, we are also actively executing on plans for these to generate revenue individually. In terms of what we're competing against, the most common legacy solution that Nauticus is primed to disrupt involves the usage of large vessels, which can be the size of a football field, deploy hydraulic remotely operated vehicles with costly and constraining umbilicals. This solution has remained largely unchanged since its inception 50 years ago. It has little to no advanced technology and hydraulic fluid leaks get into the water, creating a recordable environmental incident. The cost of utilizing these vessels is significant at upwards of $100,000 a day. Since we have adapted acoustic methods of communicating with our underwater robots, we eliminate the need for an umbilical and therefore drastically transform the cost structure, the safety profile, and the environmental footprint in the industry. When we combine the lack of an umbilical with the latest in machine learning and artificial intelligence for inspection, data collection, and intervention-related activities, we can offer truly a game-changing solution. At Nauticus, we employ more software engineers than any other category of personnel. We are deeply committed to being a technology-forward-leaning company and will lead the way with compelling software-enabled solutions. Now shifting to our business model, we're implementing a robotics-as-a-service, or RAS, model. We believe maintaining ownership over our robots will provide a better customer experience and generate superior long-term value for our shareholders. We estimate the ROI under the RAS model could be up to four times what it could be in the sales case. Also, most of our targeted customers are already accustomed to a service-based rental model where they pay a day rate for the use of service company assets. Capital costs per system for us range between $4 and $7 million, depending on the configuration with annual revenue potential between $5 and $8 million per system, assuming an industry standard utilization rate. It's worth noting, however, that our solutions may be able to beat the industry standard utilization since we lack the surface footprint and do not need the same scale of human resources that are often negatively impacted by weather. Based on our expected cost structure, we can generate strong returns while offering our service at a meaningful discount to current market rates, creating significant financial incentive for customers to adopt our service. In addition to providing our service at a competitive price, We also reduce our customers' carbon footprint and improve their safety by reducing the requirements for surface infrastructure and related personnel. Now that I've discussed our disruptive solution and massive market opportunity, I'd like to update you on the building of Nautica's fleet. When we first announced our business combination and provided our initial outlook almost 12 months ago, we were in quite a different market environment as it related to supply chain, raw materials, the geopolitical landscape, and the overall global economy. Since that time, we have seen a tragic war breakout in Ukraine. Interest rates and Fed policy dramatically shift along the overall capital markets environment, and a supply chain that has remained challenged, and in some cases worsened. While we have contingency plans in place, and the team has executed very well in the context of these challenges, supply chain delays have generally been worse than anticipated, which has delayed the build-out of our fleet. We originally expected 2022 to be a year where we could commission our initial aquanauts ahead of a significant ramp in 2023. However, these world events and near universal disruptions in the supply chain, the aquanaut Mark IIs are now expected to be delivered in the first quarter of 2023, which has effectively pushed out of acceleration and growth to later in 2023 and then 2024. Now to be clear, these delays are not at all a reflection on the lack of interest or traction we are getting with potential customers. And in fact, our conviction in our disruptive technology only continues to grow. Let me take a few moments to highlight some of the positive progress we've made this year. In August, we announced a contract with Shell, one of the largest energy companies in the world, to conduct a field trial after successfully completing an initial feasibility study. The trial advanced the more efficient means of acquiring subsea integrity data using Aquanaut. In partnership with Shell, we will test remote operations using supervised autonomy and tool control that will leverage our acoustic communications technology. This trial incorporates multiple differentiated capabilities of Nauticus that give us our competitive advantage, including our autonomy, acoustic communications technology, and the Olympic arm for gathering integrity data that has made a natural fit for this test. In May, we announced an agreement with Wood PLC, a British multinational engineering and consulting company with over $6 billion in revenue last year. This formalized the relationship between Wood and Nauticus, to develop integrated service offerings that can provide more cost-efficient, environmentally friendly maintenance of subsea infrastructure. We've also had multiple announcements in the defense industry, as we have partnered with the government to help commercialize our technology, as well as be an early adopter. We are currently working with Leidos, a significant defense contractor, to jointly develop an unmanned underwater vehicle, a derivative of Aquanaut. It can serve in numerous use cases that are either dangerous or impossible for humans to accomplish. including ocean floor mapping, studying sea life, and monitoring water pollution. We were awarded the contract in 2021 with the initial phase milestone running through the end of this year. Phase two is expected to begin in the first half of 2023. As I mentioned earlier, there are also opportunities to generate revenue from some of our solutions that support our flagship aquanaut, including Toolkit and the Olympic Arm. In 2022, we were awarded two contracts with U.S. Defense Innovation Unit, or DIU. the most recent of which was a multi-million dollar award that we announced in October. The contract is for the development of an amphibious unmanned system called Terranok, utilizing toolkit for autonomous command and control, which will be capable of helping the military clear shallow waters of mines, supporting their focus to get the man out of the minefield. Upon the successful completion of this contract, we will have the opportunity to license toolkit to the U.S. Department of Defense for use on their existing fleet of Defender ROVs, which is an opportunity for hundreds of toolkit licenses. Now I'll turn the call over to our CFO, Rangan Padmanabhan, to discuss our financials. Rangan?