Hello and welcome to the Nauticus Robotics Earnings Conference Call, for the Third Quarter Ended September 30 2022. My name is Paul and I will be your operator today. Today's press release, including the financial tables are available via an 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’s Founder and CEO Nicolaus Radford, and a CFO, Rangan Padmanabhan. Following their remarks, we will open the call for questions. Before we begin, Jeff Grampp from the Gateway Group will make a brief introductory statement. Mr. Grampp?

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 detail the 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'll 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 of risk factors in our filings, you may get Nauticus’s Securities and Exchange Commission filings for free by visiting the SEC website @sec.gov. I would also like to remind everyone that this call is being recorded and will be made available for replay via link available in the Investor Relations section and Nauticus’s 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. This is our first call, I thought it'd be appropriate to start with an overview of Nauticus history, our mission in 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 Principle at NASA where I lead 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 and 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…

Thank you, Nick, and hello, everyone. It's been a busy quarter for the company as we close the merger and prepare for life as a public company. While I'd expect my commentary in the future calls to focus on quarterly results, since this is our initial earnings call, I thought it would also help to discuss some year-to-date results. For the nine months ended September 30 2022, we generated revenue of $8.2 million representing year-over-year growth of 153%. The increase in revenue is primarily attributable to the addition of new service contracts, and increased performance under an existing service contract, some of which Nick mentioned. For the third quarter of 2022, we generated revenue of $3.0 million representing year-over-year growth of 51%. For the nine months ended September 30th 2022, we reported total operating costs of $19.5 million. And for the third quarter of 2022, we’ve reported total operating costs of $9 million, both of which were higher than the prior year comparable periods. Both figures include $0.8 million, and one-time transaction costs related to our business combination with CleanTech Acquisition Corp, which closed in the third quarter of 2022. Additionally, there were over $1.2 million in one-time deal related expenses in cost of revenue, and over $1.5 million in G&A, all of which occurred in the third quarter. Other drivers of the year-over-year increase primarily relate to higher general and administrative costs, as we increase company headcount, sales and marketing expense and professional fees that are required to handle the additional responsibilities of a public company, as well as to position the company to scale with our significant growth opportunities. Our net loss for the quarter was $11 million, or $0.67 per share, compared to a net loss of $1.3 million, or $0.13 per share in the prior year…

Thanks, Rangan. Looking ahead. We have an active deployment scheduled for the Nauticus fleet that we are anxious to launch, as it more concretely demonstrates our capabilities. Thus far we've produced to Aquanauts, one developmental unit and one unit under contract and in service with U.S. DoD customers. We currently have three Aquanauts in production. One is expected to be delivered just in January, and the remaining two are to be delivered by mid-year and commissioned shortly thereafter. Key growth markets we expect to focus on in the near term include the North Sea, Offshore Brazil, and the Asia PAC region. In addition to of course, the Gulf of Mexico right in our backyard here in Houston. All these regions are strategically significant hubs of traditional and renewable energy assets, and future deployments. While the commercial market reception to our Aquanauts has remained strong, we have been impacted by the supply chain constraints as I mentioned earlier, this has resulted in longer construction times than anticipated for our Aquanaut units. Unfortunately, these delays have pushed back our entire program. And we currently like to deliver material commercial service revenue in 2024 versus anticipated second half of 2023 previously. We also continue to expand and leverage our defense community relationships to find new and innovative ways to deploy our software and assets to address known and emerging applications on the forefront of defense technology. Although our business model is based on a robotics-as-a-service concept, we had previously agreed to sell for Aquanaut Hydronaut pairs to an innovative early stage CleanTech Maritime Service Provider. For the amended sales contract, the first two pairs are scheduled for delivery in Q4 of 2023. Future contract amendments to accommodate the customer's delivery needs, supply chain constraints or market conditions may result in further adjustments to…

[Operator Instructions] Thank you. Our first question is from Craig Irwin with ROTH Capital. Please proceed with your question. Greg is your line on mute? You are open, ask a question.

Thank you. Thanks for taking my questions. The first one is really a clarification. If I could ask you Rangan, the negative $3.7 million in adjusted net income that you mentioned. Just need to confirm that this does not exclude the $1.1 3 million in warrant adjustment expenses in the quarter. Is that correct?

It does also include that. It was a gain from the value of the warrants going down.

Okay. So can maybe share with us the other details other than the 3.5 in merger expenses. So there are there any other components in there?

There is the valuation of the earnout shares that was close to $5 million. And then there was $1.2 million from cost of goods, cost of revenue. And one point, which is all part of the 3.5 and 1.5 from G&A.

Okay, okay, understand perfect. The revenue generation, because it is a key thing that I think all investors that are looking at your company are most interested in right now is sort of the splash of the Aquanauts, as you as you have them sort of scheduled over the next number of months. First quarter, would you expect the units that are that are going to be splashing to be revenue productive? Or is it likely to take a little bit of a shakedown period before we see these units actually start generating revenue for the P&L?

Yes, hi, Craig, this is Nick, I'll take that. You're exactly right, the initial stages of splashdown will be a blend of commissioning and qualification. And so Q1 is going to be a lot of commissioning and will transition into qualification through Q2. Now, the good part about qualification is sometimes and oftentimes it is customer supported. So like the opportunity that we have with Shell for our pilot with them, we are that is a stage gated outlook. And so we're progressing through that pretty nice. And so, Shell is a good and large customer and so the demand from them could be quite handsome from that.

Understand, and actually, Shell was going to be my next question. Can you maybe give us a little more color on precisely what you're doing with Shell these days? Whether or not you have, you've been down to the depths of the ocean with them, approximate number of sites you visited or, any color to help us kind of sketch out the more complete picture of your commercial engagement with this important customer?

Absolutely. So Shell has identified a particular task that is rather cumbersome and uses makes use of this very specialized tool. It's a very forward leaning tool. And it's rather difficult to use. So they're interested in our ability to use that in a much more supervised autonomous way. And so we've been able to apply our entire tech stack all the behavior development that we've been doing for quite some time. And in very rapid form be utilizing this tool, it also requires some acoustic communication to actuate the tool, so they were very excited about that part of our tech. So, as I also mentioned earlier, there's a progressive nature to what we're doing. So the first part of this was prove out the concepts behind how little data rate that you could actuate this tool with, and then that increases in difficulty toward the ocean. So that ocean pilot is scheduled for mid-next year. So there's a lot of gates required to progress through that we are doing quite well.

Excellent. And another point of clarification, this is the first quarter that you've had a cash flow expense for inventory on the cash flow. Can you maybe discuss for us, why this initiated this quarter? And, is this really sort of units for future sale versus for robotics as a service? How should we look at this? And how should we model inventory going forward?

We're comfortable with our cash position. And the inventory that we were looking at earlier is about 1.6 due to Olympic Arm that we're manufacturing on site, and about $4 million of that inventory is in Aquanaut and Hydronaut production that we've done.

So then, as we look at growing the fleet over the next number of quarters, this inventory will both on and off the balance sheet and the cash flow. But, originally we're thinking this would be much more of a traditional CapEx line. Can you maybe explain for us, what's going on here as far as inventory and whether or not this is something that balances and maybe just a little bit of the CapEx versus inventory expense and cash sort of used for unit construction?

In the future, that the majority of units that we build that are going go to the fleet, those will roll into CapEx, not inventory. If we had units for sale, they would eventually they would initially roll into inventory and eventually into the cost of goods sold to match up with the revenue and the appropriate period.

Understood, understood. Last question for me is on the service line. So, I'm going to assume that it's the vertical of the fleet. It's under services that drives this. But is there a component you can maybe describe for us that that's not tightly linked to the number of vessels that are active with your customers? Would you expect their materials service contribution that's not directly tied to already deployed vessels?

Yes, so Craig, this is, Nick. You're exactly right. A lot of the business scales as the commercial fleet builds out, and we realize that commercial service revenue, there are other elements that the company is aligned with that aren't that don't have that commercial RaaS model. And a lot of our government interests, which are lumpy in nature, are a little bit more on the product sales side. And so you're seeing a blend of that right now. And as the fleet scales out, that will transition from that to much more of the RaaS -- the RaaS model.

Understood. Well, hey, congratulations on a solid first quarter out, and I'll hop back in with you.

Thanks, Craig.

[Operator Instructions] Our next question is from Troy Jensen, with Lake Street Capital. Please proceed with your question.

Hey, gentlemen, I also want to say congrats on your first quarter as a public company. Thanks. Maybe, Nick, starting with you. Can you just talk about how the spec or the public offering has increased awareness for the company or maybe comforted potential customers?

Yes, absolutely. Obviously, with a public facing transaction, there's a lot of now socialization and marketing that goes into it. So organically that has occurred, it's just part of the process. But it's also given us quite a platform to start really highlighting what we're doing. I mean, everyone at the company here is just fired up about what we're doing. Its mission driven for us. Our mission is to create the most impactful Ocean Robotics company through the deployment of autonomous systems. And so this whole transaction has just been an incredible stepping stone to help bring awareness to what we're doing.

Yes, I can imagine. So I'd dropped off for like a minute or so where you're talking about ‘23 revenue guidance just now you gave like a number range that we should be thinking about?

Yes, so with as far as ‘23 is concerned, as we mentioned, in the remarks, supply chain has not been our friend. And previously, we were anticipating quite a ramp in ‘23, due to the commercialization the fleet, which would have started, literally now. And so things are sliding to the right. These aren't lost opportunities, of course, I mean, we're actually seeing tremendous demand and interest. And in fact, it's kind of getting us to rethink about how many units that we're going to be putting into the water. So I mean, it's I think it's a little too early to lay down strict guidance on ‘23. I mean, naturally, it is sliding, the commercialization is taking and has been pushed a little due to due to the supply chain. So, I mean, that's pretty much what I can guide currently.

Yes, understood, completely understood. So, here's one more question I put to. So the program of record deal with the Defense Innovation Unit. So you guys won the first date with a competitor. And you may have said on the call, but just development milestones, when's the next kind of bake off? Can you talk about the ultimate opportunity here with the DIU?

Sure, there's actually two of them associated with that. And they are both pipelined into programs of record that are looking for technology additions and a lot of the stuff that we're developing. So that they're concurrently occurring, leveraging a lot of the same software and hardware, which is really great for us. But these are milestone driven that are literally every 60 days or so in fact, the team just got back from San Diego last week and had a very successful outing out there. So we work very closely with the DIU interests and their counterparts. And so it's been incredible because getting to work on something that is so aligned and a lot of our own thinking, but gets make use of our of our tech, actually in very quick manner. So, yes, it's every 60 days, there's a new milestone associated with these programs.

Okay, well, the last part of the question was just the ultimate opportunity. If you guys were to win this, can you kind of frame up the opportunity in front of you?

For sure. The first one, which is very software driven is around the licensing of ToolKITT into the fleet of existing ROVs and ROVs that are being modified. The initial outlook is in the hundreds and to the mid-hundreds, so, there'd be an excellent reoccurring component. And one that's high margin and software driven. The second one is, is around platforms that have both a significant market for not only the platform, but also software licenses.

Awesome. Okay, so congrats and keep up the good work.

Thanks, Troy.

Thank you. Our next question is from Brian Dobson with Chardan Capital Markets, please proceed with your question.

Hi, thanks so much. So congratulations on the partnership with Shell, when do you think we could expect to hear about the outcome of those tasks? And I guess further, do you think that a marquee partnership like this could increase your forward sales momentum or ability to gain new contracts moving forward?

in fact, I mean, just as a follow on to the earlier question about our own awareness and socialization, due to the business combination, it has, we've received significant customer interest due to the high profile nature of it. So the transaction has been accretive from our customer acquisition standpoint, as well. The agreement and the work that we're currently doing with Shell, it's one of the largest industries out there and pretty small at the same time. And so people talk and people, potential customers have become quite aware of what we're doing with Shell and what we've been accomplishing. So I expect that to bear fruit as well in the future. And we're very happy with this sort of transition and the outcome.

Great, thanks very much. And when do you expect to I guess, hear about the outcome of those testings dig in Shell?

Yes, so as I mentioned, we're talking, progressing into the pilot midyear next year. And there's contractual stage gates that I believe we will be able to make some announcements about. And so we have to do that co-marketing coordination with them. But I believe there'll be opportunity to voice our success to the market here shortly.

Sounds very good. And then I guess, from a bigger picture point of view, do you think you could elaborate on how DoD tech driven third Offset Strategy towards the development of inactive RFPs. And again, how do you see that relationship evolving longer term? And is the potential there to work with U.S. allies as well as DoD?

So the DoD interest in partnership very early on in the company has been absolutely instrumental. We've had we had a pretty heavy technology lift over the years, and they were an incredible partner to help subsidize that. The IP generation with the government is also favorable for the performer. And so we've been also able to take advantage of that. So I see that partnership, continuing. They have made quite an investment in us and I think have a vested interest in the successful outcome of that. And clearly there are events in the world that might stress the portfolio of DOD. And so we've been on the front end of helping increase that. So I believe also, we've received considerable interest from allies, especially five eyes. And I believe that everything that we do through the proper channels and proper exports would be very accretive to LI's [ph] portfolio.

Yes, excellent. And then finally, I guess looking into your forward looking, there are some concerns about lower corporate spending moving forward. Momentum appears to be very strong at KITT. Would you speak to some of the key factors driving that and then as you look to growth in ‘23, and ’24, do you think that's going to be more corporate driven or defense driven in terms of opportunity?

Well, I mean, we're all just terribly fired up about getting the commercial fleet and scaling that out it, it scales very handsomely. We're not at all pinched by a lack of demand. In fact, the demand is quite a handful to accommodate. But as I mentioned before, the government is an excellent place to develop new tech with and we are a vibrant technology company, and we create our asymmetric advantage through that technology portfolio. So we are going to continue to look to ways to help offset those R&D costs with government partners. As which revenue stream is going to dominate the other, clearly the commercial business scales and scales in a very nice way, defense tends to be a little bit more lumpy. But as our revenue sand shard flips, we're obviously closely biased into government defense at the moment as commercial comes online. And so that will become a lower proportion of our revenue over time, but still significant in my estimation.

Excellent. Congratulations on your first quarter out of the gate.

Thanks, Brian.

Thank you. This concludes our question and answer session. I'd now like to turn the call back over to Mr. Radford.

And thanks, everyone for joining our call today. And of course, you're interested in Nauticus. We look forward to executing on our mission of transforming the blue economy with our autonomous robotics portfolio and we will be sure to provide you guys updates along the way on our journey and please have a wonderful day. Thank you.

Thank you for joining us today for Nauticus Robotics conference call. You may now disconnect.