Q2 Earnings Roundup: Mixed Results for Tech and Energy Companies

Earnings call: Quantum Corporation faced an adjusted EBITDA of negative $3.1 million By Investing.com

Quantum (NASDAQ:QMCO) Corporation (NASDAQ: QMCO), a data storage and management company, reported its first quarter fiscal year 2025 financial results with revenue of $71.3 million and a non-GAAP gross margin of 36.9%. The company faced an adjusted EBITDA of negative $3.1 million but has secured additional liquidity of over $25 million through an agreement with lenders, aiming to bolster their Myriad and ActiveScale platforms and target the enterprise backup market. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights Quantum Corporation remains focused on driving scale and profitability through its restructuring initiatives and product innovation. The company is optimistic about its future, especially with the anticipated product launches and the support from lenders to improve their capital structure. Despite the current financial challenges, Quantum is committed to enhancing the customer experience and increasing profitability in the upcoming quarters. InvestingPro Insights Quantum Corporation (QMCO) is navigating a challenging period, as evidenced by the recent financial results. InvestingPro data highlights a market capitalization of $27.7 million, which indicates a relatively small player in the data storage and management industry. The company's revenue for the last twelve months as of Q4 2024 stood at $311.6 million, with a significant decline of 26.17% compared to the previous period. This suggests that Quantum is facing headwinds that are impacting its top-line growth. Despite these challenges, the gross profit margin remains at a respectable 40.08%, indicating that Quantum is maintaining a reasonable level of profitability on its products and services. However, the negative operating income of $25.6 million and an EBITDA of -$16.38 million reflect the financial strains the company is under, including the high costs that are outpacing its gross profits. InvestingPro Tips for QMCO reveal that the company is quickly burning through cash and that its stock price has been highly volatile. These factors could be crucial for investors considering the risk profile of Quantum. The stock has experienced a significant drop over the past year, with a one-year price total return of -52.48%. This performance could be a concern for potential investors looking for stability or growth. For those interested in a deeper analysis, there are additional InvestingPro Tips available, which can be found at https://www.investing.com/pro/QMCO. These tips provide valuable insights, including concerns about the company's ability to meet short-term obligations, the lack of profitability over the last twelve months, and the absence of dividend payments to shareholders. With a total of 15 InvestingPro Tips listed, investors can gain a more comprehensive understanding of Quantum Corporation's financial health and future prospects. Full transcript - Quantum Corp (QMCO) Q1 2025: Operator: Greetings, welcome to Quantum Corporation's First Quarter Fiscal Year 2025 Financial Results. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Brian Cabrera, Quantum's Chief Administrative Officer. Thank you. You may begin. Brian Cabrera: Good afternoon and thank you for joining today's conference call to discuss Quantum's first quarter fiscal 2025 financial results. I'm Brian Cabrera, Quantum's Chief Administrative Officer. Speaking first today is Jamie Lerner, our Chairman and CEO; followed by Ken Gianella, our CFO. We'll then open the call to questions from analysts. Some of our comments during the call today may include forward-looking statements. All statements other than statements of historical fact should be viewed as forward-looking, including any projections of revenues, margins, expenses, adjusted EBITDA, adjusted net income, cash flows, or other financial operational or performance topics. These statements involve known and unknown risks and uncertainties we refer to as risk factors. Risk factors may cause our actual results to differ materially from our forecast. For more information, please refer to the detailed description we provide about these and additional risk factors under the Risk Factors section in our 10-Qs and 10-K filed with the Securities and Exchange Commission. We do not intend to update or alter our forward-looking statements once they are issued, whether as a result of new information, future events, or otherwise, except, of course, as we are required by applicable law. Please note that our press release and the management statements we make during today's call will include certain financial information in GAAP and non-GAAP measures. We include definitions and reconciliations of GAAP to non-GAAP items in our press release. Now I would like to turn the call over to our Chairman and CEO, Jamie Lerner. Jamie? Jamie Lerner: Thank you, Brian, and thank you all for joining us today. Earlier today, we announced our results for our first quarter fiscal 2025. Turning to Slide 3, here are some brief highlights from the quarter. We finished Q1 2025 with $71.3 million in revenue, non-GAAP gross margin of 36.9%, and adjusted EBITDA of negative $3.1 million. These results were largely in line with our expectations, reflecting further rotation of our business toward our long-term initiatives. We continue to take steps to improve the company's capital structure and operational performance, as well as accelerating the growth of profitable revenue streams, which we will discuss further in today's call. First, as part of our ongoing strategic and financial initiatives, we have reached an agreement with our current lenders that significantly increases our liquidity, allows us to take action on improving our operational initiatives and focus on driving Myriad, ActiveScale and the rest of our business to the next level. We added access to over $25 million. This injection of growth capital, combined with the restructuring of our existing debt, allows the company not only to improve its overall capital structure and balance sheet, but positions us well for continued innovation and growth in our target markets. Let me talk more about the company's continued transformation and driving the business to the next level. Quantum has proven experience managing unstructured data with deep roots in video and media and entertainment. The ongoing exponential growth in unstructured data, particularly driven by AI use cases, is creating continued traction for our Myriad and ActiveScale platforms that are uniquely positioned to address these workflows end to end. Our engineering team is delivering the committed Myriad roadmap on time and on plan. With our customers successfully adopting these new features as they are released, giving us confidence in their robustness for commercial rollout. As I mentioned on the last call, while deal cycles can be long for this category of product, we currently have several proof of concept engagements underway and moving forward. These are concentrated primarily in visual effects and post production where we have extensive experience to accelerate adoption along with life sciences, high performance computing, industrial research and manufacturing. We have added to this global pipeline during the quarter with additional AI use cases, with one of note being a multibillion dollar enterprise with the potential for a scaled engagement. Beyond Myriad, we are seeing momentum since deploying all-flash options across our full portfolio. In fact, our DXi T10 had multiple closed deals within days of its formal launch announcement. We plan on aggressively targeting the enterprise backup market with our superior technology, delivering an all-flash format, DXi immutability and the 1U form factor at one of the best total cost of ownership in the market. We solve some of the most complex and important data center and storage problems for the world's largest organizations. While we have had headwinds in the near-term, we believe our solutions provide unique value that no other company can offer. This motivates us to come to work every day and drive these solutions forward. For example, we saw several notable ActiveScale wins in the quarter, including an NBA team that was an existing StorNext customer with content archival needs leading to the purchase of more than 10 petabytes of active and cold storage. The deal included a net new ActiveScale deployment with cold storage, CatDV and StorNext expansion, demonstrating a seven figure deal size when we sell the full product portfolio end to end. In addition to new ActiveScale deployments into existing StorNext and tape install based accounts, we saw ActiveScale expansion deals as unstructured data continues to grow exponentially and we expect these footprints to continue to scale as well as net new customer accounts in both media and entertainment and healthcare. Finally, we remain committed to strong cost and discretionary spending controls through this transformation while continuing to evaluate and consider all possible alternatives. As we execute on our business initiatives that include achieving our operating performance driven by tangible proof points, accelerating growth of new products, and divesting non-core product and assets, our organization will become more focused and operationally efficient. With that, I would now like to turn it over to Ken to walk through our financial results and our updated financing in more detail. Ken? Ken Gianella: Thank you, Jamie. Please turn to Slide 6 and I'll provide an overview of the GAAP financial results for our fiscal first quarter. Revenue was $71.3 million, a decrease of approximately 23% year-over-year and essentially flat to the fourth quarter of 2024. The revenue year-over-year decrease was primarily driven by the loss of our largest hyperscaler while the full quarter results do not fully reflect the continued rotation of our business toward our long-term initiatives. We are pleased with the progress. For example, our gross margin for the period was 36.6% compared to 38.5% in the year ago quarter and 38.2% in the prior quarter. This lower margin was due to a very large scale strategic video surveillance sale to the world's largest packing shipping company for all of their ground shipping locations. Also impacting the quarter's profitability was supply constraints that prevented us from shipping higher volumes of higher margin products during the quarter. These supply headwinds resulted in an increase of the quarter end order backlog to approximately $15.5 million, substantially above our normal run rate of $8 million to $10 million. While we anticipate gross margin returning to the low 40% next quarter, we expect higher supply lead times to persist through the end of the calendar year. GAAP net loss in the quarter was 28 - $20.8 million or a loss of share $0.22 per share, compared with a loss of $9.1 million, or $0.10 per share, in the same quarter last year, and compared to a loss of $18.9 million, or $0.20 per share, in the prior quarter. This higher loss in Q1 '25 was predominantly driven by one-time expenses of over $10.7 million. The gain or fair value of warrants was $1.7 million in the quarter compared to a $0.7 million gain in the same quarter in the prior year and a $2.2 million loss in the prior quarter. We anticipate elevated levels of one time spending to persist into Q2 '25 as we complete restructuring activities. However, they will significantly subside as we head into the back half of the fiscal year. Now turning to Slide 7 for non-GAAP metrics, non-GAAP gross margin for the quarter was 36.9% compared to 38.8% in the prior year and 38.5% in the prior quarter. Non-GAAP operating expenses were $30.8 million in the first quarter, a significant decrease from $35.5 million year-over-year and in the prior quarter. This decrease in operational expenses was the result of our proactive actions to improve process and productivity, and we anticipate operating at or below these levels as continued cost actions begin to take hold into the back half of our fiscal year. Non-GAAP adjusted net loss in the first quarter was $8.4 million or $0.09 loss per share, compared to a $4.1 million or $0.04 loss per share in the prior year quarter and a loss of $10.9 million or $0.11 loss per share in the prior quarter. Adjusted EBITDA in the first quarter was a negative $3.1 million compared with a positive $1.5 million in the prior year first quarter and a negative $6.2 million in the prior quarter. This quarter's EBITDA reflects lower margin revenue mix and higher manufacturing costs due to supply chain constraints. We anticipate operational cost controls and improving revenue mix to drive higher EBITDA throughout the rest of the year. We remain focused on improving EBITDA and total profitability, which will continue to be driven by our global restructuring. Combined with our sales team's effort toward a more end-to-end, higher margin subscription based solutions. We continue to anticipate our efforts will deliver sequential year-over-year improvements in profitability, even on a lower revenue base in fiscal year 2025. Moving to Slide 8, I want to provide an update on our annual recurring revenue and subscription metrics. Total annual recurring revenue, or ARR, for the trailing 12 months was approximately 49% of our total revenue at $141 million, with a gross margin on the combined business being approximately 65%. As a company, we continue to focus on total ARR by maximizing our quantum service opportunities to both our partners and customers globally. The best way to demonstrate our progress is through our subscription ARR. The growth in subscriptions continues to demonstrate the progress we are making in our business transformation efforts. In Q1 '25, the subscription portion of our total ARR increased approximately 29% year-over-year and approximately 5% sequentially to $18.8 million. Over 92% of new unit sales were subscription based. Now please turn to Slide 9 for an overview of debt and liquidity at the end of the quarter. Cash, cash equivalents and restricted cash at the end of the first quarter were approximately $17.5 million. Outstanding debt split between term and our revolver was $75.8 million and $35.8 million, respectively. At quarter end, the company's net debt position was $94.3 million. As Jamie discussed at the top of the call, subsequent to the quarter end and as mentioned in our press release today, we added the ability to draw over $25 million to give us more operational flexibility going forward combined with reaching an agreement with our current lenders in which we restructured over $110 million of existing debt that significantly improves our overall liquidity and operational flexibility. The agreement was executed giving Quantum an elevated blended interest rate of approximately 300 basis points in addition to warrants and other considerations. There is an anticipated dilution related to the new warrants of approximately 7% on a fully diluted basis. The agreement has provisions that can reduce the issued warrants significantly in conjunction with pay down of the term loan at the Company's discretion over the next couple of quarters. This agreement allows the Company to focus on driving myriad, active scale and the rest of our business to the next level while becoming more profitable through our restructuring initiatives. Additionally, this amendment underscores our partner's commitment to the Company's strategy and the long-term potential of Myriad and ActiveScale, including the company's commitment to getting back to profitability as we drive towards cash flow positive in the second half of fiscal year 2025. With the new and restructured financing in place, combined with being back on file, the Company can now fully focus on executing our business and expanding our value to our customers. With that, let's close out by turning to Slide 10. And I'll now review the company's guidance for the second quarter of fiscal 2025. First, we anticipate total revenue in the second quarter to be approximately $73 million plus or minus $2 million. This is factoring all potential impact for elongated lien times for all storage media. We expect non-GAAP operating expenses to be approximately $30 million plus or minus $2 million, reflecting the aggressive cost reductions actions taken through fiscal year 2024 and in process actions in FY'25. As a result, non-GAAP adjusted net loss per share for the second quarter is expected to be a negative $0.06 plus or minus $0.02 per share. Based on an estimated approximately 96 million shares outstanding. Adjusted EBITDA for the second quarter is expected to be approximately breakeven. This improvement is driven by anticipated gross margin improvements at the low 40% and continued non-GAAP operating expenses to be on par with Q1 '25 results. In summary, we appreciate all our stakeholders' support through our transformation efforts. Quantum remains committed to improving our customers' experience, driving new and innovative products to market, and leveraging our global footprint to improve Quantum's overall operating model. All of this, combined with continuing our strategic initiatives are actively underway and we are making solid progress. With that, I now hand the call back to Jamie for closing remarks. Jamie Lerner: Thanks, Ken. As we discussed today, Quantum will continue to prioritize certain initiatives to improve our operating model and our customers' experience. This includes continuing to prioritize new products and services that help customers maximize their value. Operationally, we will execute our transition to subscription ARR, focused on improved operational efficiencies and work to strengthen our model while also evaluating all possible alternatives to improve shareholder value. With that, let's open it up for questions. Operator? Operator: Thank you. [Operator Instructions] Our first question is from Neal Chokshi with Northland Capital Markets. Please proceed. Neal Chokshi: All right, thank you. I would like to start with the subscription transition. That particular slide, slide page on the subscription transition. Overall, it looks pretty good, except for that the subscription bookings was down to $3.2 million from $4.5 million a year ago. Is there a narrative behind that? Ken Gianella: I think mostly it was a little bit of delayed. We were hoping to bump that up this quarter, but we had delays, as we mentioned, with some of the supply chain elements getting out there that we couldn't add that into the number. Neal Chokshi: Okay, just to be clear... Ken Gianella: We were anticipating higher shipments this quarter than what we gave in the results. Jamie Lerner: Yes, you can't RevRec the software unless you've shipped the hardware to run it on because without the hardware, it doesn't have any value. Neal Chokshi: Okay, got it. Jamie Lerner: Unless we sell it separately, but these deals weren't separate. Neal Chokshi: Got it. Understood. Okay. On the gross margin, the three components of product, service and royalty, it looks like, product actually did quite well, on a Q-over-Q basis, I'm sorry, on a - yes, on a Q-over-Q basis it did quite well. But the service gross margin went down 600 basis points, both Q-over-Q and year-over-year. Why is that? Ken Gianella: Part of this is just when we get to scale; it's trying to clean up some of the regions where we were operating in. We had a little bit staffing that we were working through and higher operating costs in some of our regions, predominantly North America and Europe. And we're looking to find ways to operate a little bit more effectively than we were in the past. Neal Chokshi: Okay. It has nothing to do with selling the receivables on the services business, right? Ken Gianella: No, that was purely an operational element that would follow through it or didn't - the overall COGS of the business, but that was not an impact to it. This was more just operational efficiencies that we saw in the regions in Q1. Neal Chokshi: Okay. And then Jamie, can you comment on what is the Q-o-Q bookings trend for Myriad and ActiveScale? Jamie Lerner: Yes, I mean, we don't put those numbers out, but we're pretty encouraged right now. I mean, ActiveScale, it's really starting to stand apart from its competitors, really, based on two things. One is its tremendous ease of install and ease of use, particularly at scale, and the fact that it's one of the only, but pretty much the only object store that has erasure coded tape integration. So the ability to support flash, disk and tape simultaneously, there's just no other object store that does that. So we're seeing good adoption of ActiveScale. I think our partners are well trained to sell it. I think our sales team is well trained to sell it. With Myriad, we're at an earlier part in the growth curve. We've been getting a lot of independent testing, validation that shows the product is outperforming, even what are viewed today as the world's fastest file systems. We're outperforming those in some cases by 250%, just 2.5 times faster than our next closest competitor. So I really like how it's doing in trials. A lot of those trials are actually right now converting into sales. Myriad has a little bit of a more unique network configuration, but once configured, what it can do and its ease of use are incredible. So I think this quarter, the current quarter, were in subsequent quarters, we're seeing the Myriad trials that we were in last quarter converting. So I feel really good about that. I think we're getting a very high success rate and conversion rate on the trials and where we have more work to do there is training our broader sales force, training the partner community on selling what is a new product and a very new architecture. So that's where a lot of our energy is going, is not just having our best people be able to sell it, but having our top integrators, our top resellers, our top distributors really starting to build that knowledge base as well. So we're putting a lot more energy into training and education around the Myriad product. Neal Chokshi: Okay, awesome. That's great, color. I appreciate that. I'll get back into the queue. Thank you. Jamie Lerner: Thanks, Nehal. Operator: [Operator Instructions] Our next question is from Max Michaelis with Lake Street Capital Markets. Please proceed. Max Michaelis: Hey, guys. Thanks for taking my questions. First question here, just related to really no mention of the fiscal year 2025 guide you guys provided last quarter. Just kind of want to get a comment from you guys on maybe what went into stepping away from that or not reaffirming that. Was it mainly just these supply chain constraints here, or I guess, comment on what you guys are thinking for the full year guide? Ken Gianella: Well, first we gave the first the full year outlook at the beginning of the fiscal year, and traditionally we give that at the beginning of the year and we don't reiterate it. So I wouldn't read anything into it. I mean, Q1 was slightly down, but that went into backlog than what we anticipated. Q2 is kind of the same thing and we do see some headwinds, but we are looking for elements to try to catch up here as that loosens up towards the back half of the year. So I wouldn't read into that in any way other than traditionally how we approach it. Max Michaelis: Okay, I think I forgot. So that previous adjusted EBITDA guide for $10 million to $20 million still sort of stands is what you're saying. Ken Gianella: Yes, I mean, we said on the prior call when we put that out there, it was going to be back half weighted. You might have heard in my prepared remarks where we were very clear about $10.7 million of GAAP expenses that were hitting the company, that transition. Because if you guys remember, we were just getting back on file. Getting back on file coupled with active restructuring of the organization, coupled with several new MPI launches that we're doing in the back half of the year as well as now, as you heard Jamie mention, when I'm really proud of is the DXi launch that went out and it was a couple days out in Public GA, and we won two big deals away from one of our key competitors. So we've invested a lot of capital dollars here in the back half of the year, and this first half of the year that once we get through this one time spend, we see the profitability really starting to take hold into Q3, into Q4 to make us up to that number. Max Michaelis: Okay, perfect. Thanks, guys. And then last one for me, I think the number was $16 million of operational efficiencies. I kind of want to get an idea where we're at. I mean, how much have we recognized? I guess in Q1 out of that $16 million going forward throughout the year and if we're on track there. Ken Gianella: I don't give that specific number. I don't want to get into a thing of every quarter announcing kind of where we're at for a lot of reasons. But I will say that we are on track and our goal is to have that number at least fully in hand by the end of the calendar year. Jamie Lerner: But, I mean, Ken, to give you a little more credit, I mean, we did have OpEx last quarter of over $35 million. Jamie Lerner: So that's over $5 million annualized. That's pretty good. We have more we can do, but I don't. Other than one quarter where we had some anomalies, we've never had OpEx at $30.8 million. And I think we see a pretty clear path to getting under $30 million, which is just, we've never been at levels of that kind of efficiency before, even before we made our acquisitions. So it's pretty good. I'm pretty pleased with it. Now, the gross margin, not so much, but we'll resolve that. Max Michaelis: All right. Thanks, guys for taking my questions. Operator: With no further questions at this time, I would now like to turn the call back over to Jamie Lerner for closing remarks. Jamie Lerner: Yes. Look thanks, everyone. Thanks for sticking with us. I do think there's better days ahead. I'm really encouraged that our lenders supported us with the $25 million that we brought in. I feel really excited in what we can achieve in the explosion in AI and just how much our media and entertainment experience translates to AI success and how our products, particularly Myriad and ActiveScale, are just turning out to be so unique in that space. And now that we have the runway to really play that out completely with our lender support, I really am encouraged for what's going to happen in the future for us. And I'm excited to talk more over the coming quarters of how we're going to expand in these new markets. So thanks, everyone, and thanks for today's call. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Earnings call: Duos Technologies reports mixed Q2 results, plans expansion By Investing.com

Duos Technologies Group, Inc. (NASDAQ: NASDAQ:DUOT) reported mixed financial results for the second quarter of 2024, with total revenue declining by 15% to $1.51 million compared to the same period last year. However, the company saw a substantial increase in recurring services and consulting revenue, which rose by 38%. Despite the overall revenue dip, Duos Technologies is expanding its Railcar Inspection Portal and Edge Data Center businesses, and has entered the power provision market with the launch of Duos Energy Corporation. Duos Technologies is strategically positioning itself to capitalize on the growing demand for rail inspection and data center services. With the expansion of its Railcar Inspection Portal business and the launch of Duos Energy Corporation, the company is diversifying its offerings and exploring new revenue streams. The stability of the balance sheet and the backlog of contracts provide a solid foundation for future growth. As Duos Technologies continues to expand its operations and services, it expects to see an increase in recurring revenue, which will be a key driver for its financial performance in the coming quarters. Duos Technologies Group, Inc. (NASDAQ: DUOT) faces a challenging landscape as highlighted by recent financial metrics and analyst insights. According to the latest InvestingPro data, the company's market capitalization stands at $18.3 million, indicating a relatively small scale in the tech industry. This is further compounded by a negative P/E ratio of -1.51, reflecting investor concerns about the company's profitability. The revenue for the last twelve months as of Q1 2024 has seen a substantial decline of 63.63%, which is a significant figure and may raise questions about the company's growth trajectory. InvestingPro Tips suggest that analysts expect sales growth in the current year, which could be a sign of potential recovery or stabilization. However, the company is quickly burning through cash and suffers from weak gross profit margins, which stand at 14.69%. These factors indicate that while Duos Technologies is actively seeking to expand and diversify its portfolio, it may need to address underlying financial inefficiencies to improve its performance. Investors should note that the stock has fared poorly over the last month, with a price total return of -14.38%, and the trend continues over the longer term with a -55.28% return over the last year. This performance may reflect market sentiment and the challenges faced by the company. Furthermore, with no dividend payments to shareholders, investment returns are solely dependent on stock price appreciation, which has been lacking. For those interested in a deeper analysis, InvestingPro offers additional insights and tips on Duot Technologies, which can be found at https://www.investing.com/pro/DUOT. There are currently 11 more InvestingPro Tips available, providing a comprehensive view of the company's financial health and market position. Operator: Good afternoon. Welcome to Duos Technologies' Second Quarter 2024 Earnings Conference Call. Joining us for today's call are Duos' CEO, Chuck Ferry; and CFO, Adrian Goldfarb. Following their remarks, we will open the call for your questions. Then before we conclude today's call, I'll provide the necessary cautions regarding the forward-looking statements made by management during this call. Now I would like to turn the call over to Duos CEO, Chuck Ferry. Sir, please go ahead. Charles Ferry: Welcome, everyone, and thank you for joining us. We've just released our press release as well as our 10-Q announcing our financial results for the second quarter of 2024 and other operational highlights. Copies of both are available in the Investor Relations section of our website. I encourage all listeners to review that release and 10-Q filing with the SEC to better understand some of the details we'll be discussing during today's call. In the last few earnings calls, I have articulated our strategy to diversify our growing technology business into areas where we have expertise and synergies, with the intent to more rapidly increase our value and return on investment to our shareholders. On our call today, I'm going to report on those diversification efforts and what they will mean for us going forward. We are making steady progress with our Railcar Inspection Portal business to include ongoing installation projects with Amtrak and the planning for a new RIP installation at a large chemical manufacturer. As I reported earlier, we now have an important agreement and partnership in place with one of our long-term Class 1 railroad customers, currently the largest user of our wayside technology. The new agreement allows us to add subscribers to seven of our 13 portals, along with an eighth portal owned by a different customer. We'll talk more about the subscription offering later in the call. Our Edge Data Center business, called Duos Edge AI, has made fast progress commercially given the high demand for Edge computing infrastructure. Our plans to have four Edge Data Centers installed in various locations in Texas this year are on schedule, and we expect recurring revenue from those data centers to begin in Q4. I just returned from a TD Cowen data center investor conference being held in Boulder, Colorado, and I can tell you that there is excitement in this industry about our business when I'm discussing it with potential customers, investors and analysts. Our pipeline of new orders is growing and I expect to install at least 15 more Edge Data Centers in FY 2025. I have previously spoken about the power industry experience that the Duos team and I have from our time at APR Energy. With our entry into the data center space, we are now getting requests to participate and, in some cases, lead opportunities to install power in support of data centers here in the United States. Based on this rapidly growing demand, we have incorporated Duos Energy Corporation as a third subsidiary to Duos Technologies Group and already have a small pipeline of projects that could further accelerate our growth -- our goal for more recurring revenue and profitability. We'll discuss each line of business in more detail after the financial review. So at this time, I'll turn it over to Adrian to cover our financial results. Adrian Goldfarb: Thanks, Chuck. Following on from Chuck's introductory remarks, I would like to give a brief commentary on the recent operational highlights and my expectations as to how and when these will translate into revenue growth and, most importantly, profitability. As Chuck mentioned, the company is in the process of expanding into three distinct lines of business: complex visualization with AI, as manifested in our legacy Duos Tech business; the recently announced business of providing Edge Data Centers and related operational services; and the brand-new subsidiary, which will focus on power provision for data centers, both Edge and traditional. While these three divisions may on the face of it look as if they are not related, in fact, Duos and its management team, and staff, have extensive experience in all three domains. Chuck will address the 3-year strategic plan for the company in his commentary following my discussion of the financials. But from my perspective, the transition plan is expected to be complete by the end of 2024 with an expected markedly improved financial position and guidance at the conclusion of the transition period. During the last call, I stated that I believe that we are on the threshold of steadily improving results, and I believe we are seeing the first signs of this in our most recent quarterly results. As such, we will detail out our plans for the remainder of 2024, and indications are that a $70-plus million investment in building a talented organization, intellectual property with highly defendable patents, and now access to new markets with key assets that the company owns or plans to own will provide a solid foundation for the expected increase in recurring revenues. With that in mind, let us now look at the results for the second quarter and first half of 2024. During the second quarter, total revenue for the quarter decreased 15% to $1.51 million compared to $1.77 million in the second quarter of 2023. Total revenue for Q2 2024 represents an aggregate of approximately $265,000 of technology systems revenue, but more than $1.25 million in recurring services and consulting revenue, representing a 38% increase in this important metric. For the six months ended 2024, total revenue decreased 42% to $2.58 million from $4.41 million in the same period last year. Total revenue for the six months of 2024 represents an aggregate of approximately $0.5 million of technology systems revenue and approximately $2.05 million in recurring services and consulting revenue, which is also an increase in recurring revenues of 19%. Growth of the services portion of revenues was driven by the successful completion and implementation of artificial intelligence detections, which represents services and support for those detections, as well as increases in service contract revenue due to higher service contract prices. For both periods, the small revenues in the technology systems area reflects the ongoing delays in revenue recognition for the Amtrak installation, who, as discussed previously, postponed delivery last year into Q4 of this year. I'm pleased to report that although revenue was expected to be booked in Q4, the company has accelerated delivery of part of the system, and we expect to report an increase in these revenues in Q3. I should caution, however, that due to the complex nature of this project at the site, further delays may be encountered such that the project might not be complete until mid-2025. Cost of revenues for the second quarter increased 13% to $1.73 million compared to $1.53 million for Q2 2023. And for the six months ended 2024, cost of revenue decreased 26% to $2.7 million from $3.64 million in the second period last year. Both periods reflect certain cost increases related to project delivery where we expect to record higher revenues in Q3 and to the effect of the new Class 1 subscription business startup costs. Gross margin for Q2 2024 decreased 189% to negative $215,000 compared to $241,000 for the Q2 2023. And for the six months ended 2024, gross margin decreased 115% to negative $120,000 from $779,000 in the same period last year. Per my previous comment, when comparing the results between the two periods, the stage of completion for production and installation should be factored into these comparisons and taken into account when analyzing the two periods. Specifically, the decrease in gross margin was driven by the timing of business activity in Q2 2024 related to the manufacturing of two high-speed transit-focused RIPs for Amtrak. As previously mentioned, the temporary decline in technology revenues was not completely offset by related ongoing costs to support that revenue segment. Operating expenses for Q2 2024 decreased by 11% to $3 million compared to $3.39 million for Q2 2023. And for the six months ended 2024, operating expenses decreased 4% to $5.86 million from $6.07 million in the same period last year. The company implemented a number of expense reduction measures in late 2023, and the results of these measures are now being seen in the overall financial results. The decreases being recorded are related to targeted costs in some development and, more specifically, administrative costs, that are offset with continued investment in sales resources as the company continues to build the commercial resources necessary to address the expansion into new markets. The expense cuts have been precise to reduce investments in certain areas where certain activities are now complete, but we continue to invest in the technology that has delivered the wide-ranging patent for the RIP and associated AI. We continue to anticipate that operating expenses will remain stable throughout the remainder of 2024, but we have taken additional actions in Q3 to further improve efficiency and align our staffing to address both the new and existing business areas so as not to impact the expected growth in revenue. Net operating loss for Q2 2024 totaled $3.22 million compared to a net operating loss of $3.15 million for Q2 2023. And for the six months ended 2024, net operating loss totaled $5.98 million compared to a net operating loss of $5.30 million in the same period last year. Although operating losses were higher than the comparative quarter a year ago, the increase was proportionally less than the relative decrease in revenues and gross margin. The increase in loss from operations was primarily the result of lower revenues recorded in the first and second quarters as a consequence of the delays previously noted, offset by continued increases in services and consulting revenue. Net loss for the second quarter was $3.2 million or negative $0.43 a share, compared to net loss of $2.9 million or negative $0.42 a share for Q2 2023, with the 7% increase being lower proportionately than might have been expected with the decrease in overall revenue. For the six months ended 2024, net loss totaled $5.96 million or negative $0.81 per share, compared to a net loss of $5.13 million or negative $0.72 per share in the same period last year. The increase in net loss was attributable to the decrease in revenues, as previously noted above, partially offset by the increase in services and consulting revenue and a decrease in operating expenses. With regard to the balance sheet, at June 30, 2024, cash and cash equivalents was approximately $0.5 million compared to $2.44 million at December 31, 2023. In addition, the company had over $1.27 million in receivables and contract assets, for a total of approximately $1.77 million in cash and expected short-term liquidity. Duos also has more than $1 million in inventory as of June 30, 2024, consisting primarily of long-lead items for future RIP installation that are expected to be deployed this year and 2025. There has been a large increase in other assets, notably the recording of a $10.7 million intangible asset, which represents the estimated fair value for five years of data to support the recently signed long-term services and data sharing agreement executed with the previously mentioned Class 1 customer for the provision of subscription services. Total current liabilities are $5.81 million versus $3.25 million as of December 31, 2023. $2.2 million of this increase is noncash and related to the data services agreement. Long-term contract liabilities have increased by $8.5 million, reflecting the noncurrent portion of this agreement. My overall comment on the balance sheet is that it remains stable in anticipation of the expected growth in the business in the second half of the year. Turning to backlog. At the end of the second quarter, the company's contracts and backlog and near-term renewals and extensions are now more than $19.6 million, of which approximately $6.9 million is expected to be recognized as revenue during the remainder of 2024. The balance of contract backlog comprises multiyear service and software agreements, as well as project revenues. It should be noted that $10.7 million of the revenue backlog is for data access to support the new subscription business and is accounted for as a nonmonetary exchange that resulted from an amendment to a massive material and service purchase agreement with a Class 1 railroad. Before turning the call back to Chuck, I would like to address the subject of guidance. As we have discussed previously, we have experienced some difficulty in giving accurate guidance within the time frame of a fiscal year due to the delays and uncertainties in our current market space. However, we believe the current analyst expectations for annual revenue this year represent a reasonable estimate at this time. Chuck will be addressing the transition into new markets, including our growing recurring revenue initiatives such as AI and subscriptions, for which we have already announced some success this year. As we transition another few months, my expectation is that we will be able to formally reintroduce guidance. This concludes my financial commentary, and I will now pass the call back to Chuck. Charles Ferry: Thank you, Adrian. I'll start first about our Railcar Inspection Portal business, and more specifically about the subscription offering. On May 17, 2024, Duos and our largest Class 1 customer executed a 5-year machine vision AI subscription partnership agreement. Much of the expansion on our balance sheet that Adrian discussed is a result of this agreement. This is the first machine vision and AI rail safety partnership agreement in North America. The agreement authorizes Duos to offer shippers and railcar owners transiting their Class 1 network the opportunity to subscribe to wayside machine vision AI safety technology. While Duos is the inventor of the Railcar Inspection Portal and holder of 10 active U.S. patents for this innovative wayside defect detection solution, our Class 1 customer is leading the rail industry in the deployment of machine vision AI wayside detection technology with seven portals in the United States and Canada. More importantly, our Class 1 customer has fully integrated the portals into their mechanical inspection operations. Mechanical Carmen from the Class 1s that I have talked to say that they are getting great results using the tool and have provided good feedback that we've used to improve the system over time. Going forward, Duos and our Class 1 customer will emphasize standardizing machine vision AI safety technology so the data can be easily exchanged through a subscription service with other Class 1s, regional carriers, passenger railroads and first responders. Our Railcar Inspection Portal technology can be integrated into railroad, public safety and asset management data systems, with the ability to identify FRA and critical safety appliance defects and communicate alerts to train crews, train dispatchers, railroad operation centers and first responders in real time. Visual documentation of the train, railcar location within the train, car initial and number, placard and defects are all presented within 60 seconds of image capture. Currently, we have two subscribers that have been using the system effectively for many months now, Amtrak and another large railcar fleet operator. We are in discussions with another 20 potential subscribers, which includes car owners, shippers, short lines, passenger rail and other Class 1s. We'll continue our efforts to expand and prove out the subscription offering and keep you updated. Our Edge Data Center business, led by data center industry veteran, Doug Recker, is completing contract discussions that have effectively sold out our first three Edge Data Centers destined for Texas. A fourth Edge Data Center is close to being sold out as well. Land leases are in the process of being secured and our in-house project management team has begun the site survey work, permit requests and logistical planning to execute installations beginning this September, with the expectation of revenue starting this October. These Edge Data Centers will allow for high-speed connectivity, low data latency and high reliability that has not ordinarily been available in smaller and rural markets. Those who will greatly benefit are schools, hospitals, first responders, along with large farms and oil and gas operators in that region. Local leaders we are planning with for the installations are very excited and removing all obstacles to gain access to better connectivity for their communities. Our pipeline of new orders is growing, and I expect to install at least 15 more Edge Data Centers in FY 2025 and accelerate that if possible to meet the demand. We have launched a new website specific to this business where you can learn more about how this all works at duosedge.ai. Let's talk about our new power business and what is driving it. The demand for more computing with 5G and AI has created a data center boom, and that has also created a power shortage to meet that demand. Accelerating data center load growth is driving long lead times of three to seven years to procure sufficient utility power for new hyperscale data centers across the U.S. according to analysts from TD Cowen. I have previously spoken about the power industry experience that the Duos team and I have from our time at APR Energy. From 2016 to 2020, about 15 members of my current Duos team and I installed more than 1-gigawatt of power. During one period of intense demand in the fall of 2017, our team installed two power plants in South Australia, two power plants in Puerto Rico following Hurricane Maria, and one more power plant in Mexico following an earthquake. All five plants were installed near simultaneous in less than 120 days. With our entry into the data center space, we are now receiving requests to participate and, in some cases, lead opportunities to install power in support of data centers here in the United States. Based on this growing demand, we have incorporated Duos Energy Corporation as a third subsidiary to our Duos Technologies family and already have a small pipeline of projects in support of data centers that could further accelerate our plan for more recurring revenue and profitability. With all the excitement around our new divisions, I want to reiterate our commitment to progressing our Railcar Inspection Portal subscription business. Our company has invested nearly $70 million over the past seven years to perfect this technology and patent. There is strong evidence from across the rail industry that this technology will eventually be deployed in high numbers, benefiting everyone. However, to ensure we can deliver the value and return our shareholders -- and return our shareholders and what they expect, I am strongly committed to diversifying our business into other synergistic areas where we have expertise and market conditions expect fast growth. Our team is exceptionally talented and very capable in advancing this strategy. In closing, I want to thank my Board of Directors and long-term shareholders for their advice, counsel and support as we advance this strategy. Thank you for listening, and we'll now open the call for your questions. Operator, would you please provide the appropriate instructions? Operator: [Operator Instructions] First question comes from Michael Latimore with Northland Capital Markets. Please go ahead. Mike Latimore: Great. Yes. Thanks very much. So I guess, as you think about the second half of this year, I know you're not giving specific guidance, but maybe can you sort of highlight the top two or three driver -- incremental revenue drivers second half versus first half? Charles Ferry: Yes, I'll start, and I'll let -- this is Chuck. I'll start and I'll let Adrian clean up behind me here. At a high level, key revenues that we're expecting to come in, first of all, will come in from Amtrak, which is an ongoing installation project. Adrian mentioned we've already accelerated some of that revenue, and that was because we've installed now the very large Edge Data Center which is a part of that installation, and that occurred here about a month or so ago. We've got another large contract that we're expecting to close with a large chemical producer. And then we do expect to start seeing revenues coming in with our new Edge Data Centers that will be deployed out into the field. And Adrian, if you want to add to that, please? Adrian Goldfarb: No. That pretty much describes it, Mike. I think what you'll see is you'll see a marked improvement, obviously, over the past two quarters for Q3 related to the fact that we are now starting to push forward with the Amtrak installation. There are still some challenges around that, which I've mentioned and then just waiting to start the other RIP installation at the chemical manufacturer. Outside of that, we are currently in discussions with about 20 different potential clients on the subscription side, and with the Edge Data Centers, all of that will start probably -- will start to kick off probably in about Q4. I think what will happen is that we will in the next call, the Q3 call, we'll have a much better visibility on that. But I'm expecting much better results going forward. Mike Latimore: Great. And then I think in the press release you talked about winning customers already for Edge Data Center and that amounts to, I think, $1 million of ARR starting in the fourth quarter. Does that assume kind of full capacity of those three Edge Data Centers, that $1 million of ARR? Charles Ferry: Yes. So it does. So we expect those to be filled to capacity. Again, these Edge Data Centers are effectively small-scale co-location data centers, which is why they're pretty in high demand. And we expect them to have filled out. So the way that kind of the operational cadence works, you get it installed, you bring the power and fiber up in the Edge Data Center. And in general, we expect about a 30-day period where customers start to come in, fill out that data center. So about 30 days after we commercially turn it on, it's effectively filled with those long-term and recurring customers inside those data centers. Mike Latimore: Okay. And then, Chuck, did you say you had 15 people on staff that are kind of experienced in the energy world? Charles Ferry: Yes, we do. So we have a staff of about 70 folks total. Of that, at least 15 are prior APR Energy employees. I'm very fortunate that employees that used to work for me will come back and work for me a second time, which is very helpful. In those 15, they go across all of the skill sets that you need to commercially develop, financially plan for, engineer, procure, install, and then operate and maintain power plants. In this case, again, it's kind of a convergence of what we're doing inside the Edge Data Center space and the data center industry at large. When some of the customers and some of the data center analysts found out that we have all this power experience, all of a sudden, a lot of these power opportunities against data centers have become -- have been presented to us. And so I think we're going to take advantage of the talent we have on staff and our know-how in that space and participate in that. Operator: Next question comes from Richard Jackson with True North Financial. Please go ahead. Richard Jackson: Yes. Congratulations on moving most of the business to a subscription model. I always thought that was the place to be long term. Can you give us a range of what gross margins and operating margins you're targeting for that subscription business? Is it vastly different between the power and the data and your railcar monitoring? Charles Ferry: Yes. I'll let Adrian cover the subscription part and I can talk to the data center and the power plant. Adrian Goldfarb: Yes. So from a subscription standpoint, the margins are very high. And that's because the marginal cost of putting in a subscription is not that much. So typically, you're looking for margin -- gross margins at minimum range of 70%. And then typically, we expect that to increase over time and get up into closer to the 90% range, as is typical with that type of business. And that's kind of been our aim with all of the businesses now that we're currently looking at. Charles Ferry: So on the Edge Data Centers again, there's -- obviously, there's a cost, again, because we own and operate these Edge Data Centers, so obviously there's costs going in. But those costs are effectively capitalized over the life of a 5-year recurring contracts. And so once that thing is up and operational, we expect gross margins to be at least in the 60% to 70% or higher area. On a power plant project, ones that are against these data centers right now, we would expect, again, there's going-in costs. The good news in this sector is that the data center operators and developers have shown a high willingness to pay up milestone payments to offset the costs of going into a power project. Once you're in there, again, good recurring revenue, typically five years or more. And we would expect our gross margin to be probably in the 50 to 60 percentile range with that particular business. Again, we're pushing a lot of the costs from an overhead perspective above the line, and then try to really bifurcate that G&A cost below to show a true -- what we're truly running at. Adrian Goldfarb: Yes. One other comment on that, Richard, is that as compared to some subscription businesses, although the level -- the number of customers is typically on the lower end just because of the industries they're in, the churn rate is extremely low. All of the contracts we look at are typically minimum multiyear contracts and can go on for a long time. So that's one of the beauties, it's not only a high margin but it's also a low churn business. Richard Jackson: So will you need capital? You got an idea of how much yet? Charles Ferry: Yes. Right now, we're not sizing out any capital right now. The Edge Data Center business, like we said, we've effectively funded the first four. The intention is to get those first four up and prove out the economics of that. And then we'll see what that looks like from there. That business could readily be funded from asset-backed debt financing. I'm not saying it's how we'll do that, but it can be. So there are ways to do that without diluting current shareholders. On the power side, there's a lot of different options there with the, I'll call it, the data center nuclear arms race. There are data center developers and operators that are willing to fund a lot of that as part of a power deal. So we'll see what that looks like and keep everybody updated. Operator: Next question, Ed Woo with Ascendiant Capital Markets. Please go ahead. Edward Woo: Yes, hi. I just had a question about your pipeline. Has there been any change in the sales cycles as you try to get these new contracts? Is there different sales cycles with your railroad business and with the data center business? Charles Ferry: Ed, that's a great question. And yes, there is a big difference in the sales cycle time line between the rail and the Edge Data Center, and I'll talk to the power side of this in a moment. So again, the rail -- the cycle for closing rail CapEx deals is typically, as we've seen, taken sometimes 12 to 24 months. It can be a bit painstaking, but that really hasn't changed that much. On the subscription side, we're seeing it's probably taking about four to six, maybe even eight months to close a large subscription customer. Again, we're on the very front end of this. We've only been able to really truly offer a subscription of these portals for about the last 60 days. So we got a lot of interested customers. And so I think we'll have to come back to you in a couple of months to really give you an accurate metric for how long it's taking to close those customers. On the Edge Data Center side, what we're seeing is that once we find a customer who, in our case, has actually been funded by federal and state infrastructure dollars and being granted that money, we get into a conversation with them, the closure rate with them is about 60 to 90 days. And sometimes it's even faster. Now once we actually get interest from them and we start discussing the -- getting into contracts, now there's a pipeline of about, let's call it, about 90 days to actually manufacture the Edge Data Center. Month number four, you're actually installing the data center; by month number five, you're filling it up. So we're probably talking about, from interest to Edge Data Center in the ground and producing recurring revenue, let's call it about six months for that. On the power side, I don't have any specific data points right now for putting power up against data centers. But right now, it appears that -- both Adrian and I were out on a TD Cowen investor conference where the best and brightest of that industry were there, to include data center builders and hyperscalers. There are data center locations that need power now. So now it's a matter of how fast we can bring it to them. Again, I think on our next call, we'll be able to tell you with a little bit more clarity about what the interest to closure cycle looks like on that. Operator: At this time, this concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Ferry for his closing. Charles Ferry: Again, I'd like to thank the audience for joining us today. And as always, I want to double-thank all my Board members and most especially our shareholders and our -- especially, our long-term shareholders, for your support. I think our strategy is one that is going to be very lucrative for us going forward, like Adrian said. And we look forward to keeping you updated. I'll turn the call back over to our operator. Thank you. Operator: Before we conclude today's call, I would like to provide Duos' safe harbor statement that includes important cautions regarding forward-looking statements made during this call. This earnings call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking terminologies such as believes, expects, may, will, should, anticipates, plans and their opposites or similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based and could cause Duos Technologies Group, Inc.'s actual results to differ materially from those anticipated by the forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Item 1A in Duos' annual report on Form 10-K, which is expressly incorporated herein by reference and other factors as may periodically be described in Duos' filings with the SEC. Thank you for joining us today for Duos Technologies Group's Second Quarter 2024 Earnings Call. You may now disconnect.

Earnings call: Nauticus Robotics reported a net loss of $5.4 million By Investing.com

Nauticus Robotics (NASDAQ: NAUT), a company specializing in autonomous underwater vehicles (AUVs), reported its second-quarter earnings for 2024 with a revenue of $500,000 and a net loss of $5.4 million. The company highlighted its efforts to meet NASDAQ listing standards, its partnership with Florida Atlantic University, and the upcoming deployment of its Aquanaut Mark 2 vehicle in the Gulf of Mexico. Despite a challenging quarter, Nauticus Robotics remains optimistic about its backlog for 2025, commercial and defense opportunities, and the potential of its software toolKITT. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights Nauticus Robotics, with a current market capitalization hovering between $40 million to $50 million, is actively working towards compliance with NASDAQ listing criteria. The company's strategic focus remains on expanding its commercial and defense operations, leveraging its technological advancements in autonomous underwater vehicles. The anticipated deployment of the Aquanaut Mark 2 in the Gulf of Mexico, along with the development of toolKITT, positions Nauticus Robotics to potentially capitalize on the growing demand for sophisticated marine robotics. Despite the net loss, the company's leadership is confident in their trajectory and the value proposition for stakeholders. InvestingPro Insights Nauticus Robotics (ticker: NAUT) presents a mixed financial landscape as it navigates the waters of technological innovation in marine robotics. With a keen eye on the company's performance and potential, InvestingPro has highlighted several key metrics and tips that are particularly relevant to investors and stakeholders. InvestingPro Data shows a market capitalization of $7.67 million USD, which is a significant deviation from the estimated $40 million to $50 million mentioned in the article. This discrepancy could indicate recent market movements that have impacted the company's valuation. Additionally, the company's revenue over the last twelve months stands at $4.25 million USD, a stark contrast to the second-quarter revenue of $500,000 reported in the article. This suggests that while the company has faced challenges in the recent quarter, it has generated higher revenue over a longer period. InvestingPro Tips for Nauticus Robotics highlight a significant debt burden and challenges in maintaining liquidity, with short-term obligations exceeding liquid assets. These insights suggest that while the company is optimistic about its future operations, it faces immediate financial hurdles that could affect its ability to sustain operations and meet its ambitious goals. The tips also reveal that analysts do not anticipate the company will be profitable this year, aligning with the net loss reported in the article. This lack of profitability is further underscored by a negative gross profit margin of -160.96% over the last twelve months, which indicates that the cost of goods sold has exceeded the company's revenue. For investors keen on diving deeper into Nauticus Robotics' financial health, there are 19 additional InvestingPro Tips available at https://www.investing.com/pro/NAUT. These tips provide a comprehensive analysis that can help stakeholders make informed decisions based on the company's performance, market position, and potential risks. Full transcript - Nauticus Robotics Inc (KITT) Q2 2024: Operator: Good day, everyone, and welcome to today's Nauticus Robotics 2024 Q2 Earnings call. [Operator Instructions] 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. Kristin Moorman: 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. John Gibson: 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. Daniel Dehart: 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. John Gibson: 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. Victoria Hay: 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. John Gibson: 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. Nicholas Bigney: 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, it's 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. John Gibson: 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? Unidentified Company Representative: 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. John Gibson: 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. Operator: [Operator Instructions] We'll take a question from [Robert Mendrala]. Your line is open. Unidentified Analyst: 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. Nicholas Bigney: 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. Unidentified Analyst: Okay. So the market cap is closer to $40 million to $50 million. Is that my understanding. Nicholas Bigney: On a fully diluted basis, that's correct. Unidentified Analyst: Okay. So does that meet then the NASDAQ requirement? Nicholas Bigney: We're working with them on that. They will look at certain criteria. But yes, we think we have a path forward there. Unidentified Analyst: 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. John Gibson: 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 its 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 is just that you're going to be running at a higher day rate. But that's the right numbers. And so the model 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 weather today. Unidentified Analyst: I understand. So thank you. So the other vehicle that's being tested at FAU, it's, I guess, set to deploy sometime in Q4, would that be on a similar type of a daily -- per DM charge? John Gibson: 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. Unidentified Analyst: 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. John Gibson: Your questions are -- you could be a director here, Robert, it's an excellent question. We're very excited about toolKITT. We had a breakthrough this week, one of the things that we do with toolKITT is we simulate toolKITT and our simulation had been slow. And so we weren't getting in the number of runs that we wanted and so we had one of our developers here, outstanding young man, he came in and modified our sim work so that we were able to increase it by an order of magnitude to speed. That's significant in our ability to test the software without having to have a vehicle in the water, and it performs almost identically to the vehicles - when the vehicle's in the water. We are working with an ROV company right now that's excited about deploying toolKITT on their ROV's and we're working through the contract in working with them. And I think that's a press release and a discussion that we'll be able to have in the very near future. I think the software itself is going to be, I think, the core of the company if we look out in future years because you're able to move that so much more quickly than you are the vehicles themselves, it's higher margin, and reflects a lower capital, faster delivery capability. And so we are focused on making that a commercial product. I have with me the gentlemen doing that here. Jason, would you want to make any comments on. Jason Close: 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. Unidentified Analyst: 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's -- it can be rolled out very efficiently and effectively fairly easily. While the other part of the business... John Gibson: I would say there's no pivot here. Without that toolkit, 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? Operator: We'll take our next question from [John Manion] of Geneva Enterprises. Unidentified Analyst: 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. John Gibson: 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. Unidentified Analyst: Awesome. That was the main question that I had. So thank you very much for your time. John Gibson: You're quite welcome. Operator, do we have any more follow-ups. Operator: We have no further questions at this time. I'd be happy to return the call to John Gibson for closing comments. John Gibson: Thank you. We're excited about the company. We're excited to have John join. We're excited about the work we're about to go do in the Gulf of Mexico now for customers. We've got calls later today working on how we're going to execute that. We have some really good partnerships that are developing with other service providers, and I think we're at that crucible where we're at an inflection point, and we're working to turn the corner. It's not that point where I can really say much, but I think all of the indicators are there that we're on the right track. We have the right vehicle. We have the right operating system. We've got the right team in place here. We've augmented the team with another real professional, in John Simington joining us. And so we won't lose any momentum. And we look forward to trying to create wealth for everybody involved in Nauticus, including our employees and our shareholders and our lenders. So -- we just -- and we want to do a great job for customers. And I think that's how you build a fantastic company and just stick with us. This is -- we're right there at that point where I think we're about to come through the inflection point for the company. I appreciate you guys. Take care. Operator: This does conclude today's program. You may now disconnect your lines, and everyone, have a great day.

Earnings call: Peyto Energy Q2 results show resilience amid low gas prices By Investing.com

Peyto Energy, a prominent oil and gas company, has announced its financial outcomes for the second quarter of 2024. Despite facing challenges posed by low gas prices, the company has successfully generated $155 million in funds from operations and $51 million in earnings. This performance is largely attributed to Peyto's effective hedging program and its ability to maintain low cash costs. The company also reported a significant increase in well productivity following the completion of long lateral wells in the Wilrich area and on the newly acquired Repsol (OTC:REPYY) lands. Looking forward, Peyto is committed to reducing operating expenses and continuing its low-cost operations while delivering a healthy dividend to its shareholders. Key Takeaways Company Outlook Bearish Highlights Bullish Highlights Misses Q&A Highlights Peyto Energy (Ticker: PEY), with its latest earnings call, has demonstrated a robust approach to navigating the volatile oil and gas market. The company's strategic hedging and cost management initiatives have paid off, enabling it to deliver solid financial results even in the face of low gas prices. With a clear focus on productivity and cost reduction, Peyto Energy remains a company committed to operational efficiency and shareholder value. InvestingPro Insights Peyto Energy's commitment to delivering shareholder value is further underscored by its impressive track record and recent performance metrics. According to InvestingPro data, Peyto Energy (Ticker: PEYUF) has maintained a strong financial position with a market capitalization of approximately $2.1 billion. The company boasts an attractive P/E ratio of 8.92, indicating that it may be undervalued relative to its earnings. This is reinforced by the fact that the P/E ratio has slightly increased to 9.32 over the last twelve months as of Q1 2024. InvestingPro Tips highlight that Peyto Energy has not only raised its dividend for three consecutive years but has also maintained dividend payments for an impressive 22 consecutive years. This consistency is a testament to the company's financial stability and commitment to its shareholders, with a significant dividend yield of 9.04% as of July 31, 2024, which is quite substantial in the current market. Additionally, the company's stock has experienced a significant return over the last week, with a 7.49% price total return, showcasing a short-term uptick in investor confidence. This performance is particularly noteworthy given the broader challenges in the oil and gas sector. For investors looking to delve deeper into Peyto Energy's financial health and future prospects, InvestingPro offers a wealth of additional tips -- totaling 10 -- that can provide a more comprehensive understanding of the company's potential. Visit https://www.investing.com/pro/PEYUF for further insights and analysis. In summary, Peyto Energy's recent financial outcomes and proactive management strategies, coupled with its strong dividend history and recent stock performance, paint a picture of a resilient company well-positioned to continue delivering value to its shareholders. Full transcript - Peyto Exploration & Development Corp (PEYUF) Q2 2024: Operator: Good day and thank you for standing by. Welcome to the 2024 Second Quarter Peyto's Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I'd like to hand the conference over to our first speaker today, JP Lachance, President and CEO. Please go ahead. JP Lachance: Thanks, Marvin. Good morning, folks, and thanks for joining Peyto's second quarter conference call. I'd like to remind everybody that all statements made by the company during this call are subject to the same forward-looking disclaimer and advisory set forth in the company's news release issued yesterday. Present with me to answer your questions in the room here is Riley Frame, our VP of Engineering and Chief Operating Officer; Tavis Carlson, our VP of Finance and CFO; Lee Curran, our VP of Drilling and Completions; Todd Burdick, our VP of Production, and Derick Czember, our VP of Land and Business Development. Firstly, we'd like to thank the entire Peyto team, both in the office and in the field, for their strong execution this past quarter. It was a strong quarter for Peyto, despite very low gas prices. In fact, the lowest we've seen since 2019 at echo, anyway. We still managed to generate $155 million of funds from operations and $51 million of earnings, in large part due to our systematic hedging program, which realized $68 million in gains, along with our industry-leading low cash costs. A reminder that our mechanistic hedging program is designed to de-risk and smooth out prices and give us predictable revenues so we can provide confidence to run our capital program, manage the balance sheet, and pay shareholders a dividend. Ideally, we'd be out of the money in our hedges, but this approach to date has accumulated over $350 million in hedge gains since we started. The other point I would like to point out about the quarter is that I think Peyto's operating margin is 62%, with these low gas price streams very well as compared to our competitors, and it's a testament to how we run the business. Let's talk a bit about the drilling program. We completed another string of very long laterals in the second quarter, mostly Wilrich across different areas in Greater Sundance and in our core Brazeau area. The average lateral lengths of these wells drilled in the program were just over 2,300 meters which I think is another record for the size of the program from a quality program perspective. We were set up on three well pads for the most part through Q2, during what was a typical wet season to a spring breakup. Of course, that minimizes moving equipment around and slogging through the mud. Obviously, that slows down our on-stream timing, but it certainly helps to keep and even drive costs down, as we saw overall improvements in our average cost per meter on both drilling and completions operations this past quarter. We continue to be excited about the drilling results in the newly acquired Repsol lands. We had 21 wells on stream to the end of Q2, with enough history that shows a sustained 30% increase of average well productivity as compared to the performance of recent legacy programs. These wells were drilled in the Wilrich, the Falher, the Notikewin, and they were drilled over a large portion of the Repsol base. That's important because it provides us confidence that it isn't just one species that's outperforming, but the good results are coming over a wider area and up and down the strata. The other thing that's important here is that the costs to attain these outcomes are similar to or even slightly cheaper than what we're currently spending on our legacy lands, since we're using the same well designed to drill and complete them. Cash costs for the quarter were $1.50 per Mcfe or $1.24 per Mcfe, excluding royalties. We had an annual GCA adjustment to our royalties on the Repsol assets this past quarter that inflated our costs by about $0.05 per Mcfe. Going forward, we expect our royalty rates to be around 7% to 8% on a pre-hedged sales revenue basis, or if you include the revenue from our hedge gains, our royalty rate is more like 5% to 6%, since we pay royalties based on Alberta reference prices and not our hedge book. Payto continues to have the lowest cash costs in the business and one of the highest margins, but despite the fact that we have the lowest cash costs, we still endeavor to improve. We set a goal last quarter to reduce our operating expenses by 10% per Mcfe by the end of this year. We're pleased that we are basically on target with that goal, having reduced 5% in the second quarter already. Part of that gain was the redirection of gas volumes from a third-party deep cut facility where we used to extract low-value ethane as a liquid, and we moved that over to our own and operated Edson gas plant through the Central Foothills Gas Gathering System. It meant we had to give up about 2,000 barrels a day of NGL liquid by selling that ethane back in the gas space, but the value we realized was essentially no different. We were saving third-party fees and increasing the plant utilization at the gas plant. And I think this is a good example of the way we look at the business, the way we run the business. It's about making money, not about BOEs. Along the same vein, we recently shut down the sour gas sweetening side of the Edson Gas plant. Although we had some third-party income coming in from that, it wasn't enough to offset the cost to run and maintain that part of the plant. Not to mention running it impacted plant reliability, higher emissions and slightly higher safety risks to operate sour gas of course. We had to shut in a small amount of our pay-to-net production from the sour gas unit that fed that part of the plant, but those wells produce very little NGLs and they have higher shrinkage, and so the cost to operate doesn't make economic sense, especially at today's gas prices. Currently, we have four rigs running across our core areas, three in Sundance and one in Brazeau. Two of those Sundance rigs are on the former Repsol land. We have a steady diet of non-accumulating wells for the balance of the year, along with several Dunvegan, Wilrich and some Falher wells that are all left on the docket here for the rest of the year. We plan to drill and complete these wells and we may or may not bring them on production, or if we do, it'll be at restricted rates depending on where gas prices are. But at the very least, we'll use this time to evaluate the gathering system impacts to determine evolving projects and build productive capability for later when we expect prices to be better. We're still planning to spend around $450 million this year at the low end of our guidance, and we're targeting year-end exit around $135,000 BOEs a day, of course assuming prices cooperate and we improve them there as we expect. As mentioned in the release and previous monthly, we have been providing gas to the Cascade Power Plant directly through our pipeline for some time now for testing and commissioning purposes. Our contract is expected to formally kick off here on or before September 1, so soon. In closing, I'd like to remind everyone we remain bullish on natural gas for the near future as demand forecasts continue to rise in North America. Natural gas is a reliable, critical fuel for industrial use, for power generation or just to heat our homes. Significant LNG gas is coming online in North America in the near term, and the potential for datacenter expansion to meet the needs of AI is also being contemplated in many places that should be constructive for both gas prices and, of course, our power deal. Specific to Payto, we've protected revenues with our low-cost focus and discipline hedging strategy, not only for the balance of '24, but we have lots of gas hedging to '25 and even '26 at prices that are at or above $4 an MCF. As I mentioned earlier, we hope prices will even higher, but it's kind of nice to know we have that cushion in our business so we can grow modestly while we return a healthy dividend to our shareholders. New assets are working great. We have room to grow without large infrastructure costs to expand. So despite the current gas price environment, things are looking pretty good. So I imagine there are some questions. We have a few coming in overnight here via email, but I think we'll go to the phones first. Marvin, if there's some questions that folks have queued up for some questions, we'll take those now. Operator: Thank you. At this time, we'll conduct the question-and-answer session. [Operator Instructions] Our first question comes from the line of Aaron Bilkoski of TD Cowen. Your line is now open. Aaron Bilkoski: Thanks. Good morning. So my first question is, one of your deep-basin producers has been seeing capital efficiency benefits as a result of using higher-resolution seismic data. I guess my question is, is this something that you've been doing as well? If not, do you see it as being an opportunity here to unlock? JP Lachance: Hi, Aaron. It's higher-resolution seismic data? Is that what your question was? Aaron Bilkoski: Yeah. JP Lachance: We've always used seismic data to help guide us, especially on the fluvial channel systems in the deep basin, but also for structural reasons to help us understand the structural elements of the play. I'm not sure about the high-resolution part of that equation. We've always used seismic as a tool. It's not the only tool we use. Of course, we've got lots of well control as well. We actually put -- marry those two together to make decisions on drilling wells and to reduce risk. So, from our perspective, whether it's high-resolution or just typical seismic data that we use 3D, always, generally is something that we continue to employ and will sort of aid us, but it's not the be-all, end-all to the solution to deciding where a well is going to be drilled, for example. Aaron Bilkoski: Thanks, JP. Can I follow up with a slightly different question? It seems like there is a looming rail strike that could start in the next week or so. If rail service was out for, say a week or two, do you see that having an impact on your business in terms of frac sand availability or the ability to move liquids? Just any color you could provide would be interesting. JP Lachance: No, I don't think we're aware of the potential for a strike. We don't see an impact on our business. I don't think it would last very long. A lot of other industries will be affected, ones that might get a little more attention from our federal government than ours to resolve the issue, certainly. We have enough products. One of the things is NGLs. A lot of NGLs move on rail, but we generally go into storage. So there's time there to store these things. We also have storage on-site for our NGLs should there be a challenge in there. If it really lasts a long time, then we'd be looking at warming up our plants and reducing propane. It's really propane that runs on rail for the most part of the province. So we don't see an impact on a rail strike here at this time. Aaron Bilkoski: Perfect. Thank you, JP. Operator: Thank you, one moment for our next question. [Operator Instructions] Our next question comes from Chris Thompson of CIBC. Your line is now open. Chris Thompson: Hey, good morning, everyone. Thanks for taking my questions here. Just the first one on managing your capital and building that productive capacity. When we look back at some of your disclosure through the year thus far, it looks like you might have about 9 drilled and uncompleted wells have been added to the inventory. So I just wonder if we can talk through a bit of color on that. And then, sort of, as we get closer to Q4, can you help us quantify how many wells will you have sitting ready to come on production in a better price environment? JP Lachance: Hi, Chris. Thanks for your questions. As far as managing the inventory, we have about 10 ducks right now, to answer your question. And as far as how we manage those, I mentioned that we likely will bring them on at some rate. So I don't see us having a large amount of ducks. It'll be more that we have other tropes and wells back or we've shut in some other production that's probably less economic. In fact, I think we have some production right now that goes to a third-party, about 500 BOEs a day ton. It goes to third parties where we have a higher cost structure. So those are the things. And so it's really more about managing the existing production. The Wilrich production that comes on will likely be choked and or shut in depending, we want to do some testing here while we've got a chance. We'll do that to test the gatherings. Backup is always an issue for us because we've got a lot of legacy production that is habituated to certain pressures in the system. We're always sensitive to seeing how wells respond to that and this is giving us an opportunity to do that. So, wells will come on and come off. And so this productive capability we're going to build, it's hard to point to a number like what is that value, but like I said, we expect to still exit this year at $135,000 by the end of the year. That's despite the fact that we've actually taken roughly 2,000 by plus some gas from the sour unit out of our base decline rate. Chris Thompson: Right. Okay. And then just thinking about the shape of that profile, you've previously talked about maintaining relatively flat production through Q3. I'm just wondering if that's still the intention and therefore we sort of knew that volumes were somewhere between 50 and maybe 50 million coming out in line. So, any guidance around that would be helpful. JP Lachance: Yeah, so we said we were keeping production flat and we're keeping production flat to basically minimize any exposure to the ECO/ Empress [ph] market. I always say we don't have ECO exposure. We can sell it at Empress, but the Empress market is not connect -- or is basically selling the same price as ECO, so there's no value in that. So really how we're managing production right now is at a state where we're going to continue to deliver obviously our hedged volumes and then anything above that is going to go to our diversified locations, which is another 150 million. And if you include Cascade in that 160 million, so in total sour there. And so when you add that all up, that's where we get sort of 122 level in our current mix of gas and liquids. So we'll maintain that roughly that level until we see prices improve. And that right now, if you look at the strip, there's quite a difference between October and November, we expect those prices will obviously come in, but there's a dollar difference at ECO right now, when you look from October to November. So October does turn out to just be a dollar. Then we'll defer the production ramp up to November, whatever it takes, right? Chris Thompson: Okay, got it. Yeah. I guess is there, in terms of historically, pay-to-risk was always guided as an exit rate. If pricing remained weak, is there a time where you'd look to updating the market in terms of how you're thinking about those exit volumes? JP Lachance: Yeah, of course. I think our next time we'll be on the call here will be November and I'll be a likely time to do that if things were to fall apart as you're describing. Chris Thompson: Okay. And then just a bit of a different question here with respect to cash taxes. It looked like your cash tax rate for Q2 versus pre-tax cash flow was quite light versus Q1. Just wondering how you're thinking about that average tax rate through the rest of the year? Tavis Carlson: Hey, Chris, it's Tavis Carlson here. So we manage the current tax provision based on a year-to-date standpoint. So with the soft prices that we've seen in Q2 and the outlook for Q3, we've lowered our kind of taxable expectation for the whole year. So if you look at year-to-date, we're about 10% on before-tax cash flow. So that's probably the best kind of range to go at, looking forward to the rest of the year now. Chris Thompson: Okay. That's helpful. Thanks, Tavis, JP, and I'll hand it back. Operator: Thank you. I'm showing no further questions at this time. I'd now like to turn it back to JP Lachance for closer remarks. JP Lachance: Yeah, okay. There's a couple of questions that have come in about looking for a little more color on that Wilrich program that we mentioned in the press release that we drilled recently through the quarter. So maybe I'll get Riley to elaborate on the Wilrich results we drilled, particularly on the Repsol lands in the quarter. Riley, do you want to? Riley Frame: Yeah. So I think some of the results we've been getting from the Repsol lands and the Wilrich are worth highlighting a bit. Particularly the Sundance Wilrich program really stands out. So over the years, we've developed the Wilrich and Sundance pretty extensively, but with these new lands, we're actually seeing some of the best results that we've actually ever achieved. We've talked about in the past how we're able to apply all the stuff that we've learned over the years, horizontal drilling to these new lands. And what we're seeing is -- and this is a good example of applying modern wellbore design to some really premium reservoir. And the early time results for these wells are coming in at nearly 2 times the average one-mile result from just several years ago. So really seeing some great results. And the other nice thing here is we've got a lot of inventory in this particular place. So we're really expecting to be able to continue to lean on this and drive some really great results rate in this core area. JP Lachance: Yeah. Thanks, Riley. Good color. And I have one other question here about the sweetening project. Maybe Todd, you could elaborate a little bit more on what are the impacts of this, maybe from the perspective of operating costs and maybe even production, a little bit of what you see for us. So the impact, obviously, this is moving the needle towards the 10% reduction by the end of the year. And this is part of that project. It's not included in our Q2. So this is such a three initiative that you guys have. We did it a little early because prices were bad and it didn't make sense to continue to operate that facility. So we did accelerate it. It's maybe saving us a little bit on the turnaround. So maybe you can elaborate a little bit more about this whole sweetening what you've done. Todd Burdick: Yeah, sure. So as far as the production impact, it was just under 1,500 BOE that was shut in. Majority of that coming from the Alton [ph] unit and then some from the wells sort of up north in the area we call Burland [ph]. So as far as a reduction in operating costs, we're estimating on a full year, it's probably a 5% reduction. And that would equate to about $0.03 per Mcfe fee we're modeling for 2025. So some of that will manifest in Q3 and Q4. Obviously, there's some capital costs and operating costs to shut down the amine plant, the amine process, the sulfur process, that sort of thing. There's work to be done on the CFGGS as that gets sweetened. We'll be able to take some ESDs offline that actually caused us quite a bit of grief last winter when it got cold. So it'll be nice to have some reliability on that. So yes, we would expect to see in the back half of the year, given that the plant came down, the sour side came down in early July, that we'll start to see some operating cost reduction for sure that will help to get us to that 10% target. It gives us good visibility that we're pretty confident that, obviously, you've got safety costs, carbon tax will manifest next year, and high maintenance costs on some of that stuff that's not running anymore. So pretty confident that we'll see that'll be a good part of the reduction. Sounds great. JP Lachance: Okay, I'm just going to turn it back to the operator here for another prompt or question. Operator: [Operator Instructions] I'm showing no further questions at this time. I would now like to turn it back to JP Lachance for closing remarks. JP Lachance: Okay, thanks everyone for tuning in. I realize it's vacation time, so some of you folks may not be even in the office these days. But I appreciate it, or you're off in the cottage somewhere. So thanks for tuning in live, and we'll talk to you again next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.