Prepared remarks
Hello, everyone. Thank you for joining us, and welcome to Nautic Robotics Incorporated 2026 Q1. To raise your hand, press star 1. To withdraw your question, press star 1 again. I will now hand the conference over to Kristin Moorman, Corporate Development Lead. Kristin, please go ahead.
Thank you, and good morning, everyone. Joining me today and participating in the call are John Gibson, CEO and President; Jimena Begaries, Interim CFO; and other members of our leadership team. On today's call, we will first provide prepared remarks concerning our financial and operations results. Following that, we will answer questions. We have now released our results for the quarter ending 03/31/2026, 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. We will now turn it over to John.
Well, good morning. Thank you, Kristin. And thank you to everyone for joining us on the call today. The first quarter 2026 was a seasonally softer quarter for offshore and that is consistent with what the broader subsea and offshore services market experienced during the winter operating season. We saw similar commentary from larger industry participants, including Helix and Oceaneering, both of which pointed to winter seasonality, lower first quarter utilization, and expectations for stronger activity in 2026. For Nauticus, the important point is this. We used the quarter productively. While revenue was not where we wanted it to be, our team focused on the work that positions us for improved execution in the second half of the year as the operating season strengthens. We advanced fleet readiness, completed significant annual maintenance and refurbishment activities across several of the ROV systems, and continued preparing our systems for higher utilization opportunities during the remainder of the year. We also continued advancing Nauticus Toolkit, our proprietary autonomy software platform. Nauticus Toolkit is central to our strategy because it allows us to create value not only through services, but also through software licensing, technology-enabled services, and deployment on customer-owned vehicles. During the quarter, we continued integrating Nauticus Toolkit across our subsea systems along with new high-definition camera systems and other advanced sensors designed to improve navigation efficiency, data quality, and customer value. We also made progress with Aquanaut and our autonomous manipulation capabilities. Aquanaut vehicle 1 has now completed more than 500 hours in-water on client-driven workflows and more than 200 successful vertical inspection behaviors on mooring lines. These are important steps towards offshore deployment, and the data from that testing continues to guide our software and engineering improvements. International expansion also remains another important part of our growth strategy. During the quarter, we continued advancing our UAE and broader GCC initiative, including work toward a long-term operational and commercial presence in Ras Al Khaimah. That region represents a meaningful opportunity for Nauticus across offshore energy, technology licensing, manufacturing support, and strategic partnerships. Finally, we are pleased to welcome Brian Allen as Chief Revenue Officer. Brian brings nearly two decades of subsea robotics, autonomy, and commercial leadership experience. His focus is clear: convert customer interest into revenue opportunities across offshore services, software licensing, hardware sales, defense, and international markets. So while Q1 reflected normal offshore seasonality, we believe Nauticus exited the quarter better prepared, more focused on commerciality, and positioned to pursue a strong opportunity set through the balance of the year. With that, I am going to turn it over to Jimena to walk you through the financials. Jimena?
Okay. Thank you, John. And good morning, everyone. I will now discuss our financial results for the quarter for 2026. During our first quarter, we remained focused on preserving liquidity, maintaining stockholder equity, and securing financial resources necessary to support the company. Revenue for the first quarter was $200 thousand, which is down $900 thousand sequentially and essentially flat from the same quarter last year. This performance is consistent with the seasonal trends we typically experience in the first quarter and reflects the overall market John just discussed. Operating expenses for the quarter were $5.8 million, which is down $200 thousand from Q1 2025 and down $800 thousand sequentially. G&A costs for the quarter were $3.2 million, which is an improvement of $1.2 million compared to Q1 2025. Sequentially, G&A has increased $600 thousand due to the nonrecurring legal fee credit received in Q4 2025. Net loss for the quarter was $9.3 million. This is a $9.9 million decrease in net loss sequentially and a $1.7 million increase in net loss from Q1 2025. These variations, both positive and negative, are largely related to the changes in fair value of our debt instruments. Adjusted net loss for the quarter was $6.4 million compared to $10.4 million for 2025 and $6.6 million in Q1 2025. Cash at the end of Q1 2026 was $5.9 million, compared to $7.6 million at the end of 2025. This decrease is related to cash used in operating activities. As we move into the second quarter, we remain disciplined in our approach to managing the business and preserving financial flexibility. I will now pass the call back to John.
Thank you, Jimena. I am going to turn it over to our leads that are working on international expansion and revenue opportunities. Jason Close will be first with updates on our UAE expansion. Jason?
Thanks, John. Since our last call, we have been focused on moving from strategy into execution around our UAE and broader GCC expansion efforts. While the current regional security environment has limited our ability to travel in person, it has not slowed our progress. In fact, we have continued to advance the foundational work needed to establish a presence in Ras Al Khaimah and support long-term growth in the region. Over the past several weeks, we have been actively engaged in identifying a location in Ras Al Khaimah that can support our long-term operations and commercial goals. We have also engaged a UAE-based marketing agency to support the next phase of our market activation efforts. That work includes improvements to our website, branding, and go-to-market materials, both for the regional market and more broadly as we continue refining how we position the Nauticus portfolio globally. At the same time, we are seeing that business opportunities in the region continue to move forward and mature, even with the broader uncertainty. The current environment has also reinforced the relevance of our solution in government and defense-related applications, particularly where unmanned systems, remote operations, and increased operational safety are a priority. We are being careful and disciplined in how we approach those opportunities, but we believe our portfolio is well aligned with several of the region's long-term needs. In parallel, we are seeing increased interest outside the GCC region and we continue expanding our international commercial engagement efforts. In addition, we continue to make progress in our collaboration with Forum Energy Technologies around the Olympic arm platform. During the first quarter, the team completed a review of the existing design documents, and in the second quarter, we expect to begin collaborative testing activities around the current prototype. This remains an important opportunity to further validate our technology and expand its application through established industry channels. Overall, we continue to see long-term potential in these international markets. We are focused on executing our growth strategy in a disciplined and structured way through 2026. With that, I will now hand the call over to Steve Walsh, our sales lead, for an update.
Thank you, Jason, and good morning. As expected, Q1 sales reflected the seasonal softness that traditionally impacts operations across the Gulf of Mexico during the winter months. Weather conditions limited offshore activity throughout much of the quarter and lower oil prices contributed to a more cautious operating environment early in the year. More recently, however, we have seen energy markets begin to strengthen, driven in part by geopolitical instability and the ongoing conflict involving Iran. Despite the slower start to the year, we remain very encouraged by the outlook for the remainder of 2026. We are seeing strong momentum in upcoming offshore activity with several new contracts recently commencing across both the offshore oil and gas sector and the offshore wind industry. This diversification continues to position us well as demand for subsea services expands across multiple energy markets. In addition, we are continuing to actively pursue project opportunities along both U.S. coasts, throughout the Gulf of Mexico, and in select international markets. We are also expanding our focus within the defense sector where we believe our subsea capabilities, operational experience, and technology platforms position us well for future opportunities. To that end, we are excited to be deploying resources in early June in support of a large defense contractor, the first work of this variety in over a year. Importantly, our team used a slower offshore period productively during the quarter; we completed major annual maintenance and refurbishment activities across several of our ROV systems. These efforts ensure that our fleet is operating at peak efficiency and reliability as we move into what we expect will be a significantly more active 2026 operating season. We also continue to make meaningful progress on the technology front. Nauticus Toolkit, our proprietary software platform, along with new perception capabilities and other advanced sensor technologies, are being successfully integrated across our subsea systems. These enhancements improve operational capability, data quality, and overall client value while further differentiating us in an increasingly competitive subsea vehicle market. As the year progresses, we believe these operational improvements combined with strengthening offshore demand, geographic expansion, continued technology integration, and growing exposure to defense-related opportunities position the company well for growth and long-term success. Thank you again for your continued support and confidence in our team. With that, I will turn it over to Brian Allen, our revenue lead, for his thoughts on 2026.
Thank you, Steve, and good morning, everyone. I am Brian Allen, the new Chief Revenue Officer at Nauticus, and this is my first earnings call with the company, so I want to be straightforward with you about how I see things and what I intend to do. I've heard about the weather conditions that brought about our Q1 results. It is going to be my job to broaden our revenue streams across technology, robotic hardware, and services in other global locations that help smooth this seasonality and move us toward a more rapid growth profile. Briefly on my background: I spent the last decade building a subsea robotics and AI company called Vaarst from scratch to around 230 people, growing revenue at 60% to 100% year-over-year and creating an $840 million sales pipeline that brought $90 million of sales and order book in my final 12 months. We sold autonomous inspection tech and tech-enabled services into the exact same markets Nauticus operates in. Before that, I spent 10 years at Subsea 7, starting off piloting ROVs, then supervising and managing them to build oil fields and wind farms. So I know these customers, I know this market, and I know what it takes to sell advanced autonomy into exactly this industry. People have asked me why I chose Nauticus, and the honest answer is two things I found during my technical diligence that I have not seen elsewhere in any other marine business. First, Nauticus Toolkit is the most advanced autonomy software available to purchase today for subsea vehicles. It is the leader in the category that matters commercially: a deployable, supported product that customers can run on their existing vehicles today. I see several near-term opportunities in the market for this software. Software sales are our clearest route to smoothing seasonality; they are not tied to weather. Second, and this is what really changed my mind, is the company's work on autonomous manipulator control. The IP here is potentially five years ahead of the closest competition. When you consider how much of the offshore inspection, intervention, and repair market is constrained by pilot ability and vessel costs, reliable autonomous manipulation represents a very significant commercial opportunity. Bringing that to market alongside the core Nauticus Toolkit platform and offering it with Aquanaut is where I see the real step change for this business. On what I intend to do: my first priority is generating early commercial wins that rebuild market confidence. I have already identified a small number of near-term Nauticus Toolkit opportunities and a potential high-seven to low-eight-figure Aquanaut services tender from my own network that I intend to move on quickly. Beyond that, I am building the marketing function and sales infrastructure to drive tech sales, technology-driven services, and Aquanaut hardware sales globally. A key part of my role is generating clear commercial signals from the market that Ameen and the engineering team can use to direct development efforts. The closer we tie what we build to what our customers are telling us they need, the faster the technology converts into revenue. I operate capital efficiently. That is a necessity in this market, and it is how I have always built businesses. I am already designing systems that use AI to automate parts of our sales and marketing function, which allows us to strengthen commercial capability rapidly at a fraction of what a traditional approach would cost with fewer headcount. In a company at our stage, every dollar of commercial spend needs to work hard. I want to close with this: I did have other opportunities on the table, and I chose Nauticus because the technology here is genuinely differentiated, which is very rare in this industry. The team here is strong, and I see an asymmetric opportunity that is worth committing to. I have taken a shareholding as part of my compensation because I want my interests aligned with all of yours. And this is not spin. I would not have joined if I did not see a bright future for this business. I am looking forward to updating you all on our commercial progress over the coming quarters. I will now hand back to you, John.
Thank you, Brian. We are excited to have you here. We recognize that Q1 revenue reflects a slower seasonal period, but we are encouraged by the direction of the business. Our fleet readiness is improved. Our technology continues to advance. Nauticus Toolkit is becoming a clearer commercial opportunity and gives you the ability to offset some of the seasonality. Our UAE and GCC expansion efforts are moving from strategy into execution. Most importantly, we are sharpening our focus on revenue. With Brian joining the team, a stronger commercial structure, and continued opportunities across software, offshore energy, defense, international markets, software license, and hardware sales, we believe Nauticus is positioned to build momentum through the remainder of 2026. We appreciate the continued support of our shareholders, our customers, our partners, and particularly our employees. We look forward to updating you on our progress in the quarters ahead. With that, operator, I would like to open up the line for questions.
Questions and answers
We will now begin the question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Peter Gastreich with Water Tower Research. Peter, your line is open. Please go ahead.
Thank you very much. So good morning, and thanks for taking my question. It is great to see the new senior hire with Brian and other talent that has been coming into Nauticus recently. I am really looking forward to tracking the team's progress throughout the rest of this year. My first question, just kicking off with the revenue trajectory: Q1 clearly showed seasonal softness which should be expected, but it does look a little softer than expected. Could you talk about your strategy to reduce those seasonal swings in your business going forward? For example, how software would play a role in that? And also in terms of cadence into Q2 and the second half of the year, is there anything you can share about key revenue drivers there?
Thank you. I appreciate the question, Peter. It's really straightforward as to how we get balance on revenue, and that is we have to begin to do two things. Number one is we have to sell Nauticus Toolkit, and I will let Brian comment on that in just a moment. That eliminates the seasonality and the weather-related risk that you have on revenues. The second thing we need to do is to have some international exposure so that we are not locked into the seasonality of the Gulf of Mexico or North America. So I think those two strategies, executed well, will cause us to even out the revenue profile for the company.
On the software side: the fastest lever that we have for Nauticus Toolkit sales is software licensing. Nauticus Toolkit is a maturing product, already deployed on third-party platforms including Forum Comanche and VideoRay Defender, and it has outperformed incumbent solutions in trials. One of the great things with software sales is they are year-round. These devices are essentially used year-round and licenses are charged year-round. So in terms of smoothing the revenue profile, it is the clearest route. It generates a year-round revenue source that is smoother than the lumpiness you see in offshore services-type contracts.
I would have also thought we would have been a little further ahead on activities in the GCC, but the conflict has prevented us ramping as rapidly as we want. It is still going well, and we have an excellent opportunity there. I am looking forward to going back to the UAE probably mid to late June and continuing to develop that opportunity. The conflict slowed that down a bit, but we have not lost momentum. We are excited about working in that region.
This is still early stages at this particular point. I have been with the company for less than a week now, but I already have a considerable number of contacts in the industry who I have reached out to, and there is interest in Nauticus Toolkit. There are calls to make, meetings to have, and a market we can sell into that is interested. I think Nauticus Toolkit is going to be pretty good for our future; it is just a case of how quickly we can convert that pipeline.
Next question, Peter. Okay. Thank you. So with the Northeast ROV fleet, which would be a good proof point for Nauticus Toolkit, has that been helpful for you in terms of your sales discussions and where do those stand? It is another really good question. You can hardly sell Nauticus Toolkit running on ROVs unless you eat your own dog food and put it on your own ROVs. We are excited to have it deployed there. That is also the best testing so that we know the quality of the product we are sending to customers. We are optimistic about the proof and showing them the work that we are doing so that they can see the productivity enhancements they would get from deploying this type of autonomy onto their current and existing ROV fleet. It gives them the opportunity to either get greater utilization out of the assets they have, or to avoid buying additional ROVs. This is a great way to increase capacity of a fleet: if you have 10 and you can get 20-plus percent more utilization, that is two vehicles you do not need to buy. So I think it is a great financial opportunity for ROV commercial operators to improve utilization without increasing the number of assets. Putting Nauticus Toolkit on our own ROVs is going to demonstrate and quantify that for ROV operators, and I think improves our chances of selling the software. It is up in the Northeast, and I think we should be posting some things about the success with it as we go through this quarter and do this work.
Okay. Thanks. And Brian mentioned the high-seven, low-eight opportunity — could you please repeat that just to make sure I understand what you mentioned?
Of course. Part of my remit is expanding revenue types across EMEA. I am looking at technology-enabled services and also toolkit licensing, and the longer sales cycle Aquanaut hardware sales, which we need to build the infrastructure for to convert. The two short-term opportunities are essentially software licensing and technology-enabled services. To do that, we have to start building a pipeline of potential services contracts in EMEA. These are similar to the work already taking place in North America. The company already has this capability and uses similar assets; it's just geographically different. I am starting to reach out to my network and bring in tendering opportunities similar to what the business can already complete in the U.S., albeit geographically closer to where I work from.
Okay. Great. Thank you. Kind of a bigger picture question here: to what extent are budget cycles important for your emerging customer base? For example, oil and gas and government work — are we past the cycle for new work in 2026 and should we be focused more on opportunities for 2027 now? Or are there still budgets for 2026 that your customers can work with? And in terms of those 2027 budgets, is there signaling or confirmation from your customers about their planning?
A lot of questions in that question, Peter. I just got back from Washington and was up marketing and doing business development on the government side. We are there, and we are doing a really good job of positioning what we can do and how we can influence government work. I cannot talk about all of it, but what we have to do is be marketing right now in order for us to be successfully included in the 2027-2028 budgets. It looks like they are planning two years ahead, so you want to be on the ticket for 2027-2028. I think we are very successful in positioning ourselves for that 2027-2028 budget. The 2026 budget will require them having probably a vendor default or a vendor issue or an emergency that we can fill in for, and we are positioned to work with them in the event that they have an immediate need. But the real opportunity for us is to be contracted for the 2027-2028 work, and we need to be doing that now. We have our products ready to bid commercial work at that level and to be considered a vendor for the 2027-2028 season. In terms of even our existing customers, we continue to see opportunities in oil and gas. There will still be a lot of transactional and call-out work through the rest of 2026. I think oil and gas prices are going to be stable or higher. I would not expect a long downward move. Look for longer-term higher oil prices, and as a consequence, I think you are going to see activity continue to ramp in the oil and gas sector, particularly in the Gulf of Mexico and around the world offshore, as those are the least expensive barrels to produce. It is a tremendous opportunity for us.
I have less history with Nauticus specifically, but I can talk about the industry generally from my previous work. Compared to contracted positions from this point in the year, you have a certain ability to forecast revenue for the rest of the year, but that never includes spot work and emergency work. In my previous company, from where we are today, we typically saw a 30% to 40% uplift based on forecast revenue because of spot work. That does not directly translate to Nauticus, because of geography differences, but you generally see a significant increase in revenue in the latter quarters based on spot work and the spot market.
Another unintended consequence of this conflict is I think you are going to see a strengthening emphasis on wind energy and the maintenance of offshore wind farms as people try to offset higher oil and gas prices. Our position in doing wind work in the Northeast is going to be advantageous to us; Steve has tremendous connections there as does Brian. I think we can pursue a significant amount of offshore wind-farm activity as people focus on alternatives with higher oil and gas prices.
Okay. Great. Thank you. I will just ask one more question before getting back in the queue. You have cash sitting at close to $6 million and continue to burn. How should investors think about your funding runway over the next two to three quarters?
Jimena, are you all right to answer? I mean, Q1 was light on cash flow as a result, so we have looked toward Q2 and Q3 as when the revenue picks up and collections improve. Cash flow is always an issue for a company like this because collections occur after work is done. We will probably continue to use the ATM lightly. We will also use the equity line and we have tremendous support from our current lenders, so we are not concerned about the availability of cash. We have taken as little as we can. Going forward, our goal is to reach cash-flow breakeven and not have to use methods that might dilute shareholders or give us long-term obligations. The ability to withstand this long term and get the company where it needs to be into 2027-2028 is there. We are focused on creating great products and results for customers. This is a long-term company, not a short-term one, and the funding we need to get through 2026 is available to us; we expect to be largely self-funding as we go toward the end of the year into 2027.
Great. Thank you very much for taking my questions and for the presentation from your team. I will get back in the queue.
Your next question comes from the line of Alexander Latimore with Northwind. Alexander, your line is open. Please go ahead.
Can you hear me? I am not sure how much of how much came through there, but I am going to wrap two questions into my first one. First, can you describe the advancements that Nauticus Toolkit provides for subsea vehicles and then, if you have any metrics that show autonomy benefits before and after the system is upgraded? Second part: do you need to upfit customers' ROVs, or do they already have the necessary hardware to run Nauticus Toolkit?
Good question. Let's start with the last part. In order to control and navigate the vehicle, we do need to install additional equipment on the ROV, typically an INS so that we know exactly where the vehicle is and we have the ability to control it. So yes, there is additional equipment that needs to be installed on the ROV. After the equipment is installed, we can control the dynamic positioning of the vehicle so that we can get bottom locks, hold the vehicle at a specified height above the seafloor, and control navigation from point to point. Regarding metrics: the first time we used this we actually did a quantitative test that we posted short videos about. What we discovered was that when you use autonomy on an ROV in the way we do with Nauticus Toolkit, the system optimizes the path and continuously adjusts all thrusters to maintain a straight line and the desired position. When an ROV operator steers manually, they are fighting current and managing the umbilical and tether, which is more complex because currents vary with depth. What we discovered was at least a 20% reduction in efficiency and a notable inability to stay on the line when steering manually. That has consequential cost impacts. A 20% increase in time converts into a meaningful chunk of daily vessel rate, which can range from $25,000 to $150,000 per day; even in a conservative $40,000 per day example, you are saving roughly $8,000 per day on vessel time. That creates room for a software license on a day-rate basis. The second effect is data quality: when you move laterally and vertically inconsistently, your data quality is lower and you need significant post-processing. When you hold a fixed position above the bottom and stay in a straight line, you get much higher data quality and much lower post-processing effort. Nauticus Toolkit thus provides both cost savings and better data quality, and many ROV operators have been strong advocates because it reduces routine steering workload and lets them focus on inspection tasks. So there are significant adoption benefits for the ROV world; heavy work-class ROVs historically have some capabilities, but few operators enable them. We have built a commercial-quality autonomy system for the broader ROV market and believe we will lead in that segment.
That is great color. While we are talking about data, what are the top two or three most valuable data points that you collect? And is there any customer interest in buying that data?
Typically we are contracted to collect data for customers and that data is proprietary to them, so we do not have a general data library for resale in most cases. Customers pay for the collection of infrastructure data and they own it; they use it to manage their assets, and they retain confidentiality because it is a competitive advantage. The opportunity to create a publicly available data library exists more in environmental work, such as coral reef monitoring, where data is for the public good, but most of our commercial work provides data to the paying customer and it remains proprietary.
Retaining rights to customer data is difficult, but there are strategies that can be followed. We should discuss those after the call.
Yes, it mainly belongs to the customer. They want to maintain confidentiality of that data. So it is difficult to use it for other purposes beyond the fee-for-service arrangements.
One more question: what are the biggest technology advancements you expect to release this year and next year, and what are the benefits? Would it be adding a new manipulator, adding autonomy to the manipulators, or something else?
That is another very good question. One strategic decision the company made is we are not in the sensor business. We have a modular platform with many sensors onboard, and when strong new sensors appear we can plug them in and pull others out. We are not locked into a sensor that might be several years old. We are seeing strong advances in imaging capabilities and are putting state-of-the-art sensors on our platforms. In fact, we are testing new sensors for some manufacturers right now, which is an opportunity to use our platform to test sensors and compare them. On the autonomy side, we have a new-generation manipulator; parts are coming in for assembly and we are very excited about putting that manipulator on Aquanaut. This is an ideal manipulator for the market: it is a midrange manipulator, not a tiny light arm nor a heavy work-class lifter. It will be in the 50 to 70 kilogram lifting range and is designed for maintenance and ease of repair. From experience, manipulators require spare parts onboard and simple maintenance procedures, because they are used hard in the field. Our manipulator will be 3 to 7 degrees of freedom and we can scale it down to fewer degrees of freedom when the task does not need a full range of motion. You want the least amount of equipment doing the task in the simplest way to keep costs and nonproductive time down. All of this is underpinned by autonomy for arms, which is incredibly unique in our industry. In maritime work, you need perception and adaptability; you cannot just repeat fixed motions like on a manufacturing line. You need to observe and interact with the environment. Nauticus Toolkit will come in several flavors: a navigation toolkit for ROVs, manipulator-related software, and the full Aquanaut toolkit for AUV-style operations. The whole market for autonomous manipulators looks very exciting.
Wow. That is great. It seems tailwinds are blowing in Nauticus' favor. I am excited to watch your progress. Thank you.
Your next question comes from the line of Robert Mendrala, a personal investor. Robert, your line is open. Please go ahead.
Thank you, and thank you for the investor update. Brian, welcome to Nauticus. I have a two-part question for you. Given your background scaling subsea robotics and autonomy businesses, where do you believe you can have the earliest impact on revenue — whether it be services, software licensing, hardware sales, or international partnerships? And as you look at the opportunity pipeline, how should investors think about the potential size and timing of commercial opportunities, without getting into formal guidance?
Great question and thank you. Let me split that into two parts. On where I see the earliest impact: I think about it as three time horizons running in parallel rather than separate buckets. Services, software, and hardware are interdependent and bounce off each other. The fastest lever for us is Nauticus Toolkit software licensing. That can be moved on in months. We already have contacts in the market that are interested and stats showing it outperformed incumbent solutions in trials. It's already integrated with Forum Comanche, VideoRay Defender, and other vehicles. I am working on different vehicle flavors, so that is a product I can sell now and where you will likely see the earliest commercial signal. The second lever is technology-enabled services; our service business is the operational engine that proves technology in the field, and we expect margin expansion as we use autonomy to reduce vessel time and pilot time. As Steve covered, Q2 and Q3 are natural seasons for that to start showing improvement. The third lever is hardware and international partnerships. Conversion at scale requires a sales infrastructure that the company needs to build; I am putting that in place over the next three to four months. EMEA is a market I know well and operators there are actively looking for this capability, but international and hardware deals have longer sales cycles and require caution. Aquanaut hardware sales are a longer sales cycle but will generate high tens of millions once the engine is running in two to four years. Right now, my main responsibility is moving us toward higher-margin software and recurring revenue. I cannot give formal guidance today, but the serviceable market for autonomy-enabled subsea software runs into the billions. The way to track progress is leading indicators: quality and breadth of pipeline, third-party deployments and partner announcements, repeat business, and framework agreements. Those will show the commercial engine is working and will appear in the numbers six to twelve months after announcements. I will update you on commercial progress each quarter and prefer to be measured on actual bookings rather than projections.
Thank you. One more on defense-related applications: can you provide additional color on where Nauticus is seeing interest, for example inspection, surveillance, autonomy, intervention, or subsea support? Do you expect defense to become a more meaningful part of the company's revenue mix over time? Also, can you comment on the Leidos partnership?
We are actively engaged in a project that is starting shortly and is principally related to service work on an AUV. Our hardware knowledge is our strength in this project, and software will also be involved. I think this is a smaller project but one that could lead to growth with a large defense contractor. We spent three days at the Sea-Air-Space conference in Washington meeting with many large defense contractors and had productive senior-level meetings. Our product line fits well; the defense sector has a lot of demand for our capabilities and competencies. Autonomous manipulators are an emerging need and we are ahead of the market in this area. We appreciate shareholder patience because when you are in an emerging market traction takes time. The defense sector is a great area for us right now.
Given the company's technology assets, market opportunity, and current capital needs, how is the board thinking about the full range of options to maximize shareholder value, including strategic partnerships, licensing arrangements, commercial alliances, financing alternatives, or other strategic opportunities?
We have a great board that is absolutely focused on creating shareholder value. Any proposal that comes in on strategic opportunities will receive fair review because the board's duty is to increase shareholder value. Licensing is a path we have started with Forum Energy Technologies and we are excited about how that is developing. Licensing is a phenomenal way to monetize IP without putting capital into manufacturing while still benefiting from the intellectual property we've created. The same could be true for Aquanaut: while we may build Aquanauts in Ras Al Khaimah under agreements we are working on now, we would be amenable to licensing manufacturing so that someone else covers the cost of manufacturing and we receive a licensing fee. Nauticus Toolkit is a clear licensing opportunity. Overall, to achieve desirable blended margins, we need to mix high-margin software (80%+ typical) with services (25%–35%) and hardware (25%–30%). Our goal is blended margins above 50%. Regarding strategic partnerships, we have a good relationship with Leidos and will continue communicating with them about potential projects, but these are not exclusive arrangements; we are talking to many defense contractors and will pursue partnerships that fit our capabilities.
We have reached the end of the Q&A session. I will now hand the call back to John Gibson, CEO, for closing remarks.
I appreciate everybody being on the call. You have an investment in an emerging company. We have great products and a great strategy. The quality of people we have on the management team today is incredibly strong, with commitment to what is possible for this company and a desire to achieve its full potential. I appreciate your patience and the investment you have made. We are going to continue to work hard to create shareholder value. I would like to thank our lenders, our board, our shareholders, our employees, and our vendors. There are many people who play a part in the success of a company with emerging technology and we are blessed to have all of you. We appreciate it and will look forward to updating you when we get through the next quarter. Take care.
This concludes today's call. Thank you for attending. You may now disconnect.