Prepared remarks
Hello, everyone. Thank you for joining us, and welcome to Nauticus 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 Willis Gibson Jr., Chief Executive Officer and President; Jimena Begaries, Interim Chief Financial Officer; and other members of our leadership team. On today's call, we will first provide prepared remarks concerning our financial and operational results. Following that, we will answer questions. We have now released our results for the quarter ending March 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. I 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 of 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 of in-water operation on client-driven workflows and more than 200 successful vertical inspection behaviors on mooring lines. These are important steps toward offshore deployment, and the data from that testing continues to guide our software and engineering improvements. International expansion also remains an 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 $200,000, which is down $900,000 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 $200,000 from Q1 2025 and down $800,000 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 $600,000 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 solutions 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 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. You've heard about the weather conditions that impacted 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 to help smooth 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 commercially relevant category: 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, 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, 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 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 licensing, and the hardware sales that we believe Nauticus is positioned to build, we expect 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 star 1 to raise your hand. To withdraw your question, press star 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 had seasonal softness which should be expected, but it does look a little bit 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, anything you can share about key revenue drivers would be helpful.
Thank you. I appreciate the question, Peter. It is 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 some of 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. 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 is Nauticus Toolkit sales. The product is mature and 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 used year-round and licenses are charged year-round. So in terms of smoothing the revenue profile, software licensing is the clearest route. It generates a year-round revenue source that is smoother than the lumpiness you see in offshore services-type contracts.
Yeah. 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 a strong 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 has slowed that down a bit, but we have not lost momentum there, and we are excited about working in the region.
It is still early stages at this particular point. I have been with the company for less than a week now, but I have reached out to a considerable number of contacts in the industry who have already expressed interest in Nauticus Toolkit. There are calls for me to make, meetings to have, and a market we can sell into which is interested. 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. You have an ROV fleet in the Northeast 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?
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. Showing the work we are doing allows customers to see the productivity enhancements that you get from deploying this type of autonomy onto current and existing ROV fleets. 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 ROVs you do not need to buy. So I think it is a great financial opportunity for ROV commercial operators to improve utilization without having to increase the number of assets. Putting it on our own ROVs will 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 there as we go through this quarter and do this work.
Okay. Thanks. Brian mentioned the high-seven, low-eight opportunity. Could you please repeat that so I make sure I understand what you mentioned there?
Yeah, of course. Part of my remit is expanding types of revenue across EMEA. I am looking at both 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 at scale. 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 work that is already taking place in North America. The company already has this capability; it is using similar assets, just geographically different. I am reaching out to my network and bringing in tendering opportunities similar to what the business can already complete in the U.S., albeit geographically closer to where I work. That is what I meant by near-term high-seven, low-eight-figure opportunities in aggregate for services and potential toolkits tied opportunities.
Okay. Great. Kind of a bigger-picture question here: to what extent are budget cycles important for your emerging customer base? For example, with government-type work, I would imagine we might be past the cycle for new work in 2026. Is that the way to look at it — 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 2027 budgets, is there any signaling or confirmation from your customers on timing and size?
There are a lot of components in that question. First, I just got back from Washington and was conducting business development on the government side. We are there and positioning what we can do and how we can influence government work. We need to be active now in marketing in order to be successfully included in the 2027-2028 budgets; it looks as though they are planning out two years ahead. You want to be on the ticket for 2027-2028, and I think we are positioning ourselves well for that. The 2026 budget will require an incumbent vendor default or an emergency that we can fill, and we are positioned to work with them in the event of an immediate need. But the real opportunity for us is contracting for 2027-2028 work, and we have to be doing the work now to be considered a vendor for those seasons. In terms of oil and gas, there is still a lot of opportunity. There will be transactional and call-out work through the rest of 2026. I think oil and gas prices are going to be stable to higher. I would not expect the temporary effects from opening or closing geopolitically sensitive straits to last if infrastructure is damaged; longer-term we should expect higher oil prices, which will support offshore activity, particularly in the Gulf of Mexico and other offshore basins where barrels are less expensive to produce. So that is a very positive backdrop for our business.
I have less history with Nauticus, but I can speak to the industry generally from my previous work. Compared to contracted positions at 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, we typically saw a 30% to 40% uplift based on forecast revenue due to spot work. That does not directly translate to Nauticus because of regional differences, but generally you 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 will see a strengthening emphasis on offshore wind energy and maintenance of wind farms as people try to offset higher oil and gas prices. Our position doing wind work in the Northeast will be advantageous, and Steve and Brian have strong connections there. We can pursue offshore wind farm activity, which people will focus on as oil and gas prices hold higher for a longer period.
Okay. Great. Thank you. One more question: you have cash sitting 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 alright to answer that?
Right now, Q1 was light on cash flow. We are looking toward Q2 and Q3 for when revenue picks up. Cash flow is always an issue for a company like this because collections occur after the work is done. We will likely continue to use the ATM program lightly and also the e-lock facility. We have strong support from our current lenders and are not concerned about the availability of cash. We have taken as little as we can. As we go forward, our goal is to get to cash-flow breakeven and not rely on methods that might dilute shareholders or create long-term obligations. We believe the company can withstand 2026 and get to being self-funding going into 2027, and we are disciplined in managing the balance sheet to that end.
Great. Thank you 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 have two questions. First, can you describe the advancements that Nauticus Toolkit provides for subsea vehicles and any metrics that show autonomy benefits before and after the system is upgraded? Second, do you need to upfit customers' ROVs or do they already have the necessary hardware to run Nauticus Toolkit?
You are a knowledgeable questioner this morning. Let's start with the upfit question. In order to control and navigate the vehicle with our autonomy, we typically need to install additional equipment on the ROV, such as an INS, so that we know exactly where the vehicle is and can 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. For the quantitative part of your question: the very first time we used this in a test, which we posted some short videos on social media, we saw a substantial improvement. When using autonomy with Nauticus Toolkit, the vehicle optimizes the path and continuously adjusts the thrusters across all axes to maintain a line. When an ROV is steered manually, the operator must continually overcome current and manage the umbilical, and currents can vary with depth. In our tests, we observed at least a 20% improvement in efficiency — that is, a roughly 20% reduction in time when using autonomy versus manual steering. That has significant consequences: a 20% reduction in time translates directly into vessel day-rate savings. If a vessel runs in the range of $25,000 to $150,000 per day, a 20% saving is material and creates headroom for a software license on a day-rate basis. Autonomy also improves data quality because holding a fixed position above the bottom and maintaining a straight line yields more consistent data and lowers post-processing effort. It also reduces pilot workload and lets operators focus on inspection and analysis rather than steering. We believe adoption of autonomy in the ROV world will pick up dramatically; heavy work-class ROVs may have some capabilities but they are rarely used. We have focused on a commercial-quality autonomy system for ROVs and believe we are leading in that space.
That's great color. While talking about data, what are the top one or two most valuable data points you collect, and is there any customer interest in buying that data?
Typically we are contracted to collect data for our customers and that data is proprietary. Most of the data we collect is infrastructure-related and customers want to own and control it because it provides a competitive advantage. As a result, we do not maintain a public data library for commercial sale in the same way a seismic company might. There are exceptions in environmental work — for example, coral reef surveys — where broader-use data libraries can make sense, but most industrial inspection data is owned by the customer and returned to them. So while the technical opportunity for a data library exists, the commercial model for proprietary infrastructure data is usually fee-for-service with the customer retaining rights.
Retaining rights on data and analysis of customer data is difficult, but there are strategies we could discuss offline about how to potentially create value from aggregated or anonymized datasets while respecting customer ownership and confidentiality.
Mainly, the data belongs to the customer. They pay for collection and they own it, so we typically return it to them and do not repurpose it for resale in most industrial contexts.
I have one more question: what are the biggest technology advancements you expect to release this year and next year, and what are their benefits? Would it be the new manipulator, adding autonomy to manipulators, or something else?
That is a very good question. One strategic decision the company has made is we are not in the sensor business; instead, our platform supports many sensors and we can plug in state-of-the-art sensors as they emerge. We are constantly evaluating imaging advancements and integrating the best options. That gives us flexibility and avoids the high R&D costs of developing sensors in-house. On the autonomy side, we have a new generation manipulator; parts are coming in for assembly and we are excited to put that manipulator on Aquanaut. It is a midrange manipulator aimed at this market — not a tiny arm and not a heavy work-class arm. It is designed for roughly the 50 to 70 kilogram range of operation, and it is designed with maintenance and spare parts in mind. From experience, manipulators require spare parts and easy maintenance because they are heavily used in the field, so we designed the manipulator to be serviceable with the right degrees of freedom for common subsea tasks. The manipulator can be configured from three to seven degrees of freedom depending on the task; you do not always need a fully anthropomorphic seven-degree arm to perform many intervention tasks. Simplicity reduces cost and nonproductive time. Crucially, all of this is underpinned by autonomy for arms, which is unique in our industry. In maritime operations you cannot rely on fixed, repetitive motions like in a factory; you need perception and adaptive control to interact with objects under varying positions and conditions. We are developing Nauticus Toolkit in several flavors: an ROV navigation flavor, a manipulator control flavor, and a full-AUV flavor for Aquanaut. The combination of perception, autonomy, and appropriately scaled manipulators makes the autonomous manipulator market very exciting for us.
Awesome. It seems the tailwinds are blowing in Nauticus' favor. I'm excited to watch you guys progress. Thank you.
I appreciate it. We put two and a half years into getting these products ready; now we are going to put the next year into getting them to market and showing the revenue that can come from these investments. I appreciate the shareholders that have supported us; it has put us in a great place.
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. Given your background scaling subsea robotics and autonomy businesses, where do you believe you can have the earliest impact on revenue — 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 for the welcome. Let me split that into two parts. On where I see the earliest impact, I think about it as three horizons running in parallel rather than mutually exclusive buckets. They are interdependent and bounce off each other. The fastest lever is Nauticus Toolkit software licensing. That can be moved in a period of months. We already have contacts in the market that are interested, and we have performance data showing it outperformed incumbent solutions in head-to-head trials. It is already integrated with Forum Comanche, VideoRay Defender, and other vehicles, so it is a product I can sell now. The second lever running alongside it is technology-enabled services. Our service business is the operational engine that proves technology in the field, and we expect margin expansion there as we use autonomy to reduce vessel and pilot time. As Steve covered, Q2 and Q3 are the natural seasons for that to start showing improvement. The third lever is hardware and international partnerships. Those conversions at scale require more sales infrastructure than we currently have, which is why I am building the sales and go-to-market structure over the next three to four months. EMEA is a market I know well and operators there are actively looking for autonomy capabilities like ours, but international hardware deals have longer sales cycles. Aquanaut hardware sales will generate high tens of millions when that engine runs at scale, perhaps in two to four years. In the near term, look for leading indicators: quality and breadth of pipeline, third-party deployments and partner announcements, repeat business, and framework agreements. Those signals will precede scalable revenue. I will update you on commercial progress each quarter and prefer to be measured on what we actually book rather than early projections.
Okay, great. One follow-up on defense-related opportunities: can you provide additional color on where Nauticus is seeing interest — inspection, surveillance, autonomy, intervention, or subsea support — and whether you expect defense to become a more meaningful part of revenue over time? Also, any update on the Leidos partnership?
We are actively engaged in a project that will commence shortly and is principally related to service work on an AUV. Our strength in hardware knowledge is a key part of this project. Once we complete that, software elements will follow. This is a smaller project initially but one that can lead to a lot of growth with a large defense contractor. We spent time at the Sea, Air & Space Conference in Washington meeting with the major defense contractors, and it was encouraging. Our product line fits well; we saw a lot of unmanned surface vehicles and many different AUVs, but almost nothing in the autonomous manipulator space at the level of capability we are developing. The defense sector has demand for our capabilities and competencies, and I believe we are ahead of the market in autonomous manipulator capability. The manipulators and autonomy we are developing are especially relevant for defense applications. Regarding Leidos, we have a good relationship and continue discussions about potential projects, and we are speaking to other defense contractors as well. Defense is an attractive and growing area for us.
Thanks, John. One last question: 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?
The Board is focused on creating shareholder value. Any proposals that come in will be fairly reviewed with the shareholders' best interests in mind. We are actively pursuing licensing as a strategic approach. We started down that lane with Forum Energy Technologies and are excited about how that is developing. Licensing is a phenomenal way for us to get the benefit of our intellectual property without putting all the capital into manufacturing. The same model could apply to Aquanaut: while we will build them, under certain agreements we would be amenable to licensing manufacturing to third parties where manufacturing capital is covered by partners and we receive licensing fees. Nauticus Toolkit is clearly a licensing opportunity as well. From a margin perspective, our target is to have blended margins above 50% over time. Software margins can be in the 80%-plus range, services in the mid-20s to mid-30s, and hardware in the mid-20s to low-30s. Licensing hardware manufacturing can help us achieve higher blended margins without taking on heavy manufacturing capital. We have a productive relationship with Leidos and are in discussions with other potential partners. The Board will continue to evaluate options that increase shareholder value.
We have reached the end of the Q&A session. I will now hand the call back to John Gibson, Chief Executive Officer, 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 on the management team today is a testament to that; they are incredibly strong and committed to achieving the company's 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 an emerging technology company, and we are blessed to have all of you. We appreciate it and we will look forward to updating you once we get through the next quarter. Take care.
This concludes today's call. Thank you for attending. You may now disconnect.