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OM

ODYSSEY MARINE EXPLORATION INC (OMEX)·Q2 2014 Earnings Summary

Executive Summary

  • Q2 2014 revenue was $0.35M and no Central America cargo was monetized; net loss improved to $(4.0)M (from $(10.9)M YoY) on a 71% OpEx reduction driven by using the Odyssey Explorer and a $3.51M priority recoupment credit .
  • Liquidity actions: retired $18M of convertible notes, secured a new $10M credit facility with Fifth Third, and entered a $10M non‑dilutive marketing agreement ($5M immediate, up to $5M on Q3/Q4 milestones) .
  • Operations: >13,500 silver/gold coins plus bars, dust, nuggets, jewelry recovered from SS Central America; project already profitable on Odyssey’s share; further recovery continuing into Q3 .
  • Strategic transition: Management succession (Mark Gordon to CEO by year end) and a pivot to a more predictable cash‑flow model with targeted 25–30% OpEx reduction by start of 2015; Dorado Discovery charter terminated to cut costs .
  • Near‑term stock catalysts: Oceanica EIA filing (statutory ~90‑day review), Central America monetization plan, additional funding milestones, and disclosure of continued recovery progress .

What Went Well and What Went Wrong

What Went Well

  • SS Central America recovery was productive: >13,500 coins plus gold bars/dust/nuggets/jewelry recovered; monetization value “well in excess of project costs” .
  • Operating discipline improved: consolidated net result improved 63% YoY; operating cash flows improved 39% YoY; OpEx down 71% YoY mainly from vessel strategy and priority recoupment .
  • Funding and balance sheet: retired $18M of 8–9% converts; secured $10M bank line tied to recovered cargo; LOI for $10M non‑dilutive marketing agreement ($5M immediate, $5M milestone‑based) .
  • Quote: “Contrary to the ridiculous claims… we are not facing any sort of imminent liquidity crisis… we have the cash and funding in place that will carry us through to our next significant monetization events” — Mark Gordon .

What Went Wrong

  • No revenue recognized from SS Central America in Q2 (awaiting monetization events), keeping reported revenue minimal despite strong recovery activity .
  • Share price decline and ongoing cash consumption; Dorado Discovery generated no charter revenues; CFO noted continued loss and consumption of cash .
  • Cash at quarter‑end was $5.7M (~2 months of operations per 10‑Q trends), necessitating timely monetization/funding execution; CFO cited recent monthly operating cash use of ~$2.1M (pre full impact of Dorado termination) .

Financial Results

MetricQ2 2013Q1 2014Q2 2014
Revenue ($USD)$253,745 $566,086 $348,264
Net Loss ($USD)$(10,895,976) $(9,798,757) $(4,015,881)
Diluted EPS ($USD)$(0.14) $(0.12) $(0.05)
Total Operating Expenses ($USD)$12,534,766 $10,229,813 $5,199,915
Net Income Margin (%)(−4,294%) (−1,732%) (−1,153%)
Operating Expense Detail ($USD)Q2 2013Q1 2014Q2 2014
Marketing, General & Administrative$2,928,570 $3,014,525 $2,394,323
Operations & Research$9,511,112 $7,095,683 $2,747,707
Cost of Sales$95,084 $119,605 $57,885
Revenue Breakdown ($USD)Q2 2013Q1 2014Q2 2014
Artifact Sales & Other$227,574 $564,602 $323,264
Exhibit$20,691 $1,484 $25,000
Expedition$5,480 $0 $0
KPIsQ2 2014
SS Central America items recovered>13,500 coins + gold bars/dust/nuggets/jewelry
Priority recoupment recognized (AR credit)$3,506,960
Cash & Equivalents (quarter‑end)$5,731,262
Project loan outstanding (Fifth Third, 1M LIBOR +500bps)$7,436,514

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating cash needsStart of 2015Not specifiedReduce by 25–30% via Dorado termination and asset utilization shifts Introduced cost‑reduction target
Priority recoupment (SS Central America)2014 projectNot specifiedExpect ~$5–6M total priority recoupment by project end First quantitative range
SS Central America operationsSummer 2014Not specifiedContinue recovery through summer; then deploy Odyssey Explorer to other targets Operational outlook
Oceanica EIA filingH2 2014Draft completeFiling “shortly” after final stakeholder input; statutory ~90 calendar‑day review post‑filing Timeline clarified
Funding – marketing agreementQ3–Q4 2014Not specified$10M total; $5M immediate on closing; up to $5M on Q3/Q4 benchmarks New financing framework

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q2 2014)Trend
Liquidity & fundingFY2013: raised $27.5M via Oceanica stake sale; $10M project loan; converts outstanding Retired $18M converts; $10M credit facility; $10M non‑dilutive marketing agreement Strengthening non‑dilutive funding; deleveraging
Business model & OpExQ1 2014: high Ops & Research ($7.1M); repositioning Odyssey Explorer Target 25–30% OpEx reduction; Dorado charter terminated; asset utilization focus Discipline and cost downs
SS Central America recovery & monetizationQ1: initial reconnaissance and start of ops in April Significant recovery; monetization options (bulk vs conserved sale); sales cycle “≤ couple of years” Recovery ongoing; monetization planning
Regulatory/legal (Oceanica)FY2013: Oceanica resource work; permits pending EIA expanded to 4,600 pages; new concession blocks; filing imminent; ~90‑day review Advancing permitting; project scope increased
External narrative (short sellers)FY2013: noted risks of short attacks Management pushing back; alleging misconduct under review Active counter‑narrative

Management Commentary

  • Transition to predictable cash model: “We need to sharpen our discipline… plan for yearly profitability and recurring positive operating cash flows” — Mark Gordon .
  • Liquidity confidence: “We are not facing any sort of imminent liquidity crisis… current cash and established funding vehicles will get us through to our next significant monetization events” — Mark Gordon .
  • Monetization approach: “Possible to move in bulk unconserved very quickly; equally possible to conserve/grade and sell over a longer period… I wouldn’t expect the sales cycle to be more than a couple of years at the far end” — Mark Gordon .
  • Oceanica positioning: “Very high grade… low overburden… low OpEx/CapEx… and location advantages; the deposit could support 50+ year mine life” — Greg Stemm .
  • Leadership succession: “Time for me to entrust Mark… This move is the culmination of three years of planning” — Greg Stemm .

Q&A Highlights

  • Cash runway and inflows: $5M immediate from new marketing agreement expected in August; incremental draws on Fifth Third facility tied to renewed recovery; potential Oceanica stake sale or $11M receivable collection .
  • Cash burn profile: Recent monthly operating cash use ~$2.1M; Dorado termination reduces expense (~25% of monthly spend); full impact in late 2014/2015 .
  • SS Central America economics: Priority recoupment ~$3.5M booked; total expected ~$5–6M; monetization could be bulk sale or conserved/graded coins; expected sales cycle ≤2 years .
  • Oceanica EIA & partners: Filing “very shortly” after final input; ability to move forward independently while exploring strategics (Boskalis engaged) .
  • Legal clarity: Court dismissed competing claims; no appeal filed; salvage rights affirmed .

Estimates Context

  • We attempted to retrieve Wall Street consensus (EPS, revenue) from S&P Global but were unable to obtain data due to API limits. As a result, consensus comparisons for Q2 2014 are unavailable.
  • Implication: With revenue recognition deferred until monetization and a materially improved net loss vs prior periods, sell‑side estimates (if any) would likely need to factor timing of Central America monetization and Oceanica funding milestones.

Key Takeaways for Investors

  • Execution priority: Monetization of SS Central America cargo is the key near‑term cash catalyst; management sees multiple monetization paths and a ≤2‑year sales cycle at the long end .
  • Cost discipline: The 25–30% OpEx reduction target plus Dorado charter termination should structurally lower burn, supporting a path to more predictable cash flows .
  • Funding de‑risking: $10M credit facility and $10M non‑dilutive marketing agreement (with immediate $5M) bridge the company to monetization events without equity dilution .
  • Oceanica upside: Expanded concessions and imminent EIA filing, with a statutory ~90‑day review, represent a second potential catalyst stream (strategic investment or stake sale) .
  • Legal overhang reduced: Court actions favored the receiver’s rights; management indicates fewer legal distractions at Central America .
  • Reporting optics: GAAP revenue will lag recovery progress until monetization; focus on AR priority recoupment, cash inflows, and funding draws to assess liquidity trajectory .
  • Trading setup: Upcoming EIA filing and monetization decisions are binary catalysts; improved OpEx profile reduces downside tail risk, but execution on monetization and partner milestones remains critical .