OMEX - NASDAQ

Mark Gordon - Chief Executive Officer and President Philip Devine - Chief Financial Officer

Mike Malouf - Craig-Hallum Capital Group Scott Vincent - Green River Asset Mark Argento - Lake Street Capital Markets Robert Evans - Pennington Capital Management LLC Paul Rankin - VSA Capital

Good morning and thank you for joining us today to discuss Odyssey Marine Exploration’s Second Quarter Results ended June 30, 2015. My name is Kim and I will be your conference operator this morning. With us today, we have Mark Gordon, Odyssey’s Chief Executive Officer and President as well as Philip Devine, the company’s Chief Financial Officer. Following their remarks, we will have a question-and-answer session to answer questions. Please remember to submit any questions via the webcast player or email them to [email protected]. You can submit them at any time during the call. Once again that email address [email protected]. The webcast link and email address are also available in today's press release. The company may not have time to answer everyone’s questions, but if you submit your question via the webcast system or email, the company will attempt respond to unanswered questions via email following the call. Then, before we conclude today’s call, I will provide the necessary precautions and disclaimers regarding forward-looking statements made by management during this call as well as a special note to U.S. investors regarding the disclosure of mineral deposits as referenced in the SEC’s industry guide number 7. We would like to remind everyone that today’s call is going to be available for replay through September 07, 2015, starting later this morning. A webcast replay will also be available via the link provided in the company’s earnings release as well as available on Odyssey’s Web site at www.odysseymarine.com. Now, I would like to turn the call over to CEO, Mark Gordon. Please go ahead, sir.

[indiscernible] To discuss Odyssey’s second quarter 2015 results. Before I turn the call over to our CFO Philip Devine to review the second quarter numbers I would like to thank our shareholders for your overwhelming support of the strategic financing transaction with Minera del Norte or MINOSA and their subsidiary Penelope Mining. 98.4% of the shares voted were in favor of the proposal. We believe that the agreement between MINOSA, Penelope and Odyssey has the potential to transform our company and increase stockholder value dramatically, by not only providing the capital necessary to move forward on our current pipeline of offshore projects, but more importantly through the strategic guidance and resources that we believe will be crucial catalyst to our future success. We are already starting to see the benefits of this agreement and we are looking forward to the future with MINOSA on board. Over the past two months we have had the opportunity to work closely with two new board members, Jim Pignatelli who is also a board member of MINOSA's parent company, OMSA; and John Abbott the CFO of OMSA. They have just finished their second Odyssey board meeting and they have been terrific additions to our board providing invaluable support and insight to our management team. We are looking forward to closing the initial equity financing soon we are working to complete the necessary prerequisite activities to do so. We have also been working closely with the MINOSA team on activities connected to the environmental approval for the Don Diego deposit. I will provide more information about both of these areas after Philip's presentation. But we are limited in the information we can provide at this time for legal and strategic reasons so we will be limited in our ability to answer questions on these topics today. I apologize in advance for not being able to share more with you at this time, but we will try to get as much additional information out into the market as soon as possible. Before I get into the business developments further, I would like to turn the call over to our CFO, Philip Devine, who will walk us through the financial results for this quarter. Philip I'll turn the call over to you.

Thank you, Mark. This morning I will cover some of the financial highlights from the second quarter of 2015, but I encourage everyone listening to this call to read our SEC Form 10-Q which was filed earlier this morning. The financial statements in the first six months of 2015 were marked by several key events. First of all we entered into a material financing agreement with MINOSA in March and this agreement was overwhelmingly approved by our shareholders in June. Although the equity part of this agreement has not yet taken place, MINOSA has already provided significant financing to the company and has been assisting with our operations in Mexico. Secondly while trimming our vessel costs significantly we conducted exploration in the North Atlantic and located several potentially attractive ship wrecks and we identified and filed for exclusive rights for a new seabed mineral deposit that is different from our existing phosphate deposit. And finally we have continued to implement actions to reduce our expenditures and improve our cash flows, such as eliminating certain corporate call, not chartering third party vessels, selling non-core assets such as a building and selling more items from our long-term inventory. Let's now review some of the second quarter figures. Total revenue for the second quarter of 2015 was $400,000 or an increase of $100,000 over the revenue in the same period a year ago. The majority of revenues in both quarters were generated from the sales of inventory items such coin. In the second quarter of 2015 Odyssey provided equipment and personnel to a third party offshore operator under our services agreement. As part of this agreement we conducted scientific experiments and seafloor equipment repair work using our ROV, our operators and other Odyssey equipment. Marketing, general and administrative expenses increased by $1 million from $2.4 million in 2014 to $3.4 million in 2015. This increase is a result of several factors. First of all in 2014, we had a reversal of a bad debt provision of $500,000 that reduced expenses in 2014 as compared to 2015. Secondly, in 2015 we experienced higher legal and transactions costs related to the stock purchase agreement signed with MINOSA and the subsequent shareholders vote on agreement in June. Finally in 2015 we had extra non-cash general costs related to the accelerated vesting of restricted stock units upon the retirement of the company's general council on June 30th. Operation and research expenses increased by $100,000 from 2014 to 2015. However, there were several changes in the components of this expense category. The second quarter of 2014 included credit to expenses of $3.5 million for the priority cost recruitment on the SS Central America shipwreck project; whereas there was no similar credit to expenses in 2015. In 2014 the company's Odyssey Explorer vessel was working fulltime offshore on the SS Central America project whereas in 2015 the Explorer vessel only spent one month working offshore. Finally, in 2014, the company released the Dorado Discovery vessel on a full time basis for mineral exploration projects at a significant cost whereas in 2015 there was no such vessel expense since the leased agreement on this vessel was terminated in the third quarter of 2014. Total operating expenses for the second quarter of 2015 were $6.4 million compared to $5.2 million in the same quarter of 2014. Although this may look like an increase of $1.2 million or 23%, operating expenses have actually been managed out significantly. If we adjust the 2014 total operating expense numbers for the onetime credit to expenses related to the 2014 reversal of the bad debt provision which was $0.5 million and we address the 2014 credit to expenses for the SS Central America project which was $3.5 million and we adjusted 2015 operating cost for the onetime non-cash expense related to the retirement of the general council which was $0.2 million; total operating expenses were actually reduced by 33% or by $3 million from the second quarter of 2014 to the second quarter of 2015. At June 30, 2015 Odyssey had cash and cash equivalent of $5.6 million, an increase of $2.5 million from the December 31, 2014 balance. This increase was mainly the result of financing cash inflows in the new loan made to Odyssey by MINOSA in the period March through June 2015. In the six months ended June 30 2015, operating cash flows improved by $4.2 million or an improvement of over 25% compared to the same period a year ago. This improvement is due to actions taken to reduce expenditures, such as terminating the long term lease of a vessel and eliminating certain corporate cost. In the first six months of 2015 investing activities actually generated net cash inflows as Odyssey took actions to sell certain assets such as a building it owned and to reduce capital expenditures compared to previous years. Financing activities also provided significant cash inflows in 2015, as Odyssey entered into loan agreement with MINOSA. Looking forward, with respect to the financial statement, I can add the following comments. We continue to reduce our operating cash cost. In the second and third quarters of 2014, we had large credit to expenses related to the coast recruitment agreement we had as contractors to RLP for the SS Central America project. We do not have similar credits to expenses in 2015, but in the first six months of 2015, we have significantly reduced our operating cash cost and we expect to continue to do so into the third quarter of 2015. We continue to work towards close in the equity components of MINOSA and Penelope mining deal. To-date this eventual equity transaction has had no impact on our financials. Upon the initial closing of the equity part of the deal, we could expect an improvement in our net shareholders equity balance, a reduction of our debt and an increase in our cash balance. Finally looking forward we continue to work towards a timely approval of the environmental permit for our Mexican phosphate deposit. The major expenditures for the permit application have already been incurred and recognized in the past. Thus until there is a decision on this application, we do not expect any major new expenditures related to the environmental permit for our Mexican operation. With that I would like to hand the call back to Mark.

Thank you, Philip. On the operation side of the business, our marine operations team once again proved that they are experts at deep ocean exploration. In 130-day rotation they not only completed searching inspection operations on our Olympus project, but we’re also able to conduct varying degrees of reconnaissance work including multi-beam surveys, sub-bottom imaging and visual inspections on five different 20th century shipwrecks believe to be carrying significant quantities of gold and silver at the time of their sinking. The data we collected is being analyzed to determine whether we will begin recovery efforts on one or more of these targets in the future and optimal platform and technologies for such work. As you may know the Odyssey Explorer was originally launched in 1972 and her early history includes service during the Falklands war. While she’s an extremely stable and economical platform and has served us very well over the past 12 years. We’re considering making a change in our offshore assets, the downturn in the oil and gas industry has made many ships available at very attractive rates affording us the opportunity to potentially upgrade our work platform under attractive terms. We are continuing to evaluate options for alternate work platforms and we are simultaneously working to make our specialized equipment more transportable, so that it can be deployed on ships of opportunity anywhere in the world. We expect to have a decision and plan in place by the end of this year. Offshore work to recover at risk artifacts in accordance with the project design on the Victory project, a way to UK Marine management organization, MMO, license and re-approval from the ministry of defense. I know it's frustrating that this continues to drag on, but unfortunately I can’t predict at this time when offshore work will begin. The MMO's public consultation recently closed and the Maritime Heritage Foundation is currently waiting for a decision from the MMO. We understand that there were a substantial number of positive submissions at the public consultation. In addition two articles recently appeared in the UK press about the shipwreck. If you are interested in following more news about the Victory, please visit victory1744.org or like the new victory 1744 page on Facebook or follow us at victory1744 on twitter. On the Central America project; we are continuing to wait for the court to award ownership of the recovered items to our client Recovery Limited Partnership or RLP and there has been recent progress in that direction. In the Virginia admiralty arrest, there is only one claim remaining unappealed. After being dismissed at the trial court level that appeal has now been rejected twice by the circuit court of appeals. The district court with jurisdiction over the admiralty case and the shipwreck itself has already ruled that RLP is the legitimate party in interest and salver in possession. The remaining step at the district court level is a ruling on cargo ownership or salvage award for RLP. Our interest falls under the Ohio court-approved contract with RLP. So once their rights are finalized, we will be able to execute the agreed and approved monetization plans specified in that contract. As I stated before, we don’t plan to abandon our shipwreck roots and in keeping with our pledged to bring more financial discipline to our business, we’re developing a potential multi-year shipwreck program utilizing external project level funding that improves our risks and reward profile, while still allowing our investors to benefit from our large portfolio of attractive shipwreck projects. This slight shift in our investment philosophy will us to focus more of our capital on the development of the mineral exploration side of our business, where one successful mineral asset can be worth many multiples of even the most valuable shipwreck project. I know many of you want to know when we can expect environmental approval to recovery phosphate sands from the Don Diego deposit in Mexico. I can predict exact timing at this time, but I can tell you that we remain very optimistic that the environmental approval will be granted. The scientific and environmental data contained in the submission proved without a shadow of a doubt that the environmental impact of this project is minimal and is a small fraction of the impact seen from terrestrial phosphate projects that have been approved and are being mined. There has been considerable misinformation spread about the environmental impact of this project and quite a bit of this may have been sparked not by those with a true concern for the environment or people of Baja, but by those within intent to drive Odyssey stock price down. Here are the facts. The area we’re dredging as proposed is not in way of migration path and is not in or near areas were whales have or feed. It’s not in shrimp fishery area. It is not in sea-cucumber or turtle feeding habitats, no chemicals are added to the water and the only thing returned to the seafloor is sand, shells and other material that was recovered from the seafloor. Extensive testing with actual material recovered from the deposit demonstrates that the dredging of the mineral sands will not result in the release of any materials toxic to sea life. Under the current plan, the area dredged each year will total less than 1 square kilometer per year and one of the discharge method options we proposed keeps all materials returned to the seafloor within the active dredging area itself. In addition, multiple measures have been offered for continues monitoring and mitigation of any potential environmental issues. Some concern by environmental groups may have a risen given the size of the original concession awarded to Exploraciones Oceanicas or ExO which is the Mexican company in-charge of the project. The original mining concession reached all the way to the shoreline in limited areas even thought the dredging was never proposed any closure than 22 kilometers from the shoreline. The large concession area was necessary early on until our offshore exploration programs determined the exact location of the most economically viable area of the deposit. Through the offshore work Odyssey has conducted for ExO and significant amount of onshore testing, it has now been determine that a large portion of the concession can be released and just in the last few weeks, ExO reduced the concession size from over 300,000 hectors to under 115,000 hectors. Since 1 square kilometer equals 100 hectors, you can see that currently proposed operations plan the targets dredging zone of less than 1 square kilometer a year has very minimal impact on the surrounding area, as operations will be conducted in less than 1% of the concession area in any given year. The benefits to this are twofold. One, the reduced area better illustrates the limited footprint of the dredging operations over the projected life of mine and clearly demonstrates that our area of operations does not overlap any well migration routes or habitats of commercially important fishing species. Keeping in mind that even with this reduced concession area, active dredging is only proposed to be conducted in an area of less than 1 square kilometer per year in any given year. And number two, by reducing the concession area we substantially reduce the amount of annual license fees ExO must pay in order to maintain the rights to the concession. I mentioned at the beginning of this call that we are already seeing benefits from the strategic financing agreement. The Oceanicas and ExO team has been working very closely with MINOSA on the final aspects of the environmental approval including a recent series of very productive and successful meetings with various government officials. These meetings have led to increased understanding and support for this project. While we have no specific guidance on the final timing of environmental approvals, our confidence remains high that these approvals will be secured. Once that is complete, much more information about the monetization of that deposit will be forthcoming. In other mineral news, we are also developing a new offshore mineral project and are planning offshore exploration work to confirm our research on the value of this deposit. We are actively developing the pipeline for multiple new mineral projects and the next Don Diego. As we indicated in the disclosures of the strategic investors stock purchase agreement presented in the definitive proxy statement, the earliest closing date for the $101 million equity transaction is 150 days from the date of signing our agreement. This date would work out to August 8th at the earliest. But in order to complete the closing we need to have satisfied certain conditions as outlined in the proxy disclosures. Not all of the conditions have been met yet, but our strategic investor is working very closely with us to help ensure that the list of requirements is completed as rapidly as possible. In the past few weeks we have received repeated assurances that MINOSA intends to proceed with finalizing the equity transaction under the agreed terms upon satisfaction of the conditions of the agreement. As a demonstration of their commitments, the investor's senior management team has dedicated a tremendous amount of time and significant corporate resources to help us get through the closing as soon as possible. After spending considerable time working with the senior leaders of MINOSA and their parent company OMSA over the past several months, I am more convinced than ever that this partnership is the right strategic move for Odyssey and our shareholders. And with that I would like to conclude my comments for this call. In a few minutes we will open up the lines for questions. Due to the high volume of questions we received in a limited amount of time we have available today, I encourage you to submit questions through the web interface or by emailing [email protected]. That way if we do not get to your question on today's call, we can follow up with you directly to answer your questions. With that, operator, I think we are ready for the first question.

Thank you, sir. We will now begin with our question and answer session. [Operator Instructions]. And we will take our first question from Mike Malouf of Craig-Hallum Capital Group.

Maybe we can start off with Philip. Can you help us just understand with all of the changes and tightening of the belt, where you are on a cash burn basis, and sort of where you expect that cash burn to be on a monthly basis, sort of looking out over the next six months or so?

As I described during the earlier part of the call, compared to last year, our total operating expenses in the last three months were down 33% compared to the year earlier period. Also if you look in the first six months of 2015 we had a large onetime expense for the issuance of some shares to terminate a call option that may go [indiscernible] resources had. So if you trip those two out, our costs are down between 25% and 33% compared to last year. If you look at last year too, we were running full time operations in the third quarter for the SS Central America project, we are not having those expenditure levels this year in the third quarter. Third quarter last year we also had for most of the quarter the Dorado Discovery under a charter agreement which was significant. So I think --

Philip, that's it, let me interrupt. I understand all that, but where are you right now, just looking out for the next six month, where are you on a monthly cash burn?

If you look at -- I’m not going to give specific month-by-month. If you look at the trend we’re having this year, we’re at -- you can do the quick calculations. We’re below $2 million operating cash burn, but there are several things that we’re still doing in terms of financing activities, investing activities, which will change the net cash on a monthly basis.

Right, so on cash burn you are about little under 2 million per month, that's where we have been looking at?

Correct.

And then Mark can you talk a little bit about the account receivable associated with the Oceanica project, is there a chance that we could see some cash coming from that and I’m just kind of wondering what your plans are with regards to that? And then I have a one more follow-up question.

Mike I’m sorry, just can you say again, the account receivable in terms of -- in relation to which project -- Oceanica?

Oceanica.

Yes, actually most of account receivables have actually been converted to a note, which total $16.3 million now. It carries a pretty significant rate of interest. It comes due at the end of September 30.

And then what are the plans with that as far as, I mean the coming September 30, if you have the approval, what should we expect on that?

In terms of whether we would collect that? Is that the question, specifically?

Yes, how you are going to look at it.

Yes, I think we’re looking at it because there is the opportunity to potentially convert some of that to equity and obviously we think Oceanica is going to be a very valuable project. So I think we would decide at that point in time, what the appropriate mix of cash and equity might be.

And then my final follow-up question, I get questions a lot from investors with regards to, if you dig down deep into the terms of the agreement with MINOSA that there is a potential option for them to acquire Oceanica, and I’m just wondering if you had any discussions regarding that. Because it sounds like you have a lot of discussions with regards to MINOSA’s intent on completing this transaction in a nice timely basis and I am wondering if that option ever comes up for discussion and then if there has been any discussion on perhaps terminating that or what?

Yes, essentially, that conversation has been come up a number of times and every time I bring it up. My partners on the other side of the table are surprised because they remind me each time their intent is not to acquire Oceanica. Their intent is to expand their terrestrial mining business and sea floor mining, and it's all about the equity transaction.

And we’ll move to our next question from Scott Vincent of Green River Asset.

So just a point of clarification here in your press release, and your comments as you talked about the fact that MINOSA intends to proceed with the transaction. Just clarify? We are talking about the stock purchase agreement correct?

Correct.

Okay. And the price proposed in the stock for this agreement is laid out in your filings, is the price that we’re talking about as well, correct?

Correct, I think it's important to note obviously the share purchase agreement had to be approved by its shareholders as mentioned at the outside. And it was overwhelmingly approved with the 98.4% yes vote. So any material changes to that agreement would likely require a new shareholder approval, so there is never been any discussion with the investor on anything other than the terms included in that agreement. That's already approved.

And you've mentioned that the closing is conditioned on a couple of things happening, at least one of which hasn’t happened yet, I’m assuming that you are referring to the environmental approval, if I am right?

That’s correct.

And at this time we have no further phone questions.

Excellent; so as stated earlier, we are onto answering some questions here and we’ve gotten several through e-mail. There seems to be sort of a common thread. Many of the questions received centered really on three or four different issues, which I’ll address right now. Many of you are wondering when the reverse stock split will occur. And the answer to that is the original intent of the reverse split was to bring our share price into a range that would be attractive to large institutional investors, who can’t normally invest in companies that trade below $5 per share. Management has had extensive discussion including most recently just during the past few days in our Board meeting about the optimal time to implement the reverse split. And we believe there are several catalysts on the horizon that will naturally bring our share price and compliance with the NASDAQ minimum bid prices and we intend to wait and schedule the reverse split, when it would be in the best interest of all shareholders. The next question that has -- some of your concern is the current share price drop and that having any effect on the, whether that would have any effect on the closing of the equity deal with our strategic investor. On that account, there are two conditions in the stock purchase agreement that reference the OMEX stock price. We had multiple assurances from strategic investor, that the stock price is not factor in their decision process and we’ll not affect the closing. Another issue is the EMEA approval on Don Diego, the phosphate deposit. There is a question about worst case scenario. What happens if the environmental approval does not come, are you still a viable company? The answer, I would emphatically say is yes, we’re a viable company. First of all, I’m very confident we’ll receive the environmental approval. But even without Don Diego, we have amazing operational capabilities and an extensive portfolio of attractive mineral and shipwreck projects that we can go prosecute. As previously mentioned, we’ve already initiated development of our next seafloor mineral asset, which is currently 100% owned by Odyssey. And finally a question, do you have enough cash to get through to the equity closing? And the answer there is between cash on hand, expected cash inflows and other of our assets which can be leverage to produce cash combined with the disciplined cash management, I and Philip have now mentioned several times on this call, we believe we have sufficient funding to carry us through to the equity closing. And with that, I’d like to thank you once again for joining us today and I’d like to ask you to please stand the line for important information from the operator. Thank you.