Ocean Power Technologies Inc (OPTT) 2008 Q4 法說會逐字稿

Good day, everyone, and welcome to the Ocean Power Technologies fiscal year 2008 audio webcast. Today's conference is being recorded and webcast. At this time for opening remarks I would like to turn the call over to the Chief Financial Officer of Ocean Power Technologies, Mr. Charles Dunleavy. Please go ahead, sir.

Thank you. Good morning and welcome to Ocean Power Technologies' audio webcast for the fiscal year ended April 30, 2008. Yesterday we issued our year-end earnings press release and we have filed our annual report on Form 10-K with the Securities and Exchange Commission. For access to our public filings you can view them on the SEC website at SEC.gov or you make go to our website, OceanPowerTechnologies.com, and click on the Investor Relations tab, then click on SEC Filings.

I will be joined on today's webcast by Dr. George Taylor, Chief Executive Officer, and Mark Draper, Chief Operating Officer. During the course of this conference call management may make projections or other forward-looking statements regarding future events or financial performance of the Company within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

As indicated in the slide, these forward-looking statements are subject to numerous assumptions made by management regarding future circumstances of which the Company may have little or no control and involve risks and uncertainties and other factors that may cause actual results to be materially different from any future results expressed or implied by such forward-looking statements. We refer you to the Company's Form 10-K and other recent filings with the Securities and Exchange Commission for a description of these and other risk factors. I will now turn the call over to George Taylor, our Chief Executive Officer.

Thank you, Chuck, and thanks to everyone who has joined us for today's webcast. It has been a little more than a year since our IPO and listing on NASDAQ and we are encouraged and pleased by the progress OPT has made over the past 12 months. Before we discuss the financial results, Mark Draper and I would like to take a few minutes to highlight OPT's business, our strategy and the progress we have made through the past year. We expect that this will enable us to capitalize on our worldwide opportunities.

OPT is a leading wave power company and is the only pure play public wave power company. I co-founded this company with a vision of generating electric power from ocean waves at costs equal to or superior to what can be achieved with fossil fuels. We began operations in 1994 and since then have successfully developed and begun to commercialize the technology.

With the management team I have put in place over the past years, OPT is poised to take advantage of the favorable political, regulatory and social environment that exists internationally for renewable energy and to accelerate our growth.

At OPT we pioneered the development and commercialization of proprietary systems that generate electricity by harnessing the renewable energy of ocean waves. The energy in ocean waves is predictable and electricity from wave energy can be produced on a consistent basis at numerous sites which are conveniently located near major population centers worldwide.

Meanwhile global demand for electric power is expected to more than double over the period 2003 to 2030 according to the Energy Information Administration. To meet this demand the international energy agency estimates that investments in new generating capacity over this period will exceed $4 trillion, $1.6 trillion of this will be for new renewable energy generation equipment.

Recently the G-8 summit set a goal to reduce carbon emissions by 50% by the year 2050. We plan to leverage these global drivers of demand for renewable energy by using OPT's proprietary technology. We offer two products as part of our PowerBuoy system -- a utility PowerBuoy system and an autonomous PowerBuoy system. Our technology is based on modular oceangoing buoys which we have been ocean testing for more than a decade. The rising and falling of the waves moves the buoy-like structure creating mechanical energy that our proprietary technologies then convert into electricity.

I'd now like to turn the call over to Mark Draper, our Chief Operating Officer, who will discuss technological advancements, key commercial milestones and provide you with an update on some of our recent projects.

Thanks, George. This slide shows you views of the PowerBuoy built in Spain under our contract with Iberdrola as displayed at a recent VIP visit. I'll say more about the status of that project very shortly.

As announced in yesterday's press release, we have made substantial progress in the design, analysis and initial production of what we believe to be the first utility grade underwater substation or pod, the wave pad. We're very excited about this development. The pod will serve as the point at which energy generated by several PowerBuoys is aggregated and the voltage increased for transmission to shore and connection to the local power grid. The required switching and protection circuits for individual PowerBuoys are also included in the pod.

In July 2007 we announced that our PowerBuoy grid connection system had been certified as compliant with designated national and international standards. This is a major milestone for OPT as it qualifies our technology for connection to utility grid systems.

We are also focused on our product development and engineering efforts to increase the output of our PowerBuoy system from 40 kW to 500 kW. Consistent with comments made during our last quarterly webcast, we are on target to complete the design of our 150 kW utility PowerBuoy system in 2008 and to complete the design of our 500 kW PowerBuoy by the end of 2010. The power conversion and control systems is substantially complete for the 150 kW PowerBuoy system and we expect to commence land testing in 2008 and ocean testing at the complete 150 kW PowerBuoy in 2009.

The present schedule for development of the 150 and 500 kW PowerBuoy reflects management's decision to take a conservative position to enhance the system design to allow for improved survivability in 100-year storm wave conditions and also to work with a third-party engineering group to attain independent certification of the 150 kW PowerBuoy design.

Earlier this year we conducted tests of the 150 kW scale model in a wave tank facility used by the offshore oil and gas industry. The results of these tests, plus more tests currently underway, all provide enhanced information to OPT and the engineering group to (inaudible) design for the 100-year storm wave conditions. In addition, we believe the direct transition to the 500 kW from the 150 kW prototype PowerBuoy system will be accelerated by the measures now being undertaken in connection with the 150 kW design.

We're also very pleased that six new patents were issued during fiscal year 2008, all on our core PowerBuoy technology. As I noted previously, our technology development is very active and we expect to make numerous additional patent applications going forward.

The technology progress we've made has also been supplemented by the key commercial milestones we have achieved in the past year. These milestones demonstrate the traction that OPT has gained in the market place and confidence it has received from its customers and partners. I'll briefly run through the list and we'll then expand on some of these in greater detail as I provide a project update.

In August 2007 we signed a contract with PNGC Power under which we receive funding for our wave energy project in Reedsport, Oregon. Our partnership continues with the U.S. Navy as they awarded us two contracts in fiscal year 2008 -- a new $1.7 million contract to provide our PowerBuoy technology for deep ocean data gathering and communications; and an additional $1.9 million of funding for our contract to install PowerBuoy systems off the Hawaiian island of Oahu.

Additionally, in May 2008 we announced a joint development agreement with Griffin Energy to explore development, construction and operation of a wave power station off the coast of Western Australia. This relationship gives us enhanced access to this region and the agreement paves the way for development of an OPT wave power station with capacity up to 10 MW and potential expansion to 100 MW. Under the terms of the agreement OPT would provide the turnkey power station with operations and maintenance service.

We also ended fiscal year 2008 with a contract order backlog of $5.5 million compared with $5.2 million at the end of fiscal year 2007. We expect most of our backlog to be realized as revenues in our new fiscal year.

Now I would like to give you an update on some of our more significant projects. The enhanced 40 kW PowerBuoy under our contract with Iberdrola in Spain is now fully fabricated and is currently undergoing final on-land endurance testing. We expect it to be ready for deployment in August 2008.

Recently OPT hosted at a ministerial visit by leading Spanish government officials to the Santander, Spain work site. The ministers viewed the power takeoff system undergoing its test program following its assembly and shipment from OPT's New Jersey facility. In addition, they inspected the fully assembled PowerBuoy steel structure which was fabricated by a local supplier in Spain.

Our work with Total and Iberdrola continues on the evaluation phase of a 2 to 5 MW power station off the coast of France. In connection with our United States Navy project in Hawaii we had installed a PowerBuoy system for a total of eight months over a two-year period and another PowerBuoy was deployed and tested during June 2007. An additional 40 kW rated PowerBuoy system has passed 150,000 cycles of successful on-land testing and has now been shipped to Hawaii where it is ready for deployment.

We are partnering with the Scottish government to develop a 150 kW PowerBuoy for our project in the Orkney Islands. We have made continuous progress on this project and we expect to be ready to deploy the Buoy in 2009.

In Cornwall, England the Southwest of England Regional Development Agency is developing a site in which we expect to install a 5 MW demonstration wave power station. The agency has this past fiscal year obtained the necessary permit for this project called the Wave Hub and the project has been approved for GBP20 million of funding for construction of the Wave Hub infrastructure. The agency currently is considering a tendering process for design and construction of this infrastructure and expects it to be installed in 2010. OPT is in the planning and development stage of its part of the project.

Our project in conjunction with Pacific Northwest Generating Cooperative, PNGC Power, is progressing well. This will be our first U.S. site for our PB150 project and the PowerBuoy is expected to be ready for development in 2009 near Reedsport, Oregon.

We are also working with the United States Navy on a unique deep ocean data gathering program. Under this program the Navy will conduct an ocean test of our autonomous PowerBuoy at the power source for the Navy's Deepwater acoustic detection system. The PowerBuoy for this project is expected to be ready for deployment by the end of 2008.

We are very pleased that our PB40 system installed off the coast of New Jersey has now completed nearly 2 years of ocean deployment; it has survived a hurricane and several winter storms over this period. The 40 kW rated system is an important demonstration of the ocean tested performance of the core PowerBuoy technology and has set what we believe to be a world record for ocean endurance by an offshore wave energy conversion system.

This slide shows our new PowerBuoy now ready for deployment off the island of Oahu in Hawaii. With that I will hand the presentation over to Chuck to discuss fiscal year 2008's financial results.

Thank you, Mark. Our revenues increased by 89% in fiscal 2008 to $4.8 million as compared to $2.5 million in fiscal 2007. The increase in revenues was primarily attributable to the following factors -- first of all, our ongoing work on the Hawaii Project for the U.S. Navy; our work on the first phase of construction of the 1.39 MW wave power station off the coast of Spain; the design, manufacture and installation of a 150 kW PowerBuoy in Orkney, Scotland; and the autonomous PowerBuoy system to be provided to the U.S. Navy for a program for deep ocean data gathering and communications.

Cost of revenues increased to $8 million in fiscal 2008 as compared to $4 million in fiscal 2007. This increase reflected the higher level of activity on revenue bearing contracts as well as the recognition of an anticipated loss at completion of our contract for a wave power station off the coast of Spain. Product development costs increased by 33% to $8.3 million in fiscal 2008 as compared to $6.2 million in fiscal 2007.

This increase in product development related to our continuing efforts to increase the PowerBuoy output of our utility PowerBuoy system and work towards the introduction the 150 kW PowerBuoy. We expect our product development costs to increase over the next two years as we continue to focus on increasing the output and efficiency of our PowerBuoy system.

Selling, general and administrative costs increased 58% to $7.7 million in fiscal 2008 as compared to $4.9 million in fiscal 2007. This increase is due to the expansion of our sales and marketing efforts, expenses related to becoming a public company in the United States and payroll and incentive based costs related to company growth. We expect that our selling, general and administrative costs will continue to increase as we further expand our workforce and sales and marketing capabilities.

Interest income in fiscal 2008 increased by 219% to $4.4 million in fiscal 2008 as compared to $1.4 million in fiscal 2007 due to the increase in invested cash following from our U.S. initial public offering of April 30, 2007. We expect interest income in fiscal 2009 to decrease reflecting a lower interest rate environment, the Company's investment in what it considers to be lower risk instruments and lower investible cash balances.

Foreign exchange gain was $84,000 in fiscal 2008 compared to a gain of $1.5 million in fiscal 2007. This was primarily attributable to the difference in the rate of appreciation of the British pound compared to the U.S. dollar between the two periods.

The Company finished the year with continuing strong liquidity. At April 30, 2008 total cash, cash equivalents, certificates of deposit and long-term investments were $101.1 million compared to $115.9 million at April 30, 2007. Our cash equivalents, certificates of deposit and marketable long-term cash investments consist primarily of U.S. treasury bills, term deposits at highly rated commercial banks and money market funds with large commercial banks.

Long-term debt at $0.2 million represents amounts due to the state of New Jersey under a non-interest-bearing loan which must be repaid no later than January 2012. Stockholders equity and common shares outstanding reflect the receipt of proceeds on April 30, 2007 from the U.S. initial public offering and listing on the NASDAQ global market at which time the Company raised a net amount of approximately $90 million through the sale of 5 million common shares.

Net cash used in operating activities was $13.7 million for fiscal year 2008, this primarily resulting from the net loss for the fiscal year of $14.7 million, decreased by non-cash charges of $0.2 million in depreciation and amortization and $1.9 million of compensation expense related to stock option grants. Additionally, operating assets and liabilities used cash of $1.1 million.

Net cash used in investing activities was $4.4 million for fiscal year 2008 resulting primarily from $9 million in purchases of certificates of deposit offset by $17.4 million in maturities in certificates of deposit; $12.2 million in purchases of marketable long-term cash investments; $0.4 million in purchase of equipment as we invested in expanding our assembly and test facilities as well as investments in our patent portfolio.

Net cash used by financing activities was $0.6 million for fiscal 2008 resulting from the payment of certain accrued expenses associated with our U.S. initial public offering which was partially offset by proceeds from the exercise of stock options. In fiscal year 2009 we expect our cash burn to be marginally greater than fiscal year 2008 reflecting continued investment in our technology and business development activity.

Now I'll turn the call back over to George for a discussion of OPT's growth strategy and his closing remarks.

Thanks, Chuck. As we wrap up the call I would like to discuss how we anticipate growing the business as we move forward in our commercialization plans through the upcoming year. First as you've heard from Mark, we are working towards increasing the utility PowerBuoy system output to 150 kW and thereafter to 500 kW. We believe this improvement in system output with our expected growth in production volume will greatly improve the economics of both capital and energy costs.

Second, we are focusing our sales and market efforts over the next three years on coastal North America, the West Coast of Europe, the coasts of Australia and the East Coast of Japan. We believe that each of these areas represents a strong potential market for our PowerBuoy wave power stations because they combine favorable wave conditions, political and economic stability, large population centers, high levels of industrialization and significant and increasing electricity requirements.

Third, our demonstration wave power stations will allow us to prove the viability of our PowerBuoy systems in selected regions. By enabling customers to experience our technology firsthand and with unfettered access we believe we will be able to facilitate our entry into our target markets and encourage market adoption.

In addition, demonstration wave power stations will provide us with the opportunity to test and refine our technology in actual operating conditions and will serve as test beds for our operating and maintenance procedures.

Fourth, we intend to build on existing commercial relationships by expanding the number and size of projects we have with our current customers. We also plan to enter into new alliances and commercial relationships with other utilities and independent power producers. By leveraging these customer relationships we believe we can expand commercial acceptance across the globe.

We also expect to increase revenue streams through our autonomous PowerBuoy systems. These systems are also well suited to address specific power generated needs of customers requiring off-grid electricity generation in remote locations in the open ocean. We will devote substantial resources to continue our development efforts for our PowerBuoy systems and to expand our sales, marketing and manufacturing programs associated with the commercialization of the PowerBuoy system.

In order to meet our short-term goals we plan to add employees in fiscal 2009 and 2010. The majority of our new hires will be engineers with varying levels and areas of expertise, project managers and manufacturing personnel. These additional staff will help increase and enhance OPT's capabilities. We have already formed a marine operations group and we'll expand our field service capabilities.

As I said at the beginning of the call, we are very excited about our achievements this year and the great strides we have made. We believe that this has helped OPT achieve a position of prominence in the alternative energy space. OPT's strengths include a seasoned management team with strong backgrounds in engineering and international power markets; our PowerBuoy product has over a decade of in-ocean experience and has a wide variety of applications in addition to grid connections. These include homeland security, hydrogen production, remote sensing, desalination, oceanography, agriculture and the offshore oil and gas industry.

Since our inception we have established a global network of strategic partners and an international supply chain to commercialize our products and services. As Mark detailed, some of the current partnerships include regional power suppliers, PNGC Power, diversified energy supplier, Griffin Energy, government entities such as the U.S. Navy and the Scottish government and the international energy conglomerate such as Total and Iberdrola.

The power in ocean waves provides a renewable energy resource that is clean, environmentally benign, nonpolluting and is far more predictable than other renewable energy resources. This is an advantage of crucial importance to our customers and grid operators. We believe that wave energy is the best of the renewable options offering the most concentrated form of renewable energy without any fuel, exhaust gases, noise or visual pollution.

Additionally, wave energy is based on local natural resources without the political and economic risks associated with imported fossil fuels. OPT is in the business of harnessing wave energy and commercializing it with our proprietary technology. In short, we believe that OPT is a premier company in the alternative energy space. I would like to thank all of you for attending today's webcast and for your continued support and interest as we continue to grow Ocean Power Technologies.

Thank you, everyone. That concludes today's webcast. You may now disconnect.