Ocean Power Technologies Inc (OPTT) 2010 Q1 法說會逐字稿

Good day, everyone and welcome to Ocean Power Technologies audio webcast for the first quarter of the fiscal year 2010. 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.

Thank you. Good morning. And welcome to Ocean Power Technologies audio webcast for the first quarter ended July 31, 2009. Today, we issued our first quarter earnings press release and we will be filing our quarterly report on Form 10-Q with the Securities and Exchange Commission. Our public filings can be viewed on the SEC website at SEC.gov, or you may go to our website, OceanPowerTechnologies.com. I will be joined on today's webcast by Mark Draper, our Chief Executive Officer. Please advance to the next slide, number two.

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 this slide, these forward-looking statements are subject to numerous assumptions made by management, regarding future circumstances over 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-Q 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 Mark Draper our Chief Executive Officer.

Moving to slide three, thank you, Chuck, and thanks for everyone who has joined us for today's webcast. OPT started fiscal 2010 with strong operational and financial performance achieving several successes this quarter. Firstly, we achieved a gross profit of $0.3 million compared to a gross loss for the same period last year. And our contract order backlog remains strong at $6.4 million, up 17% compared to the prior year's comparable quarter. Chuck will go through the financials in more detail shortly.

I would like to take a few minutes to update you on the operational progress made during the quarter. A key milestone was the signing of a commitment agreement for the wafer project in Carmel, UK while also making significant progress with the manufacturing of our next generation PowerBuoy, the 150-kilowatt rated PB150. We also advanced the construction of our underwater substation port which is an important part of the complete solution we are developing for the delivery of full operational wave forms to our customers. Finally, we strengthened our management team with the employment of a new executive of our wholly owned subsidiary OPT Limited based in Warwick, England.

OPT also received industry recognition when our Executive Chairman Founder Dr. George Taylor, was awarded the 2009 renewable energy navigator award by the Foundation for Ocean Renewables. I would now like to discuss further some of these successes.

Turning to slide four, as OPT steps up its commercial activity, it is vital to continually improve our technical capability through the hiring of qualified personnel in the manufacturing, development, and engineering functions. As of July 31, 2009, OPT had 59 employees, an increase of 12 employees over the same date last year. As announced previously, we also strengthened our European leadership team with the appointment of Angus Norman as Chief Executive of Ocean Power Technologies Limited. Angus joined us from EDF Energy where he held the position of managing directer of sustainable solutions and brings more than a decade of leadership experience in the energy and renewable energy generation sector.

At EDF Energy, one of the UK's largest energy companies providing power to a quarter of the population, Mr. Norman led development of a new sustainable energy services business and had responsibility for his combined heat and power plants and business development team. Prior to this he was managing director of generation at EDF Energy with operational responsibility for its gas and coal powered generation with a 5,000-megawatt capacity, as well as the renewable wind power assets. Mr. Norman was also responsible for EDF Energy's initial investment in 2002 into marine current turbines, a energy company and was a Board of Director there until 2005.

The strength of OPT's personnel, as well as the Company's contributions to the wave power industry, was recognized by the Foundation for Ocean Renewables in awarding Dr. Joyce W. Taylor the 2009 renewable energy navigator award. This prestigious award was presented to Dr. Taylor at the second annual global marine renewable energy conference at the Carnegie Chief of Science in Washington, D.C. The honor was given in recognition of Dr. Taylor's service in promoting responsible commercialization of marine renewable energy. Dr. Taylor's recognized as one of the world's pioneers and leaders in development and establishment of wave energy technology for his work over the past 25 years. He co-founded Ocean Power Technologies Inc. and under his leadership OPT has become one of the world's major wave power companies. Our technology is supported by a strong patent portfolio. At the end of the period, OPT owned a total of 40 issued US patents with 16 US patent applications pending.

Turning to slide five, I will now discuss our operational progress starting in Europe. This quarter, OPT made progress in a number of key projects. Starting with Europe, an important development was the extension of our involvement in the wafer project in the southwest of England, one of the world's largest proposed marine renewable energy projects. During the course, we signed a commitment agreement with the Southwest Regional Development agency or SWRDA to advance development of the demonstration wave form power station. The wafer will be built off the coast of Cornwall, England, and is expected to generate up to 20-megawatts of renewable energy with potential scalability up to 50-megawatts.

We are proud to be the first to sign a commitment agreement to support this project, becoming a commercial reality. This agreement reaffirms OPT's involvement over several years Wave Hubs since it was envisioned in 2005 where we expect to build, install and operate a Wave Power station comprised of our patented PowerBuoy Systems generating up to 5-megawatt of electricity equivalent to the energy needs of approximately 1750 homes annually. The project infrastructure for the Wave Hub is expected by SWRDA to become operational in 2010.

Wave Hub is sure to become a global showcase for wave power technology which will benefit the Cornwall region and the UK economy as a whole. This commitment from OPT coincides with the UK government giving a formal go ahead to the project as part of a 100 million-pound investment package and establishing the southwest England region as the UKs first low carb economic area and a major global center for the Wave Power industry. Of these tons, 14 million-pounds has been (inaudible) to Wave Hub. Progress on our contract with the Scottish government will be discussed as we move to slide six.

Much of our current focus is on development of our PB150 PowerBuoy of which the first one will be deployed at the European Marine Energy Center or EMEC in the (inaudible), Scotland. And it is also to be expected to be deployed in the future at other sites, including Cornwall in the UK, and Reedsport, Oregon. Last year, we announced the electrical control system, which is the core of the PB150 system has been shipped to the UK from OPTs Pennington, New Jersey manufacturing facility. This quarter, we achieved two further major manufacturing milestones.

Firstly, we completed the mechanical elements of the Power (inaudible) system in Warwick, England a picture of which you can see in this slide. Secondly, we awarded the steel fabrication contract for the the PowerBuoy structure to (inaudible) limited basis Scotland. The construction to steel structure for the PB150 is now in progress while initial testing is also under way on the power conversion and power takeoff sub assemblies. Consequently I'm pleased to report the OPT remains on track for the PowerBuoy deployed in Scotland in the first half of calendar year 2010, subsequent to the completion of the buoy manufacturing by the end of this calendar year.

Continuing the technology advancements on slide seven, in Spain we have almost made progress under our contract with Iberdrola with the development of the Wave Power station to be built at a sight approximately three miles off the Atlantic coast of [Santano]. As you know we tested a 40-kilowatt rated PowerBuoy at the site last year. The current phase of the contract involves the building and testing of an underwater substation pump or USP, for use in the proposed utility scale Wave Power station. During the quarter, we made considerable progress with the manufacturer of this part. This device is expected to be ready for in water dockside testing in the coming weeks.

An underwater substation is vital but often overlooked device that can be used for any wave or tidal power station with multiple devices to deliver electricity into the onshore power grab by a single cable. OPT has created considerable intellectual property with the development of its unique part and as a result is attracting interest from industry players for its possible application in other wave, offshore wind and tidal projects.

Moving to operation progress in the US, on slide eight, we're also continuing to move ahead on our US project, most notably under contract with the US Navy. We continue with the upgrading of our 40-kilowatt peak PowerBuoy under our ongoing program with the US Navy for its Wave Power station at the marine corps base in Oahu, Hawaii. The device is expected to be redeployed later this year to continue operational testing with the ultimate goal of connection to the grid for an existing under water power transmission cable.

We also advanced our $3 million contract to provide OPT's autonomous PowerBuoy technology for the US Navy deep water active detection center for ocean data gathering and homeland security. We are continuing to work on an advanced version of the PowerBuoy following the completion of the initial test phase last year.

Finally, with support from Pacific Northwest Generating Cooperative, or PNGC Power we have continued to work extensively with interested stakeholder groups at local, county, state and federal agency levels to launch our project in Reedsport, Oregon. Progress was made on the overall permitting and licensing process and OPT is now seeking bids from prospective vendors for this application of infrastructure for PowerBuoy to be stored to this site. The Reedsport authorities continue to be very supportive of OPT's involvement and we continue to work closely with them to win state and federal backing for this project. With, that I will hand the presentation over to Chuck to discuss this first quarter's financial results, starting on slide nine.

Thank you, Mark. Firstly, as mentioned, our contract order backlog remains strong at $6.4 million, and increased to 70% over July 31, 2008, and compares with $7.5 million at the end of the previous quarter. The majority of the current backlog is expected to be recognized as revenue over the remainder of the fiscal year, and is primarily attributable to our contracts with the US Navy, the US Department of Energy, the Scottish government, PNGC Power, and Iberdrola. This quarter, we also achieved a gross profit of $0.3 million, compared with a gross loss of $0.2 million for the first quarter of fiscal 2009. For the three months ended July 31, 2009, our revenues decreased to $1.3 million, compared to $1.8 million for the same period last year. The decrease in revenues primarily reflects a lower level of billable activity in connection with work on our Wave Power project off the coast of Spain as the current phase of the project nears completion.

Also, lower revenues related to OPT's DMEC project in Scotland were offset by an increase in revenue related to our utility Power Wave project in Hawaii and our autonomous Power Wave project both for the US Navy. Cost of revenues decreased to $1 million for this quarter compared to $1.9 million in the three months ended July 31, 2008. This reduction reflects the lower level of activity on revenue-bearing contracts and the absence of any provision for contract losses as was accrued in the comparable quarter of last year. Product development costs decreased to $1.4 million, as compared to $1.7 million, for the first quarter of the prior year. However, we expect our product development costs to increase during the remainder of the year, as we continue to focus on increasing the output and efficiency of our PowerBuoy systems.

Selling, general, and administrative costs decreased to $2.2 million for the quarter, compared with $2.6 million for the first quarter of fiscal 2009. This was primarily attributable to reduced consulting expenses related to marketing efforts and a reduction in our share-based compensation expense. Our loss from operations and also net loss decreased to $3.2 million, and $2.1 million, respectively, which reflects the increase in gross profit and decreases in selling, general and administrative costs and product development expenditures.

In addition, we recognized a foreign exchange gain of $0.4 million, compared with a loss for the same period of the prior year. We also recognize other income of $0.5 million this quarter, in settlement of a claim against the supplier of engineering services. However, these favorable increases were offset in part by a decrease in interest income in the first quarter of fiscal 2010, to $0.3 million, from $0.5 million for the same period last year. This primarily reflected lower interest rates, as well as lower cash balances.

Moving to slide 10, you can see that OPT finished the quarter with total cash, cash equivalents, and marketable securities of just under $80 million. Representing a cash burn of approximately $2 million for the quarter. The Company's balance sheet remains strong, and its cash, cash equivalents and marketable securities, are highly liquid investments consisting primarily of term deposits with large commercial banks, and US treasury bills and notes.

Moving on to the financial summary of cash flows on slide 11, net cash, used in operating activities, was $2.5 million for the first quarter of fiscal year 2010 as compared to $4.2 million for the prior year. The change was primarily the result of decreased net loss recorded for the current quarter. Net cash used in investing activities was $5.3 million for the quarter, compared with $10.9 million for the first quarter of fiscal 2009, reflecting the net change in maturities and purchases of marketable securities. We're very pleased to report a decrease in the rate of cash burns reported this quarter. And as compared to both the prior year's first quarter, and the immediately preceding quarter ended April 30, 2009. Over the next three quarters, we expect to continue development efforts for our PowerBuoy systems, and our sales and marketing and manufacturing programs associated with the commercialization of the PowerBuoy system. However, in the full fiscal year 2010, we expect our total year's cash burn to be less than that experienced in the prior fiscal year ended April, 2009. As we look beyond the current fiscal year 2010, we're driving to significantly reduce our cash burn while continuing to advance the technology.

Now, I will turn the call back over to Mark for a summary on our view on the Company's future development and that of the wave power industry beginning with slide 12.

Thanks, Chuck. Looking forward to the future, we believe the fundamental drivers the Wave Power and clean energy continue to strengthen due to the high cost of fossil fuels, climate change initiatives at both grass roots and governmental levels and the need for greater energy security. While Wave Power has not yet reached commercial scales complete with more developed forms of renewable energy with wind and solar, the forecast economics remain highly promising. We believe that the energy cost per kilowatt hour from OPT's PowerBuoy technology will be competitive with that of solar and wind as we build volume production to 400 OPT PowerBuoys per year.

The availability of additional incentives makes Wave Power an even more attractive part of the renewable energy mix while avoiding some of the major planning issues that surround other renewables. OPT is at the forefront of making Wave Power an economic reality and much of our current effort is directed at developing large scale robust devices that have been ocean tested so that commercial size wave runs can be a real value proposition for energy consumers.

Concluding on slide 13, our gross strategy remains focused on creating long-term sustainable shareholder value. We will continue to pursue several key elements of our execution strategy, which are intended to reduce cash needs and increase return on equity. These include our fundamental mission to sell turn-key power stations and O&M contracts while also increasing our revenue streams from the sale of or (inaudible) PowerBuoy systems. In both instances we will concentrate on building the smart part of OPT Technology while outsourcing functions such as the fabrication of the steel structure, as we are doing for the PB150.

The current focus of OPT's engineering and development efforts is to continue making improvements with the 150 kilowatt PowerBuoy system to facilitate our system to the even larger 500-kilowatt PowerBuoy. This includes increasing the power output and maintainability of the 150-kilowatt PowerBuoy system and exploring design and construction techniques that are expected to enable the larger systems to be built, deployed and maintained at a significantly reduced cost. We also hope to improve economics by growing production volumes as well as maximizing customer funding of technology development costs.

We remain committed to our active sales and marketing efforts, primarily in developed economies. These areas represent strong potential markets for our PowerBuoy Wave Power stations because they contain favorable wave conditions, political and economic stability, large population centers, high levels of industrialization and significant and increasing electricity requirements with cash programs to incentivize the adoption of Wave energy. We will also continue to build on our existing commercial relationships and expand on the size and number of projects we have with our current customers. Finally, the progress that we anticipate in both our product and business development programs comes against a favorable macro economic backdrop and improving industry fundamentals.

With that, I would like to thank you all for attending today's webcast and for your continued support and interest as we work to make Ocean Power Technologies a leading player in the worldwide energy marketplace.

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