Ocean Power Technologies Inc (OPTT) 2010 Q2 法說會逐字稿

Good day, everyone, and welcome to the Ocean Power Technologies second quarter 2010 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 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 second quarter, ended October 31, 2009. Today we issued our second-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 advanced to slide 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 thank you to everyone for joining today's webcast. OPT maintained strong operational momentum during the second quarter of fiscal 2010 with several notable achievements that have increased the Company's commercial activities to the highest level in our history. We also remain focused on our near-term goal to complete the construction of the first of our latest wave generation devices, the PB150, which will be deployed in the Orkney Islands off the coast of Scotland in mid-calendar year 2010.

We strengthened our relationship with Lockheed Martin by entering a commercial service agreement to develop OPT's wave energy systems for future utilities-scale power generation projects in North America. Lockheed has outstanding experience at deploying new technology and managing volume manufacturing across a wide variety of sectors, and it has also been increasing its involvement with renewable energy.

We also had a major breakthrough in Japan by teaming up with the three leading Japanese companies to kick-start plans for the country's first commercial-scale wave power station and OPT's first project in Asia.

Our contract order backlog increased compared with the previous quarter. We also made a gross profit for the second consecutive quarter as well as a gross profit for the six months compared to a gross loss for the corresponding period last year. That helped reduce our net loss for the three and six-month period ended October 31, 2009.

In addition, construction of the steel structure for the first PB150 PowerBuoy for our project at Reedsport, Oregon, has been started by an Oregon Ironworks, a prominent local company, and this week we are delighted to announce the signing of a memorandum of understanding with the governor of Oregon to explore the development of new wave power projects in the state's coastal waters.

Chuck will go through the financials in more detail shortly, but first I'll take a few minutes to update you with more information about our activities during the quarter and since the end of that period.

Turning to slide four, as part of our global strategy we've made two major breakthroughs recently, reinforcing OPT's position as one of the world's leading wave power companies. As a result, we are now engaged in projects in Oregon and Hawaii in the USA, Scotland in southwest England, Spain, Australia and Japan.

In early October, we expanded our global presence by signing an exclusive memorandum of understanding with a consortium of three leading Japanese companies to develop a demonstration wave power station in Japan. The companies are Idemitsu Kosan, a leading Japanese energy company; Mitsui Engineering and Shipbuilding, a major industrial business focused on machinery and shipbuilding; and Japan Wind Development, which primarily develops and operates wind power stations. As one of the world's largest economies with a dense urban population and an extensive coastline, Japan plays a significant regional role in promoting technical innovation and clean energy, and we are delighted to be involved in this project.

In addition, OPT has been invited to become a member of the Tokyo Wave Power Initiative, a committee including the City of Tokyo, regional government and national agencies involved in the promotion of new energy sources. The initial phase of the project will be for OPT and our partners to work with the Japanese government to increase the recognition of wave power in Japanese energy policy and to identify favorable sites for OPT wave power stations and assess their commercial prospects.

Subject to the successful identification of a project site and completion of economic assessment, OPT and our partners intend to enter into an agreement to build a demonstration plant with up to three of our PowerBuoys. This trial plant should provide the basis for the expected building of a commercial-scale OPT wave power station with an initial capacity of 10 megawatts or more.

Just after the end of the quarter our second major breakthrough came as we served to strengthen our position in the Australasia region with receipt of a AUD66 million grant from the federal government of Australia. This award was received in partnership with Leighton Contractors, with whom we signed an agreement last year to collaborate in pursuing wave power projects off the east and south coast of Australia. With additional funding to be obtained for the project, the government funding will be used by OPT and Leighton to advance the construction of a wave power station to be built in three phases off the coast of Victoria near the city of Portland. With a total expected capacity of 19 megawatts, it will be sufficient to fulfill the energy needs of approximately 10,000 homes. The award was one of four renewable energy projects approved by the federal government under its renewable energy demonstration program and is the sole way for an energy venture to be selected, thus providing validation of OPT's strength and potential.

Moving to slide five, a significant milestone was achieved under our contract with Iberdrola with the completion of in-ocean trials of our unique underwater substation pod, or USP product. The testing was very successful, and this opens a potentially new revenue opportunity for the Company. The USP was designed in-house by OPT for using utility-scale wave power stations to be built at the site, approximately three miles off the coast of Santona, Spain.

Based on our proprietary design, the USP, resembling a giant electrical socket, has been developed to facilitate the collection, networking and transforming of power and data generated by up to 10 of our PowerBuoys for transmission to a shore-based electricity grid by one subsea power cable. It has been built as an open platform and can therefore provide plug-and-play connectivity for any offshore energy device linked to it.

OPT has created considerable offshore power infrastructure capability, including the development of this unique USP. Since its completion, OPT has been attracting substantial interest from industry players and public bodies for its possible application in a variety of marine energy projects.

Turning to slide six, I would like to discuss other projects which highlight areas of progress with our technology. We broadened our product application with the award of a new $2.4 million contract from the US Navy to provide our wave energy conversion system under the Navy's Littoral Expeditionary Autonomous PowerBuoy, or LEAP, program, established to enhance the Navy's anti-terrorism and homeland protection capability. This contract to be delivered over a one-year period, is the initial award under a proposed four-year, $15 million project to establish near-shore maritime surveillance for Homeland Security. Some of you may recall that OPT is already involved in a separate US Navy contract to provide autonomous buoys for deepwater ocean data-gathering.

During the quarter we also redeployed our PowerBuoy off the coast of New Jersey. Soon after redeployment, during the second quarter, it successfully weathered hurricane-driven storm waves by automatically locking down and restarting power generation after the storm passed. Originally deployed in 2005, the system is generating power and serves as an effective marketing and technology testbed. The buoy's performance is testimony to more than a decade of technology development and significant in-ocean experience, resulting in products designed for a long economic life that are capable of withstanding the 100-year storm conditions.

Moving to slide seven, we are also very pleased with the progress made on other key projects currently underway in Europe and the US. In Scotland the construction of OPT's first PB150 for the European Marine Energy Center in the Orkney Islands is on track for deployment at the Company's 2 megawatt berth during the middle of calendar year 2010. This is a major engineering feat involving a 35-meter-long structure weighing approximately 200 tons. The steel structure is being built by our engineering contractor in Inverness, Scotland, and is nearing completion while testing of energy conversion and power takeoff system continues before integration into the buoy structure. Work is also proceeding with the manufacture of the mooring systems for the device.

In Cornwall, southwest England, the pace of activity continues to gain momentum for the Wave Hub project, which received GBP42 million of government funding earlier this year for the 20-megawatt project. The Southwest Regional Development Authority, which is developing the project, expects cabling and subsea infrastructure to be installed by the end of calendar year 2010. OPT has signed a commitment agreement to advance the development of one of the four wave power stations that will comprise the Wave Hub. To date, we're the only company to have signed such an agreement.

Work also continues to move ahead in the US, where both state and federal governments are stepping up their initiatives to promote commercialization of wave energy. A major boost came last week after the Company awarded the contract to Oregon Iron Works to build its first PB150 for a 1.5-megawatt demonstration wave power station at Reedsport. Construction of this buoy has now commenced and represents phase one of an expected 10-buoy deployment at America's first commercial-scale wave power facility.

Earlier this week the Company further extended its activities in Oregon by signing a memorandum of understanding with the governor of Oregon that involved an approach for developing other wave power projects in Oregon. The important principles set forth in the agreement will be applied to OPT's projects, including a planned wave power station in the city of Coos Bay, which may be developed in phases up to 100 megawatts. As discussed earlier, the Company has also completed the underwater substation project in Spain.

On slide eight we show views of our Scottish fabricator, showing the PB150 steelwork nearing completion.

With that, I'll hand the presentation over to Chuck to discuss the second quarter's financial results.

Thank you, Mark. Moving to slide number nine, our contract order backlog remains strong, as Mark noted, increasing to $7.1 million as compared to $6.4 million for the previous quarter and with a significant proportion relating to the PB150 device. We achieved a gross profit for the second consecutive quarter which amounted to $54,000 compared to a gross loss of $702,000 in the corresponding period last year. Revenues for the quarter decreased slightly to $0.6 million as compared to $0.7 million for the comparable period last year. This decrease was primarily reflective of a lower level of activity in connection with our contract with the U.S. Navy for ocean data gathering. However, work on this project is expected to increase during the three months ending January 31, 2010.

Revenues relating to OPT's utility PowerBuoy project were approximately the same compared with the corresponding period last year, as a decrease in revenues from the Reedsport projects in Oregon was offset by increases in revenue from our Hawaii project with the U.S. Navy and our project in the Orkney Islands, Scotland.

Cost of revenues decreased to $0.5 million in the three months ended October 31, 2009, as compared to $1.4 million in the three months ended October 31, 2008. This decrease in cost of revenues reflected lower levels of activity on revenue-bearing contracts and a $0.4 million favorable decrease in cost of revenues resulting from a net change in provision for contract losses, including the provision for contract losses related to our wave project off the coast of Spain.

Operating loss for the quarter increased by $0.2 million to $5.6 million as compared to $5.4 million for the same period last year. This change reflects an increase in product development costs related to OPT's continued work to increase the power output of our utility PowerBuoy system, which was partly offset by improvements in gross profit and lower selling, general and administrative spending. The increased levels of product development costs were consistent with planned activity for this fiscal year.

Net loss for the quarter declined to $5.2 million compared with a net loss of $6.1 million for the same period last year. This decrease in net loss reflects the change in operating loss as well as the increase in foreign exchange gains relative to the change in the value of the British pound sterling has partly offset by a decrease in interest income.

Turning to the six-month period, OPT reported revenues of $1.9 million compared to $2.5 million for the six months ended October 31, 2008. This change primarily reflects decreased revenues associated with our wave power station off the coast of Spain, our project off the coast of Reedsport, Oregon, and the Autonomous Power Buoy project with the U.S. Navy for Ocean data-gathering.

Cost of revenues decreased to $1.6 million in the six months ended October 31, 2009, as compared to $3.3 million in the prior year's comparable period. This decrease reflects lower levels of activity in revenue-bearing contracts, primarily our project off the coast of Spain.

OPT achieved a decline in operating loss and net loss for the six-month period. Operating loss was $8.8 million compared to $9.8 million in the same period of the prior year. Net loss for the six months ended October 31, 2009 was $7.3 million compared to a net loss of $10 million for the prior year's comparable period. These changes in operating loss and net loss reflect an increase in gross profit and a decrease in selling, general and administrative cost which offset higher levels of product development spending. The decrease in SG&A is primarily attributable to a decrease in consulting, accounting and investor relations expenses.

In addition, foreign exchange gains increased relative to the change in the value of the British pound sterling, and other income increased from the settlement of a claim against the supplier of engineering services during the first quarter of fiscal 2010. These were partially offset by a decrease in interest income.

As noted on slide 10, OPT finished the quarter with total cash, cash equivalents, restricted cash and marketable securities of $76.7 million. As such, the Company's balance sheet remains strong, and its cash and investments are highly liquid, consisting primarily of term deposits with large commercial banks and U.S. Treasury bills and notes.

Turning to slide 11, net cash used in operating activities was $6.7 million for the six months ended October 31, 2009, as compared to $9.4 million for the prior year. This change was the result of a decrease in net loss of $2.7 million and an increase in net operating assets and liabilities of $2.1 million, offset by a decrease in non-cash operating activities of $2.1 million. Net cash used in investing activities was $11,000 for the six months ended October 31, 2009, compared to $66.8 million for the prior year's period. This change was primarily the result of a net decrease in the current period, in purchases of securities with maturities longer than 90 days as well as a $0.5 million decrease in purchases of equipment and additional restricted cash of $0.3 million.

Going forward, we continue to expect our cash burn for the full fiscal year of 2010 to be less than that experienced in the prior fiscal year 2009.

Now I'll turn the call back over to Mark for a summary of the Company's growth strategy.

To conclude with slide 12, our growth strategy remains on course. That is to say, we'll continue to focus on selling turnkey power stations and operations and maintenance contracts while also increasing our revenue streams from the sale of Autonomous Power Buoy systems and marine energy infrastructure systems, including our underwater substation pod. For our PowerBuoy product we'll concentrate on building the smart part of OPT's technology while outsourcing functions such as the fabrication of the steel structures, as we are doing for the PB150.

The focus of OPT's engineering development efforts is to continue making improvements to the 150-kilowatt PowerBuoy system to facilitate our future transitions 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 system 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. We will continue to build on existing commercial relationships and expand the number and size of projects we have with our current customers.

Finally, the progress that we anticipate in the development of both our products and business come against a backdrop of increasing global commitment to tackle climate change as evidenced by this week's international summit in Copenhagen to reduce carbon emissions and foster renewable energy. As a result, OPT's long-term fundamentals are brighter than ever before.

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

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