Ocean Power Technologies Inc (OPTT) 2011 Q2 法說會逐字稿

Good day, everyone, and welcome to Ocean Power Technologies audio webcast for the second quarter of fiscal year 2011. 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. Brian Posner. Please proceed.

Thank you. Welcome to Ocean Power Technologies audio webcast for the second quarter ended October 31, 2010 of our fiscal year ending April 30, 2011. Today we issued our earnings press release and will file our quarterly report on form 10-Q with the Securities & 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 Charles Dunleavy, our Chief Executive Officer. Please advance 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 the 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 factor 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 & Exchange Commission for a description of these and other risk factors. I will now turn the call over to Charles Dunleavy.

Thank you, Brian. And thanks to everyone who has joined us for today's webcast. Brian and I will be available to answer questions following our prepared statements. On slide number three I would like to note some of the highlights of the first six months of this fiscal year. Several important technical milestones were achieved during this period. We accomplished the grid connection of our PowerBuoy in Marine Corp Basin, Hawaii in conjunction with the US Navy. This is the first grid connection of a wave energy device in the US. In Scotland we successfully completed the integration of the energy conversion and power take-off subassemblies with the new PB150 PowerBuoy structure. For our Reedsport, Oregon project, also for our PB150 PowerBuoy, we finished construction of the steel structure and in connection with that Oregon project we signed a groundbreaking agreement with 14 different federal, state, and local stakeholders. OPT also made great strides in its two autonomous PowerBuoy projects with the US Navy.

OPT achieved strong top-line growth with an increase in revenue for both the three and six months ended October 31, 2010, as well as an increase in contract order backlog to $7.5 million. We announced approximately $10 million of awards from customers in the US, UK and Japan since our current fiscal year 2011 began this past May. Let me now take you through these developments in more detail. Moving to slide four. OPT has identified two application driven markets for its core PowerBuoy technology, the utility or grid connected market, which needs large amounts of power, and the non-grid connected autonomous market, where lower levels of power output are needed for use out in the deep ocean. Good operational progress was made with our utility PowerBuoy projects during the second quarter. In September 2010 we completed grid connection to the Oahu power grid of our PowerBuoy at the Marine Corps base in Iowa.

This is the first grid connection of a wave energy device in the US and demonstrates the ability of OPT's PowerBuoy to produce utility grade renewable energy that can be transmitted to the grid in a manner fully compliant with national and international standards. The PowerBuoy has been in operation since December, 2009, has withstood a number of severe storms and produces power in accordance with modeled expectations for that location and PowerBuoy configuration. Built under contract from the US Navy, the Hawaii project's intent is to demonstrate the survivability of OPT's PowerBuoy, as well as the capability of our product to meet design expectations. In addition, significant aspects of the success of the Hawaii PowerBuoy are its delivery of grid quality power and the validation of OPT's operating and performance models for scale up to the PB150 and its progression to the PB500 PowerBuoy product. These highlight the strength of our technical base, which is being leveraged to create valuable intellectual property.

Slide five shows a picture of the PowerBuoy deployed off the Marine Corps base in Oahu. Now turning to slide six. Our other utility projects also continue to move ahead steadily. In 2009 OPT signed a commitment agreement with the southwest regional development agency, or SWRDA, to advance development of wave hub, one of the world's largest proposed renewable marine energy projects and is located in Cornwall, England. OPT's expected participation in the wave hub project includes plans to build, install and operate a 5 megawatt wave power station comprising an array of its patented PowerBuoy systems. SWRDA has now completed the installation of the cabling and subsea infrastructure of the entire wave hub site. In July, 2010 OPT received support from SWRDA with a grant of GBP1.5 million, which is approximately $2.3 million. This grant from the UK government is for the development of the PB500 and strengthens our commitment to the region. In Spain OPT successfully completed in-ocean trails last year of its proprietary undersea substation pod under contract from Iberdrola.

Earlier this calendar year OPT was awarded EUR2.2 million, or about $3 million, from the European commission to develop a wave power device in Spain. We're currently in talks with Iberdrola regarding the next steps of that project. While the PB150 will be our key product for the utility market over the next few years, the commercialization of our intellectual property is also being leveraged by the product development of our next generation PowerBuoy, the 500 kilowatt rated PB500. The design of this larger scale system is already under way and aimed at further lowering the cost per kilowatt hour of wave power and making it more completive with other energy sources. The development of the PB500 gained additional momentum this quarter with the award of $2.4 million from the US Department of Energy or DOE. This is the second award OPT has received from the DOE for the PB500, following the $1.5 million grant received this past April.

The combined $6.2 million of awards for the PB500 development work received from the DOE and SWRDA is consistent with OPT's strategy to seek non-dilutive funding from external parties to fund its development of the PB500. Now turning to slide seven. Much of this quarter's operational activity was focused on the development of our PB150 PowerBuoys. Our first 150 kilowatt rated PowerBuoy in Scotland is nearing completion. The integration of the energy conversion and power take-off subassemblies with the PowerBuoy is complete. I am pleased to say that we remain on track to be ready by the end of this month for deployment off the coast of Scotland for in-ocean trials, weather permitting. We're also seeking additional funding for the next stage of the buoy's development after this ocean trial phase. The completion of the PB150 in Scotland is a major milestone for the Company. It is the first test system for our PB150 product line and a significant engineering achievement. As we have progressed during the construction phase, it has already provided valuable data for the advancement of our technology and its manufacturability.

We also have benefited from this experience in the development of our second PB150 for a project in Reedsport, Oregon. Construction of the steel structure for the PowerBuoy has been completed. Fabrication of the power take-off and control system is now in process and on-land testing of that system is expected to commence in the first half of calendar year 2011. Ocean trials of that PB150 off Oregon are due to commence later in calendar year 2011. OPT intends this PowerBuoy to be the first of a 10 PowerBuoy 1.5 megawatt wave power station at the Reedsport site, which would be America's first commercial scale grid connected wave power station.. In August, 2010 we announced the signing of a significant agreement with 11 federal and state agencies and three non-governmental stakeholders to support the responsible phased development by OPT of the 10 PowerBuoy wave power station. This agreement represents a key step towards the granting of a license by the Federal Energy Regulatory Commission, or FERC, which would be the first such license to be issued for a commercial scale wave power project in the US.

After receipt of the FERC license and after receipt of additional funding for the project, the 10 PowerBuoy wave power station is expected to be connected to the grid. In September, 2010 OPT received a $2.4 million award from the DOE in connection with this Reedsport project, which is in addition to our receipt in 2008 of $2 million from DOE to use towards construction of that PB150 PowerBuoy. Slide eight shows some scenes of the construction of the PB150 in Scotland. The upper left-hand picture is of the bridge assembly, which sits a top the float. The upper right-hand photo shows two halves of the float and the lower picture is of the steel buoy structure in the Scottish fabricator's facility. On slide nine you see our PB150 in Scotland next to the dock prior to commencement of the power take-off system's integration process. Similarly, on slide 10 you can see views of our PB150 under construction for our project in Reedsport, Oregon.

Now turning to slide 11. While there was significant activity with our utility projects, further progress was also made during the quarter in our autonomous PowerBuoy business, which is targeting remote ocean applications where there is no access to grid connected power. The US Navy awarded $2.75 million in additional funding to OPT for the second stage under its existing program to provide an autonomous PowerBuoy wave energy conversion system for the Navy's LEAP program. This is the Littoral Expeditionary Autonomous PowerBuoy program for Homeland Security and protection. The new award follows the successful completion during the second quarter by OPT of the first stage of the LEAP program. During that first twelve month stage OPT successfully completed delivery in September, 2010 of the design and on-land testing of a new power take-off system for its autonomous PowerBuoy.

In the second stage of the program, also to be performed over a one-year period, the Company will build an ocean test elite PowerBuoy structure incorporating that new power take-off system off the coast of New Jersey. Progress also continued on OPT's ongoing project to provide autonomous PowerBuoy technology for the US Navy's deep water active detection system, or DWADS, for ocean data gathering. The building of the enhanced device was completed during the second quarter and OPT successfully conducted near-shore sea trials of the system. Deep ocean testing is expected to be conducted at a later time by the US Navy, which is anticipated to provide a ship for that deep ocean test phase of the DWADS system. Turning now to slide number 12. In October, 2009 the Company announced that OPT and a consortium of the Mitsui Engineering & Shipbuilding, or MES, and Idemitsu Kosan and Japan Wind Development Company had signed a memorandum of understanding for the development of wave energy in Japan.

Just last month OPT expanded its relationship with Mitsui Engineering and Ship Building with the signing of the new contract to develop its PowerBuoy technology for Japanese sea conditions. Under this contract the two companies will work together to develop a new mooring system for OPT's PowerBuoy customized for wave power stations off the coast of Japan. The new system will undergo testing at MES's wave tank facilities to verify the results of extensive computer modeling. Following from that work, the identification of a project site and completion of economic assessments, the parties plan to enter into an agreement to conduct ocean trials of a demonstration PowerBuoy system. The trial plant would provide the basis for the expected building of a commercial scale OPT wave power station with an initial capacity of several megawatts scalable to 10 megawatts or more.

In Australia a special purpose company formed by Leighton Contractors, PTY Limited or Leighton, previously received a AUD66 million grant from the federal government of Australia towards building a 19 megawatt OPT wave power station off the coast of Victoria, Australia. The award was one of four renewable energy projects approved by the federal government of Australia after considering over 30 applications and is the only wave energy venture to have received a grant. The funding is intended to be used to advance the construction of a wave power station to be built in three phases to supply electricity to up to 10,000 homes in Victoria.

The grant is conditional on the attainment of the balance of funding needed for the project, which effort is being led by Leighton. As noted on slide 13, OPT has received awards totaling approximately $10 million since the beginning of our current fiscal year in May, 2010. This new business was received from customers in the US, UK, and Japan. OPT's $7.5 million contract backlog as of October 31, 2010 does not yet reflect the two new funding awards we mentioned of $4.8 million from the US Department of Energy, as the contracts for these two awards have not yet been received by the Company. With that I will hand the presentation over to Brian to discuss the financial results for the second quarter and first six months of fiscal 2011.

Thank you, Chuck. As you will see on slide 14, our revenues increased 220% for the second quarter of fiscal 2011 to $1.9 million compared to $600,000 for the same period in the prior year. The growth in revenues primarily reflects an increase in revenues from the US Navy under the LEAP program. In addition, there was an increase in revenues from OPT's PB150 PowerBuoy project in Reedsport, Oregon and the PB500 development project. The growth in these projects was partially offset by a decline from revenue from OPT's PB150 PowerBuoy project in Scotland and its utility PowerBuoy project with the US Navy at the Marine Corps base in Hawaii which is now grid connected. Gross profit was approximately $87,000 for the quarter as compared to a gross profit of approximately $54,000 for the second quarter of the prior year.

Gross profit for the second quarter ended October 31, 2009, benefited from an approximately $300,000 favorable reduction in a provision for contract losses. Our future gross margins will be dependent on the nature of new contracts, our success at increasing sales of our PowerBuoy systems, and our ability to manage costs incurred on fixed price commercial contracts. Product development costs increased to $3.7 million as compared to $3.4 million for the second quarter of the prior year. These planned cost increases were primarily due to our efforts to increase the power output and reliability of our utility PowerBuoy system, especially the 150-kilowatt PowerBuoy. SG&A costs decreased by 2% to $2.1 million compared with $2.2 million for the previous year. This decrease was largely due to a decrease in employee related expenses which were partially offset by increased marketing and business development expenses.

Interest income for the quarter decreased to $161,000 compared with $248,000 for the same period last year. This decrease was largely due to the decline in total cash and marketable securities. OPT recognized foreign exchange gain of $71,000 for the quarter compared to a foreign exchange gain of $101,000 in the same period in the prior year. The difference was primarily due to the relative change in value of the British pound Sterling and the euro. As compared to the US dollar during the two periods. Net loss was $5.5 million for the second quarter of the fiscal year ended April 30, 2011, compared to $5.2 million in fiscal 2010.

Turning to the six-month period our revenues were $3.2 million, a 71% increase compared to revenues of $1.9 million in the six months ended October 31, 2009. The growth in revenue primarily reflects an increase in revenues from the US Navy under the LEAP program. In addition there was an increase in revenues from OPT's PB150 PowerBuoy project in Reedsport, Oregon and the Company's PB500 development project. The growth in these projects was partially offset by a decline in revenues from OPT's DWADS project with the US Navy, utility-scale project in Spain and utility PowerBuoy project with the US Navy at the Marine Corp base in Hawaii.

Gross loss was approximately $126,000 for the current six month period, as compared to a gross profit of approximately $341,000 for the same period in the prior year. The decrease in gross margin was largely due to a reduction of revenue in the current six month period by approximately $231,000 due to a change in estimated revenue to be recognized in connection with the conclusion of the current project in Spain. In addition, gross profit for the six months ended October 31, 2009 included approximately $400,000 from a favorable reduction in a provision for contract losses. Product development costs increased to $7.7 million as compared to $4.8 million for the first six months of the prior year. As noted in the quarter to quarter analysis, these planned cost increases were primarily due to our efforts to increase the power output and reliability of our utility PowerBuoy system, especially the 150 kilowatt PowerBuoy. SG&A costs decreased by 4% to $4.2 million compared with $4.4 million for the previous year.

This was largely due to a decrease in professional fees, travel and employee related expenses, which were partially offset by increased marketing and business development expense. Interest income for the six months decreased to $398,000 compared with $533,000 for the same period last year. This was primarily due to the decline in total cash and marketable securities. The six month comparison of other income reflects $532,000 received by OPT from a settlement of a claim against a supplier of engineering services during the first six months of the prior fiscal year. OPT recognized a foreign exchange loss of $168,000 for the first half of fiscal 2011 compared to a foreign exchange gain of $502,000 in the same period in the prior year. The difference was primarily due to the relative change in value of the British pound Sterling and Euro as compared to the US dollar during the two periods.

Net loss was $11.8 million for the first six months of the fiscal year ended April 30, 2011, compared to $7.3 million in fiscal 2010. Turning to slide 15. At October 31, 2010 total cash, cash equivalents, and investments were $57.7 million. The Company's cash, equivalents and investments continue to be highly liquid investments consisting primarily of US Treasury notes and term deposits with large commercial banks. While cash used in the second quarter ended October 31, 2010 was significantly lower than the immediately preceding quarter, we expect cash used in the second half of fiscal 2011 to be consistent with the first half. We believe the rate of cash outflows will decrease in future periods, reflecting completion of significant milestones associated with the construction of our two PB150 systems for Oregon and Scotland and continued receipt of non-dilutive funding from external sources for development of the PB500. As we noted previously, the Company has so far received awards totaling $6.2 million for PB500 development work.

Turning to slide 16. Last week OPT announced that effective January 14, 2011 its shares will no longer be traded on the A market of the London Stock Exchange. It should be noted that OPT remains fully committed to growing our business in the UK and Europe. OPT had three main reasons behind the decision to delist from A -- the trading volume on NASDAQ was significantly higher than the A market; the significant savings of costs associated with the listing; and the ability of shareholders to still trade the Company stock on NASDAQ. All shareholders on the UK share register will be moved to the US share register by our transfer agent, Computer Share. We encourage any shareholder with any questions to call Computer Share at 44 (0) 870.703.6162. Now I will turn the call back over to Chuck for a summary of our view on OPT's future developments.

Thank you, Brian. Now turning to slide number 17. The board and management of OPT are committed to the Company becoming profitable as soon as possible. We believe we have two paths to profitability, with each of the two major market areas we mentioned earlier. The first path, with our utility PowerBuoy product, targets the market size of approximately $50 billion per annum and is all about large amounts of power being provided to the grid. This utility market opportunity is driving our product development investment to increase the power output rating per PowerBuoy to 150 kilowatts and further to 500 kilowatts. As we stated earlier, we're pleased with the progress that we continue to make with this product. We also have made very strong progress with our autonomous PowerBuoy contracts, the ability of the PowerBuoy to operate autonomously in remote locations is truly an enabling technology.

In addition to Homeland Security, we believe there is strong potential for our systems to be used for offshore oil and gas platforms, aqua culture or fish farming, and ocean based communication and data gathering, such as for tsunami warnings. We estimate this market size to be approximately $10 billion per annum worldwide. It is important to note that the fundamental PowerBuoy technology is the same for both these markets. The difference in the PowerBuoy's addressing the two market areas primarily lies in the size and rated power output of the systems. In the slide, we have also shown how our present projects, as well as our ongoing marketing initiatives support progress along both paths to profitability. We believe that either of these paths alone can move us to profitability and positive cash generation from operations. Turning to slide 18, we're excited about our longer term prospects and we also believe OPT remains on track to achieve the near-term milestones we had set for a number of key projects in the forthcoming months.

We would like to give you a quick status report. First, we plan to be ready by the end of this month to conduct in-ocean trials of our first PB150 device off the coast of Scotland, weather permitting. We also will continue to make progress with our second PB150, which we plan to deploy in the second half of calendar 2011 off the coast of Reedsport, Oregon. In September, 2010 we accomplished grid connection of the Hawaii buoy at the Marine Corps base on Oahu. Our autonomous PowerBuoy projects with the US Navy continue to make great progress. We conducted near shore ocean trials of our enhanced autonomous PowerBuoy for the DWADS program and also completed the design and the testing on schedule of a new power take-off system under the first stage of the LEAP project.

We have added a new near-term goal for ourselves, which is for the design, build and ocean testing of a PowerBuoy structure which will house the new power take-off system for the second stage of the LEAP program. The primary focus of OPT's engineering and development efforts for the utility market area is to continue making improvements to the 150 kilowatt PowerBuoy system, which will be our workhorse over the next few years and to facilitate our longer term transition to the 500 kilowatt PowerBuoy. With several key developments due to come to fruition in the near future, along with important steps being taken for the longer term, OPT has the momentum at many levels to accelerate the adoption of our PowerBuoy wave energy technology in the years ahead. Now this concludes our prepared statement for our second quarter review. I will now turn the call over to the operator for questions.

(Operator Instructions) And our first question comes from the line of Winnie Clark with UBS. Please proceed.

Good morning.

Hi, Winnie, how are you?

Good. Congratulations, first of all, on a good quarter.

Thank you.

And first I would like to ask about your goal of accelerating the sales of your autonomous buoys to new markets that you talked about again today. Any development in your efforts there worth highlighting to us this morning?

Yes. We have been conducting a very aggressive marketing activity from business development side and I think one thing that is different over this past quarter is that we have broadened the scope of those efforts. We had previously been focusing largely on a Homeland Security and related markets, particularly with Department of Defense and DHS, Homeland Security, but we are now broadening that, as I noted, to some of the other areas we mentioned in the prepared portion of our call, which includes oil and gas applications and for the offshore platforms and as well looking to engage in greater conversation and dialog with some of the providers of devices internationally for oceanographic data generation such as for storm warnings, including tsunamis, and also a lot of the very active programs that are out there with respect to monitoring such things as any changes in salinity. So these -- as a result of these efforts we have noted great substantiation of the market estimates that we have made for these. There is some very substantial markets out there. So from the view of our activity, it is broadened and that definitely is a change. No specific contracts to report yet, of course we'll make those known publicly as soon as we do have something in hand.

Okay. Great. Thanks for that. And then on the Australia project it seems, obviously, to be one of your largest potential projects. Do you have a sense of when you could obtain the additional funding needed to move forward there?

Sorry, I missed that. Do we have a sense of when?

When you could obtain the additional funding you need to move forward?

Sure. When we put out our press announcement about that, we highlight two major steps that needed to be accomplished. One was the signing of a funding deed, which is now been signed, and sets out the terms of the grant including funding milestones. The second big milestone or accomplishment that needs to follow on is exactly the one you asked about which is with respect to funding. Now, the special purpose company that had been set up by Leighton, called Victorian Wave Partners, is the entity that actually received the grant from the commonwealth government and in addition it is that entity which is seeking to raise the balance of funds, but clearly it is Leighton that is leading that effort. And I think what's really interesting from our view, to give you a little more color about it, is that Leighton has a very sophisticated in-house project finance team with whom we have had meetings and they are taking a lead, as I noted, in this. With respect to timing, which I think was another part of your question, the target is for the middle or latter part of this coming calendar year 2011, within which we would bring in additional funding. So we have seen interest on that and for this project and what's also interesting to note is that not only within the Australasian region, but other parts of the world we have been following a lot of new project finance deals that actually are being closing, which is a little counter intuitive as you take a look at the credit market scene.

Okay, great. And then on the -- so you successfully raised $6.2 million for the PB500. How much in total do you need to raise and can you give us any color on a realistic timeframe for that development completion?

Sure. So just to give you a view, I will start with the second part of your question which is to just set context as to timing. We have begun just this fiscal year 2011 the concept work, design efforts, we're well into it and further steps to be undertaking with the front end design stage includes wave tank testing, a lot of modeling effort, and generally speaking that design phase should be completed at the tail end of calendar 2012. In 2013 by the end of that calendar year we expect to build the first PB500 system itself. It would be a demonstration system, obviously, being the very first one, but it is a three year program that we're targeting from cold start, if you will, of the initial design and culminating in the ocean testing of a PB500. I'd also add, I mentioned it was a cold start, but we have benefited tremendously from the work that's now being conducted in connection with our PB150s, not just structural, mechanical engineering and hydrodynamic issues, but also with respect to the tuning capability of our system, which we think is a real game changer and a discriminator of our technology, the capability to do electronic tuning. So those are elements of the task before us, but which are being facilitated by work done today, particularly on the PB150. The first part of your question in terms of overall cost picture, what the guidance we're giving at this point is that the $6.2 million is a very substantial proportion of the total we need. We're well along the way to what we need to complete that whole three year cycle that I just mentioned.

Okay, great. And then I will just sneak one more in if I can. A fair amount of your funding comes from government and military sources. Any indication that recent government austerity measures around the world could make attaining additional funding more challenging for you?

Really great point and we're asked that question quite a bit. The visibility that we have had is, and I say this to your point internationally, so we're talking with parties not just within the US legislative and regulatory context, but in other nations as well that there is still a very strong compelling interest and as well existing legislation that we think can provide in a very short-term a continuing underpinning for support of renewable energy. Our view is that you just can't rely on that, though. We're trying to engineer a product that does not need subsidies and grants in order to have real legs to it on an international basis and being able to compete with other choices our customers can make. So our experience has been on the BD, business development, side that there is still a tremendous amount of interest in our product. We think as well it extends to other technologies within the marine energy sector, which includes tidal and ocean thermal. So there is nothing that we see specifically that would indicate, I will call it a threat or in any way jeopardy to our ongoing business plan. And so we're still quite confident about that not only the fund raising we have done in the current difficult environment, but also as we look ahead and the prospects, to the prospects of additional funding.

Okay, great. And thanks again and congratulations again on good progress in the quarter.

And thanks for joining the call, Winnie.

And our next question comes from the line of George Santana with New Earth Capital Group. Please proceed.

Good morning and thanks for taking my question.

Sure. Good morning, George.

Could you speak a bit to the competitive landscape that you're seeing there and you mentioned there were about four winners of a contract in Australia, so what are you seeing out there and how far along are you? And congratulations, by the way, on excellent progress in the quarter.

Thank you. Appreciate it. To the specific aspect of your question as it related to Australia, the other three technologies were very much unrelated to marine technology. They were more focused on solar and biomass. So not only were we the only wave power company, but the four grants really focused on, in addition to OPT, those other areas. The competitive landscape to which you referred is something that we're pleased to see is actually improving. And core to our belief, and we have really said this for some time, is we think that for this industry to attain the multi-billion dollar status that we're firmly convinced it can achieve, there has got to be more than just one player within it. There needs to be competent competition within the space and we welcome the fact that there are some other companies, particularly there has been new funding announced for some companies within the marine energy space just over the last six months, which we take as a very positive sign. So we do see competition out there with our engineering staff and our business development staff aimed to keep very much on top of what the developments are out there and we do welcome the competition, because t It is exactly what you need to grow a new industry. It helps to accrete the infrastructure that facilitates it, which includes not only companies that help in the fabrication, but also such things as insurance product and finance. OPT has been very fortunate we've had insurance coverage from the Lloyd's syndicate really for a little over ten years. So again, a broadening of the competition I think is healthy. Obviously as a company we aim to stay on top of that and we seek to maintain a leadership role within that sector.

Thank you. I will jump back in the queue.

Okay. Thanks, George.

Our next question is from the line of Robert Littlehale with JPMorgan. Please proceed.

Good morning, Bob.

The technological transition that obviously you're making from the PB150 to the PB500, is it safe to say that those technological hurdles perhaps are not as great as the ones that you faced when you went from the PB40 to the PB150, just given all the inherent knowledge and experience that you have garnered already or is it too early to say?

No, no, it is definitely not too early. And it is an important point, I think. It goes a lot as one thinks about the prospects for OPT, not only for improving the technology, but also just cash burn. It is a start to a PB500 development process, which has truly been greatly facilitated by our learning on not only the PB40 but also the 150. And to get to the PB500 we don't have to create or invent any wheels. We are building on the tuning capability, which we have already demonstrated. That tuning capability to which I refer is the ability of our system to using electronic and electrical means, not just brute force mechanical, but electronically enabling our system to amend its behavior as wave conditions change, which just simply translates for our customers to more kilowatt hours per ton in steel that they've bought. So we have done a tremendous amount of learning about that to date and as we look at the transition from the PB150 to the 500, while it is a two year design phase, what we're looking at in that process, again, is not any new wheels that have to be invented, but instead the expression, mechanically and electrically, as well as hydrodynamically, of some tremendous lessons that we have learned with our almost 13 years of experience of systems in and out of the ocean. So we're doing the 500 or conducting the 500 development project in a very deliberate way and that is a part of our, the way we're managing the Company just to make sure that we're very thoroughly. We call it a stage gate process of our product development, but does not require any new technology and definitely is a process that's much facilitated by our learning to date.

Right. The other quick question I had was in Reedsport you have faced 11 federal and state agencies that obviously you have had to obviously work with. How does that break down that 11 between federal and state?

Sure. There is basically three federal, Fish and Wild Life, Marine Fisheries, Forest Service. There is the balance then of eight Oregon State groups, such as Department the State Lands, Environmental Quality, Water Resources, Fish and Wild Life, the Department of Energy, I am not mentioning all of them, but that gives you a feeling for (multiple speakers).

Yes. Okay.

What also is really neat, Bob, in terms of this so-called settlement agreement that we signed, is that we were very, very careful to try to engage with and involve some other groups that may not necessarily be in the formal state or federal regulatory chain, but instead speak volumes for the interests of local stakeholders. So in addition to those groups, the 11 or so which are strictly governmental, there is also the Surfrider Foundation represented, a group called the Southern, if I remember this correctly now, I think it is the Southern Oregon Ocean Resource Coalition that includes a lot of the fishermen's groups. And so we're very proud about that, the inclusiveness of the settlement agreement. But I have got to tell you, it is nothing that we take for granted. We're not done just because these groups sign to this. We, as part of our engagement in this agreement, have agreed that we would conduct our work, our projects, in a way that is very responsive and sensitive to not only environmental but also cultural concerns. There are a number of tribal groups that have very keen interests in the land over which some of our cabling would pass. So again I just want to give you, to answer your question, just give you a little feeling of some of the breadth of what we did to achieve this.

Great. Thank you. Appreciate it, Chuck.

Thanks for coming on the call, Bob.

Thank you very much. That concludes our questioning period. I will now turn the call back over to Charles Dunleavy for any closing remarks.

Thank you. And with that I would like to thank you all for attending today's webcast and for your continued support and interest. We look forward to giving another update after the completion of our third fiscal quarter.

Thank you, everyone. That concludes today's webcast. You may now disconnect and everyone have a great day.