Ocean Power Technologies Inc (OPTT) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ocean Power Technologies fiscal year 2012 first-quarter conference call. At this time all participants are in a listen-only mode. Following management's prepared remarks we'll hold a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded and webcast. I would now like to turn the conference over to the Chief Financial Officer of Ocean Power Technologies, Mr. Brian Posner.

Thank you. Welcome to Ocean Power Technologies' earnings conference call for the first quarter ended July 31, 2011. OPT issued its earnings press release earlier today and later today will file the Company's quarterly report on Form 10-Q with the Securities and Exchange Commission. All public filings can be viewed on the SEC website at SEC.gov or you may go to the OPT website, OceanPowerTechnologies.com.

With me on today's call is Chuck Dunleavy, our Chief Executive Officer. Please advance to slide 2 of our presentation.

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 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 filings with the Securities and Exchange Commission for a description of these and other risk factors. I'll now turn the call over to talk Chuck Dunleavy, OPT's CEO.

Thank you, Brian, and thanks to everyone for being with us today. Brian and I will be available to answer questions following our prepared statements.

Turning to slide 3, the Company reported sales of $1.9 million for the fiscal first quarter ended July 31, 2011, up nearly 40% compared to the first quarter of fiscal 2011. This improvement reflects revenue recognized for the US Navy's LEAP program, as well as for the development of our next-generation PB500.

In addition, ocean trials of our PB150 off the coast of Scotland delivered better-than-expected results, and OPT ended the quarter with a backlog of $7.1 million and cash on hand of $43.1 million. Shortly after the end of the quarter we announced the successful deployment of our unique autonomous PowerBuoy for the LEAP program. Now let me get into more detail on our major initiatives.

Moving to slide 4. We have very good news to report on our project under the US Navy's Littoral Expeditionary Autonomous PowerBuoy, or LEAP, program. We deployed the LEAP PowerBuoy on August 11, 2011 ahead of schedule. The buoy is stationed about 20 miles off the coast of New Jersey undergoing testing and analysis in conjunction with Rutgers University's Institute of Marine and Coastal Sciences, which provided the radar network and communications infrastructure.

Our LEAP PowerBuoy can generate power at the lower levels needed for the sophisticated vessel detection and tracking system, enabling maritime surveillance along coasts, harbors and littoral zones worldwide. By contrast, systems currently using remote power at sea are often powered by diesel generators which require frequent maintenance and fuel replenishment.

The LEAP system has performed extremely well since this launch a month ago and, most notably, was not impacted at all by Hurricane Irene. The buoy not only survived the extreme ocean conditions, but also performed successfully during the entire storm. The PowerBuoy structure withstood wave heights of up to 15 meters or nearly 50 feet.

The unit continued to produce consistent power to its communications and radar payload during the storm and stayed in constant communication, allowing continuous on-land monitoring of the buoy. It also dissipated the high amounts of surplus energy it produced. The LEAP PowerBuoy operated automatically on a fully autonomous basis and implemented its proprietary power management system with no need for human intervention.

We at OPT feel this is a great achievement and that the autonomous PowerBuoy is truly an enabling technology. Despite severe and extreme storm waves, the PowerBuoy operated exactly as it was designed and remained right on station where it was originally deployed, supplying power in all wave conditions.

The LEAP PowerBuoy is integrated with the Rutgers University operated land-based radar network that also provides ocean current mapping data for the National Oceanographic and Atmospheric Administration and the US Coast Guard's search and rescue operations. The buoy is expected to remain in the ocean for testing through November. We look forward to reporting further details of its performance in the weeks to come.

The achievements of the LEAP PowerBuoy underscore what we believe is a significant market opportunity for our autonomous PowerBuoy, or APB, product in the areas of maritime security, oil and gas platforms, offshore fish farming and desalination. OPT is actively marketing to these application driven sectors.

Slide 5 shows an aerial shot of the buoy taken on Monday, August 29, 2011 immediately after Hurricane Irene hit the coast of New Jersey. It's right on station where it had originally been deployed. It's important to note that two days later we sent a team of divers to inspect the underwater structure and the moorings warnings and also the anchor.

This substantiated all the data that we have received by satellite indicating no problems following the storm. Please also see our website when you get the opportunity for a video of the LEAP PowerBuoy in operation.

Moving to slide 6 -- let me provide some information which we reported during the first quarter regarding the ocean trials of our PB150 PowerBuoy off the coast of Scotland. Deployed in April, the PB150 is aimed at the utility market and has performed very well under a range of weather conditions.

The unit has delivered better-than-expected results with a capacity factor of 30% represented by 45 kilowatts of average power, the power takeoff, or PTO, has also exceeded expectations with regard to energy conversion efficiency and the irregular ocean wave conditions encountered. On our website we also have video of the deployment and operation of the Scotland PowerBuoy.

We will continue to test the PowerBuoy over the coming weeks and expect it to be retrieved from the water by the end of our fiscal second quarter. Concurrently we are speaking with government entities and prospective commercial customers, primarily in Europe, for utilization of this PB150 after the trial phase is complete.

Moving on to slide 7 -- I'd like to provide an update on our project in Reedsport, Oregon. The project has two phases. The first on which we are now working is for the deployment of one PB150 PowerBuoy. This would be followed by a second phase during which we expect to build and deploy nine additional PB150s and then connect all 10 buoys to the Oregon power grid through OPT's proprietary undersea substation pod for a total of 1.5 megawatts.

We have finished construction of the steel structure of the PB150 for the first phase of which is shown in the picture on the slide. This system will be the first PB150 with an advanced direct drive power takeoff, or PTO, which we believe will be more durable, involve less maintenance and provide better long-term efficiency than the hydraulic design. We've used this type of direct drive PTO very successfully in our Hawaii PB40 PowerBuoy which has been grid connected.

Testing of the Oregon PB150's power takeoff in our New Jersey production facility is continuing in various operational and endurance modes under different simulated wave conditions. We're working to complete this rigorous testing program and the system integration of the PowerBuoy by the end of calendar 2011. Based on this schedule and expected weather conditions off Oregon, we anticipate this PB150 will be in operation in mid-2012.

The development of the complete 10 PowerBuoy wave power station is subject to the receipt of final licensing from the US Federal Energy Regulatory Commission and additional funding for the build-out of the second phase encompassing the nine more PowerBuoys as well as the grid connection infrastructure. We're very pleased by the opportunities presented by this project, particularly as the 1.5 mw plant would be America's first commercial scale grid connected wave power station.

Turning now to slide 8, I'd like to talk briefly about our overseas initiatives in Japan and Australia. We've recently visited one of the manufacturing facilities of Mitsui Engineering & Shipbuilding, or MES, in Japan. MES is an excellent partner and has the capability to fabricate PowerBuoys in Japan in large production volumes.

During our Japan visit, and accompanied by senior management at Mitsui, we also met with officials of the Japanese government to discuss the prospects for wave energy in Japan. We were very encouraged by the level of interest and demand for renewable energy and Japan appears greater than ever, including for wave energy.

We've worked with Mitsui on developing a new mooring system for our PowerBuoys customized for wave power stations off the coast of Japan. We've also conducted development engineering in connection with the project and performed tests at MES' wave tank facilities in Japan. OPT and MES are focused on moving toward the next steps of completing economic assessments and identifying a project site for in-ocean trials of the PowerBuoy system.

Following an expected agreement for that work and the identification of a project site, MES and OPT would then enter into a contract to conduct ocean trials of a demonstration PowerBuoy system. The PowerBuoy system would provide the basis for the expected build-out of a commercial scale OPT wave power station with an initial capacity of several megawatts scalable to 10 mw or more.

Moving to Australia, and as previously reported, our joint venture there with Leighton Contractors won a AUD66.5 million grant from the Commonwealth Government, equivalent of about $71 million, all with the purpose of building a 19 mw wave power station off the coast of Victoria. This power station would supply electricity for up to 10,000 homes. The grant is conditional on Leighton attaining the balance of funding needed for the project, although it is expected this can be raised in stages.

Leighton and OPT have been discussing the best methods for securing project financing. We're encouraged by the strong interest in our power applications and by the support of the Australian government and we look forward to providing an update on this important project as we get more visibility on the project financing. I will now turn the call over to Brian Posner who will discuss our financial performance for the first fiscal quarter in detail.

Thank you, Chuck. As noted on slide 9, OPT reported revenue of $1.9 million for the first quarter of fiscal 2012 as compared to revenue of $1.4 million for the three months ended July 31, 2010. This increase primarily reflects revenue recorded for the US Navy's LEAP program and for the development of the Company's next generation PB500.

OPT's contract backlog as of July 31, 2011 was $7.1 million compared to $8.9 million at April 30, 2011 and $6.5 million as of July 31, 2010. Backlog improved both funded and unfunded amounts that are expected to be funded in the future. Funded backlog at July 31, 2011 and 2010 was $5.1 million and $5.9 million respectively.

The operating loss for the three months ended July 31, 2011 was $5.1 million as compared to a loss of $6.3 million for the three months ended July 31, 2010. The reduction in operating loss was primarily due to a decrease in product development cost principally for the PB150 system in Scotland.

In addition, it reflected an increase in gross profit with gross profit for the three months ended July 31, 2010 having been negatively impacted by a reduction in revenue of $231,000 due to a change in estimated revenue recognized in connection with the Company's project in Spain.

The net loss was $5 million for the three months ended July 31, 2011 compared to $6.3 million for the same period in the prior year. This decrease in net loss was due primarily to the decrease in operating loss and a decrease in foreign exchange losses partially offset by a decrease in interest income.

Interest income for the quarter decreased to $121,000 compared with $238,000 for the same period last year. This decrease was largely due to the decline in average yield and in the total invested cash and marketable securities.

Turning to slide 10, on July 31, 2011 total cash, cash equivalents, restricted cash and investments were $43.1 million. Net cash used in operating activities was $4.9 million for the three months ended July 31, 2011 compared to $6.1 million for the same period last year.

As previously announced, OPT expects the rate of its cash outflow to decrease in fiscal 2012 reflecting completion of significant milestones associated with the construction of its PB150 system for Oregon and the deployment of its PB150 off the coast of Scotland. Now I will turn the call back over to Chuck for some closing comments.

Thank you, Brian. Moving to slide 11 and prior to turning the call over to questions, let me reiterate that Ocean Power Technologies is working aggressively to take the Company to the next level of commercialization by focusing on three important areas.

First, investing in technology including the PB150 in Oregon with its advanced power takeoff system and our next-generation PB500.

Second, increasing the amount of in-ocean demonstration of our PowerBuoy systems evidenced by our recent LEAP activity as well as the PB150 in Scotland.

And third, cementing partnerships and business development arrangements with large commercial entities which can help to accelerate demand and enhance our delivery capability for our PowerBuoy products and related services.

We remain focused on achieving specific goals during this fiscal year 2012 including finalizing our ocean trials in Scotland, getting our PB150 in Oregon ready for deployment, and reporting on the ocean performance of the LEAP autonomous PowerBuoy. In addition, we expect to report on our business development progress in North America, Europe, Australia and Japan.

We'll continue to keep our investors updated on deployments, business development initiatives and technology enhancements during fiscal 2012, q year which we continue to see as one of significant accomplishment for OPT. As Hurricane Irene showed, our technology is durable and is increasingly recognized as a clean energy alternative that successfully harnesses the power of the sea.

This concludes our prepared statement for the first-quarter review and we'll now open the call for questions. Please go ahead, Operator.

(Operator Instructions). Jason Feldman, UBS.

Hey, guys, it's actually Dan Silver in for Jason. I have a couple quick questions. First question, in terms of Australia, obviously we've been discussing for a couple quarters now the status of project financing. Do you have any feel for the time line of the status in terms of when we'll be able to move forward in (technical difficulty) the roadmap?

I'm sorry, that was just as a general statement, Dan?

In terms of the expected funding, taking back commitments and what the government has already said, and then actually getting some dollars matching it and starting to move forward with it.

Sure. Well, the government -- the Commonwealth Government of Australia is firmly behind it and certainly our communications with them have shown that they're still very excited about the project. So their ardor remains very strong.

We have spoken with potential power purchase agreement providers, counterparties who obviously are the ultimate revenue drivers for the project. That's very encouraging. So that's an important step forward in terms of putting together project finance package, and we've also discussed with Leighton -- again, it's their primary responsibility to bring in the financing drawing on their in-house investment banking team as well as project finance team. That has been very successful in the past with infrastructure projects.

So I think one factor I would add, and it goes right to your point about timing, is that the government is in the midst of trying to formalize their what's called the New Climate Change Plan. I think that's how they refer to it, but others more colloquially refer to it as the Carbon Tax Plan. It has some provisions in it that are expected to give some very strong effective price support to our project when you come down to it in that the carbon tax plan provides for a floor price for carbon.

So there's been some uncertainty about exactly when that plan will kick into gear. And I would think that that has had an impact, although not a major one, but has had some effect on our efforts to bring in the financing. So no specific timing that I can give to you right now, I can say though that there's some very positive events, as I've just noted to you, or issues now ongoing to move it forward.

Sure. And obviously on the last quarter call you provided some very helpful detailed account Leighton's capabilities and their track record and what we should expect, at least in terms of their history in terms of project financing.

And then the Mitsui news is interesting because I think it raises an interesting question in the eyes of investors. And that's post the Japanese nuclear crisis obviously there's greater interest in Japan. And we've heard a number of announcements from various European countries [ratcheting] down and exiting nuclear power entirely.

Have you actually received incoming calls -- I wouldn't call it an RFP supposedly, but a greater interest specifically in the technology as they search for new alternative energy means?

Absolutely. Yes, it's been very encouraging. Our marketing and business development efforts in Japan have now been ongoing for some number of years. And specifically with Mitsui, we've been working with them for a period of time. Absolutely a strong increase in interest, first of all in renewables generally, but secondly with respect to the specifics of wave energy. The sea is such an infused part of the culture of Japan in so many ways.

And so it taps into something that I think resonates very positively with many people across different strata within Japan. But aside from that cultural point, I think to the specifics of the government's interest, we met with some senior officials in the government, specifically in the Ministry of the Economy, Trade and Investment meeting, about how OPT and Mitsui as a team can address some of the ongoing needs, first of all, for generating power, but also mapping specifically into some of the more recently announced initiatives specifically targeting renewable energy.

And so, our talk and discussions with these officials was very positive. And with a strategic partner like Mitsui on-site and talking on a very regular basis, not only with the government, but as well with some of the utilities, we see a very strong positive momentum towards renewable energy in Japan.

And in terms of the way investors think about that opportunity, would it make sense that, as kind of a baseline, to take something along the lines of the project administration in Portland -- or excuse me, Oregon and assume something similar with your newer technologies? Obviously the Scotland demonstration went very well; potentially Japan would be interested in deploying something like that to evidence the viability of a grid system on a smaller basis.

The quick answer is yes. Certainly the notion of a demonstration power station is something we are discussing -- have discussed with both Mitsui as well as with the government officials that I mentioned a few moments ago. And as a matter of fact, certain Japanese officials have visited some of our sites and with very positive response. Not only Japan, by the way, but also officials in Australia and other areas of the world which we have some business development activity now ongoing.

So you're right, the news about our [SCAR] system, what's happening right now in Reedsport -- we're building systems in Reedsport, right now. And so along the way we've had a number of visits which has helped I think in conveying our message. And not just the message for OPT by the way.

I think what we've done as well as some of our colleagues elsewhere in the space has really I think come a long way over the last 12 to 24 months in getting wave and marine energy more broadly into the dialog when people think about strong alternatives to conventional power sources. We've had very good dialogue and, yes, the kinds of sites and power stations that we are now working on including Oregon very much are helpful as we're looking at opportunities in Japan as well as Australia and elsewhere.

On the topic, one final question. Brian's comments related to the expected cash burn in 2012, obviously their milestone payments play into that. With Oregon going as well as it has would you expect that that would be a meaningful contributor to cash or is there anything that you would want to flag for investors in terms of milestone payments and the timing and/or lumpiness of those payments?

Yes, and they do seem to be kind of lumpy, so I don't want to get into a quarter-by-quarter discussion. But in terms of the full fiscal year and the big driver of our cash burn has been product development expenses. For this past quarter the expense was down in Scotland. As you can imagine, as Chuck said, with the guidance that the buoy is going to come out of the water at the end of our second fiscal quarter. The large part of the burn related to Scotland is behind us.

Oregon is ongoing, as Chuck mentioned. But again, we see that burn under control and it's also been helped with the fact we got a $2.4 million DOE grant that will help fund some of the work that we're doing out in Oregon. So that's basically the underlying message behind our giving the investors some feel for what we expect our cash outflow to be this fiscal year.

Yes, I would add to that as well that with the majority of the cash issues associated with Scotland behind us, our focus as we think about the major progenitors of cash burn going forward in turn are refocused or relate directly to Oregon, as Brian just said.

There is a cyclicality or a time phasing of it I think is a better word. And as we finish up our testing we'll then be going -- that is to say the land testing of the power takeoff of the Reedsport Oregon system. That's a moderate cash burn mode. Then we will be going into the final systems integration, cash burn will heat up a little bit.

And then when weather permits and we put our system into the water, obviously associated with deployment you have another time period where our cash burn associated with that project will increase. So it's very definitely tied to key milestones and I think it's important for OPT to continue to keep our investors well informed about how those milestones are playing out.

Thank you very much for answering several questions in relation to weather permitting. Again, congratulations on successfully navigating Hurricane Irene and demonstrating the survivability of the platform. Good day.

Appreciate the question.

Kent Holden, Holden Asset Management.

Good morning. First, I also wanted to congratulate you on the LEAP surviving Irene. I know it was pretty terrible out there.

Thanks, Kent.

And then I was curious if you can offer some type of an estimate of the cost of the first Reedsport 150. And then what you anticipate the cost will be on the nine additional ones as you gain scale.

Sure. We have not -- actually I think a better way to phrase it -- in terms of the first buoy, that is the first one in Oregon, it's our second PB150. So the Scotland and the Oregon systems have a fair amount of nonrecurring engineering associated with them, hence our previous comments a short while ago about the cash. And in addition, we have not articulated the precise cost associated with either of those systems.

What we are very comfortable talking about is with this technology in its current configuration as we move forward into production, which was I think part of your question, when you start to scale up to larger size systems, in meaningful production we see a capital cost for all in, this is for the turnkey power station that is connected to the grid, an all-in cost of approximately $4 million per megawatt.

And that's the way we are capturing and articulating our costs going forward at least with respect to capital. And again, that's for -- that's what our customer sees from the standpoint of that -- not only the buoys but also the cabling all up -- and their deployment, all up to the point where that is then connected to the grid.

And that's kind of nameplate megawatt?

Yes.

And you had said that the current generation -- was it 40% of nameplate?

30% is what we reported associated with Scotland. And it compares very favorably, we feel, to other -- certainly to other renewable energy sources, very favorably with respect to solar and well also with respect to wind.

Okay, great. Thank you very much.

(Operator Instructions). [Paul Bornaro], Morgan Stanley.

Gentlemen, good morning. Congratulations on a great quarter. My first question, the burn rate issue, was addressed. Second very general, do you have or do you anticipate competition in the wave energy space?

Oh, sure. And I think it's a very positive thing, by the way, Paul. We see competition now. We have believed since even before we opened our doors for operations in '94, that wave energy and the resource that it represents internationally is just a fabulous source of energy, renewable energy in this case. And it's the densest form of renewable energy.

So from our few, just the basic premise of marine energy and in this case specifically wave energy is one that surely should attract companies into the space, not only from the standpoint of developers and people with great ideas, but also customers. So very definitely we think this is a multi-billion dollar industry capability here and we're looking to be a leader within that space.

And from our view -- to round out my answer to your question -- from our view the only way that we're going to get there is to have a number of companies with competent performing technologies, ones who clearly are able to tap into the resource and to deliver energy at good price points.

And so, when you kind of add those points up, we think that it's good to have strong competitors within the space so that people realize this is not just a niche -- or a niche play, it's actually a huge source of potential energy that can satisfy the world's needs very well from the standpoint of just ocean energy alone.

Thank you.

Thank you. That concludes our questioning period. Mr. Dunleavy, you may now proceed with any closing remarks.

Thank you all once again for attending today's call and for your continued interest in Ocean Power Technologies. If you have any further questions, please don't hesitate to contact us. Otherwise we certainly look forward to speaking with you next quarter.

Thank you, everyone. That concludes our call. You may now disconnect.