Ocean Power Technologies Inc (OPTT) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Ocean Power Technologies Fiscal 2013 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 Mr. Chris Witty of the Company's investment relations firm, Darrow Associates. Please go ahead, sir.

Thank you. Welcome to Ocean Power Technologies earnings conference call for the first quarter ended July 31st, 2012. OPT issued its earnings press release earlier today, and the Company will soon file its quarterly report on Form 10-Q with the Securities and Exchange Commission.

All public filings can be viewed on the SEC website at www.sec.gov, or you may go to the OPT website at oceanpowertechnologies.com.

With me on today's call from the Company is Brian Posner, Chief Financial Officer, and Phil Hart, Chief Technology Officer. Chuck Dunleavy, OPT's Chief Executive Officer, could not be here today due to business travel overseas.

Advancing to slide two of our presentation, during the course of this conference call, management may make projections or other forward-looking statements regarding future events of 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 or involve risks and uncertainties and other factors that may cause actual results to be materially different from any future results expressed or implied by such forward-looking statements.

We refer you to the Company's Form 10-K and other recent filings with the Securities and Exchange Commission for a description of these and other risk factors.

Now, let me turn the call over to Brian Posner. Brian?

Thanks, Chris, and good morning, everyone. I'll briefly review our quarterly results and then Phil will discuss our ongoing technology initiatives and latest developments related to our Autonomous PowerBuoy business. Phil and I will be available to answer questions following our prepared remarks.

Turning to slide three, let me briefly provide an update of OPT's recent accomplishments. OPT got off to a strong start in fiscal 2013, making progress with both our utility and our Autonomous PowerBuoy. We are very pleased to have signed a teaming agreement with Lockheed Martin for the development of a proposed 19 megawatt energy project in Australia, and we are working actively with them to this end.

In August, we also announced that the US Federal Energy Regulatory Commission approved a full build-out of OPT's proposed 1.5 megawatt grid-connected wave power station off Reedsport, Oregon. Importantly, this is the first such license to be issued for a wave power station in the US. OPT is in the process of final assembly and inland testing of the initial PowerBuoy to be installed at the Reedsport site.

In addition, we've made progress with our Autonomous PowerBuoy, entering into a cooperative research and development agreement, or CRADA, with the US Department of Homeland Security to enhance the technology for ocean surveillance.

In conjunction with the CRADA, OPT was awarded a grant from the Maryland Technology Development Corporation to demonstrate how the APB can be used with multiple surveillance technology. We also reported a reduction in our net loss and cash burn during the first quarter of fiscal 2013 as compared to the first quarter of fiscal 2012.

Now, let me go into detail on some of our latest developments. As noted on slide four, OPT reported revenue of $1 million for the first quarter as compared to revenue of $1.9 million for the three months ended July 31st, 2011. This decrease primarily reflects lower revenue related to the US Navy's Littoral Expeditionary Autonomous PowerBuoy program as that program was successfully completed in fiscal 2012.

This revenue decline was partially offset by an increase in revenue from the Company's WavePort project under funding from the European Union. The net loss for the three months ended July 31st, 2012, was $4.4 million as compared to a net loss of $5 million for the three months ended July 31st, 2011.

A favorable reduction in net loss year-over-year was due primarily to a decrease in product development cost, principally for the PB150 successfully deployed off Scotland in 2011 as well as lower cost related to the PowerBuoy now being prepared for deployment in Reedsport, Oregon.

Turning to slide five, on July 31st, 2012, total cash, cash equivalents, restricted cash and investment were $29.4 million as compared to $33.2 million as of April 30, 2012. The net decrease in cash and investment was $3.8 million for the three months ended July 31st, 2012, compared to $5.2 million for the three months ended July 31st, 2011.

Our quarterly cash outflow from operating activities may vary significantly in future periods, depending on the success of our business development initiative and also on expenditures related to our project in Oregon.

I'd now like to go over some of our projects in detail. Turning to slide six, I will begin with our project in Reedsport, Oregon. We're very pleased to have received approval from FERC for the full build-out of our proposed 1.5 megawatt wave power station here. This is truly a groundbreaking development, as the license is the first to be issued for a wave power station in the United States.

As some of you may recall, we applied to FERC after OPT signed a settlement agreement with 11 federal and Oregon state agencies, as well as three non-governmental stakeholders for this utility scale wave power project. FERC takes strong consideration to the details of this settlement agreement in determining key provisions of the license since the agreement supports the responsible phase development of a 1.5 megawatt wave energy station in a manner that protects ocean resources and stakeholder interests.

We certainly could not have achieved the FERC approval without the support of all interested parties for which we are grateful. With this license now in hand, we have obtained all regulatory approvals for the deployment of up to 10 PowerBuoy devices in the area, which would generate enough electricity to supply approximately 1,000 homes.

The license is for 35 years and covers grid connection wave energy production. I'd like to point out that many other types of permits issued to date for competing technologies have been for a significantly lower number of years. So the fact that ours is worth 35 years supports the commercial prospects of wave power and OPT's technology specifically.

We are now in the process of final assembly and on-land testing of the first PowerBuoy and are planning for its deployment. The power take-off unit, or PTO, has been inserted in the spar and final assembly of the spar, float and heave plate structures is about to commence. We expect that this PowerBuoy will be ready for deployment in early October.

At that time, we will be dependent on weather conditions to determine when deployment actually takes place. As a reminder, we receive funding for this initial PowerBuoy from the US Department of Energy with the support of the Oregon Congressional Delegation and from PNGC Power, an Oregon based electric power cooperative.

Lockheed Martin is providing design manufacturing and supply chain management expertise on the project to enhance our technology as we move towards larger scale commercialization. All-in-all, it's an exciting time in Oregon, and we would like to thank all parties who are working to make this project a success.

Turning to slide seven, there are also many important ongoing activities in Australia. We are working closely with our partner, Lockheed Martin, to move forward with a planned 19 megawatt wave power station off the coast of Victoria. In July, we announced that we had entered into a teaming agreement with Lockheed Martin with a specific goal and focus of developing this wave energy project.

Lockheed is providing assistance in the areas of design manufacturability, supply chain expertise, and overall project management. The project is to be developed by a special purpose Australian company, Victorian Wave Partners, which is currently owned by a subsidiary, Ocean Power Technologies Australasia.

Funding for the project includes a previous announced grant of AUD66.5 million, or about $69.5 million in US dollars from the Commonwealth of Australia's Department of Resources, Energy and Tourism. The grant is subject to a funding deed which sets out terms such as funding milestones, including the requirement of significant additional financing to enable the receipt of grant funds and the completion of the project.

We wish to express our appreciation to the Commonwealth Government for their continued support of this project off the coast of Portland, Victoria, which we expect to create a significant number of local Australian jobs during the development, as well as for operations and maintenance work over the life of the power station.

We have spent a significant amount of time in the country meeting with government officials and other prospective stakeholders to assess strategies to expedite this important initiative. I was there myself for two weeks in August.

At this point, we expect the 19 megawatt deployment to take place in three stages for which it is critical that we first secure funding for stage one. Financing that could also utilize a portion of the proceeds already granted by the Commonwealth of Australia. In addition to exploring various sources for project financing, we continue to meet with parties regarding a potential power purchase agreement.

Finally, permitting and community outreach are underway, and community reaction has been very positive thus far. We are grateful to have the support of Lockheed Martin as we move forward with this project.

Now, let me turn the call over to Phil Hart, our CTO, to discuss some of our latest technology developments and provide an update on OPT's Autonomous PowerBuoy. Phil?

Thanks, Brian, and good morning, everyone. And turning to slide eight, let me start by emphasizing all of our projects are not only meant to bring OPT's products to various markets of the world, but in each case, advance the efficiency and capability of our technology and maximize power production.

As an example, in Oregon, we're building a new direct drive power take-off, or PTO, that we will -- that we believe will result in greater energy output, higher system efficiency, increased reliability, and lower maintenance costs as compared with our previous hydraulic PTOs.

Similarly, in Spain, our WavePort initiative is focused on demonstrating significant improvements to OPT's proprietary electronic tuning system, which will enable the PowerBuoy to enhance its energy conversion efficiency by using wave prediction and control system enhancements to increase power output.

This PowerBuoy will include our first modular PTO, a design which gives us a production-ready, cross-platform PTO system, which will result in more efficient PowerBuoy development, streamline our testing, and increase or improve our manufacturability of PTOs going forward.

At home in New Jersey, we continue to work on the larger, next generation PowerBuoy, which we expect to be more efficient, provide more power per ton and to be more robust than any of our previous models. Technology is a core focus of what we do, and we continually strive to achieve lower energy production costs on parity with other renewable energy and any -- with other renewable energies, as well as with traditional sources of energy.

Now, turning to slide nine, I'd like to provide an update on our Autonomous PowerBuoy system interesting developments in this business. We recently announced the OPT has entered into what is called a Cooperative Research and Development Agreement, or CRADA, with the US Department of Homeland Security.

Through this collaboration, we'll be performing or further demonstrating the flexible capability of our Autonomous PowerBuoy with the intent of increasing its potential use for advanced ocean surveillance. More specifically, we will demonstrate persistent maritime vessel detection, expanding on work begun with our LEAP program last year.

The APB-350 PowerBuoy developed under the LEAP program was deployed for the US Navy off the coast of New Jersey in 2011 and performed extremely well, producing excellent and consistent power levels and withstanding Hurricane Irene.

This creative related work includes partial funding from the Maryland Technology Development Corporation via our joint technology transfer initiative. OPT will leverage its experience from the LEAP program into surface vessel detection to demonstrate enhanced special detection in tracking capability, using additional multi-technology sensors. This will expand on the breadth of commercial use for our Autonomous PowerBuoys by showing the flexibility of the technology for a very wide variety of sense of time.

As we've discussed in our previous earnings calls, OPT is placing increasing emphasis on our Autonomous PowerBuoy offering, which we believe holds great promise for our technological advancement and market potential, and we continue to seek out new applications for Autonomous PowerBuoys of all sizes and configurations from the rig and oil and gas industry through academic oceanography and desalination.

Of course we see a great deal of opportunity in these sectors for Ocean Power Technologies, and we are very excited and focused on exploiting those projects.

I'll now turn the call back over to Brian Posner for some closing comments.

Thanks, Phil. Now, turning to slide 10, let me just reiterate our near term goals. First, we remain on track to deploy our first Oregon PB-150 off Reedsport in October. The actual timing of the deployment is dependent on weather conditions, as I mentioned, but we look forward to achieving this important milestone and are delighted to have recently received the 35-year FERC license.

We are also spending a great deal of time in our business development initiatives in Australia where we see increasing progress moving this project forward with the help of our partner, Lockheed Martin. At the same time, we continue our work on an advanced PowerBuoy for the WavePort project in Spain and are focused on new market opportunities for Autonomous PowerBuoy, highlighted by the recent interest shown by the Department of Homeland Security.

Overall, we are excited by the recent level of activity and the ongoing demand for the clean, reliable, renewable energy that waves can provide, where OPT is paving a path to commercialization. We are focused, disciplined and positive about the future.

This concludes our prepared statements for the first quarter review. We will now open the call for questions. Please go ahead, operator.

Thank you, sir.

(Operator Instructions)

And the first question we have comes from Rob Stone. Please, go ahead.

Hi, gentlemen. Thanks for taking my question. Brian, I wanted to touch on Australia for a minute. Could you provide a little more color on what size would be the first phase of the project, and how much funding do you need to raise in order to get that going?

Sure, Rob. Good morning. Yes. Basically, right now, the way Phase 1 is planned our proposed would be three buoys, as well as infrastructure connected to a grid, as well as some -- also some development work on our next generation buoy, which would be the buoys that would be implemented in stages 2 and 3.

The budget right now is approximately $40 million, and we're assuming the grant would pay for half of that -- 50% -- so that would leave a funding gap right now of about $20 million.

Okay. And can you say what types of funding structures you're looking at for that?

Sure. We're looking -- we're talking to strategic type of companies --other corporations that might be interested in this project. We're talking to project financing entities, and we're also, quite frankly, trying to get additional grants, which obviously would help the internal rate of return on the project.

Okay. A question for Phil, please. You mentioned that -- working on a modular PTO design. So across -- what range of platforms would that then be able to be applied?

The modular PTO concept was driven by a desire to have one PTO that would go across many different power levels of buoy. So what we're doing is building a PTO that consists -- or that would generate about -- well, it's between 40 and 80 kilowatts of power. And then if you put it into a 150, for instance, you would put two of them in there. If you put into something like a 0.5 megawatt device, you would end up with six of those.

So its purpose is to avoid the need to redesign the power take-off for each new device and to just put multiples or singles of a standard type of power take-off in whatever device we build in the future.

So that would imply a greater scale of economies on manufacturing and so forth?

That's exactly right. So it cuts down development time, allows us to standardize on the component choices within it, and it allows us to learn a lot more about building that particular power take-off, so hopefully, it cuts down the time when we get to a production run to build each device.

Great. A final question, you mentioned under the creative program that you're going to be looking at deploying lots of different types of sensors, vessel detection, et cetera. On the commercial side, are the applications that potential customers are looking at more about security for offshore assets, or are they looking for power for other uses? Where is the greatest emphasis of likely early deployment for commercial customers?

It really goes right across the board. We're talking -- if we go through that particular market segment, so obviously military and defense are interested in long term surveillance, both on the water and underneath the water.

Oil and gas are interested in perimeter monitoring, so vessel detection and stuff like that, but also environmental monitoring around the oil wells and occasionally, in certain specific circumstances, using that power to actuate subsea valves and things like that.

Academic oceanography is mostly in sensors, but the -- I guess, the niche for that is the drive in academic oceanography has been towards cabled observatory where you run a cable from shore out into the sea and then put a load of sensors onto the end of that.

We are offering the chance to avoid the very, very high cost of putting that cable in and just putting the sensors and then putting a buoy on the surface and running an umbilical cable from it to those sensors to power it. Desalination -- we're looking at direct power for that, so I consider it a fairly large buoy fitting power directly to shore and running a desalt plant. So it really is a very wide variety of applications.

So what else, if anything, might you need to demonstrate at this point before you can begin gathering in first low volume orders? I assume customers will want to start out with a few of these before they go to large-scale deployment.

Yes, most people that we're talking to at the moment are looking for demonstrator units, so ones or twos, but I think that the path to a volume market will be getting more buoys out into the water and getting everybody comfortable that it's a long term, survivable and capable technology.

We did a good job of that last year when we put the LEAP PowerBuoy out and it performed better than we had possibly hoped and got run over by a hurricane and carried on producing power without any problems. So -- we're planning on putting the LEAP buoy out again into the water later on this year, and I think it's just a matter of time served for those buoys, which gains confidence for people and then getting hopefully the floodgates open.

So the third question, then again, wasn't so much about the volume ramp. I know that depends on customers deciding they're satisfied, but what else, if anything, is on your to-do list before we could get the first demonstration commercial unit out there?

Technologically, the product is pretty much ready. There's always ways to improve it, but we've got a product that's pretty much ready to go.

You're taking orders for it?

Sorry?

You just need to take those first orders then?

That's right. It's a matter of getting the first couple of orders in and growing the volume.

Great. Thank you.

Thanks, Rob.

Thank you. The next question comes from Michael Legg of Roth Capital. Your line is open.

Thanks. Good morning. Just when you look at Phase 1 on the Australia project, could you just comment on if you -- do you need to raise the full amount of capital -- or I should say, do you have to have secured the full amount of capital before any of the grant will be released on Phase 1?

And then, second, once you do have the financing in place for Phase 1, what's the timing to actually get the PowerBuoys into the water and operational? And then, third, what would the economic scenario be on that one piece? Thanks.

Okay. Hi, Mike. I'll take that one. Bottom line, I think, we do need to get funding for stage 1 to be able to pull some of the grant money down -- okay -- which is a little bit different. There's more flexibility now under this grant, at least that's been communicated to us from the Commonwealth.

In the past, the grant -- the way the grant was written was we had to get funding for the entire project. So now there's flexibility that we can get the funding for stage 1 and start pulling down the grant money.

In terms of -- and that's what we're focused on -- stage 1, and obviously, getting some -- hopefully some commitments for stage 2 and stage 3 that would be likely dependent on achieving milestones in stage 1.

In terms of timing, well, that obviously depends on the timing of the funding. Assuming, for the purpose of this conversation, we got funding at the end of the year, probably wouldn't get the buoys in the water until sometime in 2014. I think that's a reasonable timeframe.

And Mike, I wasn't clear on your third question there.

Okay. Once you have the three PowerBuoys from Phase 1 in the water, what's the economic -- the operational economics of that? Will it be making money? Will you lose money? How will that flow through?

One has to look at the first stage of this project as a validation, further validation of our technology, which sets the stage for stages 2 and 3, which is really where the greater return on an equity investment is.

So I look at stage 1 as getting these buoys in the water, performing as -- hopefully performing as we expect them to and reducing the technology risk would also -- I think, would open other possible sources of capital for us or for the project for stages 2 and 3 because the technology risk will have been reduced by the demonstration of these PowerBuoys performing and connecting power to a grid over a period of time.

Okay. And would you use any of your balance sheet -- your cash to help fund this phase?

That's not the plan right now. Obviously, we're exploring all different kinds of options.

Okay, great. Thanks. Congrats on the quarter.

Thank you, Mike.

Thank you. The next question comes from George Santana of Ascediant. Please, go ahead.

Hi. Thanks for taking my question. Good Morning.

Good morning.

Can you provide any update on the progress in Japan? Thank you.

Yes. Yes, we didn't have a slide on that. All I can is we're still talking to Mitsui. There's still a lot of ongoing conversations there, and we hope to have some news out in the coming months. And basically, that's where we're at.

Phil, do you have anything to add on that?

We continue to do things like wave tank tests to investigate the technology and make them comfortable with it. And in certain areas, we're trying to push the development forward using their expertise and their facilities, but that's it from the technology side.

I see. And just to clarify on Australia, so I think that the last quarter's call, that was really the hitches. You had to have the funding for, I guess, all 19 megawatts or something like that. Now, they're going to let you have the grant money with just three buoys.

Yes, there's flexibility on that. There's flexibility in a couple of ways here. The funding -- we have to get funding for stage 1. And also, the grant basically, the way it's set up right now, it reimburses 30% of the eligible costs -- up to 30% of the eligible cost of the project.

There's also been some flexibility expressed by the Commonwealth that perhaps we can front-end stage 1 in terms of the grant and maybe go up to about 50%. So those are things that obviously help get this project moving. Again, in order to have the stages 2 and 3, we have to have a stage 1.

And now stage 1 is defined by just three buoys?

At this point. Again, it's fluid. It could change, but that's right now as we're talking today, three buoys and an infrastructure, so that would be -- those three buoys would be generating power to a grid.

That's fabulous. All right. Thank you so much.

Thank you, George.

Thank you, sir. And there are no further questions at the moment.

(Operator Instructions)

There are no further questions in queue. I'll now turn the call back over to Mr. Posner for any closing remarks.

Thank you all once again for attending today's call. If you have any further questions, please do not hesitate to contact us. Otherwise, we look forward to speaking with you next quarter.

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