Ocean Power Technologies Inc (OPTT) 2013 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Ocean Power Technologies fiscal 2013 second-quarter conference call. At this time all participants are in listen-only mode. Following management's prepared remarks we will 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 Investor Relations firm, Darrow Associates. Please go ahead, sir.

Thank you. Welcome to Ocean Power Technologies' earnings conference call for the second quarter ended October 31, 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 SEC.gov or you may go to the OPT website at www.OceanPowerTechnologies.com.

With me on today's call from the Company are Brian Posner, Chief Financial Officer, and Phil Hart, Senior Vice President and Head of the Autonomous PowerBuoy business unit. Chuck Dunleavy, OPT's Chief Executive Officer, could not be here today due to business travel in Asia.

Now please advance to slide 2 of our presentation on the website. 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 on 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 differ -- or 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 another 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 will briefly review our quarterly and six-month results and then Phil will discuss the latest developments related to our Autonomous PowerBuoy business. Phil and I will be available to answer questions following our prepared remarks.

Turning to slide 3, let me first provide an update on OPT's recent accomplishments. This past quarter OPT made several important steps to strengthen the Company to provide more focus on specific growth areas and to expand our business development opportunities.

First we created a separate Autonomous PowerBuoy business unit and in tandem named Phil Hart to lead this new group. As he will discuss more in a moment, the organizational change highlights the importance of the potential markets for the Company's non grid connected PowerBuoys and the associated opportunity for Ocean Power Technologies.

Furthermore, this quarter we hired Dr. Mike Mekhiche as our new Vice President of Engineering. Mike joins OPT from BAE Systems where he most recently held the position of Director of Programs. Mike will oversee all of our engineering activity in the development of the next-generation PowerBuoy systems in conjunction with the Company's technology partners around the globe.

In addition, we added Terry Cryan to our Board of Directors. Mr. Cryan is the co-founder and managing director at Concert Energy Partners, a New York-based private equity investment firm. Mr. Cryan brings strong experience from the energy and natural resources sectors and has worked firsthand with organizations commercializing new ground breaking technology.

We also won a contract from Mitsui Engineering & Shipbuilding for further work towards development of Wave energy opportunities in Japan. And we continued our efforts to bring our applications to Australia. I will talk more about Japan and Australia in a moment.

Overall we continue to see a growing level of interest around the globe for our unique Wave energy technology and are actively engaged in a number of opportunities that we expect to take shape in calendar year 2013.

Now let me review our operating results. As noted on slide 4, OPT reported revenue of $1.4 million for the fiscal second quarter as compared to revenue of $1.5 million for the three months ended October 31, 2011. This small decrease primarily reflects lower revenue tied to the US Navy's LEAP program on a year-over-year basis since that program was successfully completed in fiscal 2012, as well as lower external funding for the Company's PB500 development projects.

This decline was partially offset by an increase in revenue from the recently awarded follow-on contract with MES and by the Company's project in Oregon.

The net loss for the three months ended October 31, 2012 was $4.8 million as compared to a net loss of $3.9 million for the three months ended October 31, 2011. The increase in net loss year over year was primarily due to higher product development costs for ongoing work across a number of applications and by an increase in SG&A expenses tied to heightened business development activity.

For the six months ended October 31, 2012 OPT reported revenue of $2.3 million as compared to revenue of $3.4 million for the six months ended October 31, 2011. This decrease again primarily reflects lower contribution from the US Navy's LEAP program on a year-over-year basis and lower external funding on the Company's PB500 development project.

The decline was partially offset by an increase in revenue from the Company's WavePort project in Spain, its work in Oregon and the follow-on contract with EMEA. The net loss was $9.2 million for the six months ended October 31, 2012 compared to $8.9 million for the same period in the prior year. This increase in net loss was due primarily to higher SG&A costs associated with the Company's increased business development activities, particularly in Australia, and by lower interest income.

Turning to slide 5, on October 31, 2012 total cash, cash equivalents, restricted cash and investments were $26.4 million as compared to $29.4 million as of July 31, 2012. The net decrease in cash and investments was $3 million for the three months ended October 31, 2012 compared to $3.2 million for the three months ended October 31, 2011.

Our quarterly cash outflow from operating activities may vary significantly in future periods depending on the success of our business development initiatives and also on prospective expenditures related to our project in Oregon for which we are looking to raise additional funding.

I'd now like to go over some of our projects in detail. Turning to slide 6, I will begin with our Reedsport project. As noted last quarter, we received approval from the Federal Energy Regulatory Commission for the build out of a 1.5 megawatt Wave power station here, a very exciting development.

At that time testing of the first PowerBuoy had remained on track ahead of final assembly and readiness for deployment which had been expected by October of this year. However, the onset of unfavorable weather conditions significantly impacted the installation of moorings for the PowerBuoy and brought heavy standby and mobilization costs for the equipment used.

The weather also raised concerns for potential damage, safety risk and increased cost when it came time to move the unit from drydock to the deployment site. Thus, given these concerns and the resources required for commissioning during the bad weather period, we made the decision to delay deployment until 2013.

We intend to seek additional funding for deployment of this PowerBuoy in view of costs associated with marine operations, the aforementioned weather delays and other risks contingencies.

Now turning to slide 7, there are also many important ongoing activities in Japan and Australia. Starting with Japan, we recently announced a new contract worth JPN70 million or just under $900,000 from our long-standing partner and customer there, Mitsui Engineering & Shipbuilding. This award will fund additional work to enhance the Company's PowerBuoy technology for Japanese sea conditions.

OPT will continue to analyze methods to maximize buoy power capture using advanced power optimization methodologies as well as modeling and Wave tank testings. The work is expected to be completed by the end of OPT's fiscal year in April 2013 after which a decision will be made on next steps towards ocean trials of a demonstration PowerBuoy. This would provide the basis for a prospective build out of a commercial scale OPT Wave power station in Japan.

As a side note, the Japanese Ministry of the environment recently released a new strategy to increase the generating capacity of renewable energy in Japan by more than six times. And the Japanese government specifically identified Wave energy as a key component of this policy setting a goal of 1,500 megawatts from Wave and tidal power generation capacity by the year 2030. That is great news for us and for our partner Mitsui.

In Australia we continue our work with Lockheed Martin towards developing a planned 19 megawatt Wave power station off the coast of Victoria. These past few months we spent a great deal of time there working out the details for the first stage of the project while speaking with financial advisory firms about insistence in negotiating a power purchase agreement and arranging appropriate financing.

We have also been in communication with the Commonwealth of Australia concerning their AUD66 million grant for the project as well as timing and delivery of this ground-breaking multi-phase Wave powered station. The Commonwealth agency that is managing this grant, Australian Renewable Energy Agency, or ARENA, is scheduled to meet later this month to review the status of this grant.

Now let me turn the call over to Phil Hart to provide an update on OPT's Autonomous PowerBuoy. Phil.

Thanks, Brian, good morning, everyone. Turning to slide 8. Let me start by saying how pleased I am by OPT's move to create a separate business unit solely focused on the Autonomous PowerBuoy. I have been keen on expanding our presence here and now have a mandate to oversee all markets that can benefit from this unique offering.

Over the last few weeks I've been busy building and setting up the team and we have been taking an in-depth rigorous look at the markets and opportunities which we could and should address with the goal of generating revenue and profit through product sales as soon as possible. We now have a clearer view of how we are going to move forward and which markets and with which products.

The current fiscal conditions in the USA and Europe will make this a challenging task as we seek to develop the business. But our studies have confirmed the opportunity for the right products at the right price across multiple industries.

I do see a potential path to solid growth over the medium term and we have already established a credible pipeline of sales opportunities. In particular we are focusing on opportunities within oil and gas, defense and homeland security and academia. By academia I mean various oceanographic studies currently being planned or contemplated that measure and analyze the waters of our world, be it for global warming or weather prediction or other purposes.

This builds on our very successful work with Rutgers and the US Navy last year on the LEAP program, and it also expands the application and sensor requirements significantly using a full suite of OPT's autonomous technology.

Within the oil and gas market we are focusing on remote field applications for environmental monitoring near subsea wells. We have successfully uncovered some new and specific applications where our technology can offer very compelling economics and we are actively working with a number of companies to develop those applications.

Expanding into this market is challenging. But we are hopeful that once we have a foothold and successfully demonstrate the value add of our technology then it will gain wider acceptance and see other applications developing.

Within the homeland security market, as previously discussed, Ocean Power Technologies was awarded a cooperative research and development agreement, or CRADA, which will utilize our APB-350 Autonomous PowerBuoy that was developed off the -- that was deployed off the coast of New Jersey in 2011 under the LEAP program. We expect this unit will be in the water early next year.

We are excited by that prospect of showcasing the buoy in New Jersey to the Department of Homeland Security and we have tentative indications that that could lead to similar deployment in other locations, demonstrating the flexible capability of our PowerBuoy and its potential use for advanced vessel detection and ocean surveillance systems.

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

(Operator Instructions). Rob Stone, Cowen and Company.

My first question is on the Oregon deployment. Can you comment how much additional funding you may need? And just to be sure I understood you correctly, this is -- you are hoping to get this in the form of additional grants or support as opposed to having to inject funds that you would raise for the Company?

yes, hi Rob, it's Brian, good morning, again. Yes, I won't give a specific amount, but obviously there is risk when you try and deploy a buoy in the ocean, the weather being one of them, that obviously -- can't control. I think the answer to your question is basically, yes, we are seeking additional grants but we don't rule out other sources of funding for the project as well.

Again, we are dedicated to the project. It is our plan to deploy the buoy, as I stated, in 2013. But we have right now a very keen eye on our balance sheet as well.

With respect to the ARENA review in Australia, what are the potential outcomes of that? Is this sort of a milestone review or what is the -- what are you meant to do?

Well, ARENA is a new agency. It was formed by the Commonwealth in the spring, our spring of this year. So what they are doing is reviewing grants that were awarded in the past and at a past agency that is no longer around, so to speak. So they are going to be looking at the status of our grant, things that we have done, to get a handle on should the grant go forward, the momentum we have.

And again, we believe we do have a lot of momentum. We have taken control of the special-purpose entity, we have entered into a teaming agreement with Lockheed Martin, we have some expression of interest from potential financing partners and we have also hired a financial advisor. So this is, again, part of their process of just reviewing the grants, their portfolio that they have inherited.

And finally, my question has to do with the new business unit, which certainly seems like the right strategy, getting to revenue faster. But some of the comments make it sound perhaps a little less eminent than it was before. And I'm wondering what are the obstacles.

It would seem like your technology is capable of doing things that are either difficult, impossible or require greater cost for operation and maintenance for batteries or any kind of liquid fuel generation that is out on the water. So what is the obstacle? I would think if you can convince them that the product does what you say it does you should have ready buyers for at least the first few units.

Hi, Rob, yes, it's Phil. You are right, there is some things our technology can do that is completely unique. Take for instance the comparison in the academic world, the only way of long-term monitoring a site up until now has been to lay a really expensive cabled observatory system from shore. And that's -- you can rough that out as maybe $1 million a mile or so, something like that for that cable. We can obviously do that much more competitively.

The challenge for us really is to get our message out there. And people have not understood very well the capabilities that the technology can offer. We have got to essentially tell them that this capability exists. And we have been working on that very heavily over the last couple of months and it has resulted in a much larger pipeline of opportunities than we had going into this.

So a couple of things that we have got to do, we have got to let people know that the capability exists and then we've got to push that desire that we create through to contracts and that is going to take us a little while to do. But counter to that we have got a couple of things that we are working on that should, if things go well, generate significant revenue within the next six months.

So, I think it is a matter of we are at an early stage in the business unit, we know we've got some good technology that solves problems that people have. We have just got to tell them that we've got the solution.

So, turning for a moment to the commercial applications for this though, you mentioned in the prepared remarks that the fiscal situation might be an impediment and I can certainly see that that is an issue with any kind of new government-funded activities and government organizations by their nature are ponderously slow getting things going usually.

I would expect some contrast with the oil and gas potential customers where you are offering something that has immediate commercial benefits. Can you put any color on what your conversations have been like with those potential customers and what are their potential concerns?

Yes, sure. We've spoken extensively with the oil and gas guys both in the Gulf of Mexico and in the North Sea using both our American and UK operations. I think the way that it is going at the moment the North Sea seems to be a little bit more open to new technology. The guys in the Gulf of Mexico are being a little bit more conservative.

What -- the applications that we're looking at avoid us, if you like, touching the product or touching oil. It is all around remote monitoring and environmental monitoring and that type of thing. There are a couple of niche applications where we can replace cables either run from shore or run from platforms and do the job much better and that is where we are seeing the beginnings of some what I hope will be reasonably significant traction.

We, for instance, we are putting in a proposal in the next week or so for -- probably avoid telling you the exact application -- but for an application that would otherwise have cost approaching $100 million and we can do it for significantly (inaudible) than that. So I think if we can find those niches we've got a very compelling offering and that is what the guys are working on at the moment.

And why do you say your strategy, at least initially, is to avoid touching the oil? I'm puzzled by that. Is that because the customers consider that a core area and they don't want to try new technologies there? Or do have some other version?

Yes, it's to do with -- well, there's two things, the level of conservatism and the level of risk. If your product directly involves the flow of oil then the amount of safety cases and trials and just general engineering and convincing that we would have to do is probably a few years away.

If we avoid touching oil, our product can't possibly either interrupt the flow or cause an oil spill or stuff like that, then the level of risk for the customer goes way down and their conservatism for adopting new technology goes down.

So what we're -- the strategy we are using is to introduce the product without touching the oil, which gets them confident in the technology and gets us to a more rapid route to selling. And then once they are confident in the technology, then moving it to other applications regardless of whether it touches oil or not is much easier because we've got a track record, they understand the technology and it is much easier for them to adopt.

So it is a path. We start with stuff that doesn't touch oil and then move out and hopefully pervade the industry from there.

You ultimately don't view this as a niche application at all, it's going to be much broader?

I think it is one of those -- each application that it fills within oil and gas will be a niche, but there will be lots of them.

Great. Thanks very much, guys.

(Operator Instructions). There are no further questions in the queue. I will now turn the call back over to Mr. Posner for 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 our call. You may now disconnect and have a great week.