Ocean Power Technologies Inc (OPTT) 2013 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Ocean Power Technologies fiscal 2013 third-quarter conference call. At this time all participants are in a 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. Brian Posner, the Chief Financial Officer of Ocean Power Technologies. Please go ahead, sir.

Thank you. Welcome to Ocean Power Technologies earnings conference call for the third quarter ended January 31, 2013. 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, OceanPowerTechnologies.com. With me on today's call is Chuck Dunleavy, OPT's 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 risk 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 Chuck Dunleavy.

Thanks, Brian, and good morning everyone. Brian 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 activity. 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. This 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 our engineering activity and the development of the next-generation PowerBuoy systems in conjunction with the Company's technology partners around the globe.

We continued our work under a contract from Mitsui Engineering & Shipbuilding for further development of wave energy opportunities in Japan. OPT and Lockheed Martin are developing the planned 19 megawatt wave energy project at the side of Portland, Victoria, Australia. And I will talk about more about both Japan and Australia in a moment.

We have changed the nomenclature of our Utility and Autonomous PowerBuoy products so as to emphasize product classes. Finally, OPT received approximately $1.5 million under the State of New Jersey's Business Tax Credit Certificate Transfer Program, which funds are being used to advance our technology development. Overall, we have a very high level of focused activity.

Please advance to slide 4. With respect to the nomenclature of our PowerBuoys among the Utility PowerBuoy products, the PB150 will be called the Mark 3 PowerBuoy, which currently drives a peak rated generator with a maximum power output of 866 kilowatts. The PB500 will be called the Mark 4 PowerBuoy, which is planned to drive a peak rated generator with a maximum output of 2400 kilowatts. This method of power rating is more closely aligned with that utilized by other renewables such as wind and solar.

Among our Autonomous PowerBuoy products, the LEAP system will be called the APB350 and, the OPT MicroBuoy will be called the APB10. The power rating for our Autonomous PowerBuoys denotes the amount of continuous power that can be maintained for deep-sea applications. This persistent power capability opens expanded mission durations and also the opportunity for new applications not previously envisioned by our prospective customers.

Turning to slide 5, I will begin with our work in Reedsport, Oregon. As noted previously, we received a license from the Federal Energy Regulatory Commission, or FERC, for the prospectively willed out of a 1.5 megawatt grid-connected wave power station for 10 PowerBuoys at that location in Oregon.

Our plan has been first to deploy a single non-grid connected PowerBuoy Mark 3 off the coast of Reedsport. However last month we were informed by FERC staff that the first Oregon PowerBuoy is now to be subject to all requirements of their license as previously issued for 10 grid-connected PowerBuoys at Reedsport. Thus, OPT would now need to meet all FERC requirements for the entire 10 buoy grid-connected project prior to the deployment of the first PowerBuoy.

If this FERC ruling is sustained, OPT would be required to submit certain reports and perform additional studies. This process could require significant delay of the deployment of the first PowerBuoy, as well as present additional costs for the Company.

Now OPT is at this time evaluating our response to the FERC staff's representations. Deployment and commissioning of this first Oregon PowerBuoy must take into account the need for this further evaluation of the guidance from FERC, as well as the requirement for a significant use of funds for the deployment and operation of the system.

As we have stated, we do intend to seek additional funding for deployment of this PowerBuoy in view of costs associated with weather delays and the regulatory factors. Again, this all may serve to delay deployment of our Oregon PowerBuoy and beyond calendar 2013.

Now turning to slide 6, there are a number of important ongoing activities in Japan and Australia. In Japan, work continued with our long-standing partner and customer, Mitsui Engineering & Shipbuilding, under a contract worth JPY70 million, or at today's value approximately $800,000. This award is funding additional work to enhance the company's PowerBuoy technology for Japanese sea conditions.

OPT is analyzing methods to maximize buoy power capture using advanced power optimization methodologies, as well as modeling and wave tank testing. The OPT Mitsui team is also evaluating novel mooring strategies. The work is expected to be completed by the end of OPT's fiscal year in April 2013, after which a decision is expected to be made on next steps towards ocean trials of a demonstration PowerBuoy. This would provide the basis for a prospective buildout of a commercial scale OPT wave power station in Japan.

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 have spent a great deal of time continuing to work out the details for the first stage of this project. This has included working with our financial advisor, Brookfield Financial, in negotiations pertaining to power purchase agreements and for financing of Stage 1 of the project.

We have also been in communication with the Commonwealth of Australia concerning their significant grant for the project, as well as timing and delivery of this groundbreaking multi-phase wave power station. The Commonwealth agency that is managing this grant, Australian Renewable Energy Agency, is reviewing the status of this grant, including progress towards funding milestones and amendments to the grant as proposed by OPT.

Now moving on to slide 7. To focus our ongoing business development activity in the autonomous market, OPT established a new business unit to assess, target and develop opportunities in the potential markets for OPT's non-grid connected or autonomous PowerBuoys.

OPT's products are being developed for off-grid applications in deeper ocean environments, which require lower amounts of power provided on a persistent basis. The Company believes that the Autonomous PowerBuoy market represents an important opportunity for profitable growth.

In particular, we are pursuing opportunities within oil and gas, defense and homeland security, and oceanographic data gathering. In this latter sector, we refer to various oceanographic studies currently being planned or contemplated internationally that measure and analyze the waters of our world, be it for global warming, weather prediction or other purposes.

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

Within the oil and gas market, we are targeting remote field applications for monitoring activities near subsea well sites. We have identified 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 opportunities. We believe that once we have a foothold in this market and have demonstrated the value-add of our technology, it will gain strong acceptance.

Within the Homeland Security market as previously discussed, Ocean Power Technologies was awarded a Cooperative Research and Development Agreement by the US Department of Homeland Security. In tandem with this agreement, OPT received a grant from the Maryland Technology Development Corporation.

This grant will utilize our APB350 Autonomous PowerBuoy that was deployed off the coast of New Jersey in 2011, under the U.S. Navy's LEAP program, and would survive the 50 foot waves of Hurricane Irene very successfully. We expect this unit to be back in the water later this year.

We are very excited by the prospect of showcasing this buoy in New Jersey, demonstrating the flexible capability of our Autonomous PowerBuoy and its potential use for advanced vessel detection and ocean surveillance systems. This same APB350 product also has important applications to the oil and gas markets.

Now let me turn the call over to Brian for a discussion of OPT's operating results for the three and nine months ended January 31, 2013.

Thank you, Chuck. As we move to slide 8, for the three months ended January 31, 2013 and January 31, 2012, OPT reported revenues of $0.9 million. There was a slight decrease in revenue related to our Mark 4 PowerBuoy development project, partially offset by an increase in revenue related to our project with Mitsui Engineering & Shipbuilding.

The net loss for the three months ended January 31, 2013 was $1.5 million as compared to a net loss of $2.2 million for the three months ended January 31, 2012. The favorable decrease in net loss year over year was due primarily to lower product development costs relating to a lower level of activity for OPT's project in Oregon and our project in Hawaii, which was completed in FY2012.

In addition, there was again on foreign currency transactions and a higher recorded income tax benefit due to the sale of New Jersey tax net operating losses. These decreases in net loss were offset by an increase in SG&A expenses, due primarily to an increase in legal fees, site development expenses related to the planned project in Australia, and certain employee-related costs.

For the nine months ended January 31, 2013, OPT reported revenues of $3.2 million as compared to revenues of $4.3 million for the nine months ended January 31, 2012. This decrease primarily reflects the completion in the prior fiscal year of the LEAP project with the U.S. Navy for coastal security and maritime surveillance, in addition to a decrease in billable work related to the Mark 4 PowerBuoy development project. These declines were partially offset by increases in revenue from the Company's WavePort project in Spain, the project in Oregon, and the Mitsui project.

The net loss was $10.6 million for the nine months ended January 31, 2013, compared to $11.1 million for the same period in the prior year. This decrease in net loss was due primarily to lower product development costs relating to the completion of our project in Scotland in the prior fiscal period, a gain on foreign currency transactions, and a higher recorded income tax benefit due to the sale of New Jersey net operating tax losses.

These decreases in net loss were offset by an increase in SG&A expenses due to an increase in legal fees, and site development expenses related to the planned project in Australia.

Turning to slide 9. On January 31, 2013, total cash, cash equivalents, restricted cash and investments were $24.5 million as compared to $26.4 million as of October 31, 2012. The net decrease in cash and investments was $1.9 million for the three months that ended January 31, 2013, compared to $2.1 million for the three months ended January 31, 2012.

OPT received approximately $1.5 million and $1.1 million from the sale of New Jersey net operating tax losses for the three months ended January 31, 2013 and 2012 respectively.

I will now turn the call back over to Chuck.

Thanks, Brian. Turning to slide 10, I would like to note some of our key initiatives. OPT has recently undertaken a number of steps to reduce significantly its fixed costs. This has been across the Company and includes reduced personnel related costs, consultants, and facilities expenses. With this reduced cost structure, we will continue to pursue on a selective basis both the utility and autonomous market sectors, with emphasis on our existing customer-funded contracts and opportunities in markets where we see strong economics.

We will build on our PowerBuoy technology platform with investment in specific high payback technology enhancements. This includes working along a very clear path that we have set to decrease the levelized cost of energy of our Utility PowerBuoys, and also expansion of the Autonomous PowerBuoy product offering.

With a focus on opportunities to generate cash in the near term, the key is to enhance the salability of our product offerings and result in contribution to profits.

In addition, continuing work with strategic partners like Lockheed Martin and Mitsui is an important part of driving toward our goal of OPT becoming a profitable company in the years to come.

This concludes our prepared statements. I will now open the call for questions. Please go ahead, operator.

(Operator Instructions). George Santana, Ascendiant.

Hi, good morning. Thanks for taking my question. Could you just give us a little bit more color on the progress in Australia? Thank you.

Sure, good morning, George. It's Chuck here. I think one key aspect of the progress is our work, as we have mentioned very quickly, with Brookfield Financial, very strong company. They are a unit of Brookfield Asset Management, which I believe is listed on both the NYSE and Toronto exchanges. And they have a strong presence in Australia with respect to infrastructure projects.

So a lot of what we have been doing over the last quarter has included working directly with them and in meeting with a number of entities that would provide the power purchase agreements for this project. Obviously, that is the main driver of the revenue model for the project as we talk with prospective investors. So the PPA focus with Brookfield I think is an important part of what we have been doing over the last quarter.

We have expanded as well the field of number of potential investors with whom we are going to be meeting. As a matter of fact, I am going to be going to Australia in a couple of weeks with the primary purpose to meet with some of these parties that Brookfield is lining up.

One other note over the last few months is that we have been doing work associated with the permitting for the site, specifically the environmental impact statement submittal to the State of Victoria. So it has been very busy, and as we noted, we have been keeping close touch with ARENA, the Australian Renewable Energy Agency, and I think that also has been a big piece of what we have accomplished over the last three months.

Should we read into this that your big contracting partner in your EPC is stepping back from the financing, or are they still active in the discussion in terms of contributing --?

Lockheed has really been a great positive influence on the activity that I just explained to you. And I am glad you brought up the point because it is important to note that Lockheed is very much strongly engaged with us. What they have been doing is providing not only the large group of their Australia-based people, but some of the US folks as well have made trips to Australia in support of these various meetings and activities that I outlined. So very strong, continuing engagement from Lockheed on this project.

Thank you. Good luck with that.

Thanks very much, George. Good talking with you.

Robert Littlehale, JPMorgan.

Oh, good morning. In terms of Reedsport, were you surprised by the seemingly change of thinking on FERC, FERC's part? And do you have any sense of what the increased cost that would be incurred to pursue that opportunity?

Sure. Yes, first of all, it was very much a surprise. The whole permitting and all the other things that one -- we have done, rather, associated with that first non-grid connected buoy has been buttoned up for some time and accomplished, particularly vis-a-vis permitting requirements associated with the Army Corps of Engineers and a couple other parties. But it is very small group of permitting authorities that we needed to work with associated with that first PowerBuoy.

But as I noted in answering your question at the outset, it is a surprise to us that the FERC staff considers this first buoy to be subject to their jurisdiction at the time that it is not grid connected. So it's a surprise.

I think the measure of its cost is associated with not only some additional out-of-pocket expenses but just the elapsed time that it takes to prepare reports. This includes the use of our own people to prepare some of the plans that would be required if, in fact, we are -- this jurisdictional issue is sustained.

For example, Bob, we would have to do a project financing plan for all 10 buoys, which includes getting prospective commitments on that financing. So the cost of that coupled with some of the other plans that would need to be submitted to FERC, if this first non-grid connected buoy were subject to their regs, is really a cost that is measured in elapsed time. And that just simply delays deployment of the PowerBuoy. It is less -- it does include out-of-pocket expenses, but the real cost is an opportunity cost to us.

There are two hotbeds of opportunity in wave power that you hadn't mentioned -- well, you touched on Scotland, but also Chile. Would it be safe to say that the reasons that you -- and maybe there is an ongoing interest, but it seems like you are more laser focused on specific areas, and those two areas of Scotland and Chile are tangential to sort of the focus of the Company at this point?

Well, you're actually right about your use of the term laser focus. Man, that is exactly one of the messages we wanted to convey in this call. It relates to costs, just out-of-pocket costs to support the business development efforts that otherwise would be undertaken, as well as the need to just strive for the kind of focus that delivers results. So you are right in your overall perception that we are being very selective on the opportunities that we are pursuing.

I would say, though, that while I didn't mention Scotland specifically, that is an area of potential involvement for OPT. And, in fact, we do have some ongoing business development activity that is focused or centered rather out of our UK office. And we have some ongoing discussions with potential partners to develop a possible site in Scotland, but that is nothing that has borne results to the extent that we would report directly on it; and it's at an early stage. Hence, we didn't focus on it.

But no, Scotland is still a strong prospective opportunity for us, particularly on both the utility side of things but also importantly as is well-known, of course, is the fact that there is a lot of oil and gas activity in the North Sea. So that is another aspect of opportunities that we are pursuing off of Scotland.

In the case of Chile, no, we have not mentioned that. We are certainly aware of a lot of the activity down there, and it is possible that some opportunities might present themselves there for us. But we do not have as high a level of focus on those as we do in Australia, Japan, America, and parts of Europe.

Great. Thank you, Chuck.

(Operator Instructions). George Santana, Ascendiant.

Chuck, just a quick follow-up. What happens to the network of subcontractors that you assembled on the Oregon project?

Well, they are still very much in business, and I don't mean to be answering your question with a quip here. They still have a lot of business and staying power to them, and that has been part of the selection process we went to identify them. So if there is a delay from us, certainly the value-add of our supply chain in Oregon is still very vital and will be present and ready, we believe, to help us. So I think that is probably an overarching point I would make.

We need to keep in touch with these people as we are on my way to Australia. As a matter of fact, I am going to be in Oregon next week and talking with parties there, and meeting with at least one of our primary suppliers in Oregon. And just making sure that we communicate directly, not only with our supply chain members, but as well as with other stakeholders in Oregon about the status of the project.

So you have your finger on an important point, which is to maintain that supply chain, and we intend to do so and to engage with them through active communication.

The Company doesn't have any exposure to payments on delays or things like that if the government -- if the project is delayed.

No, we don't get ahead of ourselves in terms of payments from the government, as well as those that might be flowed to subcontractors in terms of any delays on this project. There are other business issues that present themselves with our suppliers and we deal with those. And we have -- and there is an open question right now with respect to one of the suppliers who was actually a subcontractor that was helping out in connection with some of our marine operations last fall. But that is not at all related to the FERC, the prospective delay that could come from this FERC jurisdiction issue.

Okay, thank you.

There are no more questions in the queue. I will turn the call back to Mr. Dunleavy for any closing remarks.

Okay, thank you very much, and 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.