Ocean Power Technologies Inc (OPTT) 2013 Q4 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Ocean Power Technologies fiscal 2013 fourth-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. Brian Posner, Chief Financial Officer of Ocean Power Technologies. Please go ahead sir.

Thank you. Welcome to Ocean Power Technologies' earnings conference call for the fourth quarter and full fiscal year ended April 30, 2013.

OPT issued its earnings press release earlier today and the Company will soon file its annual report on form 10-K 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 from the Company 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 this 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 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. I'll begin by reviewing our operations and provide an update on key activities, after which Brian will briefly go over our financial results. Brian and I will then be available to answer questions you may have.

Turning to Slide 3, let me first review OPT's accomplishments this fiscal year on a high-level basis before getting into some of the details. We continue to make strides towards the development of a planned 62-megawatt peak-rated wave power station off the coast of Australia as we worked with Lockheed Martin and local partners to move this project forward. We've made good progress and have a clear path forward for the work we still need to do.

Also in the Pacific Rim, we were awarded a contract from our partner in Japan, Mitsui Engineering & Shipbuilding, for follow-on work to improve our PowerBuoy technology for applicability to Japanese sea conditions. In addition, we have achieved milestones in our WavePort project in Spain, and completed certain work on our Mark 3 PowerBuoy in Oregon, including assembly and land testing of the buoy.

We also formed a new business unit this year to focus specifically on the marketing development and delivery of our autonomous PowerBuoys for a range of attractive non-grid applications. We continue to be excited by this market as well as our utility projects around the globe.

Throughout the fiscal year, we kept an eye on costs and worked diligently to reduce overhead and streamline operations to reduce the Company's annualized cash burn by nearly $4 million. We remain focused on disciplined cost management going into fiscal 2014.

Finally, we strengthened our leadership team with Terry Cryan joining our Board of Directors, and Dr. Mike Mekhiche being appointed our Vice President Engineering.

Overall, we accomplished a great deal in fiscal 2013 even while facing challenges associated with our Oregon project as I'll review in a moment. We remain committed to being in the forefront of making wave power generation a commercial success.

I would now like to go over some of our projects in more detail. First, turning to Slide 4, let me provide an update on our important activities in Japan and Australia. Starting with Japan, during fiscal 2013, we received a contract worth JPY70 million, or approximately $0.7 million from, our partner Mitsui Engineering & Shipbuilding, or MES. This contract provided for follow-on work related to PowerBuoy enhancements that, under Japanese sea conditions, should result in improved power capture. I'm happy to report that the analysis and design work is now complete and the two companies are considering next steps towards prospective ocean trials of a demonstration PowerBuoy system. We are delighted to have MES as such a steadfast partner and are confident that working in this partnership, we can penetrate the market in Japan for ocean-based energy generation.

As a reminder to our listeners, the Japanese Ministry of the Environment put forth the strategy during our fiscal 2013 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 1500 megawatts in new power generation capacity by the year 2030 using wave and tidal power sources. This is an important driver of the opportunity in Japan.

Australia has also been a major focus for OPT in fiscal 2013, where we've spent considerable time working with Lockheed Martin on plans to develop a 62 megawatt peak generator rated wave power station off the coast of Victoria. I'm pleased to report that we continue to build momentum in making this project a reality. We are working with the Australian Renewable Energy Agency, or ARENA, on timing and structuring for the AUD66.5 million grant we previously were awarded.

In addition, we recently announced we've engaged the Victoria-based company, Professional Diving Services, to conduct a detailed survey for our wave power station. The seabed survey will fine-tune a selection of best area off Portland in Victoria for the project, taking into account seabed conditions as well as environmental, recreational, and commercial interests. The project recognizes the importance the ocean represents for Australia and the opportunity for providing power to up to 10,000 local residents. The project also is expected to create or sustain at least 300 jobs.

Finally, we continue to work with our financial advisor on power purchase agreements and additional required funding for the projects. We expect to report continued progress in fiscal 2014.

Now, turning to Slide 5, I'd like to switch gears and give an update on our autonomous PowerBuoys. This fiscal year, we've enhanced our focus on these systems as a growth market for OPT, dedicating more resources to developing our line of APBs across a broader power spectrum and investigating new avenues for bringing these products to market. As a reminder, these PowerBuoys are not grid connected but rather are designed to operate autonomously in remote and deeper ocean environments, providing continuous power under a variety of applications.

We continue to view certain key areas as offering significant avenues for growth, including deepwater oil and gas operations, defense and Homeland Security, and oceanographic data gathering. We are researching a number of opportunities within these end markets in several countries.

OPT entered into a cooperative research and development agreement, or CRADA, with the US Department of Homeland security in fiscal 2013. A new contract tied to the CRADA provided to OPT by the Maryland Technology Development Corporation has been utilized to improve our APB 350 autonomous PowerBuoy which was previously deployed in 2011 as part of the Navy's LEAP program, which performed very well, even during Hurricane Irene.

Under the new contract, we will be adding a sonar detection capability. We are nearly complete with this upgrades to this buoy and expect to deploy the system this year off New Jersey. We are excited about its expanded vessel detection and ocean surveillance capability, and we are looking at other potential applications within the defense and Homeland Security arena.

Within offshore oil and gas markets, we are targeting remote field applications for monitoring activities and other subsea operations near well sites. We have identified many areas where our technology can bring a unique solution for in-ocean energy requirements. And likewise, our products can be used for oceanographic studies related to global warming, weather prediction, or other purposes.

Overall, there are many attractive markets for these small autonomous PowerBuoys. While gaining entree to the market is taking time, we expect to gain increased market traction within fiscal 2014.

Moving to Slide 6, I'll give an update on our activities in Oregon where fiscal 2013 saw a number of accomplishments and some challenges as well. During the year, we completed certain work towards deployment, including buoy assembly and land testing, of our most technologically advanced Mark 3 PowerBuoy and we're prepared to deploy the anchors, mooring, and PowerBuoy off the coast of Reedsport. The anchor mooring system was unable to be deployed before the onset of unfavorable weather conditions.

Further, in February 2013, we received notice from the staff of the Federal Energy Regulatory Commission, or FERC, that this first non-grid connected PowerBuoy would be subject to FERC jurisdiction. In other words, OPT would need to meet all FERC requirements associated with a full grid connected array of PowerBuoys. This means that OPT would need to comply with further reporting and expenditures prior to deployment of our first buoy with a significant impact on both timing and anticipated expense. We are working with FERC and stakeholders in Oregon to see how best to move forward.

We have also recently engaged a consultant to serve as our Pacific Northwest representative, and he'll help manage this process as well as work with interested local groups in Oregon. We need to seek additional funding specific to this project for deployment of this PowerBuoy in view of the increased project costs, including those associated with weather delays and the regulatory issues. Deployment of this initial buoy will depend on resolution on these financial and regulatory issues, and such deployment is expected to be delayed beyond calendar 2013.

Now, before turning the call over to Brian to review our financial results, let me briefly review some other ongoing initiatives as shown on Slide 7. As you may recall, OPT has been working under contract from the European Union with a consortium of European companies and institutions to advance the energy conversion system of the PowerBuoy through the development of a new wave prediction model. The new system is expected to assess the characteristics of incoming waves before they reach the PowerBuoy, thereby providing more time for OPT's proprietary electronic tuning capability to react. This is planned to boost the power output of the PowerBuoy and reduce cost per megawatt hour of energy produced.

During fiscal 2013, OPT completed testing of the modular power takeoff system for the WavePort PowerBuoy and it was shipped to Spain this past May. This work demonstrated improved efficiencies of this system, and the PowerBuoy is expected to be deployed at a site on the north coast of Spain along with other components of the project which will be provided by members of the consortium.

Late in fiscal 2013, we changed the nomenclature of our PowerBuoys. Among the utility PowerBuoy products, the PB150 is now called the Mark 3 PowerBuoy, which currently drives the peak rated generator with a maximum power output of 866 kilowatts. The PB500 is now 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 is now called the APB350. And that 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.

In addition, speaking with utilities, governments, and also industry alike, we are seeking other opportunities in Europe and North America that can utilize our technology for both grid-connected and off-grid applications. We are also applying traditional grants actively, submitting proposals and seeking new partners to expedite the development of our utility and autonomous PowerBuoys. We believe that fiscal 2014 should include new opportunities that can leverage wave energy production in many parts of the world.

With that, I'll turn the call over to Brian to review our financials.

Thanks Chuck.

As noted on Slide 8, OPT reported revenue of $0.4 million for the fiscal fourth quarter as compared to revenue of $1.4 million for the three months ended April 30, 2012. The decrease is primarily due to lower revenue earned in connection with our Mark 4 PowerBuoy development project, our WavePort project off the coast of Spain, and our planned deployment off Reedsport, Oregon, which is on hold pending further funding and regulatory reviews.

The net loss for the three months ended April 30, 2013 was $4.2 million as compared to a net loss of $4.1 million for the three months ended April 30, 2012. The unfavorable increase in the Company's net loss year-over-year reflects slightly higher product development costs offset by lower SG&A expenses. The increase in product development costs were due primarily to higher costs for OPT's project in Oregon and for the project in Spain. SG&A decreased due to cost-cutting initiatives implemented during fiscal 2013.

For the full fiscal year 2013, OPT reported revenue of $3.6 million as compared to revenue of $5.7 million for the 12 months ended April 30, 2012. The revenue decline primarily reflects the completion in fiscal 2012 of the companies LEAP project with the U.S. Navy for coastal security and maritime surveillance.

OPT also saw a decrease in work related to its Mark 4 next-generation PowerBuoy in our project off the coast of Spain. These declines were partially offset by an increase in revenue from the Company's work in Oregon and in Japan with Mitsui Engineering & Shipbuilding where we completed two contract phases during fiscal 2013.

The net loss was $14.8 million for the 12 months ended April 30, 2013, compared to $15.1 million for the same period in the prior year. The decrease in OPT's net loss was due to higher gross profit and lower product development costs, offset by an increase in SG&A expenses.

Product development costs declined year-over-year due to the completion of our project in Scotland during fiscal 2012, slightly offset by higher expenses tied to our WavePort project in Spain. SG&A expense rose year-over-year, primarily due to business development related professional fees and site development expenses in connection with the planned project in Australia. In the current fiscal year, we saw lower interest income, slightly lower foreign-exchange losses, and a higher recorded income tax benefit due to the sale of New Jersey net operating tax losses.

Turning to Slide 9, on April 30, 2013, total cash, cash equivalents, restricted cash and investments were $21.7 million. The net decrease in cash and investments was $11.4 million for the 12 months ended April 30, 2013, compared to a net decrease of $15.2 million for the 12 months ended April 30, 2012. The net decline in cash and investments was lower in fiscal 2013 than fiscal 2012, due primarily to lower product development expenses and an increase in accrued expense. In addition, OPT received approximately $1.5 million in connection with the sale of New Jersey net operating tax losses during the 12 months ended April 30, 2013, versus $1.1 million last year.

Now I'll turn the call back over to Chuck for some closing comments.

Thanks Brian. I'd like to wrap up by highlighting what we are focusing on in fiscal 2014.

As we stated earlier, the Company is very excited by the opportunity in Australia where we have dedicated a significant amount of resources over the past two years. While this undertaking the development of the 62 megawatt peak rated wave power station takes time to plan, fund, develop and execute, we are making real progress here with the support of Lockheed Martin. We are actively assessing interest expressed in power purchase agreements while pursuing a number of potential financing options and working with ARENA to gain additional momentum for this project.

We remain active in the Pacific Rim area and expect further developments here in the months to come. This is another key market area for OPT and one that we feel continues to hold much promise.

We are also investing in next-generation PowerBuoy technology, targeting improvements in the cost of energy and pursuing new applications for our smaller, non-grid connected autonomous PowerBuoys across a number of end markets. We are seeking out new project in Europe and elsewhere while pursuing the resolution of the important matters that affect deployment of our Mark 3 PowerBuoy in Oregon.

I would especially like to again express appreciation to our employees for their dedication and hard work, as well to as our shareholders as we move forward.

This concludes our prepared comments. We'll now open the call for questions. Please go ahead, operator.

(Operator Instructions). George Santana.

Thanks for taking my question. Just update us on any change from the Australian government. It seems like they're really being accommodating and working with you guys to -- that it's taking more time to develop.

Good morning George. Chuck here. We are not seeing any fundamental change in our working relationship. I would say it's been as cordial and also very professional, as it has been all along. And in fact, it feels good to us from the standpoint that there is continuing strong interest on the part of the government that's been expressed privately as well as publicly to us in renewable energy and specifically in our wave energy project. And I say that by the way not only with respect to the federal level of the Commonwealth, but also at the state level. We have had a lot of dialogue with officials within the state of Victoria. So the engagement and I think the excitement that the government at those two levels has shared with us is something that is part of the momentum that we see with this project.

Okay. It's a couple of quarters ago perhaps there had been some kind of concern in the market that the Australian government was going to be really concerned about the deadlines, whether they were missed or extended. And you are still working with them it seems as very close partners. So can we take that as an indication of their willingness to accommodate the longer development cycle?

Quick answer is yes. But let me also just follow that up by saying, George, we are already hitting some of our milestones. Those associated with for example the seabed survey that we mentioned is now ongoing, also design and development of the system that will go in the water. So we are working on the project right now, along with our partner, Lockheed Martin. So, they've seen some progress, and just as important in our eyes, we are satisfied that we are making some progress and moving forward on it too.

But to your original question with respect to the timing and all that, I think they are comfortable with the fact that we are working on this project and making some progress on it.

That's great to hear. There also seems to be quite a nice opportunity developing in Japan from your comments. Is there anything anecdotal that you can share with us in terms of kind of bringing that to light?

Sure, and we sense the same thing as you allude to, but we see it not in terms of just what we sense. It's palpable and the energy that we see -- I say that -- put that in quotes -- on the part of not only Mitsui but also within some individuals in the government with whom we've dealt and met along with Mitsui seem to be I think very interested in marine energy, and especially wave energy and what it presents as an opportunity to enhance the mix of energy options in Japan.

With or without the recommissioning of a lot of the nuclear plants, there are a lot of lessons learned in Japan. And so that translates directly in some of the ongoing marketing effort that OPT is sharing with Mitsui in Japan. And as we noted or alluded to in the prepared section of our presentation this morning, we look forward in this new fiscal year to reporting some substantive progress there.

But you're right. It's an interesting market, and one that really is looking hard at its energy options, particularly those that are homegrown, i.e. wind and marine energy especially.

Thank you guys. Keep up the good work.

(Operator Instructions). Robert Littlehale.

Good morning. Chuck, how long will the seabed survey probably take to complete would you imagine?

We expect the one that's ongoing right now to go on for about two months. When I say two months, not the survey itself, the actual in-ocean portion of it is as much as you would anticipate, much shorter.

But then we would want to be really careful about the data analysis interpretation. It's not just simply what's down there, but we are looking as well at any influences associated with any organisms, microorganisms, as well as larger sea life. So, it really is taking into account a little more breadth other than just simply where is the best sand foundation.

So, the work is being done. We expect the actual survey itself to be much shorter, as I said, than two months. And then some of the data interpretation to occur, we will provide a report, which is one of the milestones we have under this contract that I mentioned a few seconds ago to George Santana. And then we'll continue to move forward. It's an important step in the final -- in the completion of the final permitting, which we've already done a lot of work on with the appropriate state and federal agencies as well as some of the local indigenous groups who have interests. And so we're trying to really cover those bases, and we have done as much as we can in all those respects. Really the last major step here in permitting is addressing -- being addressed by the seabed survey, which will then culminate in a report, as I mentioned, and a final application for an environmental approval.

I seem to recall that there was some interest in South America, specifically Chile. Is that still at all a focus, or do you just have too much in your plate at this point?

Sure. First of all, there still is interest on the part of the Chilean government and some other stakeholders down there in our technology. We are not allocating a lot of our resources on the marketing side at this moment, so it is not a distracting feature, if you will, from what we've otherwise articulated in other parts of the world that we are conducting active business development activities.

Part of it, the picture though is that we are being represented down there for a success based -- or rather by a success based, very highly well regarded firm that is providing much of the business development activity, if you will, on our behalf. So still is a possibility.

We do understand that the government, the federal government of Chile, will be issuing a tender in the latter part of this calendar year. And the group with whom we are working down there is working assiduously to tee up the ball, if you will, on our behalf with the expectation and the interest that the government opportunity would be something that, in turn, would be an opportunity for OPT.

Great, thank you.

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

Thank you. And thank you all once again for attending today's call. If you have any further questions, please don't hesitate to contact us. Otherwise, we look forward to speaking with you in our next quarter.

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