Ocean Power Technologies Inc (OPTT) 2017 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the fourth quarter and fiscal year 2017 Ocean Power Technologies Conference Call. My name is Latoya, and I'll be your coordinator for today. (Operator Instructions) As reminder this conference call is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Andrew Barwicki.

Good afternoon, and thank you for joining us on the Ocean Power Technologies Conference Call and Webcast to discuss the financial results for the fiscal year ended April 30, 2017. On the call with me today are George Kirby, President and CEO; and Matthew Shafer, Chief Financial Officer. George will provide an update on the company's highlights and key activities for fiscal 2017; Matthew will then review the financial results for the fourth quarter and full year. Following our prepared remarks, we will open the call to questions.

This call is being webcast on our website at www.oceanpowertechnologies.com, and will be available for replay later today. The replay will stay on the website for on-demand review over the next several months.

Last Friday, Ocean Power Technologies issued its earnings press release and filed its Annual Report on Form 10-K with the Securities and Exchange Commission. All of our public filings can be viewed on the SEC website at sec.gov or on the OPT 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 provisions of the Private Securities Litigation Reform Act of 1995. 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 that 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 the description of these and other risk factors.

And now, I'd like to turn the call over to George to begin the discussion.

Thank you, Andrew, and good afternoon, everyone. Welcome to our 2017 fiscal year-end earnings call. Today, I'm going to review the progress we've made on our major goals of commercializing our PB3 PowerBuoy and positioning the company for the future. I'll begin with our commercialization efforts where fiscal 2017 was a year of significant accomplishments. In May of '16, we entered into a PB3 PowerBuoy lease agreement with Mitsui Engineering & Shipbuilding which is valued at approximately $975,000. The PB3 PowerBuoy lease by MES was shipped to Japan in March of '17 and successfully deployed off of the coast of Kozu Island in April. The unit continues to meet all of its performance requirements and our accelerated life testing program continues to increase our confidence level and the readiness of our commercial design.

This first commercial agreement with MES is a significant and exciting milestone for us because it enables MES to demonstrate the flexibility of the PB3 power and communications platform for a variety of applications and sea conditions off the coast of Japan.

We redeployed our PB3-A1 PowerBuoy off the coast of New Jersey after integrating the National Data Buoy Center Self-Contained Ocean Observing Payload or SCOOP. We also entered into an agreement with the Wildlife Conservation Society to integrate a marine mammal acoustic tracking center into the PB3-A1 in order to determine whether it can be used with the PowerBuoy to identify migratory patterns of marine species that have been tagged with acoustic transmitters in the mid-Atlantic region.

The redeployment was successful in both powering the SCOOP and operating the conservation society sensor payload, allowing us the opportunity to advance discussions toward next steps with both parties.

We deployed a second PB3 PowerBuoy, which is our first commercial-ready unit, also off the coast of New Jersey. The commercial PB3 incorporates multiple enhancements over earlier prototypes, including a redesigned power take-off; a high-capacity modular energy storage system, with expanded battery capacity; a higher voltage and more efficient power management and distribution system; and a new auto ballasting system which allows for faster, safer and less costly deployment.

Both PowerBuoys operated off the coast of New Jersey throughout the second quarter. We then retrieved our commercial unit number one to prepare it for shipment to Japan for the MES lease. This first commercial PB3 was ocean-tested for 6 months and generated over 1.4 megawatt hours of electric power. It achieved a single day peak production of over 30-kilowatt hours during its deployment which is an equivalent hourly average of over 1.25 kilowatts for that day. We also retrieved our precommercial PB3 PowerBuoy which was subsequently upgraded to commercial status as our unit number two.

We won an exciting new contract with the U.S. Department of Defense, Office of Naval Research, to design a new mass spring oscillating PowerBuoy for mission-critical sensors. This PowerBuoy design differs from the current PB3 in that it will be an anchorless, station-keeping, low-profile PowerBuoy that would most likely power mission-critical surveillance sensors and the buoy's control of propulsion systems. Phase I of that contract scope included the system design and laboratory testing of the proprietary, inertia-based, mass spring PTO and the selection of an electric propulsion solution to be integrated into the PowerBuoy.

The objective of this first phase was to design and optimize the inertia-based generating system, evaluate the buoy propulsion system and carry out performance testing of critical PTO components.

We currently have several patented solutions for mass spring oscillating designs, and we believe we will be able to leverage our intellectual property to address the office of naval research needs. The proposed system is scalable and once completed, could expand our entire product portfolio with more product options in the commercial and defense markets. We'll be finalizing this first phase of contract over the next few months.

We executed 2 important collaboration agreements during the past year. One is the joint marketing agreement with Sonalysts to combine our technology with their systems integration expertise to better enable us to deliver real value to customers in the Defense, Communications and Oil and Gas industries. In collaboration with Sonalysts, we've engaged with potential end users and decision makers in maritime subsea communications as well as in the traditional telecommunication market as it relates to cellular and Wi-Fi range extension applications or Wi-Fi over water. We believe our combined capabilities uniquely position us to address specific application requirements and potentially provides a strong value proposition to our target customers. The second collaboration is a joint application development and marketing agreement with HAI Technologies. We believe our combined technologies and capabilities can create a value multiplier in areas of the Oil and Gas industry and that this allowance will allow us to pursue mutual opportunities related to offshore oil and gas subsea chemical injection systems where persistent power and realtime data communications are critical.

Throughout the year, we advanced discussions with several prospective customers located across the globe for multiple applications, and we're considering numerous business initiatives in the U.S., Europe and Asia.

The data we're obtaining from the PB3 operating in Japan is proving to be instrumental in our current sales and marketing efforts. We've initiated production of a third PB3 unit in order to meet anticipated demand as we continue to respond to customer requests for proposals.

As mentioned in the news release, we exhibited our commercial PB3 to potential customers and end users at one of the largest global oil and gas events in the world, the Offshore Technology Conference. This conference took place in Houston, Texas in early May, and was an important and successful business development and marketing opportunity for our company.

In addition to sales and marketing, we're also focused on engineering and product development. We're taking steps to remove cost from our PB3, and we're continuing our design activities for our PB15 product.

We recently achieved a significant milestone of more than 75 million cumulative strokes over our commercial fleet of 5 power take-offs, comprised of both ocean deployments and accelerated life testing. This simulates a power take-off fleet cumulative ocean operation duration of approximately 4 years.

We continue to life test our PTOs under extreme laboratory conditions in order to validate reliability which is valuable in proving consistent 3-year maintenance intervals of the PB3. We believe this approach demonstrates the reliability of our commercial-ready PTO design and adds significant credibility to the value proposition for our target markets. As these examples highlight, our commercialization efforts are gaining momentum. We've been responding to requests for proposals from multiple customers such as Oil and Gas operators and service providers. Applications range from subsea battery charging to providing oversight and security for deep sea production sites, to metocean data collection and communications. As a result of this activity, we've increased our commercial capabilities through new hires in marketing and business development and through engagement of expert market consultants. We continue to believe that by acquiring new skills, we can maximize our market outreach and new business opportunity creation.

Fiscal 2017 was also a year of significant activities designed to position the company for the future. As part of our commitment to build a foundation of leadership for our growth and expansion, in May of '16, we announced the election of 2 new board members: Steven Fludder and Robert Winters. Both Steve and Bobby have brought a unique set of skills and experience for the company and have been instrumental in the board's activities.

We announced the relocation of our corporate headquarters and manufacturing center which we expect will be completed in the latter part of calendar year 2017. We believe our new facility in Monroe, New Jersey will position us to deliver products and services to customers globally by dramatically expanding our manufacturing capabilities to support the increasing interest in our PB3 product. The new facility will also enable us to improve safety and quality while at the same time reducing manufacturing cost.

In November of 2016, we received nearly $700,000 through New Jersey's Technology Business Tax Certificate Transfer Program. This program enables New Jersey-based companies with fewer than 225 U.S. employees to raise cash to finance their growth and operations by selling net operating losses and R&D tax credits to unaffiliated corporations. The program is administered by the New Jersey Economic Development Authority and the New Jersey Department of the Treasuries, Division of Taxation.

Finally, we're happy to report that in November, the United States District Court issued its final judgment, approving the settlement of our shareholder lawsuit.

I'll now turn the call over to Matthew, who will discuss our financial results for the year.

Thank you, George, and good afternoon, everyone. I will now review results for the fiscal 2017 fourth quarter and full fiscal year ended April 30, 2017. For the fourth quarter of fiscal 2017, we reported revenue of $250,000 as compared to revenue of $100,000 for the fourth quarter of fiscal 2016. The increase in revenues versus the prior year was due to higher revenue from our contracts with MES and the office of naval research in the current year, as compared to the revenue in the prior year from our WavePort contract with the European Union for our former project in Spain and the billable work under our prior contracts with the Department of Energy.

The net loss for the fourth quarter of fiscal 2017 was $2.6 million as compared to a net loss of $4 million for the fourth quarter of fiscal 2016. The decrease in net loss is attributable to lower product development and legal costs compared to the prior year and the decline in the fair value of the warrants liability in the current year. These were partially offset by slightly higher selling, general and administrative expenses in the current year compared to the prior-year period.

For fiscal year 2017, OPT reported revenue of $843,000 as compared to revenue of $705,000 for the fiscal year 2016. The increase in revenues as compared to prior-year period was due to higher revenue from our contracts with MES and ONR in the current year as compared to the revenue in the prior year from our WavePort contract with the EU for our former project in Spain and the billable work under our prior contracts with the DOE during fiscal year 2016.

The net loss for fiscal year 2017 was $9.5 million as compared to a net loss of $13.1 million for fiscal year 2016. The decrease in the company's net loss is due to lower selling, general and administrative expenses, product development expenses, the decline in the fair market value of our warrants liability and lower income tax benefit in the current year as compared to the prior year.

Turning now to the balance sheet. As of April 30, 2017, total cash, cash equivalents and marketable securities were $8.4 million. This is up from $6.8 million on October 30, 2016. In addition, restricted cash was $488,000 for the period ended April 30, 2017, as compared to $300,000 for the period ended April 30, 2016. Net cash used in operating activities was $10 million in fiscal 2017 compared with $10.9 million in fiscal 2016.

As discussed in prior conference calls, we have taken a number of steps over the last several months to reduce our cash burn rate while focusing our business on business development, technical and operating resources on key initiatives, particularly in commercialization of the PB3.

Our operating cash burn in fiscal 2017 was lower than in fiscal 2016 despite increased deployment activity in fiscal 2017. As of the end of fiscal 2017, we have $8.4 million of cash on hand, excluding the restricted cash previously mentioned. We remain confident in our cash position and we expect to have sufficient cash to maintain operations into the quarter ending July 2018.

With that, I'll turn it back to George now.

Thank you, Matt. Before we move on to Q&A, I'd like to take a moment to reiterate our laser focus on our multi-prong growth strategy. We believe our market development efforts are really starting to pay off with multiple customer requests for proposals that directly leverage our PB3 PowerBuoy. We're making measurable progress in product life cycle management and in securing meaningful new partnerships that are essential to our commercialization and our product delivery capabilities. We've demonstrated our commitment to growth by moving our operations to a new facility which offers a safer and more efficient workplace for our employees, and the ability to deliver product to prospective customers around the world.

I believe fiscal 2018 will be a liminal moment in our history. A year of transition with our eyes clearly focused on the opportunities that will fuel our growth, from new customers, new markets and new applications, to new technology, new talent and a new facility.

Thank you for your interest and time today. And operator, we're now ready to take questions.

(Operator Instructions) And I do show we have a question from Peter Ruggiere of Dawson James.

George, question for you. I was going through like the navy contract you guys got last year. And Phase I was supposed to be 9 months or have you guys anticipated you would be ready for Phase II? And I just heard you say it might be a couple months longer than that because we're at 10 months right now.

Right. (inaudible) We've applied for a no-cost extension and we're pretty confident that we're going to be granted that. We're in the process of that right now. So we anticipate at most, a couple of months, probably sooner, to be able to wrap that up.

Are there any other DOE or Department of Defense contracts out there by any way?

Well, unfortunately, none that we've recognized or our partners that we're working with have recognized that apply to our PB3. But I will tell you, once we successfully finish the Phase I, we would immediately submit for Phase II which would help us advance that design even further.

Right. You guys had -- after the last money raise you guys did, is there a restriction to raise any money in the near future? Or do you see -- because you still have the registrations came at $4 million on that. I'm just wondering when you guys think you might want to raise more money because I mean, you said you have enough money for a year plus, basically.

Right. Yes, we raised capital in April just simply because we saw it as over the longer term, the best time to do so. And now, we're positioned and we're laser-focused on commercialization. We are 100% focused on addressing the commercial markets right now and selling or leasing PowerBuoys. So really, that's foremost on our minds right now.

On MES, you guys have been dealing with these guys since 2015 or so, why have -- how are they doing with pushing this to new customers? Because everything so far has been perfect from what you guys have said.

Yes, it's operating just as expected for them. I don't want to put words in their mouths, but they have expressed their pleasure around how the whole demonstration project has been going. And they're helping us with penetrating, I would say, primarily within defense markets in Japan. We're seeing more and more of a demand. We are seeing more and more of a demand for forward observation posts and so forth in the ocean throughout Japan. And they are helping us with different government contractors such as the Mitsubishis and Hitachis of the world. So those discussions are ongoing right now.

I'm surprised because you guys have been commercializing and have been doing this for so long, why have -- is there like -- do you still -- is there really a market for these PowerBuoys? I mean, I think there are, but I'm surprised you haven't got a contract since everything's running correctly.

Yes. So, first of all, there's absolutely markets for this. Like I said, we're going after Oil and Gas, Telecommunications, Defense. Any one of these markets, they have their own gestation period for opportunities, for projects to happen. And also, any one of these industries, they demand a demonstration project upfront. So as soon as we identify an application where we can use our PB3 PowerBuoy for either a technical advantage or an economic advantage which is usually the case where we can actually -- where we believe we can save the customer money, they want to prove it out in a singular demonstration project before they roll it out across their operations. When you're talking about developing the technical application around the PowerBuoy or applying the PowerBuoy to the technical application and then all of the supply chain processes that go into it and legal and contracting, this whole process for getting to a project takes a very long time. Now that doesn't mean that, that progress isn't being made, but it's a very long process with these big companies. You see -- you really see the same process in any capital equipment-intensive type of applications.

Right. When I saw you guys actually did that raise, which I mean, is fine, it's $1.30 and stuff. But you doubled, you put your cash there and then you double your office space, working space. I figured there'd be like, maybe you got some big contract that's at very advanced stages right now for you to actually make a choice like that.

Well, when you look at the potential demand that we're seeing and you also look at what it would take for us to ramp our business up very quickly, we need the ability to build multiple PowerBuoys over the course of the year and grow that every year. In our current facility where we've been here for a couple of decades, our current facility is very, very space-constrained. It's creating safety issues with employees walking around different testing and fabrication and assembly procedures. We needed to move into a local facility where we could keep our current talent intact and we could actually be able to increase our manufacturing throughput dramatically. Now we also needed to be able to do that very cost-effectively with minimal to no cost increase, relatively speaking, on a monthly basis. And that was a challenging process but we were able to find a great location in a building that will significantly expand our capability to put more PowerBuoys through once this demand truly materializes.

(Operator Instructions) The next question is from [James Mcginnis], a private investor.

I really just wanted to ask, you had mentioned that at the -- that you have some more marketing collaborations. I wanted to know if you could touch up on that. Did you pull any new ones out of the Offshore Technology Conference this month? Or are we still talking about the ones for the past few years?

Well, first of all, James, that's a great question. The ones that we announced over this prior fiscal year stand, and we're actively working with them. The Offshore Technology Conference was very successful for us on many levels, one of which is around strategic partnerships. Now just like commercial agreements, these partnerships take a while to materialize. Both parties need to do due diligence, there's financials involved and looking at if it's a manufacturing agreement, for instance, to look at the economics behind having someone help us manufacture or if it's a joint marketing agreement. How will the go-to-market together, who will we go after together, and how will we work together? So there's a lot of legwork to be done around that. Now, recognizing that the conference was just in the beginning of May, here we are 2 months later, wrapping up our 10-K, very small team, trying to do a lot of work across the board, across corporate. These things take time but from a success standpoint, I can tell you, there was a huge amount of interest at that conference and quite a bit of follow up is really all that I can say right now that we're doing. In fact, we're looking to bring on even more business development help right now because there's more interest, let me just say, than we can even respond to effectively right now. So we are all out trying to bring commercial agreements as well as strategic partnerships to bear.

And then just one last question. With that reference, I've noticed that you've been hiring for a Human Director or Systems Engineer, Electric Engineer, have those -- is that a sign of increased business that you're already aware of? Or is that something that's just you're looking for because you've expanded into the new housing?

Another good question. So over the last -- I'll use me as a frame of reference, over my last 2.5 years, we have lost some people, we have not added people when we needed to and that's also helped us control our cost. Right now, we're at a point where we actually need to start building that team back up to where it was when I came onboard. That's what some of the hires are. An individual like the Director of Human Resources is becoming more and more critical for my team and I to be able to expand in a controlled manner, expand our team in order to position for growth. So for instance, as we're looking for business development help or marketing help, you have this management team working very late hours, trying to materialize that. We need help in order to actually position ourselves for growth. So that's really what it's about. It's replacing people and it's also trying to bring in strategic people to help us grow this organization in a controlled manner.

(Operator Instructions) We have another question from [Allan Shibasta], a private investor.

A couple of months ago, you started this joint venture with this HAI Technologies, and it was about the chemical processing. They had a contract to do work with Total. About a month ago, there was a Wall Street story about Total Energy, that they are working with electrical, solar, they were going to use all the -- besides oil and gas, they were going to try to use other energy for their oil and gas business. Now, Total is a huge company and the chemical plants are all over. How is that coming together?

Yes, that's a great question, Allan. So what we have initially kicked off with HAI is joint marketing around chemical injection systems, and let me tell you what that means. We don't do chemical injection systems, obviously, HAI does. They're out driving demand with the operators for their novel approach, their modular approach to these systems. What we bring to the table is the ability to either directly power certain subsystems of that solution or to provide redundant power from a safety standpoint or what-have-you. So we are working with HAI in those regards. With regard to Total, we're talking with Total as well, but HAI would be focusing on their sub -- on their chemical injection systems. We're talking about broader applications beyond that with all of these operators, not just Total. And one thing that I'll point out just simply because your question was very poignant. We're trying to build demand around our product in many, many ways. One is to go out to the end-users which in the oil and gas side, are the global operators. These are the groups that are going to be using our products. And basically, we spend time with these operators, not because we anticipate that they'll buy our PowerBuoy, but because they'll demand our PowerBuoy be used in their systems. Oftentimes, these demonstration projects are commissioned by the operators to have our technology brought in. And again, it might be driven from a technology or an economic standpoint. Another way that we drive demand and where we actually look to contract would be with the engineering and service providers that provide these types of equipments to the global operators. So the operators will say to these service equipment providers that they want our PowerBuoy spec'd into their solution, and then we'll work with those providers in order to get that done. So there's multiple ways, we're trying to get a push-pull here to commercialize the PowerBuoy as quickly as possible.

Just a follow-up. Off the coast of Louisiana, those are lower, shallower offshore drilling properties. Have you ever considered putting a PowerBuoy and sharing revenues, stating like, this would normally cost you $300,000 but if we save you x amount of dollar, can we generate some oil and gas income off of that?

Yes, another great question, Allan. That's one way to move forward that we have actually proposed. So in other words, instead of a larger sum of money for one party to pay, maybe you could pay for space on the PowerBuoy where it's generating enough power for multiple applications across multiple parties. We are looking at that. We're also looking to garner support around a demonstration project like that, if you will, where you could have, I'll use this as an example only, but maybe have 5 or 10 parties on 1 PowerBuoy, and just to gain commercial adoption and traction in launching the product. But yes, absolutely and to take it even further down the road, it might not be about the PowerBuoy, it might be about the information that the PowerBuoy can provide by providing the power and the communications outlet. I'll give you an example, one of the global operators that we were talking to actually asked us, can we provide turnkey data? And it was a really interesting concept that we had already thought through and our response was naturally, yes, we can. So in other words, this global operator didn't care as much about the power that it would provide, they wanted us to be able to provide information from their sensors realtime, and they were willing to pay for that in a lease. So these are the types of discussions that we're having with parties all over the world right now in these markets that we're going after.

How deep can your -- like, the other day, they were discussing wind power, solar, that it's pretty expensive in the U.S. but how about over in England where they've got some major wind power for monitoring the things, have any overseas properties talked to you?

Well, I think -- are you talking about utility grid connected, Allan?

Yes.

Yes, right now, we're really not focused on utility grid connected. If you remember back in 2015, we actually did a strategic pivotal way from grid connected. We want to take our smaller units and apply them to industrial applications where there's a real economic benefit that we can take advantage of. Although, I will say this, in the offshore wind industry, there are, we believe, potential opportunities to either provide augmented power to the wind turbines or most importantly, to be able to power things like LIDAR for collecting data, necessary wind data over multiple years in order to actually develop the wind farms. There's already some companies that are doing floating LIDAR, but what's interesting is our buoy not only provides a platform for the LIDAR system but it also provides the power, and it's a redeployable asset. So that's something that we're not as heavily focused on just simply because of the fact that wind has been slowed -- offshore wind has been slow to proliferate throughout the U.S. We believe that the fastest path to revenues is in some of these other target markets and identifying applications that we can replicate around the world with the operators around the world, that will be our fastest path to revenues.

(Operator Instructions) There are no further questions in the queue. I'll now turn the call back over to Mr. Kirby for any closing remarks.

Thank you, Latoya. I'm excited by the progress that our team has made over the past year. We believe we have the platform and the people in place to further strengthen and grow our business. I want to thank you for joining us on today's call, and if you have any further questions, please don't hesitate to contact us. Otherwise, we look forward to speaking with you again next quarter.

Thank you, everyone. That does conclude our call for today. You may now disconnect.