Ocean Power Technologies Inc (OPTT) 2018 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Second Quarter Fiscal Year 2018 Ocean Power Technologies Conference Call. My name is Takia, and I'll be your coordinator for today. (Operator Instructions) As a 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, Investor Relations for Ocean Power Technologies.

Good morning, and thank you for joining us on Ocean Power Technologies' conference call and webcast to discuss the financial results for the second quarter ended October 31, 2017. On the call with me today are George Kirby, President and CEO; and Matt Shafer, Chief Financial Officer. George will provide an update on the company's operating highlights for the second quarter, and then Matt will review the second quarter financial results. Following our prepared remarks, we will open the call to questions.

This call is being webcast on our website at www.oceanpowertechnologies.com. It will also be available for replay after this call. Yesterday, Ocean Power Technologies issued its earnings press release and filed its quarterly report on Form 10-Q with the Securities and Exchange Commission. All of our public filings can be viewed on the SEC website at www.sec.gov or you may go to the OPT website, which is www.oceanpowertechnologies.com.

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.

Now I'd like to turn the call over to George to begin the discussion.

Thanks, Andrew, and good morning, everyone. Today, I'll review our business operations and provide an update on key activities and developments that occurred during the quarter. Following this, Matt will briefly review our financial results, after which, Matt and I will be available to answer any of your questions.

As I mentioned in our last quarter call, we're focused on aggressive sales and marketing efforts right now to drive revenue growth. Throughout the quarter, the entire OPT sales and marketing team, including myself, have held a number of key meetings and advanced conversations with decision makers at prospective customers and end users. As we've always known, the sales cycle is long and requires detailed planning with potential customers and our engineering teams due to the unique characteristics and range of capabilities of the PB3 PowerBuoy.

The most encouraging aspect of the meetings and conversations we've had is that when a potential customer asks for additional services or applications to be included on to a PB3, our engineering team can develop custom features that can also enable additional services. We're also encouraged by the follow-up meetings and calls resulting from our presence at The Society of Petroleum Engineers' Offshore Europe 2017 Conference and Exhibition in Aberdeen, Scotland. We attended the conference in September and had the opportunity to meet with many C-level executives and decision makers. This conference is recognized by offshore oil and gas industry professionals as Europe's leading exploration production event. There were over 50,000 attendees and more than 1,000 suppliers on the exhibition floor, representing international market leaders and innovative technology companies. Our presence at the conference allowed us to meet individuals that we believe will result in future partnerships.

During the quarter, the original 6-month lease with Mitsui Engineering & Shipbuilding was extended for an additional month, which ended in September. This PowerBuoy was successfully deployed off the coast of Japan, operated well and has very recently arrived back at the company's New Jersey headquarters, where it's being refurbished and prepared for possible redeployment.

Our contract with the U.S. Department of Defense Office of Naval Research to design a new mass-spring oscillating PowerBuoy has progressed well. And after multiple extensions for testing improvements, the project's first phase is now complete. We hope to advance to Phase II of the project within the next few months, which will result in additional revenues and should progress toward a prototype device.

Additionally, in order to meet anticipated demand, coupled with the current 3-month lead time to build a PB3, we're building 2 new PB3 units that are expected to be available for sale or lease within the next few months. We completed a best efforts public stock offering during the second quarter, which resulted in the company's netting approximately $7.4 million. We're using these net proceeds for expanding our sales and marketing through new hires and target market experts, increasing product manufacturing capabilities, building additional PowerBuoys to meet anticipated market demand and for other general corporate purposes. This may include additional development, testing and demonstrations of our PowerBuoy with the goal of furthering and accelerating our commercialization efforts.

We continue to aggressively target the oil and gas, security and defense, ocean observing and communications markets, each of which, we believe, will derive significant value from our PB3 Power and real-time communications platform.

Finally, we're moving our headquarters and manufacturing to our new facility in Monroe, New Jersey this month. The new larger facility will support our sales and marketing activities, improve safety and quality and enhance our manufacturing capabilities. With our proprietary wave energy technology, the progress we're making in advanced stages with potential customers and strategic partners, our stronger financial position, our expanded operating facility and our dedicated team, we believe we have the pieces in place to drive our long-term growth and improve performance.

I'll now turn the call over to Matt, who will review our financial results for the quarter. Matt?

Thank you, George, and good morning, everyone. Revenue for the second quarter ended October 31, 2017, was $94,000 as compared to revenue of $170,000 for the second quarter of last year. The decrease in revenue was due to the contracts with Mitsui Engineering & Shipbuilding and the Department of Defense Office of Naval Research nearing their completion during the quarter. The net loss for the second quarter of fiscal 2018 was $2.6 million as compared to a net loss of $1 million for the second quarter of fiscal 2017. Taking into account the net change in the fair value of the warrants liability of $2 million, the decrease in the net loss is mainly attributable to lower product development costs in the second quarter of fiscal 2018 as compared to the prior year period.

Revenue for the first 6 months of fiscal 2018 was $289,000 as compared to revenue of $372,000 for the first 6 months of fiscal 2017. The net loss for the first 6 months of fiscal 2018 was $5.2 million compared to a net loss of $4.8 million for the same period in fiscal 2017.

Taking into account the net change in the fair value of the warrants liability of $1.2 million, the decrease in net loss primarily relates to lower product development costs in the current year as compared to the prior year period.

Turning now to the balance sheet. As of October 31, 2017, total cash, cash equivalents and marketable securities were $16.3 million, up from $8.4 million on April 30, 2017. As George previously mentioned, we completed a best efforts public offering of common stock during the second quarter this year that raised $7.4 million of net proceeds. As of both October 31, 2017, and April 30, 2017, restricted cash was $500,000 for each period. Net cash used in operating activities was $6.7 million during the 6 months ended October 31, 2017. Excluding $1.3 million of cash payments made in the current fiscal year relating to the disposition of the mooring anchoring system from the prior project in Reedsport, Oregon, and the PB40 site final closeout off the coast of New Jersey, net cash used in operating activities was $5.4 million during the 6 months ended October 31, 2017, as compared to $6.3 million during the same period in the prior year.

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

Thanks, Matt. Before we move on to Q&A, I'd like to take a moment to discuss our product commercialization and business development efforts. As we're about to enter calendar year 2018, we're very excited to be a product-based company with a comprehensive strategy. First developing and now commercializing the PB3 has been a long process. We have a unique product that is designed to provide power and operate in very distant, secluded and isolated areas throughout the globe in a very harsh environment across many mission-critical applications. My team and I are encouraged by the continuous and actionable discussions we're having with potential customers. As always, thank you for your support and time today.

Operator, we're now ready to take questions.

(Operator Instructions) Our first question comes from the line of Peter Ruggiere from Dawson James.

Just I'm confused. The one thing as you've highlighted, you brought the PowerBuoy back from Japan, it says on the press release, possible redeployment. What does that mean? Is there some problem with the buoy?

No, no, no. What it means is, we don't have anything -- we don't have it set aside for a particular project right now, but based on the demand that we're seeing, we need that asset, and we need it ready to be -- ready for redeployment.

I thought last quarter -- well, you did say last quarter, these 2 other buoys, that they're in production. I'm surprised that you're saying they'll be done within another couple of months. I thought they would have already been done or built.

Yes. Interestingly, we've taken a little bit more time on these 2 particular buoys. We found some certifications that would be beneficial for potential projects in the future that we decided to get and it added a little bit more cycle time. So this is something that we're also incorporating now into any future PowerBuoys that we build. But we wanted to invest a little bit more time upfront in order to get these critical certifications in place for potential deployments down the road.

Also I thought that, that going into Phase II was supposed to be start on December 15 or 2 days away.

Right, correct. And as I mentioned in the earnings call before, we had a series of extensions in order to do additional testing, in order to meet the Department of Defense's requirements. We have completed all of that now. It took a little bit more time than what we thought. But we think that we're in a very good position in order to move into Phase II. It's just a matter of the DOD Office of Naval Research reviewing our final report, possibly a site visit. We're moving -- actually we're moving this week into our new facility. So it's a bit chaotic here. But as soon as we move into the new facility, the Department of Defense may want to pay us a visit and see what we would do for the next Phase II. So a little bit more time than what we had originally anticipated, but we feel that things are on track.

Why haven't you guys signed a contract? I mean, you guys do spend close to $1 million a month. And I'm surprised, and it has been going on for a long time, but I'm surprised you haven't signed anything.

Right. These types of capital equipment contracts take a long time. And what I've talked about in prior earnings calls is when you look at the markets that we're pursuing, whether it's oil and gas or defense, the applications that we're looking to put our PowerBuoy into are not low-risk applications. They are risky for the end user's operations. So it takes not only time to get through engineering at the solution, the combined solution, which usually our PowerBuoy is a part of, it's not the entire solution, but also there's risk assessments, there is procurement processes and so forth. I can assure you that we are working diligently with customers, but these things unfortunately take more time than we would like.

What's -- you have a -- you just did -- you have a $30 million shelf offering out there. I hate to see you guys keep diluting like this. But when do you think that you're going to want to draw down something on that?

Look, we don't have any plans right now to draw down on it. The reason why a company like ours puts a shelf like that in place is, it's the right thing to do. It's the right thing to do from a growth standpoint to have capabilities in place. And I was telling my team internally that it's analogous to why are we moving into such a larger facility when we don't have orders. Well, you don't wait until you have orders to move into a facility. You create that production capacity as you're driving demand. It's really the same thing in putting a shelf in place. We need to be able to have access to capital in order to enable the anticipated growth that we see coming down the road here.

Here's something for you. What -- how much does a buoy cost to make?

Peter, I'd be happy to take that one off-line. As we're moving into more of a competitive position in the market and as we're seeing more demands building, we typically don't like to talk about our costs. I can tell you that leasing and selling are going to be 2 totally different models. Sale price for a buoy right now at low volumes, you're looking at $600,000 to $700,000 for one. Obviously for a strategic relationship, which right now many of the parties that we're talking to we would consider strategic, we're willing to do a lot better than that on a sale. But on a lease, a lease price is usually based on a day rate or a monthly rate. So it's quite a bit less. But the leases that we're looking at are anywhere from 3 months to 3 years. Does that help?

Right. This is a forward-looking -- yes, it does. On -- this is a forward-looking question, but how close do you think you are from actually signing a contract?

Yes, Peter, as much as I would love to include that in my update call, believe me, there's nothing more that I'd like to talk about, I can't. I can't talk about how close we are. What I can say is, we have core customers, if you will, that we are in advanced discussions with. But I really can't talk about where or when -- where we are in that process and when we're going to sign that agreement or those agreements.

You know something, with -- like with the net operating losses of $192 million over a long, long period of time, you ever -- even setting up maybe a partnership, because you can draw down 40% of that, if you do it correctly, on the accounting rules.

Right. Peter, this is Matt. What we have been doing is in New Jersey, the State of New Jersey runs a program where you can actually sell for certain cents on the dollar your net operating losses back for up to a certain period of time. So we have been -- over the past 9 years been utilizing that program and have been successful with it.

(Operator Instructions) Our next question comes from the line of Robert Littlehale with JPMorgan.

I joined a little bit late, but how would you characterize the Mitsui relationship at this point, George?

Mr. Littlehale, good to hear from you. I would characterize it as very strong. I just had a call with their leadership on Tuesday night and -- I'm sorry, on Monday night. We're actually anticipating a visit from them in mid-January. And we are looking at markets in Japan and other geographies that we're very optimistic about. I can tell you this, a large company like Mitsui would not keep engaging a smaller company like OPT unless they believe that there was something there and unless we were advancing the relationship. So I would characterize it as very strong.

And the refurbishment to the PB3 that you're going to do, how extensive is that?

It's really not extensive. It's really just touching up the paint, removing barnacles, making it look new since we have it here, checking seals, replenishing grease, things like that. It's really just basic maintenance that if it was still deployed, we wouldn't worry about. But since we brought it back, we're making it in a like-new condition, if you will.

So the inner workings of the PB3 will remain the same, it sounds like?

Absolutely. One thing I'll mention this, you allude to an interesting point, one thing that we're driving towards here as moving to a product-focused company and away from the R&D mindset is something called multigenerational product planning. If you think about your iPhone, for instance, new iPhone models come out every, what, every year, 1.5 years, and Apple takes an approach where they plan for upgrades to the iPhone and they plan them out in time. They don't trickle them out in new products, that would be more of an R&D mentality. And we are very much switching to that mentality as well. Now oftentimes, there are critical upgrades that we will implement right away. For instance, control systems upgrades. They're easy to implement and oftentimes we feel that they're very important to put out there right now. They have very little impact to the overall change in operational perspective of the buoy. But bigger changes to the PowerBuoy, we will start building out a release schedule for new versions of the PowerBuoy. And as we anticipate demand, we need to think about where those cutoff points might be, where certain customers or, let's say, leases might get an older version of the PowerBuoy, still fully functional, but the improvements will be put into future generations. So that's something that we're actively working on right now.

And final question. Your headcount currently?

Headcount is, I think we're at about 30. We will have more people joining, and that's to be announced. But as we add headcount, it's very strategic. We are not in a hiring frenzy. We're being very strategic about locations and functionality of the individuals that we bring into the organization and are they adding value to our core mission, which is to commercialize our PowerBuoy, build up operations and get to sustainable revenues as quickly as possible.

Our next question comes from the line of [Matthew Fennecki] with Sun Life Financial.

Just had a quick question regarding your actionable, kind of, discussions that you're having with your clients right now. If you could just elaborate more on some of these actionable, kind of, takeaways that you've been having, would be great.

Sure. I like to discern actionable as being we're beyond the nondisclosure agreement, we're beyond exploring our technology and exploring applications. When I say actionable, what I mean is we have dialed into our customer-specific applications where our PowerBuoy is not only applicable but it adds tremendous value. And when we look at this, what we're saying is, it's not going to be a one-off opportunity. It's an opportunity where we can proliferate across other operators, across other end users and in different parts of the globe. So we're truly looking to scale up revenues as quickly as possible. That's what I mean by actionable, as well as the fact that we move discussions down the road with these customers.

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

Great. 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. And otherwise, we'll look forward to speaking with you again next quarter. Thank you, and have a great day.

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