Ocean Power Technologies Inc (OPTT) 2022 Q1 法說會逐字稿

Good morning and welcome to the Ocean Power Technologies First Quarter Fiscal Year 2022 Conference Call. A webcast of this call is also available on the company's website at www.oceanpowertechnologies.com. As a reminder, this conference call is being recorded and will be available for replay after its completion.

Today, Phil Stratmann, President and Chief Executive Officer; and Matthew Shafer, Senior Vice President, Chief Financial Officer and Treasurer, are on the call. (Operator Instructions).

On September 13, 2021, OPT issued its earnings press release and filed its quarterly report on Form 10-Q for the quarter ended July 31, 2021, with the Securities and Exchange Commission. All OPT public filings are available on the SEC website at sec.gov or in the Investor Relations of the OPT website.

Please note that management's prepared remarks may contain forward-looking statements that are within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by certain words or phrases and are based on assumptions made by management regarding future circumstances over which the company may have little or no control and involve risks and uncertainties and other factors that may cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. For a further discussion of these risks and uncertainties, please refer to our most recent Form 10-K and subsequent filings with the SEC. We disclaim any obligation or intent to update the forward-looking statements in order to reflect events or circumstances discussed in this call.

Now I am pleased to introduce Dr. Philipp Stratmann. Please go ahead, sir.

Thank you and good morning. Today, I will review OPT's business operations and provide an update on activities and developments during the first quarter of fiscal year 2022 and up to today. Then Matt will review our financials before we open the line for questions.

I'm proud to say OPT is making excellent progress as we continue to move toward our future as an ocean data and power services and solutions provider. As central as our PowerBuoy technologies are to our solutions, we're keenly aware that these products alone will not fully satisfy most customers.

OPT must provide more than just autonomous low- to zero-carbon power platforms on their own. We are working to provide meaningful solutions that help solve the complex challenges operators are facing at sea, from the needs of offshore energy developers and providers to defense and security organizations and more. To this end, we are working with experienced software and robotics developers at Fathom5 and Greensea to create a leading-edge proprietary cloud-based Maritime Domain Awareness platform that features both expandable sensor and analytic capabilities as well as military-grade cybersecurity.

As part of the development process, we are readying the initial versions of the solution for an at-sea trial off the coast of New Jersey. We've received the necessary permits for the locations where we expect to deploy PB3 and hybrid PowerBuoys with the equipment that make up our Maritime Domain Awareness solution packages. This will allow us to optimize the platform's performance and provide prospective customers with opportunities to see the system at work.

In addition to our focus on services, we will continue to develop PowerBuoy products. Through a Small Business Innovation Research award, the U.S. Department of Energy's investment in our next generation of wave energy conversion devices, drives the innovation necessary to tackle the challenges facing the operators in the marine environment.

Moving our Mass-on-Spring Wave Energy Conversion (sic) [Mass-on-Spring Wave Energy Converter], or MOSWEC, system forward is integral to our competitive strategy. We are seeing the benefits of last fiscal year's acquisition of 3Dent Technologies (sic) [3Dent Technology] as our strategic consulting services area is experiencing steady growth. An expanding client base is providing a steady stream of diverse consulting projects for our Houston-based team, and we're cultivating additional interest in these services.

OPT has been at the forefront of ocean energy development, and we are continuing to innovate as we anticipate the needs of the ever-evolving markets we serve and seek to serve. We will best accomplish that goal by pairing our in-house knowledge and expertise with the best available strategic parties and additional inorganic growth if and when it makes sense.

With that, let me turn the call over to Matt to discuss the financials.

Thank you, Philipp, and good morning, everyone. Revenue for the first quarter of fiscal year 2022 was $300,000 compared to $200,000 in the first quarter of fiscal year 2021 primarily as a result of the revenue from strategic consulting services from the 3Dent acquisition. The net loss for the first quarter of fiscal year 2022 was $3.1 million compared to $3.4 million for the first quarter of fiscal year 2021. This decrease was mainly attributable to $900,000 gain on the extinguishment of the company's PPP loan after the SBA granted its forgiveness during the quarter and an income tax benefit of $1 million received during the quarter. These gains were partially offset by increases in the quarter for product development and administrative costs.

Turning now to the balance sheet. Total cash, cash equivalents and restricted cash was $78.3 million as of July 31, 2021. Net cash used in operating activities was $5.3 million for the first quarter of fiscal 2022, representing an increase of $2.6 million over the first quarter of fiscal year 2021, mainly as a result of higher project- and employee-related costs and the settlement of litigation during the quarter.

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

Thanks, Matt. Operator, we're ready to open the call for questions.

(Operator Instructions) Our first question today is coming from Ronald Silvera (sic) [Robert Silvera] from R.E Silvera & Associates.

Steve, could you give me some clarification on the litigation payable of $1.2 million? Can you clarify on that?

Yes. So this is Matt. Good to hear from you again. Yes, that's basically...

It's Robert, by the way, not Ronald.

Yes, I knew that.

Ronald is the owner of the company. (inaudible).

Okay. I was trying to figure out who that was. But I knew you were Robert. Robert -- and it's good to hear from you again. I know you call in each quarter for the past few quarters. Thank you.

Yes. So that's from a prior -- Charles Dunleavy, who is a prior CEO of the company. There was a settlement that we -- the company finally had with the former CEO. That was disclosed in all of our past 10-Ks over the past several years.

Right. But now it's actually paid or it's still due to be payable?

No, that was paid. And so now that's behind us.

Okay. Because it reads as litigation payable, it sounds like it has to yet be paid, instead of litigation paid or something like that. Okay, that's the thing, as long as it's done with. Now could you give us some clarification on status of projects, for instance, the project off of the coast of Chile?

Sure. Yes, I'll be happy to answer some of the questions around that. I mean as we mentioned on our previous calls and disclosed in our filings, the buoy off the coast of Chile is installed, and the buoy is operating as designed for the field where it's being deployed in. We are doing some maintenance work on some of the ancillary equipment that the buoy is powering. Obviously, given that it's winter in the Southern Hemisphere, there are some weather delays on some of those issues. But every time where the windows open up, we're going out there to do fixes onto the seabed equipment.

Okay. So it is functioning as designed and the customer is happy?

From the conversations I have with the customer, I can't speak for them, and I can't predict what they're going to do. But you have seen that they've made public statements about the project and that they are highly supportive of the project and what may come next. And certainly, in conversations we are having, this is part of our go-forward strategy and demonstrating to the industry that the buoys can fuel and power a broad range of sensors. So it starts moving into this whole ocean data as a service market for us.

Good. How about other projects?

Well, as we've announced, we obviously received the grant from the Department of Energy, which is supporting our future developments. The efforts that we've got underway to shift our strategy to utilize our product as platforms to provide power as a service, which then ultimately, obviously, leads to ocean data as a service, is leading to several advanced discussions that we have with customers around the globe. And encouragingly so, that is moving discussions outside of what traditionally would have been the oil and gas and offshore markets.

3Dent, as I alluded to and as Matt mentioned, is seeing a steady growth. And essentially, what excites me about where 3Dent is heading is that many of that growth and its new contracts is coming from customers that weren't the traditional 3Dent base. And a lot of the other work that we've got going on is leading to follow-on discussions after -- now that we've concluded work such as the ACET and DeepStar studies.

Okay. Any feeling whatsoever for future sales next quarter, next half?

I can't give you an exact number on where we -- where sales or leases or services will shake out at. But I'm very encouraged by where I see discussions going and where the industry is heading with large.

So you see growth?

Absolutely, specifically with the shift that we are performing towards looking at the PowerBuoys that we have as platforms to fuel solutions and services, which I think we're evidencing through the work we're doing with Fathom5 and Greensea. I'm very encouraged by the discussions that are occurring around that.

Our next question today is coming from Peter Ruggiere from Dawson James.

Some questions I have -- I've been involved in this company for a long, long time. I would like to -- the status with like stuff in the Gulf of Mexico, decommission of oil wells, where does that stand at this point? I actually have several questions.

Yes. Thanks for the question, Peter. Okay. Now if you...

The question is like how do -- if you guys do -- when you decommission an oil well, how long does it take to do a well? How many wells are out there? How do you cap them? What is your position to do this, is what I was trying to understand?

So we don't do decommissioning of wells. We are not an oilfield services company. Our efforts around decommissioning are either along the lines of what we did for what was then known as Premier Oil and now Harbour Energy in the North Sea, where we can -- where we will monitor the exclusion zone around subsea assets that have been plugged and abandoned and precutting. Or it can be once a well has been plugged, it will be -- we will -- can provide monitoring services for said wells to ensure that there's no seepage that occurs. But the actual decommissioning work itself is entirely outside of our remit.

Okay. And I see your spending is increasing. Is that hiring more employees? Is it -- what is that consisting of?

Yes. So Peter, that's mainly, and especially in this quarter, is -- relates to the settlement and payment of the litigation matter. But that onetime item aside, we do have some increased spending as it pertains to the Maritime Domain Awareness, both the software solution itself and -- associated with GreenSea and Fathom5 as well as some additional personnel to support those efforts.

How close are you to getting a decent order? Because I used to -- you did the thing in (inaudible), and you sold them a buoy. You did stuff with Mitsui Engineering, with Enel. You've done stuff with Premier Oil, with Eni. And you still don't have really any revenues from all this. And I'm just trying to understand, what's taking so long. I mean that's -- I'm just -- how close are you to winning something? You have the Navy. I mean I pretty much know -- I've been involved in this company in a long, long time. You have plenty of money in the bank right now, which is great. Question is, what are you going to do with the $78 million?

No, I think where we are, and as I mentioned before, is we are really pivoting the company away from a pure product play and providing the buoys as stand-alone systems and moving into power as a service and ocean data as a service.

To that extent, we're expanding on the work we've done with Eni, with EGP and with Harbour Energy and also with the Navy. And we're building upon that in order to put together a solution that we can utilize and bring into the market.

And as I mentioned earlier, that is leading to some very intriguing discussions that we're having with customers around the globe that are actually primarily outside of the oil and gas and traditional energy industry. And that's where we see the largest growth.

I would also add that as we did with 3Dent, we will continue to look at inorganic growth opportunities as and when they come along, make sense in terms of valuation and further add to the execution of the strategy that we've built out.

So you're using the PowerBuoy as like illegal fishing and monitoring services with the data -- what about the data centers underwater with like a Microsoft and stuff like that? Is that what you're talking about?

When I look -- talk about ocean data, it's really more -- where we are looking at is where -- one thing we're building out is the edge computing capabilities on the buoy itself. Because obviously, as we're operating far offshore without any other infrastructure, we're operating in a low-bandwidth, high-latency environment. So part of the efforts that we've got underway at the moment with Greensea and Fathom5 is building out the ability to reconfigure the buoys to act as gateway nodes for other means of communications to be integrated with a whole range of sensors.

To your question specifically on submerged data centers at the edge, we have not looked at powering this because most of those are connected via cables straight back to onshore. However, similar to decommissioning wells, there's an opportunity for monitoring exclusion zones around those to prevent anybody accidentally putting or dredging fishing nets over said assets on the seabed.

Okay. So you're basically on an entirely different strategy right now?

Well, I guess as we put in -- as we had in the 10-K, our strategy is really built upon 3 main sides. We -- the ultimate aim that we're pushing into is ocean data as a service and providing the solutions around that. And what -- because we have the PowerBuoys, that enables us to do ocean data as a service hosted on our buoy platforms, which also enables us as a secondary leg of the strategy to provide power as a service still, as we've done in the past, using our platforms and also other platforms integrated into arrays where required. And that's what we did in the DeepStar study.

And then all of that is underpinned by consulting services, which enables us as a company to help our customers at a much earlier stage of the life cycle before they even know that they may or may not need buoys. And we firmly believe that this strategy enables us to provide services to customers that may not see a need for the buoys as a primary power source, but it still enables us to put out substantial numbers of our platforms in order to solve their other needs that they have and provide the hyperlocal data collection that they require to -- in aggregation with their other systems.

Okay. Are you still doing stuff with the underwater submersibles like Saab Seaeye and that side of the market? Or...

Absolutely. I think the -- if you're looking at the work we've done for the Naval Postgraduate School, it is exactly that. That falls into the ability to do actually both. It is power as a service to provide recharging for subsea assets, and it's also -- it moves -- it just moves into the ocean data as a service market because now you can combine the collection of subsea data with computing capabilities on the buoy itself to then transmit said data back to the shore bases. So yes, absolutely, conversations with AUV companies and USV companies are advancing at a fairly rapid pace for us.

Next question is coming from [Pablo Casella] from -- a private investor.

So you just mentioned you guys are pivoting as a company, right? My question is, how has the total addressable market changed over the last few months, I would say maybe even a year, with this move towards ocean data as a service and power as a service? Can you touch base on how that's changed over the last 6 to a year?

Sure. I think the general shift in the industry has been towards one of data as a service and as power as a service in general. In addition to that, I think the fact that we are in the UN decade of ocean science and the changes in the administration politically here in the United States of America is really enabling a major growth spurt for kind of the ocean data industry with large. So we're very encouraged by that. We're very encouraged by what we're seeing in terms of companies coming into the market with very interesting sensor products.

And the pivot that we are carrying out enables us to work with these sensor companies and with other partners that are out there and sell through them and with them through the customer base even if that customer base would have never considered a buoy in the first place. So I think that makes for a very interesting addressable market, which is not constrained by the notion of metal or steel that sits on the seabed.

Right. So basically, you're saying the total addressable market has basically increased considerably because of those platforms, right? Like those weren't things -- that wasn't something that you can foresee a year ago. Now with this -- with the shift in government and new policies in place, you're saying that this is where the growth is going to come from?

Yes. I think this is exactly where the growth is going to come from. I think the kind of the ocean data as a service, actionable intelligence and predictive analytics based on data that is collected offshore, combined with other data that already exists, I think that is where we see the growth coming from.

And to that extent, that's one of the reasons why we're working with Fathom5 and Greensea not just to build out the computing capabilities on the buoy itself but to do -- to develop a cyber-secure cloud platform that enables the combination of hyperlocal ocean data with third-party data that comes from other sources in order to provide predictive analytics that other people can act upon.

And then one last question, guys. So when it comes to R&D, right, what would you say would be your top 3 allocations in the R&D budget as of now? Are we -- like what would be -- with the budget for R&D in the next year or 2, what would you say top 3 aspects of the business are we allocating that to?

Yes. So, I mean, obviously, one is -- front and center of everything we're doing is building out and testing and demoing version 1.1 of our Maritime Domain Awareness solution, and then pushing out the software update for version 2.0 onto those buoys. And that does include the live testing of the MDA solutions off the coast of New Jersey at 3 sites that we've got permitted already. And those deployments are starting to occur in the next 2 or 3 weeks, and -- from what I understand.

The other bit is, as we mentioned, the development of our next-generation power conversion system, which is the Mass-on-Spring Wave Energy Converter, or MOSWEC, which will become an additional platform product that we can use in order to harness wave power in a different format than what the PB3 does by removing any external moving parts from the system. So those are certainly 2 of the major items that we've got going on.

And then the third item is developing the interfaces so that we can integrate other sensors and payloads that exist in the industry. So we don't have to reinvent the wheel, but, to the point I made, in order to grow in the ocean data as a service market, we need to be a host platform that can enable plug and play of new sensors as they're being developed and put them in there.

No, yes, that makes sense. Yes. And that's pretty much it. I'm hoping that you guys can pull through with some more sales and -- oh, and actually, one last question. How are we dealing with the hire? Or I know we were looking to hire somebody to start working in government side of the business. How are we doing with that?

Yes. So what we have done, we've engaged an external advisory firm that is helping us navigate the D.C. ocean policy-specific landscape. This isn't a think tank or a partisan body but rather a kind of a strict policy and sales advisory firm. And we are in advanced discussions and stages of reconfiguring our sales and business development team to capitalize on the government and defense market.

Next question today is coming from [Tanner Smith], a private investor.

A question, what's the typical sales cycle time for both the PowerBuoy and the data services?

I mean it's -- there is no typical sales cycle time as such because it depends -- it is somewhat industry dependent. We have discussions.

If you're -- ignoring the consulting services side, which tends to be primarily a call on a Friday afternoon for somebody that needs something by Tuesday lunchtime in order to move a rig on location, a lot of the conversations on oil and gas that we're having are around, hey, I've got this project I need to do. It's on a brownfield site in the North Sea. Can you make something available in the next 12 to 16 weeks? And we'll work through that.

When it comes to government, it is more longer-term planning along the lines of, here is what we're trying to do in terms of a large government procurement. Here are the studies that need to be done in advance. And this then qualifies you to participate into providing the equipment at a later stage. So the cycles can vary from, I'd say, 2 handfuls of weeks to 2 handfuls of months. That's really what we're seeing.

We were somewhat discouraged by the resurgence of the Delta variant over the course of the summer, which pushed back a lot of face-to-face meetings that we had planned during July and August. And a lot of that travel got curtailed again. But -- and generally speaking, as I said, it's between weeks and months depending on who the end customer is. Foreign governments tend to work on slightly different cycles. And we -- again, we're working with advisory firms that we're making sure that we appropriately address those cycles.

With about over $230 million invested of shareholder dollars and virtually no sales, when are you guys going to execute on sales and profits with the losses on a run rate of minus [$20 million], when are you going to produce just $20 million in profit just to break even?

Well, as I mentioned to you, I mean, that's one of the reasons we're executing the strategic shift, because the notion that just putting buoy after buoy after buoy out there is one that -- for the customer is not that appealing. So we are working feverishly on the pivot and moving into lower-overhead markets for starters, okay, such as ocean data as a service, and adding in other services and solutions into the portfolio to accelerate the growth that we're looking to see.

Also further, [Tanner], it's also about the company culture and moving -- transforming our company from a research and development product-based company to this data and power service provider. So we're looking at capitalizing on those areas as we're making these shifts and doing it very rapidly. Whereas in the past, if you may or may not recall, in 2015, we went through a strategic pivot, where we moved away from large-scale, grid-connected power to the autonomous power. And we see the need to shift the company the way that total addressable market is shifting to the data and power as a service. So we're moving quickly with the markets.

Our next question today is coming from Jeffrey Campbell from Alliance Global Partners.

2 questions. One, in response to something you just said a minute ago and you mentioned lower-overhead markets, I wonder, does this imply that you might fund the capital cost to place buoys into strategic locations as a platform to then sell data as a service after that investment?

Jeff, good to hear from you. It is not something that is firmly in our plans right now. But as I mentioned in response to one of the earlier questions, we are working with other larger partners in the industry that certainly have an interest in, call it, predeploying data collection devices in the ocean to then monetize the data that's being collected and putting that out to their customer base. So even if we are not looking at financing that directly ourselves, we are certainly in discussions to -- with partners in order to carry out such measures.

Okay. And my other question, so I was just wondering, we've had a lot of prismatic, theoretical discussions about it. So I just wondered if maybe you could pull it together by giving us an example of a primary use case for your vision of data as a service once your capabilities are fleshed out.

Yes. Absolutely. Take for example the issue of illegal fishing, all right? We can work with partners in the system. You can put out an array of our platforms that host the MDA solution. You predeploy them near no-take zones in the ocean, and you start actively monitoring around those areas. You then utilize other data that you can pull in from satellite providers and so on and so forth and weather data and fishing ground movements to start alerting the platform as to the array that you've got out forward deployed to look in certain quadrants where it is more likely than not that illegal fishery activities are going to start taking place, and you sell that advanced data to the customer.

At the same time, we reserve -- we would reserve the right to also monetize any other data we collect from those buoys, well, that are out there, which is why I mentioned earlier on the kind of an approach of almost plug and play with sensors. Because if we've got buoys out there that are doing initial fishery -- illegal fishery monitoring, we can also measure data that is relevant for climate science and start monetizing that by selling it to research institutions and governments. So it's the ability to use one platform and one device in a given location and monetize the data that it collects multiple times over with a range of customers.

Okay. And just as a follow-up to that, should we assume that the primary customer for the illegal fishing data that you use as an example would be a government?

It would be government or kind of government-sanctioned security organizations that are contracted by government to carry out enforcement activities. And to a lesser degree, just because of financial constraints on their side, it could also be NGOs that have been tasked to protect certain marine protected areas in the remote parts of the world.

Our next question today is [Joe Dirge], a private investor.

A Question. Do we have an update on the DeepStar project, one? And number two, was the buoy off the coast of New Jersey, I see you had the permits, I mean, was that launched? That's all.

So on -- okay, yes. On DeepStar, the DeepStar study was completed during this fiscal quarter, and we are now having conversations with the various operators that were involved on what could possible next steps be. Obviously, this is part of what I mentioned earlier. This is, to some extent, dependent on the speed of adoption of kind of all-electric [trees] and all-electric tiebacks occurring in the Gulf of Mexico. But there are other use cases that are arising from the DeepStar study about well monitoring, et cetera, that we are looking at.

In terms of the project off the coast of New Jersey, is that the -- that we've got the permits in hand. I think the first test buoy had an in-water dump test completed end of last week. I want to say Wednesday, but it could have been Thursday. And then in about 2 or 3 weeks' time, weather window dependent, the first one will go off the coast of New Jersey. The second one will follow shortly after that and then a third one shortly after that.

And what that demo deployment is going to do is going -- we're going to deploying the Maritime Domain Awareness version 1.0 and 1.1 on those 3 buoys and then swap in and out improvements to said system in order to further productize the approach. And we're also going to be doing live water demonstrations and tests with various assets going past it after we push out additional software updates to those assets and then also ultimately start swapping in additional power-generating buoys out there. So that's kind of what I mentioned earlier with the MOSWEC device that is also going to be something that's going to be wet tested.

We think it is absolutely imperative as a provider of offshore services that all of our equipment is robustly demoed out in the environment it is intended for.

So it's -- so you would -- it's safe to say that in the next 2 months, there'll be 3 buoys off the coast of New Jersey?

I think that is a fair statement to make.

And how far are they launched off the coast?

I think the 3 sites are 5 nautical miles apart from each other, and I believe the buoys are about 5-ish nautical miles each from the shore line.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you. After just a few months as CEO, I do want to restate how proud I am to have been asked to lead this next chapter of OPT's development and how excited I am to be in a position to execute the company's ambitious plans. OPT has a strong team in place from our executive leadership to every department that makes up the company. As a result, we are aggressive in our pursuit of growth whilst remaining agile and responsive to the needs of the marketplace.

To serve our diverse set of clients, we are aligning our knowledge with other parties to bring the best possible outcomes to our customers and believe we're setting up for a long future of delivering customer and shareholder value.

Thank you for your participation today. This concludes today's teleconference and webcast. You may now disconnect your line at this time.