Ocean Power Technologies, Inc.
Q3 2019 Earnings Call Transcript

Published: 12 Mar 2019

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Fiscal Third Quarter 2019 Ocean Power Technologies Conference Call. My name is Sherry, and as a reminder, this conference call is being recorded. I would now like to turn the callover to your host, Mr. Michael Porter, Investor Relations for Ocean Power Technologies.

[Michael Porter:]

Good morning and thank you for joining us for Ocean Power Technologies conference call and webcast. On the call with me today are George Kirby, President and Chief Executive Officer; and Matthew Shafer, Chief Financial Officer and Treasurer. Following our prepared remarks, we will open the call to all questions. This call is being webcast on the company's website at www.oceanpowertechnologies.com. It is also available for replay after the call. On March 11, 2019, OPT issued it's earnings release and filed it's quarterly report on Form 10-K for the third quarter of fiscal year 2019 with the Securities and Exchange Commission. All of our public filings can be viewed on the SEC website at sec.gov or you may go to the Investor Relations section of Ocean Power's website, oceanpowertechnologies.com. Now let me now reference the Safe Harbor Provisions of the U.S. Securities Laws for forward-looking statements. This conference 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 such as may, will aim, will likely, result, believe, expect, will continue, anticipate, estimate, intend, plan, contemplate, seeks to, future, objective, goal, project, should, and will pursue, and similar expressions of variations of such expressions. These forward-looking statements are based on assumptions made by management regarding future circumstances over which the Company may have little or no control and involve risk, 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. Some of these factors include among othersthe following; future financial performance, expected cash flow, ability to reduce cost and improve operational efficiencies, revenue growth and increased sales volumes, success in key markets, competition, ability to enter into relationships with partners and third parties, delivery and deployment of PowerBuoy's, increasing the power output of the PowerBuoy's, hiring new key employees, expected cost of PowerBuoy's, building customer relationships. Please refer to our most recent Form 10-Q and 10-K and subsequent filings with the SEC for a further discussion of these risks and uncertainties. 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 Mr. George Kirby, President and CEO of Ocean Power Technologies. Good morning, George.

[George Kirby:]

Thank you, Michael, good morning, and good morning everyone. I'm going to review our business operations and provide an update on our commercialization activities and developments during the third quarter and upto today. Then Matt Shafer, our CFO, will providea review of our financials. Then we'll open the floor for questions. In the third quarter of fiscal 2019, we continue to advance our commercialization strategy by establishing new strategic relationships and furthering existing partnerships. We also announced two new product offerings that we believe will create additional value to the customer and generate additional revenues for OPT. This strategy continues to bear result in terms of greater awareness of OPT products and services to companies that have in-ocean applications and that require persistent source of power and real-time data communications in very remote areas.Industries such as defense, security, oil and gas, science and research and communications are recognizing the operational and cost benefits of our solutions and capabilities. Today we announced the award of a Master Service Contract with a leading U.S. offshore oil and gas operator. The contract will govern all work for this customer including delivery of solutions and services within the U.S. and the U.S. outer continental shelf. The signing of this contract signifies a major investment of time and resources by our customer and OPT which further demonstrates the demand for our solutions and our credibility of experts in marine power and communications. In fact, OPT was required to achieve significant health safety and environmental milestones and implement additional policies and procedures in order to sign the contract. It was a long process to achieve this critical agreement, and we're very pleased to support this customer with our solutions and services in the near future. This is the first contract with a U.S. oil and gas operator, opening the door OPT to provide solutions into the Gulf of Mexico where we believe there exists significant need for cost effective remote offshore power and communications. In fact, the Gulf of Mexico happens to be the largest oilfield decommissioning market in the world with more than 9,000 wells that require plugging and abandonment [ph]. Many of these wells are in deepwater where high cost and complexity drive the need for new technologies, and where every dollar saved is directly to the bottom-line. OPT's PowerBuoy exclusion zone monitoring solution can decrease cost and increase [indiscernible] by providing autonomous surveillance and monitoring. Resident underwater vehicles using our continuous PowerBuoy recharging system cannot allow for space and cost effective visual tracking and intervention during well plugging and abandonment activities. Our PowerBuoy eliminates the need for extensive on-site vessels by offering a clean and renewable solution while allowing operations to occur remotely from onshore. We believe these high tech solutions will be game changers in the offshore oil and gas market. Industry partnerships with high tech solutions that compliment OPT's PowerBuoy can bring unique business development opportunities which is why on January 31 we entered into a joint development and marketing agreement with Saab Seaeye, the world's largest manufacturer of electric underwater robotic systems. The potential for this agreement lies in applications of Ocean Power for robotics, particularly for customers that seek AUV and ROV electric charging and communication systems. Under the agreement, Saab and OPT will develop and market a combined electric charging and data transfer solution using our PowerBuoy and we're already making progress in our joint marketing efforts. According to our markets and research report, the AUV-UUV market generated $2.6 billion in 2016 revenues; this is a sizeable market for us and we'll benefit from partnering with an industry leader such as Saab. We're very optimistic about early prospects with this collaboration. As noted in last quarter's call, we've held numerous discussions with -- regarding collaboration with defense contractors and government organizations, and on Feb 12 we were awarded the contract with the U.S. Navy to carry out the first phase of our project to design and develop a buoy monitoring [ph] system incorporating fiber optics for the transmission of subseacenter data to airplanes, ships and satellites. We will execute the work under our innovation and support services business line leveraging our many years of experience with marine systems and U.S. Navy programs. Importantly, the fiber optic moving [ph] concepts developed under this contract may be incorporated into OPT's PowerBuoy and subsea battery product lines providing additional intellectual property and revenue opportunities. In November 2018 we discussed the expansion of products and services that complement the core technology of the PB3 PowerBuoy. We're in the process of developing these new products to further -- to provide further opportunities to monetize our existing expertise and technologies. One of these new products are subsea battery solutions to offer high performance, cost efficient and environmentally-friendly sea floor energy storage. On December 5 we signed the letter-of-intent with NEC Energy Solutions, a pioneer and global leader in utility scale energy storage, to enter into a long-term supply agreement providing OPT with lithium-ion batteries in support of our subsea battery solutions. We expect to have a system ready for testing later this summer, our objective will be to sell or release our PowerBuoy's together with our subsea battery systems as a combined scalable power solution where the PowerBuoy will act as the charging device for the subsea batteries. We believe that this combined solution can provide even more flexibility for subsea power and users. Our hybrid PowerBuoy will be a smaller liquid-fueled engine powered surface buoy with onboard energy storage and optional solar augmented power generation. The hybrid PowerBuoy will have a high fuel capacity, well in excess of 1 megawatt hour and will be highly reliable, even in harsh ocean conditions. The hybrid PowerBuoy will complement the PB3 PowerBuoy by addressing a broader spectrum of customer deployment needs and locations. Because it's not a wave energy generator, it won't be ocean wave dependent and will be able to be -- but will be able to operate in virtually any water location. It's intended for shorter term deployments such as for subsea inspections, equipment repairs and maintenance, top-sized surveillance and communications, and subsea equipment powering. We have multiple patents pending on using this technology and floating marine applications and we expect to have a prototype of our hybrid PowerBuoy ready by late summer or early fall. The industry is excited about the hybrid PowerBuoy because there is a need for short-term power and a need for a clean burning and highly reliable alternative to diesel fuel. There are many environmental risks and issues with diesel engines in the ocean environment, and to the best of our knowledge, we're the only company that's using this type of liquid-fueled engine powered surface buoy technology, again, backed by strong intellectual property. Last but not least, OPT also continues to develop it's mass-on spring technology for it's anchorless PowerBuoy which is designed for quick deployment and simple retrieval. This remotely-controlled self-propelled smart device has no external moving parts and generates power from the ocean waves with a liquid-fueled engine powered backup system. We're continuing to see signs of increasing demand for our PowerBuoy solutions. For the last few months we've seen demand ramping up by orders of magnitude over this time last year. What's been particularly exciting for us is that our commercial markets are coming to us, we're being recognized for our brand which denotes expertise in remote offshore power and communications solutions. We're a relatively small team but we've done a fantastic job of generating serious interests from potential new customers. Candidly, we're spending most of our time handling proposal work and request for information, while also advancing our new product development. We currently have a very robust pipeline of active opportunities and proposal and information requests are at an all-time high which is yet more evidenced of our burgeoning brand and offshore power solutions. Right now we're addressing proposal requests from around the world including multiple PowerBuoy opportunities for oilfield decommissioning, pirate vessel tracking and surveillance, AUV charging and communications, subsea volcanic activity monitoring, weather monitoring and more. In addition to our heavy focus on sales and marketing, on March 8 our shareholders approved a reverse split of our stock price in a majority without stamping [ph] shares. Subsequently, our Board of Directors approved the reverse split at 1-for-20 ratio which has already taken effect. This reverse stock split was an important step in maintaining compliance with the NASDAQ listing requirements, and we thank our shareholders for their overwhelming support on this matter, and the future growth of this company. Yesterday, post-market, we also filed a Form S-1 registration statement with the SEC where we expect to commence the proposed sale to company's securities to the public as soon as practical after the effective date of the registration statement. The use of proceeds will be for development prototyping and launch of our new products this year. Expanded sales and marketing of our current products and services, additional PB3 PowerBuoy unit builds to meet anticipated demand and other general corporate purposes. The additional capital will strengthen the company's balance sheet and allow the company to maintain compliance with NASDAQ's minimum stockholders equity requirement of at least $2.5 million. Now, let me turn the call over to Matt to discuss the financials.

[Matthew Shafer:]

Thank you, George, and good morning everyone. Revenues were $268,000 for the three months ended January 31, 2019, which was comprised of the new contracts with Eni and Premier Oil. There were no revenues in the third quarter of last year. The net loss for the third quarter of fiscal 2019 was $2.6 million compared to a net loss of $1.7 million for the third quarter of fiscal 2018. Overall, the increase in net loss in the current year period as compared to the same period of prior year is mainly attributable to the upfront spending and material costs on new customer contracts, costs associated with development of new products and personnel costs related to the growth of the business. Revenue for the first nine months of fiscal 2019 was $440,000 compared to revenue of $289,000 for the first nine months of fiscal 2018. The increase in revenue is due primarily to the mix in customer contracts year-over-year. During the nine months ended January 31, 2019, revenues were derived from the new projects with Eni, Premier Oil and Enel Green Power. The net loss for the first nine months of fiscal 2019 was $9.7 million as compared to a net loss of $6.9 million for the same period of fiscal 2018. The increase in net loss was largely attributable to higher upfront spending and material costs on these new projects, as well as additional expenses on new product development and personnel cost as we continue to scale the business towards fulfilling our current and future potential customer contracts. Now turning to the balance sheet. As of January 31, 2019, total cash, cash equivalence and restricted cash were $2.7 million as of January 31, 2019, down from $12.2 million as of April 30, 2018. Net cash used in operating activities during the nine months ended January 31, 2019 were $9.9 million, an increase of $1.7 million compared to $8.2 million during the nine months ended January 31, 2018. On January 17 this year we received $900,000 of non-dilutive funding through the New Jersey economic development authorities technology business tax certificate transfer program. This allowed us to sell net operating losses and research and development tax credits to unaffiliated corporation. With that, I'll now turn it back over to George.

[George Kirby:]

Thanks, Matt. Before we move onto Q&A, I wanted to conclude by reiterating our continued commitment towards advancing our commercialization strategy with a heavy focus on sales and marketing. We've worked long and hard to arrive at this stage of the business plan and we're very excited about our sales prospects. We've come a long way in terms of generating awareness for OPT's products and services within our addressable markets including oil and gas, security, defense, science and research and communications. Our focus from this point forward is to create revenue opportunities that enhance value for our customers and our shareholders. We've effectively moved from just a single product company to being able to address different market segments and customer applications. I believe that we have product offerings that no one can currently match which are backed by over 70 patents and multiple patent applications. We believe we're the leader in both, ocean wave energy conversion and remote offshore autonomous power, and we are fun and center [ph] as our customers move towards more autonomous all electric operations. With that, operator, we're now ready to take questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Peter Ruggiere with Dawson James.

[Peter Ruggiere:]

Sounds like a really good contract. This new contract, how many buoys could -- with this -- maybe the big order brief worked [ph]? I mean…

[George Kirby:]

Well, the contract that we signed is a framework agreement essentially under which other orders can be placed Peter. So the whole idea of a master service contract is that we have all the terms and conditions laid out and agreed upon, and now whether it's service work or whether it's buoy orders, it really doesn't matter whether it's products or services, they all fall under this agreement and they can be initiated through work orders.

[Peter Ruggiere:]

When do we expect some significant revenues coming in?

[George Kirby:]

That's a good question. And as you can imagine, I'm not able to talk about that. I have talked about our pipeline and when I say it's very robust what that means is that we have not only a large number what we would consider a large number of very positive opportunities but also a diverse slate of opportunities.

[Peter Ruggiere:]

It's actually nice to see you getting in the Gulf of Mexico considering it's huge, and that's unused but that's been active for 25 years [ph], you're pretty much ahead of everybody, so it's kind of this really need. Is there anything -- I'm trying to figure what the [indiscernible] was involved and so on. I have nothing else, you're doing a great job. Thanks.

[George Kirby:]

Thank you. And your point about the Gulf of Mexico is very, very important. We've got -- we feel like we have a foothold in some of the other European markets and hopefully, some other geographic markets but the Gulf of Mexico and bringing our technology to bare, right here in U.S. waters is very, very important to us. We have a presence in Houston and we have a large customer base in Houston, Louisiana and other areas that we've been calling on for a good amount of time and we're really starting to get recognized as the go-to-source for remote offshore power and communications. So we are super excited about this agreement and we also anticipate seeing more agreements down the road where there is one -- others see the opportunity to also partner with OPT and that's really what we're driving towards.

[Operator:]

Thank you. [Operator Instructions] Speakers, I'm showing no further questions in the queue at this time. I'll turn the call back over to management for any closing remarks.

[George Kirby:]

Thank you, operator. Before we conclude here, I really want to thank everyone who has been a stakeholder in the company and who's been following us and helping us to grow. I invite everyone to follow us on social media including Twitter, LinkedIn, Facebook, and watch our YouTube channel for some terrific footage of the PowerBuoy and other videos. We plan on utilizing these platforms more to keep everyone up-to-date with our progress. In fact, we expect to have more great footage released soon. So, please stay connected with us. Thank you for joining us, and we'll speak to you soon.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect and have a wonderful day.