Ocean Power Technologies, Inc.
Q3 2018 Earnings Call Transcript

Published: 7 Mar 2018

[Operator:]

Good morning, ladies and gentlemen. And welcome to the Third Quarter Fiscal Year 2018 Ocean Power Technologies Conference Call. My name is Aaira, and I will be your coordinator for today. 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. Steve Calk, Investor Relations for Ocean Power Technologies.

[Steve Calk:]

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 Matt Shafer, Chief Financial Officer and Treasurer. George will provide an update on the Company's operating highlights for the third quarter, and then Matt will review the third quarter financial results. Following our prepared remarks, we will open the call to questions. This call is being webcast on the Company’s Web site 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 for the third quarter of fiscal 2018 with the Securities and Exchange Commission. All of our public filings can be viewed on the SEC Web site at www.sec.gov or you may go to the OPT Web site www.oceanpowertechnologies.com. Let me now reference the Safe Harbor Provisions of the U.S. Securities Laws for forward-looking statement. This conference call may contain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of Ocean Power Technologies or OPT. Although, OPT believes that the expectations reflected in its forward-looking statement are reasonable, it can give no assurance that such expectations will prove to be correct. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in OPT's filings with SEC. The information contained in this call is accurate only as of the date discussed. Investors should not assume that the statements will remain operative at a later time. And OPT undertakes no obligation to update any information discussed in this call. Now, I am pleased to introduce Mr. George Kirby, CEO of Ocean Power Technologies to begin the discussion. George?

[George Kirby:]

Thanks, Steve. Good morning, everyone. Today, I'll review our business operations and provide an update on key activities and developments during the third quarter. Then Matt will briefly review our financial results after which Matt and I will be available to answer any of your questions. Consistent with last quarter, we remain focused on aggressive sales and marketing efforts to drive revenue opportunities. And we continue to make good progress. In January, we signed an agreement with Premier Oil for a feasibility study regarding deployment of a PB3 PowerBuoy for safety commissioning operations in the North Sea. We're excited about this opportunity on several fronts. First, the agreement is an important step to developing a long-term relationship with Premier, who is active in the region and we believe there are additional opportunities to partner with them. Second, this agreement represents a step forward in our conversations with other oil and gas Companies, both in the North Sea and beyond. Third, the nature of the study, decommissioning operations, monitoring and security, is an area of interest among other potential customers. And finally, we’re particularly excited to be launching a project in the North Sea where we believe our technology is most competitive and where we anticipate demonstrating how well we operate under the sea’s harshest conditions. Elsewhere, the sales and marketing team and I have continued to conduct productive meetings with key decision makers at perspective customers around the globe. We also remain encouraged by additional meetings resulting from our presence at the Society of Petroleum Engineers Offshore Europe Conference in Aberdeen, Scotland back in September. As a reminder, this conference is recognized by offshore oil and gas industry professionals as Europe’s leading exploration production event. The emerging demand we’re seeing for our technology has been encouraging. So much so that we are now moving forward with the manufacturer of the two additional buoys to supplement the supplement the two buoys we’re currently building. This is a very exciting development and reflects the Company’s confidence that our opportunities are both tangible and rapidly approaching. A quick reminder on our sales cycle. Like any technology deployment, the PB3 PowerBuoy, has to go through a rigorous testing process that includes the proving of new applications. But unlike most technologies, we also have to then prove it out in the environment and then real world not stimulated situations. While these concede TDS to those of us on the sales and manufacturing teams, it’s also one of the keys to our competitive advantage. We believe we have a ground breaking game changing solution that will permanently impact the way offshore power and communications will be conducted across multiple industries for decades to come. Being first to market means that we are tasked with forging a new trail. However, it also means that we believe we are best positioned to reap the rewards of our efforts. In the third quarter, we also made several strategic investments in the business. These investments are critical to ensure we’re ready to meet the rising demand for our technology. First, we completed our move to Monroe Township, New Jersey, which expands both our corporate headquarters and our manufacturing capabilities. This move has energized the entire team and we’re freshly aware that we’re on the crust of a new phase in the Company’s growth. Second, we added key leadership to our team with the hiring Chris Phebus. As VP of Engineering, Chris will accelerate our capabilities as we scale the business and will also provide leadership as we continue to expand the team and source new opportunities. Chris brings a wealth of experience from his time at General Electric where he served as GE’s General Manager and Executive Engineering Director for GE Subsea product and projects, and where he also was a leader for global engineering at GE Energy. Chris is here with us today. Chris, welcome to the team.

[Chris Phebus:]

Thanks George.

[George Kirby:]

We have a lot of work ahead of us and we’re looking forward to leveraging your expertise. We discussed last quarter that our contract with the Office of Naval Research to design a new mass spring isolating PowerBuoy has progressed well and the first phase was successfully completed. We’re currently waiting funding for the next phase of the project and we’ll provide updates as they become available. We continue to aggressively target the oil and gas, security and defense, ocean observing and communications markets. And we believe that these markets will significantly benefit from our PB3 power and real time communications platform. In particular, I'm pleased to see not only progress in the defense market through our work with the Office of Naval Research, but also considerable progress in the oil and gas for offshore well plug and abandonment operations, as well as subsea charging applications. Additionally, we continue to meet with leaders in offshore telecommunications of our potential repeater and base station applications using our PB3 Power Buay in order to both connect and expand their existing coverage areas, mainly for the oil and gas market. As you can see, we continue to make important progress on the sales front, as well as in our operations and leadership. With our proprietary wave energy technology, the progress that we're making with potential customers and strategic partners, our expanded operating facility and our enhanced team, we believe we have pieces in place to drive our long term growth and improved performance. Now, let me turn the call over to Matt to take us through the numbers. Matt.

[Matt Shafer:]

Thank you, George, and good morning everyone. As we do not record revenue during the third quarter ended January 31, 2018 due to the earlier completion of the Mitsui Engineering & Shipbuilding and the Department of Defense, Office of Naval Research projects, revenue in the third quarter of fiscal 2017 was $221,000, which was comprised of those two projects Mitsui Engineering & Shipbuilding and the Department of Office of Naval Research projects. The net loss for the third quarter of fiscal 2018 was $1.7 million as compared to a net loss of $2.1 million for the third quarter of fiscal 2017. The decrease in net loss in the current year period as compared to the same period of prior year is mainly attributable to a higher income tax benefit recorded in the current year, partially offset by current year period higher product development cost, mainly as a result of the two PB3 units in process of being completed. Cost associated with the additional two units recently approved for manufacture will begin to be reflected in the next quarter. Revenue for the first nine months of 2018 was $289,000 as compared to revenue of $593,000 for the first nine months of fiscal 2017. The net loss for the first nine months of fiscal 2018 was $6.9 million unchanged from the net loss in the year ago period. Taking into account the change in the fair value of the warrants liability of $1.1 million, the decrease in net loss primarily relates to the lower product development cost and higher income tax benefit both in the current year period as compared to prior year. Turning now to the balance sheet. As of January 31, 2018, total cash, cash equivalents and marketable securities were $14.4 million, up from $8.4 million on April 30, 2017. The increase in cash is mainly a result of the completion of a best efforts public offering of common stock during the second quarter of 2018 that raised $7.4 million of net proceeds. As of both January 31, 2018 and April 30, 2017, restricted cash was $500,000 for each period. Net cash used in operating activities was $8.2 million during the nine months ended January 31, 2018. Excluding $1.1 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, the PB40 site final closeout off the Cost of New Jersey and completion of legal matters. The net cash used in operating activities was $7.1 million during the nine months ended January 31, 2018 as compared to $7.6 million during the same period in prior-year. With that, I’ll turn it back to George.

[George Kirby:]

Thanks, Matt. As we move onto Q&A, let me close by saying how excited we are about our product commercialization, our business development efforts and our operational build out. We believe we have a unique product, a great strategy and an exceptional team. We intend to continue our work to bring this technology to the marketplace and build relationships with quality customers around the globe. As always, thank you for your time and support as we continue to build out Ocean Power Technologies. Operator, we’re now ready to take questions.

[George Kirby:]

Thank you for joining us on today’s call. If you have any further questions, please don’t hesitate to contact us. Otherwise we look forward to speaking with you again next quarter.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. You may now disconnect. Everyone, have a great day.