Ocean Power Technologies, Inc.
Q4 2008 Earnings Call Transcript

Published: 15 Jul 2008

[Operator:]

Welcome to the Ocean Power Technologies fiscal year 2008 audio webcast. (Operator Instructions) At this time for opening remarks I would like to turn the call over to the Chief Financial Officer of Ocean Power Technologies, Charles Dunleavy.

[Charles F. Dunleavy:]

Welcome to Ocean Power Technologies audio webcast for the fiscal year ended April 30, 2008. Yesterday we issued our yearend earnings press release and we have filed our annual report on Form 10K with the Securities & Exchange Commission. For access to our public filing you can view them on the SEC website at www.SEC.gov or you may go to our website, www.OceanPowerTechnologies.com and click on the investor relations tab then click on SEC filings. I will be joined on today’s webcast by Dr. George Taylor, Chief Executive Officer and Mark Draper, Chief Operating Officer. 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 provision of the Private Securities Litigation Reform Act of 1995. As indicated in the Slide, these forward-looking statements are subject to numerous assumptions made by management regarding future circumstances of 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 10K and other recent filings with the Securities & Exchange Commission for a description of these and other risk factors. I will now turn the call over to George Taylor, our Chief Executive Officer.

[George W. Taylor:]

It has been a little more than a year since our IPO and listing on NASDAQ and we are encouraged and pleased by the progress OPT has made over the past 12 months. Before we discuss the financial results, Mark Draper and I would like to take a few minutes to highlight OPT’s business, our strategy and the progress we have made through the past year. We expect that this will enable us to capitalize on our worldwide opportunities. OPT is a leading wave power company and is the only pure play public wave power company. I co-founded this company with a vision of generating electric power from ocean waves at costs equal to or superior to what can be achieved from fossil fuels. We began operations in 1994 and since then have had successfully developed and begun to commercialize the technology. With the management team I’ve put in place over the past years, OPT is poised to take advantage of the favorable political, regulatory and social environment that exists internationally for renewable energy and to accelerate our growth. At OPT we pioneered the development and commercialization of proprietary systems that generate electricity by harnessing the renewable energy of ocean waves. The energy in ocean waves is predictable and electricity from wave energy can be produced on a consistent basis at numerous sites which conveniently are located near major population centers worldwide. Meanwhile global demand for electric power is expected to more than double over the period 2003 to 2030 according to the Energy Information Administration. To meet this demand the international energy agency estimates that investments in new generating capacity over this period will exceed $4 trillion. $1.6 trillion of this will be for new renewable energy generation equipment. Recently the GH Summit set a goal to reduce carbon emissions by 50% by the year 2050. We plan to leave reach these global drivers of demand for renewable energy by using OPT’s proprietary technology. We offer two products as part of our PowerBuoy system, a utility PowerBuoy system and an autonomous PowerBuoy system. Our technology is based on modular ocean going buoys which we have been ocean testing for more than a decade. The rising and falling of the waves moves the buoy like structure creating mechanical energy that our proprietary technologies then convert in to electricity. I’d now like to turn the call over to Mark Draper our Chief Operating Officer who will discuss technological advancements, key commercial milestones and provide you with an update on some of our recent projects.

[Mark Robert Draper:]

This slide shows views of the PowerBuoy built in Spain under our contract with Iberdrola as displayed at a recent VIP visit. I’ll say more about the status of that project very shortly. As announced in yesterday’s press release, we have made substantial progress in the design analysis and the initial production of what we believe to be the first utility grade underwater substation or POD for wave power. We’re very excited about this development. The POD will serve as the point where energy generated by several PowerBuoys is aggregated and the voltage increased for transmission to shore and connection to the local power grid. The required switching and protection circuits within the individual PowerBuoys are also included in the POD. In July 2007 we announced that our PowerBuoy grid connection system had been certified as compliant with designated national and international standards. This is a major milestone for OPT as it qualifies our technology for connection to utility grid systems. We are also focusing our product and engineering efforts to increase the outputs of our PowerBuoy system from 40 kilowatts to 500 kilowatts. Consistent with comments made during our last quarterly webcast we are on target to complete the design of our 150 kilowatt utility PowerBuoy system in 2008 and to complete the design of our 500 kilowatt PowerBuoy by the end of 2010. The power conversion and control systems is substantial complete for the 150 kilowatt PowerBuoy system and we expect to commence land testing in 2008 and ocean testing complete for the 150 PowerBuoy in 2009. The present schedule for development of the 150 and 500 kilowatt PowerBuoy reflects management’s decision to take a conservative position to enhance the system design to allow for improved survivability in a 100 year storm wave conditions and also to work with a third party engineering group to obtain independent certification of the 150 kilowatt PowerBuoy design. Earlier this year we conducted tests of the 150 kilowatt scale model in a wave tank facility used by the offshore oil and gas industry. The results of these tests plus more tests currently underway all provide enhanced information to OPT and the engineering group to hone the design for the 100 year storm wave conditions. In addition, we believe the direct transition to the 500 kilowatt from the 150 kilowatt prototype PowerBuoy system will be accelerated by the measures now being undertaken in connection with the 150 kilowatt design. We’re also very pleased that six new patents were issued during 2008, all on our core PowerBuoy technology. As I noted previously our technology development is very active and we expect to make numerous additional patent applications going forward. The technology progress that we’ve made has also been supplemented by the key commercial milestones we have achieved in the past year. These milestones demonstrate the traction that OPT has gained in the marketplace and the respect and confidence it has received from its customers and partners. I’ll briefly run through the list and then expand on some of these in greater detail as I provide a project update. In August, 2007 we signed a contract with PNGC Power under which we receive funding for our wave energy project in Reedsport Oregon. Our partnership continues with the US Navy as they awarded us two contracts in fiscal year 2008. A new $1.7 million contract to provide our PowerBuoy technology for deep ocean data gathering and communication and an additional $1.9 million of funding for our contract to install PowerBuoy systems off the Hawaiian Island of Oahu. Additionally, in May 2008 we announced the joint development agreement with Griffin Energy to explore the development, construction and operation of a wave power station off the coast of Western Australia. This relationship gives us enhanced access to this region and the agreement paves the way for the development of an OPT wave power station with capacity up to 10 megawatts and potential expansion to 100 megawatts. Under the terms of the agreement OPT will provide the turnkey power station plus operations and maintenance services. We also ended fiscal year 2008 with a contract order backlog of $5.5 million compared with $5.2 million at the end of fiscal year 2007. We expect most of our backlog to be realized as revenues in our new fiscal year. Now, I would like to give you an update on some of our more significant projects. The enhanced 40 kilowatt PowerBuoy under our contract with Iberdrola in Spain is now fully fabricated and is currently undergoing final on land endurance testing. We expect it to be ready for deployment in August, 2008. Recently OPT hosted a ministerial visit by leading Spanish government officials to the Spain worksite. The ministers viewed the power take off system undergoing its test program following assembly and shipment from OPT’s New Jersey facility. In addition, they inspected the fully assembled PowerBuoy steel structure which was fabricated by a local supplier in Spain. Our work with Total and Iberdrola continues on the evaluation phase of a two to five megawatt power station off the coast of France. In connection with our United States Navy project in Hawaii we have installed the PowerBuoy system for a total of eight months over a two year period and another PowerBuoy during 2007. An additional 40 kilowatt rated power system has passed 150,000 cycles of successful on land testing, has now been shipped to Hawaii where he’s ready for deployment. We are partnering with the Scottish government to develop a 150 kilowatt PowerBuoy for our project in the Orkney Islands. We have made continuous progress on this project and we expect to be ready to deploy the buoy in 2009. In Cornwall England, the southwest of England regional development agency is developing their site which we expect to install a five megawatt demonstration wave power station. The agency has this pass fiscal year obtained the necessary permits for this project called the waiver and the project has been approved for $20 million pounds of funding for the construction of the wave infrastructure. The agency currently is considering a tendering process for the design and construction of this infrastructure and expects it to be installed in 2010. OPT is in the planning and development stage of its part of the project. Our project in conjunction with Pacific Northwest Generating Cooperative, PNGC Power is progressing well. This will be our first US site for our PB150 progeny and the PowerBuoy is expected to be ready for development in 2009 near Reedsport Oregon. We are also working with the United States Navy on a unique deep ocean data gathering program. Under this program the Navy will conduct an ocean test of our autonomous PowerBuoy as a power source for the Navy’s deep water acoustic detection system. The PowerBuoy for this project is expected to be ready for deployment by the end of 2008. We are very pleased that our PB40 system installed off the coast of New Jersey has now completed nearly two years of ocean deployment. It has survived a hurricane and several wind storms over this period. The 40 kilowatt rated system is an important demonstration of the ocean tested performance of the core PowerBuoy technology and has set what we believe to be a world record for ocean endurance for an offshore wave energy conversion system. This Slide shows our new PowerBuoy now ready for deployment off the Island of Oahu in Hawaii. With that I will hand the presentation over to Chuck to discuss fiscal year 2008’s financial results.

[Charles F. Dunleavy:]

Our revenues increased by 89% in fiscal 2008 to $4.8 million as compared to $2.5 million in fiscal 2007. The increase in revenues was primarily attributable to the following factors

[George W. Taylor:]

As we wrap up the call I would like to discuss how we anticipate growing the business as we move forward in our commercialization plans through the upcoming year. First as you heard from Mark we are working towards increasing the utility PowerBuoy system output to 150 kilowatt and thereafter to 500 Kilowatt. We believe this improvement in system output with our expected growth in production volume will greatly improve the economics of both capital and energy costs. Second we are focusing our sales and marketing efforts over the next three years on coastal North America, the west coast of Europe, the coasts of Australia and the east coast of Japan. We believe that each of these areas represents a strong potential market for our PowerBuoy wave power stations because they combine favorable wave conditions, political and economic stability, large population centers, high levels of industrialization, and significant and increasing electricity requirements. Third our demonstration wave power stations will allow us to prove the viability of our PowerBuoy systems in selected regions. By enabling customers to experience our technology firsthand and with unfettered access, we believe we will be able to facilitate our entry into our target markets and encourage market adoption. In addition demonstration wave power stations will provide us with the opportunity to test and refine our technology in actual operating conditions and will serve as test beds for our operating and maintenance procedures. Fourth we intend to build on existing commercial relationships by expanding the number and size of projects we have with our current customers. We also plan to enter into new alliances and commercial relationships with other utilities and independent power producers. By leveraging these customer relationships we believe we can expand commercial acceptance across the globe. We also expect to increase revenue streams through our autonomous PowerBuoy systems. These systems are also well suited to address specific power generated needs of customers requiring off grid electricity generation in remote locations in the open ocean. We will devote substantial resources to continuing our development efforts for our PowerBuoy systems and to expand our sales, marketing and manufacturing programs associated with the commercialization of the PowerBuoy system. In order to meet our short-term goals we plan to add employees in fiscal 2009 and 2010. The majority of our new hires will be engineers with varying levels in areas of expertise, project managers and manufacturing personnel. Each additional staff will help increase and enhance OPT’s capabilities. We have already formed a Marine Operations Group and will expand our field service capabilities. As I said at the beginning of the call we are very excited about our achievements this year and the great strides we have made. We believe that this has helped OPT achieve a position of prominence in the alternative energy space. OPT’s strengths include a seasoned management team with strong backgrounds in engineering and international power markets. Our PowerBuoy product has over a decade of in-ocean experience and has a wide variety of applications in addition to grid connections. These include homeland security, hydrogen production, remote sensing, desalination, oceanography, agriculture, and the offshore oil and gas industry. Since our inception we have established a global network of strategic partners and an international supply chain to commercialize our products and services. As Mark detailed, some of the current partnerships include regional power suppliers, PNGC Power, Diversified Energy Supplier, Griffin Energy, government entities such as the U.S. Navy and the Scottish government, and the international energy conglomerates such as Total and Iberdrola. The power in ocean waves provides a renewable energy resource that is clean, environmentally benign, non-polluting and is far more predictable than other renewable energy resources. This is an advantage of crucial importance to our customers and grid operators. We believe that wave energy is the best of the renewable options offering the most concentrated form of renewable energy without any fuel, exhaust gases, noise or visual pollution. Additionally wave energy is based on local natural resources without the political and economic risks associated with imported fossil fuels. OPT is in the business of harnessing wave energy and commercializing it with our proprietary technology. In short we believe that OPT is a premier company in the alternative energy space. I would like to thank all of you for attending today’s web cast and for your continued support and interest as we continue to grow Ocean Power Technologies.