Ocean Power Technologies, Inc.
Q2 2010 Earnings Call Transcript

Published: 10 Dec 2009

[Operator:]

Welcome to the Ocean Power Technologies second quarter 2010 audio webcast. Today’s call is being recorded and webcast. At this time for opening remarks I would like to turn the call over to Chief Financial Officer of Ocean Power Technologies, Mr. Charles Dunleavy.

[Charles Dunleavy:]

Good morning and welcome to Ocean Power Technologies audio webcast for the second quarter ended October 31, 2009. Today we issued our second quarter earnings press release and we will be filing our quarterly report on Form 10-Q with the Securities and Exchange Commission. Our public filings can be viewed on the SEC website at sec.gov or you may go to our website, oceanpowertechnolgies.com. I’ll be joined on today’s webcast by Mark Draper, our Chief Executive Officer. Please advance to Slide 2. 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 over which the company may have little or no control and involve risks and uncertainties and other factors that may cause actual results to be materially different from any future results expressed or implied in such forward-looking statements. We refer you to the company’s Form 10-Q and other recent filings with the Securities and Exchange Commission for a further description of these and other risk factors. I’ll now turn the call over to Mark Draper, our Chief Executive Officer.

[Mark Draper:]

Moving to Slide 3, Thank you Chuck and thank you everyone for joining today’s webcast. OPT maintained strong operational momentum during the second quarter of fiscal 2010 with several notable achievements that have increased the company’s commercial activities to the highest level in our history. We also remained focused on our near term goal to complete construction of the first of our latest wave generation devices, the PB150, which will be deployed in the Orkney Islands off the coast of Scotland in mid calendar year, 2010. We strengthened our relationship with Lockheed Martin by entering into a commercial services agreement to develop OPT’s wave energy systems for future utility scale power generation projects in North America. Lockheed has outstanding experience in applying new technology and managing volume manufacturing across a wide variety of sectors and it has also been increasing its involvement with renewable energy. We also had a major breakthrough in Japan by teaming up with three leading Japanese companies to kick start the country’s first commercial scale wave power station and OPT’s first project in Asia. Our contract order backlog increased compared to the previous quarter. We also made a gross profit for the second consecutive quarter as well as a gross profit for the six months compared to a gross loss for the corresponding period last year. That helped reduce our net loss for the three and six months periods ended October 31, 2009. In addition, construction of the steel structure for the PB150 PowerBuoy for our project at Reedsport, Oregon has been started by Oregon Iron Works a private company, and this week we’re delighted to announce the signing of a memorandum of understanding with the government of Oregon to explore development of new wave power projects in the State’s coastal waters. Chuck will go through the financials in more detail shortly, but first I’ll take a few minutes to update you with more information about our activities during the quarter and since the end of that period. Turning to Slide 4, as part of our global strategy, we made two major breakthroughs recently, reinforcing OPT’s position as one of the world’s leading wave power companies. As a result we are now engaged in projects in Oregon and Hawaii in the U.S.A., Scotland and Southwest England, Spain, Australia and Japan. In early October we expanded our global presence by signing an exclusive memorandum of understanding with a consortium of three leading Japanese companies to develop and demonstrate a wave power station in Japan. The companies are

[Charles Dunleavy:]

Moving to Slide 9, our contract order backlog remains strong as Mark noted, increasing to $7.1 million as compared to $6.4 million for the previous quarter, and with a significant proportion relating to the PB150 device. We achieved a gross profit for the second consecutive quarter with amounted to $54,000 compared to a gross loss of $702,000 in the corresponding period last year. Revenues for the quarter decreased slightly to $.6 million as compared to $.7 million for the comparable period last year. This decrease was primarily reflective of a lower level of activity in connection with our contract with the U.S. Navy for ocean data gathering. However, work on this project is expected to increase during the three months ending January 31, 2010. Revenues relating to OPT’s utility PowerBuoy’s projects were approximately the same compared with the corresponding period last year as a decrease in revenues from the Reedsport projects in Oregon was offset by increases in revenue from our Hawaii project, with the U.S. Navy and our project in the Orkney Islands, Scotland. Cost of revenues decreased to $.5 million in the three months ended October 31, 2009 as compared to $1.4 million in the three months ended October 31, 2008. This decrease in the cost of revenues reflected lower levels of activity on revenue bearing contracts and a $.4 million favorable decrease in cost of revenues resulting from a net change in provisions for contract losses including the provision for contract losses related to our wave project off the coast of Spain. Operating loss for the quarter increased by $.2 million to $5.6 million as compared to $5.4 million for the same period last year. This change reflects an increase in product development costs related to OPT’s continued work to increase the power output of our utility PowerBuoy system which was partially offset by improvements in gross profit and lower selling, general and administrative spending. The increased levels of product development costs were consistent with planned activity for this fiscal year. Net loss for the quarter declined to $5.2 million compared with a net loss of $6.1 million for the same period last year. This decrease in net loss reflects the change in operating loss as well as the increase in foreign exchange gains relative to the change in the value of the British Pound Sterling as partly offset by a decrease in interest income. Turning to six month period, OPT reported revenues of $1.9 million compared to $2.5 million for the six months ended October 31, 2008. This change primarily reflects decreased revenues associated with our wave power station off the coast of Spain, our product off the coast of Reedsport, Oregon and our autonomous PowerBuoy project with the U.S. Navy for ocean data gathering. Cost of revenues decreased to $1.6 million in the six months ended October 31, 2009 as compared to $3.3 million in the prior year’s comparable period. This decrease reflects lower levels of activity in revenue bearing contracts primarily our project off the coast of Spain. OPT achieved a decline in operating loss and net loss for the six month period. Operating loss was $8.8 million compared to $9.8 million in the same period the prior year. Net loss for the six months ended October 31, 2009 was $7.3 million compared to a net loss of $10 million for the prior year’s comparable period. These changes in operating loss and net loss reflect an increase in gross profit and a decrease in selling, general and administrative costs which offset higher levels of product development spending. The decrease in SG&A is primarily attributable to a decrease in consulting, accounting and investor relations expenses. In addition, foreign exchange gains increased relative to the change in the value of the British Pound Sterling and other income increased from the settlement of the claim against a supplier of both engineering services during the first quarter of fiscal 2010. These were partially offset by a decrease in interest income. At noted on Slide 10, OPT finished the quarter with total cash, cash equivalents, restricted cash and marketable securities of $76.7 million. As such, the company’s balance sheet remains strong and its cash and investments are highly liquid, consisting primarily of term deposits with large commercial banks and U.S. Treasury bills and notes. Turning to Slide 11, net cash used in operating activities was $6.7 million for the six months ended October 31, 2009 as compared to $9.4 million for the prior year. This change was a result of a decrease in net loss of $2.7 million and an increase in net operating assets and liabilities of $2.1 million offset by a decrease in non cash operating activities of $2.1 million. Net cash used in investing activities was $11,000 for the six months ended October 31, 2009 compared to $66.8 million for the prior year’s period. This change was primarily a result of a net decrease in the current period in purchases of securities with maturities longer than 90 days as well as a $.5 million decrease in purchases of equipment and additional restricted cash of $.3 million. Going forward, we continue to expect our cash burn for the full fiscal year of 2010 to be less than that experienced in the prior fiscal year 2009. Now, I’ll turn the call back over to Mark for a summary of the company’s growth strategy.

[Mark Draper:]

If you turn to Slide 12, our growth strategy remains on course. That is to say, we’ll continue to focus on selling turnkey power stations and operations and maintenance contracts while also increasing our revenue streams from the sale of autonomous PowerBuoy systems and marine energy infrastructure systems including our underwater substation pods. Our PowerBuoy product will concentrate on building the Smart Pod of OPT’s technology while outsourcing functions such as fabrication of steel structures as we’re doing for the PB150. The focus of OPT’s engineering development efforts is continuing to make improvements to the 150 kilowatt buoy system to facilitate our future transitions to the market by a 100 kilowatt buoy. This includes increasing the power output and maintainability of the 150 kilowatt PowerBuoy system and exploring design and construction techniques that are expected to enable the large efficiency build, deployed and maintained as a significantly reduced cost. We also to improve economics by growing production volumes as well as maximizing customer funding of technology development. We will continue to build on existing commercial relationships and expand the number and size of projects we have with our current customers. While the progress we anticipate in the both our products and business come against the backdrop of increasing global commitment to tackle climate change as evidenced by this week’s summit in Copenhagen to reduce carbon emissions and foster renewable energy. As a result, OPT’s long term fundamentals are brighter than ever before. With that, I’d like to thank you all for attending today’s webcast and your continued support and interest as we work towards making Ocean Power Technologies a leading player in the worldwide energy market place.

[Operator:]

That concludes today’s webcast.