Ocean Power Technologies, Inc. (OPTT) Q4 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Ocean Power Technologies Q4 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Mr. Andrew Barwicki. You may begin.

Thank you and good morning. Thank you for joining us on Ocean Power Technologies’ conference call and webcast to discuss the operating and financial results for the fiscal year ended April 30, 2016. On the call with me today are George Kirby, President and Chief Executive Officer; and Mark Featherstone, Chief Financial Officer. George will provide an update on the Company’s highlights for the year, key activities, and strategy, Mark will then proceed to review the financial results for the fourth quarter and fiscal year-end. Following our prepared remarks, we will open the call to questions. This call is being webcast on our website at www.oceanpowertechnologies.com. This call will also be available for replay later today. The replay will stay on the site for on-demand review for the next several months. After the market closed this past Friday, Ocean Power Technologies issued its earnings press release and filed its Form 10-K with the Securities and Exchange Commission. All of our public filings can be viewed at the SEC website, which is at www.sec.gov, or you may go to the OPT website, which is www.oceanpowertechnologies.com. 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 provisions of the Private Securities Litigation Reform Act of 1995. 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 that involve risk 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 10-K and other recent filings with the Securities and Exchange Commission for the description of these and other risk factors. And now, I would like to turn the call over to George to begin the discussion. Thank you.

Thank you, Andrew. Good morning, everyone, and thank you for joining. Today, I will start by reviewing some of our accomplishments for fiscal 2016 as well as provide an update on business operations. Mark will then briefly review our financial results after which both Mark and I will be available to answer any questions. Fiscal 2016 represented a year of strategic execution and achievements for our Company. In September 2015, we announced initial deployment of our earlier generation prototype PB3 PowerBuoy as a first step toward validating our next-generation advanced power takeoff, or PTO. In October 2015, we announced the initiation of accelerated life testing of our next-generation PTO in order to assist us in shortening the time to validate system design and reliability and to bring our product to market. During the remainder of fiscal 2016, we focused on developing our commercial PB3 PowerBuoy, making what we believe are significant improvements to the reliability, survivability, manufacturability, and cost to operate and maintain our autonomous PowerBuoy as compared to earlier iterations. Last month we announced the redeployment of our prototype PB3 PowerBuoy. And this month we announced the deployment of our first commercially designed PB3 PowerBuoy. This commercial design incorporates multiple enhancements over early prototypes, including our next generation PTO, a higher capacity modular energy storage system and a higher efficiency power management and distribution system, and several other improvements that make this design easier to manufacture, deploy, and maintain. With two PB3 PowerBuoys operating simultaneously, and when combined with our accelerated life testing data, we are receiving a constant stream of performance data which can be shared with prospective customers and partners. Additionally, we announced what we believe are significant milestones for our accelerated life testing. To date the accelerated life testing of our PTO systems has exceeded 10 million total cumulative cycles. This achievement simulates the equivalent of over one and a half years of ocean operation for our PTO fleet. Prior to redeploying our prototype PB3 in June, we integrated a Self-Contained Ocean Observing Payload called SCOOP from the National Data Buoy Center, or the NDBC, under Phase 1 of our joint cooperative research and development agreement. Wind and weather data are communicated directly to the NDBC website as part of its integrated ocean observing system and used by industries all over the world. In addition to the NDBC payload, we are also evaluating an acoustic sensor for the detection and monitoring of marine animals through an agreement with the Wildlife Conservation Society. In fiscal 2016, we established a Technical Advisory Panel, or TAP, as part of our efforts to accelerate PowerBuoy commercialization and to gain adoption across our target markets, which are oil and gas, ocean observing, security and defense, communications, and offshore wind. The TAP meets telephonically about every 2 to 3 months to discuss progress in advancing the technology, provide market feedback on the technology, and to vet potential applications that require remote offshore power and data communications. One of the panel members, Gardline Environmental, entered into an agreement with us to jointly develop midocean monitoring and maritime security systems for prospective customers, and we continue to speak with other industry stakeholders to advance demand for such systems. In June of this year we announced our first commercial PB3 PowerBuoy agreement with Mitsui Engineering and Shipbuilding, or MES. The agreement includes engineering and logistics support and a six-month PB3 PowerBuoy lease agreement. We anticipate deployment off of Kozu Island in Japan in 2017, following the successful completion of a planned stage gate review. We are excited about this first PowerBuoy lease, and we hope to leverage this momentum in furthering our commercialization efforts. Other business achievements include securing approximately $1.7 million through the state of New Jersey's business tax certificate transfer program, raising approximately $1.6 million through a registered direct public offering in June, and we recently elected two new directors to our Board. We are also pleased to have a pending settlement to the class-action lawsuit that was initiated in 2014. We are committed to developing capabilities and relationships in our target markets, and we continue to look at various markets from the ground up. Throughout the last year Ocean Power Technologies has met with companies and organizations that we believe can benefit from our PowerBuoy, and we continue to identify new applications for remote offshore autonomous power and data communications. Although our sales process can be lengthy as we introduce and explain the benefits of our innovative technologies, we are now beginning to see results from meetings that occurred months ago. The high level of interest from current and prospective customers in new markets underscores what we believe is global demand for our PowerBuoys. Our ongoing challenge will be to manage the growth process prudently, taking the time to carefully select opportunities and expand at a pace that potentially optimizes value for our stockholders. In fiscal 2017, we'll focus on aggressively driving our products to market through demand creation in cross-target markets. This year we will continue to strengthen our value proposition through further PowerBuoy performance improvements, and we will seek to drive costs out of our products while maintaining the quality and reliability in our designs and processes. We will focus on strategies for manufacturing ramp-up by expanding our qualified supply chain and evaluating potential partnerships. We will continue to drive demand and commercialization of our products throughout our target markets, such as offshore oil and gas, where seafloor pipeline monitoring, ocean current, and weather monitoring and subsea equipment powering applications require remote power and data communication solutions – and new applications such as autonomous underwater vehicles, where we believe we can significantly extend their subsea missions through PowerBuoy-based charging stations with data transmission capability for the offshore oil and gas and the security and defense markets. We believe that we have a significant opportunity to deliver improved financial and operating results in the years ahead as we continue to develop our markets and grow our sales base. I will now turn it over to Mark, who will review our financial results for the year.

Thanks George. And good morning, everyone. I will now review results for the fiscal 2016 fourth quarter and fiscal year-end before we open the call for questions. For the three months ended April 30, 2016, OPT reported revenue of $100,000, as compared to revenue of approximately $500,000 for the three months ended April 30, 2015. The decrease in revenues compared with the prior year was primarily related to decreased billable costs on previous projects with MES and with the U.S. Department of Energy, while the current year reflects authorized pre-work under a Letter of Intent for our autonomous PowerBuoy project with MES. As George mentioned, we announced the full contract with MES in June 2016. The net loss for the three months ended April 30, 2016 was $4 million, as compared to a net loss of $3.3 million for the three months ended April 30, 2015. The fiscal 2016 fourth quarter included a charge of $1.1 million related to the pending settlement of a class-action lawsuit. In addition the fourth quarter of 2015 included a higher gross profit due to a change in project costs related to a now-suspended prior-year MES project. Both product development costs and selling, general, and administrative costs were favorable in the fiscal 2016 fourth quarter, compared to the prior year. While the prior-year fourth quarter included costs related to both our former utility-scale PB40 PowerBuoy, as well as our prototype PB3 PowerBuoy, the current-year fourth quarter reflects our focus on the development of our commercial PB3 PowerBuoy, the deployment of which we announced earlier this month. Our net loss in the fourth quarter of fiscal 2016 was higher than third quarter, primarily due to the charge related to the pending class-action lawsuit settlement noted previously, as well as the third quarter included the benefit from the sale of net operating losses. This benefit is recorded at the time the sale was finalized and has occurred in the third quarter for the last several years. I would also note that selling, general, and administrative expenses were also lower in fiscal 2016 compared to the prior year due to reduced consulting, patent amortization, and legal costs. For the fiscal year ended April 30, 2016, OPT reported revenue of $700,000 as compared to revenue of $4.1 million for the year ended April 30, 2015. This decrease in revenues is consistent with our strategic pivot refocusing our product development efforts on autonomous PowerBuoys and our deliberate decision to transition toward commercial revenues. The resulting net loss for the year ended April 30, 2016, was $13.1 million as compared to a net loss of $13.2 million for the year ended April 30, 2015. However, fiscal 2016 selling, general, and administrative costs were nearly $3 million favorable compared to fiscal 2015. Turning now to the balance sheet, as of April 30, 2016, total cash, cash equivalents, and marketable securities were $6.8 million down from $17.4 million on April 30, 2015. As of April 30, 2016, and April 30, 2015, restricted cash was $0.3 million and $0.5 million, respectively. Net cash used in operating activities was $10.9 million for fiscal 2016 compared with $17.2 million in fiscal 2015. The prior year reflects the return of $4.7 million related to an advance payment received from ARENA, while the current year reflects costs related to increased deployment activity. As discussed in prior conference calls, we have taken a number of steps over the last several months to reduce our cash burn rate while focusing our technical, operating, and business development resources on key initiatives – particularly the commercialization of the PB3. As we have been discussing, our operating cash burn in fiscal 2016 was lower than that in fiscal 2015, despite increased deployment activity in fiscal 2016. We remain confident in our cash position, and we expect to have sufficient cash to maintain operations until at least the quarter ended January 31, 2017. With that, I will turn it back to George before we open up the call for questions.

Thanks, Mark. Before we move on to Q&A, I want to remind everyone that there are thousands of offshore devices currently collecting a wide range of data in the oceans around the world. These devices mostly run on solar or battery power, all of which require numerous services on a continuous basis. We believe that our PowerBuoy is poised to be the data collection platform for the burgeoning blue economy, because it is capable of supplying continues power and real-time data communications, which we anticipate will allow end-users to create new, game-changing applications which leverage this capability while reducing our operating costs. We believe our PowerBuoy will enable more, better, lower-cost, and real-time data to enable environmental intelligence for the blue economy. At this time, I welcome the opportunity to answer your questions.

Thank you. I’m excited by the progress that our team has made. And we continue to explore opportunities to apply more resources to grow our markets. We are considering numerous business initiatives in the U.S. and Asian marketplaces, and we believe we have in place a platform to continue to strengthen and grow our business. We also believe that our value proposition, coupled with our targeted diversified markets, will allow us to improve our operating results regardless of market conditions. I want to thank you all once again for attending today’s call. And if you have any further questions, please don’t hesitate to contact us. Otherwise, we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.