Ocean Power Technologies, Inc. Q4 FY2020 Earnings Call

Good morning, ladies and gentlemen, and welcome to the Ocean Power Technologies Fourth Quarter and Full Fiscal Year 2020 Conference Call. This call is being webcast on the company's website at www.oceanpowertechnologies.com. As a reminder, this conference call is being recorded and will be available for replay after its completion. On the call today are George Kirby, President and Chief Executive Officer; and Matthew Shafer, Chief Financial Officer and Treasurer. Following prepared remarks, we will open the call to questions. On June 29, 2020, OPT issued its earnings press release and filed its annual report on Form 10-K for the fiscal year ended April 30, 2020, with the Securities and Exchange Commission. All OPT public filings could be viewed on the SEC website at sec.gov or in the Investor Relations section of the OPT website. Please note that management's prepared remarks 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, estimates, intend, plan, contemplate, seek to, future, objective, goal, project, should, will pursue and similar expressions or 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 risks, 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 others, the following: future financial performance, expected cash flow, ability to reduce costs and improve operational efficiencies, revenue growth and increased sales volume, success in key markets, competition, ability to enter into relationships with partners and other third parties, delivery and deployment of PowerBuoys, increasing the power output of PowerBuoys, hiring new key employees, expected cost of PowerBuoys products and building customer relationships. Please refer to our most recent Forms 10-Q and 10-K and subsequent filings with the SEC for a further discussion of these risks and uncertainties. We disclaim any obligation to or intend 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.

Thank you, and good morning, everyone. I'm going to review our business operations and provide an update on our commercialization activities and developments during the fourth quarter fiscal year 2020 and up to today. Then, Matt will provide a review of our financials. I'm happy to report that OPT continued its commercial progress in fiscal 2020 with the sale of a PB3 PowerBuoy, the conclusion of our first autonomous PowerBuoy deployment in the North Sea with Premier Oil and an 18-month PowerBuoy lease extension for our project with Eni in the Adriatic Sea, and the completed construction of OPT's hybrid PowerBuoy. The hybrid complements our PB3 PowerBuoy by providing customers with a quick deployment option and flexible power generation across a myriad of sea states, including low to no wave conditions. We recently conducted in-water tests of our hybrid PowerBuoy in Coastal New Jersey waters that included towing and stability measurements and power generation through the operation of its solar panels and its Stirling engine. We were happy with our results, and we're excited to offer this new product to customers that are seeking an easily deployable, economical and reliable source of offshore power and communications. Applications and solutions for our PowerBuoys include subsea power and battery charging, surface surveillance, subsea monitoring and connectivity for offshore oil and gas, defense and security, science and research and other offshore markets. We're very excited about this new product, and we've aligned our PowerBuoy products with these market-driven solutions that we believe will provide long-term value for our existing and future customers. Our passion for innovation, quality, safety and outstanding service has led us to these commercial successes over the past year. Like many companies, we've had to be flexible and adapt to new ways of working, given the challenges of the global COVID-19 pandemic. Given the pandemic, earlier this year, OPT quickly pivoted to embrace distance working for our office staff, while our production staff safely kept internal and customer projects on schedule at our New Jersey production facility. We've been participating in virtual conferences to continue to market our solutions. And like us, our current and future customers have embraced video conferencing to maintain momentum of existing projects and potential new projects. We're very excited to carry this momentum through this new fiscal year to continue to grow OPT. Now let me turn the call over to Matt to discuss the financials.

Thank you, George, and good morning, everyone. We recorded revenue of $600,000 for the fourth quarter of fiscal 2020, an increase of $400,000 over the prior year period, which is mainly attributable to a new contract signed with Enel Green Power. The net loss for the fourth quarter of fiscal 2020 decreased by $1.3 million, which was mainly attributable to a decrease in general and administrative costs and the receipt of the New Jersey net operating loss proceeds in the current year quarter, which offset expenses. We recorded revenue of $1.7 million for the full year of fiscal 2020, an improvement over fiscal 2019, primarily due to a new contract signed with Enel Green Power. The fiscal 2020 net loss decreased by $1.8 million to $10.4 million, primarily due to lower spending on general and administrative-related expenses. Turning now to the balance sheet. Total cash, cash equivalents, restricted cash and marketable securities was $10.9 million as of April 30, 2020. Net cash used in operating activities decreased by $1.5 million from the fiscal year ended April 30, 2019, to $10.6 million, which is primarily related to lower spending and general and administrative expenses. With that, I'll turn it back to George.

Thanks, Matt. Operator, we're now ready to open the call up for questions.

Our first question comes from Peter Ruggiere with Dawson James.

I had several questions. I saw on the 10-K that this year you're going to spend $14 million, which is going to be up from $12 million pretty much last year. I'm wondering, why? Maybe that is attributed to sales or...

Matt? Any thoughts?

Yes, Peter. Can you be more specific?

Yes.

Well, usually, you guys just spend about $1 million a month and that's usually $12 million a year, and the guidance for the following year is more money. So I was wondering if it's because of a lot more orders or something like that in nature.

Yes. No, Peter, our spending for the current fiscal year that we just completed was actually lower. Our net cash used in operating activities last year was $12.1 million and this year was $10.6 million.

The guidance you're providing for the future is $14 million, which I assume you estimated, suggesting that it typically indicates more revenue.

Peter, we haven't given any guidance, not in the K or really any place.

I saw it somewhere. All right. Maybe I read something incorrectly, and I'm just wondering where we stand on orders across the board. They need to fan out to the Asian islands, with the government's funding, and you're dealing with Modus and Saab Seaeye. What is Premier Oil planning next? And what is the status of the company in the Gulf of Mexico? I'm also curious about Eni off the coast of Italy; are they still going to purchase a buoy since they've extended the one for 18 months in the Adriatic Sea?

All good questions. I will say that Premier Oil has publicly stated their intent to pursue future collaboration with OPT, and we are actively progressing in that direction. Regarding other commercial activities, as much as I’d like to provide updates on our current projects, we cannot discuss them until they materialize.

There's something interesting about the cube that Eni is producing, which seems to adhere to the ocean floor and is powered by the PB3. I'm curious if gases are being released from their operations down there. Can you elaborate on this? I noticed it a couple of months ago.

What's great about Eni as a partner is they have a number of different applications that they're looking at us for. This deployment in the Adriatic is a continuation to prove out for the AUV applications while they're working to basically implement our technologies into their operations. That's an ongoing discussion. But there are a number of opportunities with Eni that we're looking at.

In the call you had a couple of weeks back in Washington for Ocean Week, that came across very well.

Thank you.

At least you mentioned partners and possible partners. I'm just waiting for a lot of sales from you guys, personally speaking.

Yes. And we understand that all shareholders are waiting on that, and that's why we're working so aggressively towards that.

Okay. That's a couple of questions I have for you guys.

Our next question comes from the line of Robert Silvera with R.E. Silvera & Associates.

Congratulations on a good job. You're in a very difficult phase, obviously, going from development to production. And that's a difficult transition for any company, I know, because I've been through it in my own company years ago. My question deals with your applications. You are selling a single buoy most of the time for an application to a customer or do you see multiple buoys in use, so to speak, in series in the application?

That's a great question. As a matter of commercial activities, we are seeing more and more multi-buoy opportunities. Whether it be for emergency power on an umbilical that's failing for an oil and gas operator, we're seeing that, or whether it's for surface surveillance for governments and to be able to provide multiple buoys that actually talk within each other while they're surveilling the oceans and providing that data back to land. We're seeing more and more multi-buoy opportunities. And we recognize that our lowest transaction cost, if you will, are the lowest cost in order to get to an order will be multi-buoys. We need more multi-buoy orders right now, and that's what we're incredibly focused on. The entire organization, not just our expanded sales team, but our engineering team as well, that's job #1 is to help us secure these types of orders.

Okay. So most of the applications then, would you say the majority of them would, if built out completely, would be using multiple buoys as opposed to a single buoy?

I can tell you this, that we're seeing more and more multi-buoy opportunities, and we are pursuing them. And many of the single buoy opportunities start off single but have the ability to expand to multi-buoy opportunities in future phases.

In that particular location. Great. Okay. That's all I have. Keep up the good work. I can see that you're working under difficult circumstances simply by dealing with the pandemic, communications and all the rest of the problems that exist out there, and you're doing a wonderful job to grow as you've grown and keep your costs in line. Thanks for taking the effort.

Thank you very much, Robert. We'll continue to aggressively pursue sales.

Our next question comes from Ken Smith, a private investor.

I'm a big fan of the company and the concept of your technologies, which I believe are revolutionary and will help sustain our environment for the future. I have a question and a comment. As an investor in electric vehicles, I've come across a company planning to produce EVs powered by hydrogen. From what I understand, hydrogen power could be the cleanest renewable energy if implemented successfully. However, the challenge lies in the fact that producing hydrogen requires a power plant to separate hydrogen from oxygen, and these plants generate significant carbon emissions, making it counterproductive. I watched a YouTube video where a man from Europe mentioned that wave power could serve as an alternative energy source to power the plants needed to create hydrogen for electric vehicles. My question is, how aware are you of this concept? And how interested would you be in exploring such a venture, if you haven't already?

That's a great question. Our team is well aware of hydrogen power and its efficiencies. Currently, the markets we are targeting for autonomous power are primarily focused on electrifying their operations. We are also concentrating on using our PB3 to harness wave power and convert it into electricity to support this movement in our industries, as well as our new hybrid PowerBuoy, which primarily utilizes solar energy with a Stirling engine backup. Stirling engines can operate on various fuel sources. However, we are primarily focused on generating electricity through these methods. We are monitoring the hydrogen industry, as it is still in its early stages. It's a valid point, but at this moment, we are concentrating on the areas where we see the greatest revenue opportunities.

Okay. Yes. I appreciate the feedback because I think that definitely will be a long-term investment to pursue. I think it's going to be very profitable. And I appreciate your feedback and insights.

Our next question comes from Robert Littlehale with JPMorgan.

George, could you bring us up to date, given what's been going on in the oil markets, what the trends are in terms of offshore or well decommissioning? Could you give us a little bit of perspective in terms of what you see going on there?

Sure, that’s a great question. Specifically regarding decommissioning, where there are regulatory requirements to complete the process within a certain timeframe, those must proceed. Examples of this can be seen in the North Sea with some of the work we've previously done with Premier Oil and hope to continue in the future. In the Gulf of Mexico, decommissioning may be slowing down somewhat because the regulations are not as strict as those in the North Sea. Overall, the situation is mixed. Additionally, we are seeing ongoing expenditures in areas with producing wells. However, in places where decommissioning is subject to less regulation, it is also slowing down, and exploration is similarly experiencing a slowdown.

I would like to turn the floor back over to management for any further or closing comments.

Thank you, operator. And thank you, everyone, for joining today's call.

Thank you for your participation today. This concludes today's teleconference and webcast. You may disconnect your lines at this time.