Ocean Power Technologies, Inc. Q4 FY2021 Earnings Call

Good morning, ladies and gentlemen. Welcome to the Ocean Power Technologies Fourth Quarter Fiscal Year 2021 Conference Call. A webcast of this call is also available 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. Today, Philipp Stratmann, President and Chief Executive Officer; and Matthew Shafer, Senior Vice President, Chief Financial Officer and Treasurer, are on the call. Following prepared remarks, we will open the call to questions. On July 19, 2021, OPT issued its earnings press release and filed its quarterly report on Form 10-K for the quarter and fiscal year ended April 30, 2021, with the Securities and Exchange Commission. All OPT public filings are available on the SEC website at sec.gov or in the OPT website's Investor Relations section. 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 and 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 materially differ from any future results expressed or implied by such forward-looking statements. For a further discussion of these risks and uncertainties, please refer to our most recent Form 10-K and subsequent filings with the SEC. We disclaim any obligation or intent to update the forward-looking statements in order to reflect events or circumstances discussed in this call. Now I'd like to introduce Dr. Philipp Stratmann. Thank you. You may begin.

Thank you, and good morning. Today, I will review OPT's business operations and provide an update on activities and developments during fiscal year 2021 and up to today. Then Matt will review our financials, before we open the line for questions. Off the top, I'd like to take a moment to introduce myself. I joined OPT in 2019 as Vice President of Global Business Development with global energy industry experience and leadership positions with Velocys, InterMoor and Acteon Group Company and Ernst & Young; in addition to experience with VT shipbuilding and Shell. I was born in Germany, studied in England and hold a Doctorate in Engineering Management and a Master's Degree in Ship Science from the United Kingdom's University of Southampton. I served in the German Navy, and I've worked worldwide and in many other regions OPT is working to sell its solutions. Until recently, I have worked in our Houston office, and I am now in the process of moving my family closer to OPT's New Jersey headquarters. I am proud that the Board of Directors has chosen me to lead the next chapter of OPT's development, and I'm excited to execute the company's ambitious plans for growth. Despite the challenges of the COVID-19 pandemic during fiscal year 2021, OPT continued to progress, notably and successfully acquiring 3Dent Technology. The addition of 3Dent grew our presence in Houston and opened up new avenues for strategic consulting services, providing engineering and design services for offshore energy customers, including oil and gas contractors, offshore wind, wave energy and marine construction and service companies. The fiscal year also saw OPT delivering studies for defense contractor, Adams Communication & Engineering Technology for the U.S. Navy Naval Postgraduate School SLAMR initiative and oil and gas consortium, DeepStar, on subsea oil production applications for the PB3 PowerBuoy. OPT also deployed a PB3 PowerBuoy in Chile, achieved a PB3 operational milestone in the Adriatic Sea and launched two new products, Hybrid PowerBuoy and Subsea Battery. The company had a key goal of improving its financial position and reducing capital risk in fiscal year 2021. I'm going to ask Matt to expand on that now as he discusses OPT's financials.

Thank you, Philipp, and good morning, everyone. We are very excited to have Philipp in this role and look forward to collaborating. I want to highlight that during fiscal year 2021, OPT significantly strengthened its cash position, generating over $80 million in net proceeds through its at-the-market facilities and equity line common stock purchase agreements. Recently, OPT also transitioned its listing from the NASDAQ Capital Market to the NYSE American Stock Exchange, which we believe enhances the company's visibility. Similar to our recent addition to the Russell Microcap Index, this not only benefits our existing shareholders but also provides greater exposure to potential investors. Now, moving on to OPT's financials. Revenue for the fourth quarter of fiscal year 2021 was $600,000, remaining essentially flat compared to the same period last year. For the full fiscal year 2021, revenue was $1.2 million, a 28% decrease from fiscal 2020. This decline was mainly due to project delays related to the COVID-19 pandemic. The net loss for the fourth quarter and full year 2021 was $5.2 million and $14.8 million, respectively, representing increases from the comparable prior year periods, primarily due to higher costs incurred from COVID-19 delays, increased engineering, product development, general and administrative costs, and the impact of an arbitration settlement. On the balance sheet, total cash, cash equivalents, and restricted cash was $83.6 million as of April 30, 2021. Net cash used in operating activities increased by $1.1 million compared to the 12 months ending April 30, 2020. With that, I'll turn it back to Philipp.

Thanks, Matt. Going forward, OPT will continue to develop and commercialize our proprietary systems that generate electricity by harnessing the renewable energy of ocean waves and solar power. As noted in our 10-K, our strategy includes developing holistic solutions and services, including cloud-based delivery systems for ocean data and predictive analytics using ocean and third-party data to provide actionable intelligence. We believe there is an increasing need for our products and solutions in markets such as fishery protection, offshore wind farm support and maritime domain awareness applications. We continue to build upon our mission of connecting the ocean with those who operate there. Based on our proprietary renewable power platforms and engineering skills, our solutions focus on three major services: data as a service, supported and enabled by power as a service and all underpinned for our strategic consulting services, which we broadened with the acquisition of 3Dent technology. Throughout fiscal 2022, we fully intend to continue developing, evolving and strengthening our offerings as we solidify our position as a leader in maritime power and data solutions. Operator, we're ready to open up the call for questions.

Our first question comes from Robert Silvera with Silvera Associates.

Good job, guys. And could you give me a picture of your current cash burn rate for the next quarter, so to speak, as opposed to this last basically $3 million in the last quarter.

Yes. Robert, this is Matt. I know you called in a couple of quarters ago. I hope you've been doing well. Thanks for your question. Yes, our cash burn rate is slightly higher than it historically has been. It's been around $1 million. So it's slightly higher with the slight pivot we've done that we've talked about. And yes, so that's what we're looking at going forward.

Approximately $3 million a quarter then still?

That's correct, approximately.

Yes. Okay. How would you say it looks for the next 3 to 6 months on pending sales?

Robert, nice to talk to you. As much as I'd love to be able to share details on it, I don't believe that is something I can do in any great detail. We're working very hard with a number of different customers in a range of geographies. Obviously, the global pandemic hasn't helped by curtailing travel and slowing the cycle of projects, be those in the private markets or related to government work. We're optimistic that we'll soon be able to travel more freely and the cycle of projects will pick up, but we're not able to say anything in detail right now.

Okay, you didn't provide details on the installation of the PB buoy in Philadelphia. Now that it's installed, how is it performing? What feedback have you received from the customer?

In April, we did deploy the PB3 PowerBuoy in Chile, and we continue to work with our customers for any follow-up that may be required down there.

Have they given you an impression of whether it is functional at this point and doing a particular job? Are they happy with it? Please provide some feedback on the results there, as this could reflect positively on us with other customers.

The buoy is being installed. I can't comment on the internal matters for other companies.

It's still in the process of installation there?

It's being deployed.

I see. Okay. And the one that's over in Europe, that one now has gone long service duty. And what is the impressions on that from the customer?

The PB3, I presume you're referring to the one that was in the Adriatic for Eni.

Yes.

That is back in New Jersey following the slowdowns related due to COVID-19, and it will be refurbished after the long deployment ready for the next mission.

I see. And it was very successful on the first mission?

It was successfully deployed for nearly two years.

Wonderful. Great. Okay. On the balance sheet that you presented, you have an item that I'd like you to expand a little bit where it says litigation payable. I presume that's $1,224,000? And what is that about? And when is it due?

Yes, Robert, this is Matt again. This pertains to the information disclosed in our 10-K that we filed yesterday. It relates to a litigation matter involving the former President and CEO of the company that began in 2014, and it is all outlined in the document. The payment has been made.

So that's settled now?

That's correct.

The number that's going out at the date that you had this. All right. And so all litigation is now free and clear. No more...

That's right.

Wonderful. Okay. I guess that's it for me. Keep working on it, guys. I think you got great ideas and let's get some sales.

Thanks, Robert.

Our next question comes from a private investor.

Do we have any information on the DeepStar project? Also, the answer regarding the Chile buoy was quite vague. I need to know for April, May, June, July to get deployed; that’s the only information we have. I would appreciate a bit more elaboration on that or any feedback.

Joe, yes, and thanks for the question. Yes, you asked about DeepStar specifically. And DeepStar, same as ACET, and those two studies are complete. And with any study that we are contracted to complete, we're working towards next steps, which could include a sale or lease of the solutions. We're very excited about the studies because DeepStar gives us visibility to several large oil and gas operators in the consortium. There's more to come.

And is there anything more you could say about the Chile deployment? I mean that's it, gets deployed and it's sitting out there? Or is it operational?

The information that we can give is, as we said, the buoy has been deployed. It's in the water. We can't comment on internal matters relating to other companies, and that's where it sits right now.

There are no further questions at this time. At this point, I'd like to turn the call back over to Philipp Stratmann for closing, but we do have a question from Peter Ruggiere with Dawson James.

I have a lot of questions and I'm not sure where to begin. However, regarding George, what happened?

Yes. Sure. George Kirby departed OPT to pursue other endeavors.

I was curious because he has been there for a while. Regarding the addition of the Adriatic Sea, the situation with Chile wasn't an early resolution, but as far as I understand, there was $2.1 million that you would receive for the deployment and the sale of the buoy. I haven't seen that reflected in the balance sheet revenue yet. Concerning the various notes with the Navy about the illegal fishing and the activities in Asia and the developments in France, I am quite confused. A couple of quarters ago, I had questions about Microsoft's underwater data centers. What is the current status? I've been here for over four years, so I'm just trying to clarify things.

Yes. So Peter, I'll start off answering and then turn it over to Philipp on the latter part. With regards to EGP turf showing up on the financials, as you said, balance sheet, we recognize revenue on our contracts over time using the percentage of completion accounting. And under the new accounting rules for revenue recognition, right, you have performance obligations. I won't get into how would all that works. But the revenue has been recognized over time as we have been working on that contract and deploying that asset in Chile. With regards to the Navy and illegal fishing, that's one of our revised strategies that Philipp can talk a little bit more about. And then maybe we can touch upon your question that you had last quarter, and I believe you're referring to Microsoft's underwater data centers?

Correct.

And if I recall correctly, you had asked the question, have we had any conversations with them. I can't fully speak to that. So I'll turn it over to Philipp on those two on the Navy and that.

Yes. So as Matt said, maritime domain awareness is one of the key aspects of any defense security operation in the ocean. We are developing a system that will work with other participants of the maritime domain awareness space as it may be, which includes satellite providers, other vessels, shore-based stations and so on and so forth, in order to provide additional gateway nodes, edge computing capabilities and upload links into the cloud in order to speed up the gathering of actionable intelligence. To your question on illegal fishing, in order to mitigate illegal, unreported, unregulated fishing, you only have two options really. Either you need to be there in the present and stop it in there and now. That requires you to spend millions of dollars on larger vessels, train crews and have them go out there, all of which where they're burning fuel to be there. Or you can deploy autonomous systems, such as our buoys, which at the instance it occurs, might not be able to prevent that specific day of illegal fishing, but generates the data that you can then use to go and prosecute the fishing vessels' owners carrying out the transgressions and then prevent other illegal activities from taking place.

Okay. On a different note, three years ago when July was a deadline for, I believe it was Anadarko, which is bought by Occidental, you want to do a project in the Gulf of Mexico and then you opened an office in Houston, where does any project stand with the decommissioning of oil in the Gulf of Mexico?

We continue to have discussions with the various operators, particularly through the connections that we've recently made with the DeepStar consortium. And as I'm sure you're well aware, obviously, Anadarko is now part of Occidental Petroleum. Our conversations done here in Houston with the marine operators and the oil and gas companies are plentiful.

Okay. And with all this cash, because since I've been involved with your company, you've never had as much cash on the balance sheet I've ever seen. What are you planning to maybe possibly doing some type of acquisition? What's your plan? Because that's plenty of money to have sitting there.

So the 3Dent acquisition is the first opportunity within OPT's long-term growth strategy to expand market value proposition while building revenues. We are continuing to look at other opportunities that add value to our company as we execute our growth strategy.

Okay. How many buoys do you have built so far, the PB3s at this point?

Yes.

Yes, I think we've got serial #6 is in the warehouse undergoing final outfitting.

Okay. Is there anything further going on with Premier Oil?

Yes. Premier Oil merged with Chrysaor Energy late last year or early this year, and this merger was completed and approved in the United Kingdom. As Harbour Energy looks for its next opportunities, we continue to have discussions with them about various possibilities.

Our next question comes from Robert Silvera with Silvera Associates. Robert, you're live with our speakers. Are you muted?

Yes, I guess I am. How's that? Can you hear me now?

Yes, we can. Thank you.

Okay. Sorry. I would like you to elaborate to me a little bit about what you acquired when you got 3Dent Technology as far as capabilities. And how those mesh with the existing business? Can you elaborate a little on that?

Yes, of course. 3Dent Technology serves and has served the offshore oil and gas industry. We aspire to move into offshore wind, and their dedicated team of engineers and naval architects will allow us to do that. It enables us and expands our ability to provide comprehensive solutions to customers operating in rapidly evolving markets. 3Dent has been a strategic partner in developing our Hybrid PowerBuoy and Subsea Battery products, and having them onboard strengthens our value propositions. They have expertise in the form of offshore engineers and naval architects that we have not had in the past. And we see 3Dent has not only been...

Good. I understand better now. So you can even couple in with wind power?

With 3Dent, we can provide offshore engineering services to wind farm developers so that we can start having discussions across the life cycle with them.

There are no further questions at this time. I'd like to turn the call back over to Philipp Stratmann for closing comments.

Thank you. As we've discussed here today, despite the impact of the global pandemic, fiscal year 2021 was a period of growth for OPT. We continue to develop and commercialize solutions into high-growth markets. We're well capitalized. We are continuously expanding our expertise and capabilities, allowing us to bring additional value to our customers. And we are energized and excited for the year ahead and our plans to grow our business to benefit our shareholders. Thank you for joining us today.

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