Q2 2022 Ocean Power Technologies Inc Earnings Call
Yeah.
Good day and thank you for standing by welcome to the second quarter fiscal year 2022 conference call for Ocean Power Technologies, Inc. As a reminder, this call is being recorded and will be available on the company's website. Shortly after its completion I would now like to hand, the conference over to your speaker today, Joseph D Pietro controller and Treasurer.
Please go ahead.
Good morning, and thank you for joining us on this call a webcast of this call is also available on our website at Www Dot Ocean power technologies Dot com.
Joining me on the call today are Dr. Phillip Chapman, President and Chief Executive Officer, and Bob powers, our newly appointed senior Vice President and Chief Financial Officer.
Following our prepared remarks, we will have a question and answer session.
After the market closed yesterday, we issued our earnings press release and filed our quarterly report on Form 10-Q for the quarter ended October 31 2021.
All of our public filings are available on the SEC website at SEC Gov or within the Investor Relations section of our website.
This call will include 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 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.
Additional information about these risks and uncertainties can be found in our most recent Form 10-K and subsequent filings with the SEC, we disclaim any obligation or intent to update the forward looking statements made in order to reflect events or circumstances discussed on this call now I am pleased to introduce Dr. Philip Statin.
And good morning, we have a lot to update you on this morning, as we had a busy second quarter and start to us third quarter in executing our strategy to become the global leader in data and power as a service within our oceans and seas. This.
This is an exciting time for ocean power technologies. Some quick highlights of our progress, including further growth of our strategic consulting services. The advancement of our maritime domain awareness solution and the acquisition of Marine Advanced Robotics, you Didnt company, which manufacturers' autonomous water vehicles, we have quickly established the necessary beachhead.
Isn't that a consistent reliable and most importantly, actionable data intelligence to our global customers before I get too far into our strategy and business update I would like to take a moment to introduce Bob powers, our new senior Vice President and Chief Financial Officer.
As you saw in our press release on Monday, He started with US a few days ago, and we could not be more excited about Bob joining our team he brings expertise and driving financial excellence and executing strategy and a broad range of companies and industries and has extensive experience with M&A activities, but possesses strong financial acumen is proactive and.
Clear communicator, and he will bring great leadership to OTT.
Ooh top requisite that we were looking for we are fortunate to have him with that I'd like to introduce you to Bob Palace Bob.
Thank you Philip it's my pleasure to be here today and share with our Investor community, how excited I am to join this innovative company.
Early in the recruiting process it became clear that my experience and skill set would allow me to hit the ground running and make an immediate impact L. P T.
Background includes more than 25 years of financial experience for a number of public and private companies. Most recently I was CFO at constellation Advisors are private equity owned provider outsource back office operations and compliance services.
There are many reasons why I decided to take this opportunity. Although I have worked in companies of various sizes I truly enjoy the action fast pace and a high degree of openness to change and existing smaller companies.
I believe that OTT has the opportunity to do something special.
Nearly 70% of the world is comprised of proportions and OTT as a company looking to tap into that enormous resource to better connect our oceans with those who operate there the.
The company's strategy ties nicely into the critical and very timely topic of sustainability and I became convinced the market potential is massive.
It is very appealing to be part of that is such a critical stage.
I look forward to being a strong partner to fill up and the organization and executing the company's strategic vision.
I also look forward to speaking with many of you over the coming months and earning your trust quickly.
I will now turn things back over to Phil.
Thanks, Bob it's great to have you onboard to help us execute our strategy and drive shareholder value.
While we will come up I also want to take a moment to thank Scott <unk>, who served as interim CFO. The past few months and provided us with substantial support us be felt was important to executive role.
Scott has provided strong leadership wise counsel and steady guidance over the past few months and we thank them for that we wish him well as he returns to being semi retired I will now turn my comments to the performance of our business as we continue to evolve from being solely a manufacturer of wave energy devices to becoming a multifaceted offshore data power and engineering.
Services organization.
I will organize my comments around our three core service areas, which also serve as a foundation of our growth strategy.
Our vision is to have all data as a service segment provide consistent and constant data information to our customers.
Darted in earnest with the work we did for harbour energy in the North Sea in 2019.
Since then we've been developing and maritime domain awareness solution to introduce edge computing and artificial intelligence modules that can be delivered to customers via cyber secure cloud environments. For instance, our data as a service can provide governments with key activity data to protect our shows as part of National security measures.
We bolstered the segment with the acquisition of Marine Advanced Robotics in mid November This was a cash and stock deal plus it has an earn out provision over the next two years, we paid $11 million of closing, including $4 million in cash. We expect this deal to be immediately accretive for the balance of fiscal 2022.
M. A R designs and manufactures unique autonomous surface vessel utilizing the patented wave adaptive modular wave technology or <unk> for short.
These stable and portable ultra light vehicles are incredibly useful for a multitude of applications such as Marine survey emissions active patrolling of waters on maintaining safe borders. We believe there are substantial synergies to be gained with opt's focus on the maritime domain awareness and integration with our power buoy product that can.
The length and scope of missions at sea.
M. A R. S. Three sizes of commercially available vehicles, providing our customers with multiple options depending on their needs.
<unk> has a strong customer base pipeline of product sales and robotics service projects, we're looking to use apt's resources, including a 56000 square foot manufacturing and warehouse facility to scale up their capacity to meet the demand for one <unk> for industrial security and researches.
Our acquisition notwithstanding the pace of development continues on schedule with our proprietary maritime domain awareness platform.
As I mentioned last quarter, we are creating a leading edge cloud based platform with expandable sensor and analytic Kato the capabilities. We're doing this using a mix of internal expertise supported by external firms for development, namely Fathom five and green fee base.
We have strong reputations with cloud computing and robotics development.
We are continuing to test and refine our maritime domain awareness offering with ocean trials off the coast of New Jersey.
Since September we have deployed and retrieved test buoy that operated as expected and produced broad data information, including video footage and radar trucks that we believe will be very attractive to our customers.
Our near term plans include deploying PV three on hybrid power buoy outfitted with unnecessary radar cameras and other equipment software development continues.
We believe that pairing the security features of our MTA system with zero and low carbon power of Opt's power buoy product and with the future integration of the capabilities of the one V vehicles will keep <unk> at the forefront of this critical market.
Next is our power as a service segment, which delivers a tournament clean power to our customers wherever and whenever it is required by utilizing our managed power platforms such as the <unk> three power buoy hybrid power buoy in the subsea battery for topside and subsea power applications.
We continue to advance our existing platforms to offer our customers an expanded range of options for delivery of power to the equipment. A recent example of these efforts is the initial study conducted for the Destock consortium developing a concept for subsea oil and gas power supply.
We also continued development of our next generation mass on spring wave energy converter supported by the U S Department of energy ground, which I spoke about on our last call.
This is the type of public private blue energy collaborations that we believe is necessary on larger scale to accomplish the goals of the United Nations decade for Ocean Science for sustainable development.
And finally, we have a strategic consulting services business, which focuses on delivering value to our customers in the areas of Ocean engineering structural and dynamic analysis front end engineering and design or feed studies and motion simulation.
Our February 2021 acquisition of Freedom technology continues to integrate well and has expanded our strategic consulting services offerings I'd like to remind you that we are in the process of sun setting the named <unk> and going forward, we will simply refer to our strategic consulting offerings.
We now have the capabilities to conduct engineering projects for a variety of clients, including offshore energy related applications. This is especially important right now because the oil and gas industry recovers from last year's downturn.
We are seeing increased demand for this type of support as companies look to restart exploration and production projects that were put on hold due to the pandemic. Another achievement for our consulting business include successfully winning our first wind farm project early in the third quarter.
We are excited about our progress to date and the opportunities that are ahead of that.
With that let me turn the call over to Joe to discuss the financial results in more detail.
Thank you Philip and good morning, again to everyone joining us on the call today revenue for the second quarter of fiscal year 2022 increased to 247000 compared to 118000 in the second quarter of fiscal year, 2020 one.
Due to growth of our strategic consulting services engineering and product development costs increased $1.1 million sequentially from the first quarter. This year. This was mainly due to testing done off the coast of New Jersey as we further position our data as a service segment for growth.
Selling general and administrative costs increased by approximately $200000 from the second quarter of fiscal year 2020 to the second quarter of fiscal year 2021 however declines.
Sequentially from the first quarter by almost $900000. We continue to operate with a strong balance sheet and in the second quarter with $72 $6 million of total cash and cash equivalents and no bank debt, which gives us significant flexibility.
We expect our cash near term to fund our operation needs of approximately $5 million of cash per quarter. Additionally in support of our growth strategy. We will continue to look for tuck in acquisition opportunities that reinforce our three core service segments.
M. A R acquisition is a great example of this which resulted in a cash outlay of $4 million of closing subsequent to quarter end in short we had a fairly straightforward quarter from a financial perspective for now we are happy to take your questions.
Okay.
Thank you.
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Yeah.
Our first questions come from the line of Robert Rachel. Please proceed with your questions.
Hello, I'm, a individual investor and I got it.
I'm retired army, so I got some different questions and probably what most people have.
One is on the last conference call. You stated that you guys would be deploying three P. B threes want them be the anchor Louis P. B three off New Jersey.
We have not heard anything about that or had any news releases at all so my question is I've read up on a lot of the Navy on the Navy side, all the S. B I R. In S E T. Our works and in most cases.
Thanks.
The study goes into phase two.
It becomes a lot of times confidential or secret. So my question to you is is that.
Test with the anchor list.
With the Navy is it classified so that you guys are basically under Andas, where you cannot released information on it.
Hey, Robert.
Thank you for your question and for being an investor.
The tests of New Jersey, we are conducting a entirely financed on all right.
I the products that we have deployed so far are a set of test piece and we have a set of PB threes on the hybrid being deployed.
The three sites that we have.
Then later on in the fiscal year, we would also be deploying the first demonstrator for the next generation power buoy system that we are developing which I mentioned is the mass on spring wave energy converter or <unk> for short are the three sites that we have stay as they are they all financed by us.
And they are sites that are permitted by the Army Corps of engineers.
Okay, one more question.
Your.
Buoys get the P. P threes can.
Detect.
Other ships or vessels or whatever I'm wondering what is the distance how far out can they detect vessels.
And can they pinpoint their location say like a G. P S location and how accurate whats the accuracy on that.
Okay.
Thank you for the question Robert.
The the detection distance depends to a certain extent on high up we fit them off on how high up the customer is wanting to go and how many miles a customer wants to cover typically speaking we are about 50 nautical mile radius range for detection.
And with the combination of AI S radar.
And video camera detection abilities that we've got we can pinpoint vessels very accurately, including having the ability to detect aaas spoofing and vessels with AIA Asaf.
Alright. Thanks, that's all the questions I have at this time.
Okay.
Okay.
Thank you our next questions come from the line of Tom Van Arsdale with Ares Capital Management. Please proceed with your question.
Yes, guys. So I saw the results.
The total.
Total losses.
Two investors are $243 million when are you guys gonna be profitable saw the recent acquisition.
Explain the pathway to profitability for this company.
Absolutely.
Thanks for the question, Tom as I mentioned on the last call.
As we reiterated today, we are we are moving.
Towards.
The data Ocean data as a service segment.
And one of the reasons for why we brought in and Bob powers. The CFO is his experience with subscription stream revenues.
And the Ocean data as a service segment lends itself to start providing.
More of a a das type service, which has recurring revenues, which result from the subscription streams that we can sell on the day to that and in addition to that we can provide our duties as a power as a service segment into those say by by layering on the <unk>.
Recurring revenues over the platforms, we are building out and installed base around the globe and then enables us to go out and generate profit.
And thus become.
Become profitable for our shareholders.
Okay.
Installed base, how many P threes are in the water.
For paying customers.
At the moment and the other press releases that we've got the the primary P. B three that's currently installed which was dumpsville under the previous strategy that we were executing is the walnuts down in Egypt for Chile.
So there's only one in the water.
Pathway to profitability as well.
Yeah.
The way the way as I said, that's the way we're executing as we're building out the installed base and in order to increase the owned store base and make the underlying platforms.
Being being profitable by themselves is by building out the solution set that sits on top of the platforms. Because ultimately that is what the customers are interested in in terms of being able to help solve their problems.
Thanks.
Yeah.
Okay.
Thank you our next questions come from the line of Jeff Brewbaker. Please proceed with your questions.
Okay.
Hi, everybody.
I was just wondering if you can speak any further on that.
Lamb or unless you Dan.
I'm, sorry, pretty cool video about yeah.
This empowers role in that and specifically if there is a P b three.
At the landmark facility in Monterrey or not.
Okay.
Hi, Jeff.
That's a that's a that's a good question, we're very excited to working on Slammer. The sealant military research initiative, which is being hosted by the naval postgraduate school.
You've probably seen in that video the initial studies all.
For that project have been completed.
And ultimately it.
That will involve APB three.
That would be going in the water for the offshore demonstrations.
And as you would've seen is it is it fits exactly into that maritime domain awareness space. It is using <unk> to power communications.
Gateways in this case as you saw on the video provided by AT&T to extend five G offshore and then communicate with aerial surface in subsea drones say we are we are currently in ongoing discussions with naval postgraduate school about when and where the dem.
Construction for the.
The actual offshore demonstration will take place.
I'm looking for the ideal location in terms of permitting.
Okay.
Okay.
Okay Awesome things and then you mentioned the Nextgen power buoy with.
Banned from buying Green see I was just wondering when can we expect some more information on that.
The new capabilities might be and stuff like that.
Okay. Yeah, I think just just just to clarify southern five in Green C. And this is where we were moving to more of a platforming approach and funded five and green tea are independent of the underlying platform. They are developing the edge computing and cloud computing capabilities for us on.
The mechatronics for the.
The solution payload. The next generation power platform I mentioned is the mass on spring wave energy converter.
Essentially what you end up doing you move the moving parts on the outside of the P. B three into.
The PB <unk> III.
Thus you reduce any any any any risk of having any external exposure, where you know a valve could fail over steel would need maintenance do you increase the the time between maintenance and potential failures and were being at the moment. This is in a phase one with the department.
One of energy, where the department of energy is contributing $197000 I believe.
Two two this study once that study is complete which will be in the next couple of months.
We will be deploying the first demonstrator off the coast of New Jersey, and then looking to secure additional funding for commercializing this product, which would then occur at some point over the next 12 to 18 months.
Yeah.
Okay. Thank you.
Yeah.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Robert <unk>. Please proceed with your questions.
Hello, Okay, I got a couple more questions.
One is.
Is the study that's going on with atoms engineering in the study with the Navy and the five G.
Is that steady classified or secret.
That study is not classified or secret, but for commercial confidence reasons I can't divulge the details of the study other than we.
Well I, just just mentioned about the <unk> study and in general.
Okay, one more.
Say the navy needs one of these.
Anchor those buoys that you're working on with them say they need want deployed somewhere in the world.
There's something that's come up you know military wise.
Can they be air dropped.
Hmm.
I.
We don't currently have.
<unk> buoy.
We have commercially available.
And we are working on an ankle as well working on single point mooring.
Two two.
At this point in time, we have no nukes.
I'd add dropping one of our beliefs, but one of the reasons, we acquired Marine advanced robotics is the ability to have additional launch and roaming capabilities in order to deploy MDA systems for ISR purposes say for example on a global basis.
Okay, well I've read several articles on the on you know Navy sites about.
You see either call the Navy buoy or a station keeping buoy, so you're not working on either one of those.
Yeah.
I think those are.
The concept that were being developed and talked about a couple of years ago.
But what we decided where we've gone is that we're utilizing some of the findings from the <unk> concept and putting that into the the Moss Lake system, which is the next gen power system.
In addition, I think given the growth in the ASB Flash USB market.
Look instead of having an ankle as buoy, having rooming vehicles I think is a much better ankylose concept because you can cover a much larger area at any given time.
Okay. So that sounds like to me that you might be using the BD three two.
To be a recharging docking station for the land.
Okay.
That is definitely one of the concepts, we're working on and it's a it's a it's a concept we actually developed prior to even the <unk> acquisition with some potential docking station partners.
Alright. Thanks.
Yeah.
Thank you our next questions come from the line of Robert Silvera R. E. Silvera <unk> Associates. Please proceed with your questions.
Hi, I'm, sorry that I came in a little bit late and I missed the first 12 minutes herself.
Did you announce any new sales of actual P. B three units.
And if not do you have any on order.
Hi, Robert No we did not announce any any any new sales or any backlog. We are in active discussions with several customers domestic and overseas right now with the <unk> three and the hybrid under discussion.
The platforms for our maritime domain awareness solution.
Oh, okay.
So right now all revenues are coming from basically services provided.
Yeah.
So.
Right in the quarter that came from services provided and the study with the department of energy.
Obviously as we're moving forward now that you you might have missed that.
In the <unk>.
Before you logged on obviously M. A R is immediately accretive to our business, but these are activities that occurred in the third quarter. So far.
I see.
Okay. Thank you very much.
Thank you. Our next question is come from the line of Joe Dirt Schakowsky. Please proceed with your questions.
Yeah, how many actual buoys are there off the coast of New Jersey.
Oh no.
<unk> three permitted sites given the weather that occurred over the past last last week actually we put them in after after being out there for several weeks.
And we are currently waiting for a suitable weather window for redeployment on on those systems.
How many buoys were pulled in.
Okay.
Not that it was the final one was pulled in I believe last week on Tuesday or Wednesday.
So in the last call you had said that they were gonna be three bogeys are set.
[noise] out off the coast in New Jersey.
Did you take in three buoys that were out there or how many actual buoys were out there that you've pulled in.
Okay. So now I understand your question I apologize.
We had two out because.
If the weather windows to came back in and we've actually we've got five.
We're looking to put out onto the three sides I think if I on the last call. If I didn't mention on that one the way we're going about it is we are cycling some of the buoy is in and out so that we can go and make refinements to some of the payloads based on the life data. We are collecting and then we have hot swapping.
Payload systems on the different platforms in and out that his efforts continue to be ongoing.
And I think the the where we are currently currently have.
Three on standby.
We'll go out at the earliest opportunity again.
How much revenue directly came from three <unk> last quarter I mean, we it's can we see an uptick in revenue here or is this.
Is this what we have to look forward to for what we paid for it.
The last last last quarter, St and revenues.
200, and just over $260000.
And we have seen a material uptick in the opportunity pipeline unearned revenues coming into the third quarter, given the uptick in oil oil pricing as well as the uptick in east Coast Wind farm activities.
What happened with the power buoy three in Japan.
And was launched in 2018.
The power buoy that was out from Mitsui Engineering, Inc.
I think it was out there.
Cold weather it was six months or thereabouts.
But that project ended.
That buoy was came came came back to us.
I would say that was a demonstrator project from Mitsui.
And how what what kind of feedback are you getting from the Chile, a buoy that's out there.
Well as you can see from the public statements as well that AGP has made.
They they are appreciative and they like the buoy operations profile and in fact I believe there is a they have a public website, where you can see how the buoy is operating the power is generating and so on and so forth.
I guess my point out of the whole thing is why isn't the buoy getting any traction out there I mean, we were where the company has not even been able to sell one of year one quarter nothing can.
Can we see.
What's holding it back is it the sales is it the data that's not already not working out there properly.
What's the end game with them.
No I think the boobies works as designed and as intended and as engineered the REIT and the reason we are making the pivot and we're executing it very swiftly to board more of the solutions side is that our customers are looking to us to provide them not judge.
With the platform, but also with the payload and the integration of that payload into their systems and that is where we've seen a material uptick in our opportunity pipeline ever since we've moved towards being able to provide them more of a quota a modified off the shelf type systems as opposed to being able to.
Solely provide them with the power platform in and of itself.
I mean, if anybody who's looking at the Chile.
Info information that is putting out I mean, nobody's stepping up to the plate and put in orders together for it and seeing that it's working that goodwill our company watch wanted them why aren't we seeing that.
Yeah.
Well as it is.
Conversations that we're having half since the deployment of Chile, as well and since we've moved towards the the ocean data as a service offering.
The increase substantially and I think as I mentioned earlier.
The conversations we're having with some overseas and domestic customers are around the buoy, but the buoy as a platform for the payload that is going to be provided.
Typically around maritime domain awareness on subsea same thing.
Do you have do we have do you have any idea of when we're going to see any kind of revenues on the books with the new acquisition of a wham.
You will see revenues on those books.
This quarter.
This is an immediately accretive deal.
Alright, Thanks, gentlemen.
Okay.
Okay.
Thank you. Our next question is come from the line of Robert Silvera with R. E. Silvera <unk> Associates. Please proceed with your questions.
Hi, Thank you up more strictly at sales too.
This selling services idea.
We are the as I understand we are the provider.
Of the unit that will be the base for the services.
Therefore, the cost.
Hours of creating this unit.
What kind of timeframe.
Gives us.
From the services cost thing.
The payback.
For our investment in the actual buoy and.
This system.
Yeah.
Thanks for the question Robert.
The way we're looking at it it is somewhat of a hybrid model that we are discussing with some of our potential customers right now in some instances.
Looking at acquiring the platform and then us providing the services on top and in other cases, they're discussing with rolling in essentially a lease model similar to what we did for Eni and hover energy I'm a couple of years back on rolling that into the overall into the overall cost.
So it's it kind of depends on the customer and whether they are governmental or private but it generally is a hybrid between leasing or selling of the platform and then the provision all the services for the.
For the pilots.
And the corresponding subscription charges.
So we are obviously willing to go either way.
Through lease or purchase.
Yes, we are willing to go either way primarily in order to rapidly scale up of the installed base that exists out there.
Very good thank you that clarifies things.
Okay.
Okay.
Thank you. Our next question is come from the line of Tom Van Arsdale with Ares Capital Management. Please proceed with your question.
Yeah.
Tom could you check if you're on mute please.
Tom one more time or yourself muted.
Oh, Yes can you hear me now I'm sorry.
We can hear you yes, yes.
Yes, sorry about that.
Robert Silvera asked a very interesting question I would like to follow up with a follow up question on that.
He asked for what is the feedback on the model for data.
The company is pivoting to a data as a service.
What is the payback how long will it take.
From the initial capital cost to build it deploy it get it out there put the systems on.
And then get paid back for.
We're a profitable business. So thats the question I'd like to ask.
All right.
Thanks for the question I think in terms of.
Others.
Mentioned to Robert and.
In the case of where the the hardware is sold.
Payback on that is immediate plus the margin that's on top of that what it's immediate to the point of obviously at the point of delivery and acceptance test and then it's the recurring data stream in terms of the lease model it will be around dependent it depends on the duration that the customer needs. It for.
But typically speaking like with all offshore assets it will be some way.
A range between.
18 to 36 months, which is typically speaking where were most offshore offshore assets are a payback over a lease period.
So youre, saying that the actual contract that may develop as an 18 to 36 month contract.
Over that time.
The payback will be complete.
In terms of covering all of the upfront capital cost deployed.
No no that's.
That's not what I'm, saying, what I'm, saying is that the contract could be any duration from six months to 10 years.
But the typical payback period of the hardware in and of itself sits in the 18 to 36 months range.
It's one of the main reasons why we are spending the time and effort at the moment of developing.
The data capabilities. In addition to that because that is the recurring data subscription charges that we can then maintain even once the hardware is paid off to have recurring revenues on an installed base that has paid off.
So as I understand it it would require.
This model requires.
<unk> and <unk>.
Revenue stream customers.
Would.
To enable our payback is that correct.
Well, we would only lease if it is on a longer term basis.
All with a with a customer where there's a high degree of certainty on recurring revenues otherwise the model as I mentioned to Rob It would be focusing on a sale of the hardware and then provision of the services on a recurring basis on top of the sold hardware.
Okay.
Thank you that is all the time, we have today for our question and answer I would like to hand, the call back over to Dr. Phillip Stratman for any closing comments.
Thank you.
Excited about what is ahead for OTT with the additions of Marine advanced Robotics, and <unk> technology, we are transforming the company with new and varied capabilities that seek to build on the innovative technologies when which.
<unk> was founded on and we are confident this will translate to long term value for our customers and shareholders I want to thank our customers employees vendors strategic partners and shareholders for your continued support.
Thank you for your participation today. This does conclude today's teleconference and webcast you may disconnect your lines at this time.
Yeah.