Q3 2022 Ocean Power Technologies Inc Earnings Call
Good morning, welcome to Ocean power technologies third quarter fiscal year 2022 conference call and webcast of this call is also available on the company's website at Ocean power technologies Dot Com. This conference call is being made.
Corded and will be available for replay shortly after its completion on today's call our doctor fill up the Strat Mann President Chief Executive Officer, Bob Powers, Senior Vice President and Chief Financial Officer, and Joseph D. P. H L controller, Treasurer, and principal accounting officer.
Following their prepared remarks, there will be a question and answer session. I'm now pleased to introduce Joseph P. P. H O.
Thank you after the market closed on March 14th 2022 O P. T issued its earnings press release and filed its quarterly report on Form 10-Q for the quarter that ended January 31 2022.
Paul O P. T public filings are available on the SEC website at SEC Gov or within the Investor Relations section of the O P T 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 may include financial projections or other statements of the company's plans objectives expectations or intentions.
These 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.
Additional information about these risks and uncertainties can be found in the company's most recent Form 10-K and subsequent filings with the SEC.
The company disclaims any obligation or intent to update the forward looking statements made on this call.
Now I am pleased to introduce Dr. Phil scrapping.
Thank you Joe Good morning, and thank you for taking the time to join US for our business update I will start with a broad overview of our strategy, we're moving fast and I want to make sure everyone fully understands what we're doing why we're doing it and where we are heading.
I feel that it is important since we've added several new revenue streams to what we've been known for in recent years the television.
Our vision is to be the first company that someone thinks of when it comes to monitoring assay. So areas you know issues there.
This vision is bold and our recently expanded business strategy has three main components first is data as a service.
Here, we are providing robust data to customers. We believe long term that this would be the part of our strategy that is our largest recurring revenue producer.
We can do this through our maritime domain awareness software and when the autonomous surface vessels.
EMEA software and development will be use without power buoys and one vs. Plus it can also work with other vessels offshore assets and structures to provide real time data.
Applications for tracking and monitoring include illegal fishing crude oil theft and national security.
Second its power as a service we will continue to manufacture and upgrade our category, leading power buoys, which can be leased or it for example, we're making intuitive design changes to our hybrid power buoy to increase solar power conversion capabilities and improve stability.
We are also developing the next generation power buoy with the development of the mass on spring wave energy converter or what we refer to as muscle ache.
We're in the final stage of the Phase one study for this development with the U S Department of energy and we've already commenced scoping all submission for phase II funding that was bring us closer to a first of a class system. If granted we are currently targeting a late fiscal 2023 completion data of this development.
Finally, as our strategic consulting services, we will continue to provide the most robust offering of consulting services available to those who do business in the oceans as noted on our last call activity for offshore energy related engineering consulting services has been steadily ramping back up as companies restart exploration and production projects.
That post during the pandemic. We are also broadening our non oil and gas services, including the delivery of our first wind farm support project.
Apt's strategic consulting services team is also increasingly in demand to provide expert engineering analysis on legal matters.
Our highly respected engineers use data analysis and proprietary simulation techniques tomorrow vessels and equipment using environmental and other case specific data to stimulate incident conditions.
With that doesn't overview I'd like to take you through an update of each component of our growth strategy and a little more detail.
Ocean intelligence is at the core of data as a service and it's a component of our strategy that we believe has the most opportunity long term.
In the short term recently.
Marine advanced Robotics will drive a significant portion of our revenue growth.
Not only did the existing team come over to us, but so did the existing customer base and customer pipeline.
We now have autonomous roaming assets in the one V to provide intelligence and data to customers.
This includes the hydrographic survey market, providing customers with critical see flow data initial important harvest far offshore and shipping lanes and wind farm development sites.
It can also include defense and security Maritime domain awareness applications. For example, when these can identify suspicious vessels patrol security perimeters and inspect objects of interest.
Longer term, we expect to provide robust reliable data throughout autonomous maritime domain awareness software and development with software and integration experts such as five and five and Green tea.
We identified this need over the course of the past two years and working with our targeted customer group.
There is significant demand from commercial entities and government agencies, who are monitoring areas offshore and want to do so without the need for crude vessel.
Human capital, which significantly increases the costs.
We believe we can deliver a better solution that reduces the ongoing cost considerably and it takes out human error.
Examples include offshore National security efforts enforcement of fishing activity and marine protected areas protection of shipping lanes and prevention of crude oil theft.
Proprietary cutting edge system will interact with multiple hardware sources. It can be mounted on power buoys. When these platforms vessels or elsewhere to provide real time analytics about activity in a designated area.
Beyond the capabilities to truck vessels and capture and store evidentiary vessel data in the cloud, including radar and video.
<unk> will facilitate the integration of public and private third party data sources and analytics.
This capability can only further enhance the site specific information on data for our customer.
Our investment in continuous improvement cycles of the software will be ongoing we.
We expect a strong return on this investment through monthly fees for this data.
This valuable data with high interest and we're currently building the customer pipeline to support its launch.
Other data intelligence, we can collect them provide includes ocean environmental condition monitoring whether data collection mimo trucking and additional sensor based information critical for a broad range of needs for wind farm development to ensuring the vitality of marine protected areas for future generations.
Value proposition is strong since we can do this autonomous Lee with census, and southwest eliminating the use of carbon producing vessels and crews, which are very expensive and have varying degrees of human risk.
We believe our data as a service business directly addresses the single biggest hurdle, we have to ramping up sales of power buoys.
Lying cycles for our platforms are generally very long, especially in end markets with government involvement or dependent on the primary projects to be developed such as oil and gas projects. Our data as a service models are closer to subscriptions, where the monthly fee is significantly lower which we believe will speed up the decision making process for our customers and results.
In a materially bigger customer pipeline.
For this reason, we are focusing on creating a leading edge maritime domain awareness offering combines autonomous low carbon OTT hardware and proprietary OTT software. We are continuing to refine system operation with continued ocean trials off the coast of New Jersey with PV three in hybrid power buoys before moving onto future incorporate.
<unk>.
The integration of Marine advanced robotics continuous diligently and remains on plan. We've recently added and continue to actively recruit additional staff to accelerate fulfilling the backlog and delivering on the growing pipeline interest in <unk> remains high and is why we pursued this acquisition.
Marine advanced robotics contributed $257000 to revenue in the third quarter. We expect this line of business to ramp and contribute approximately $2 million to our revenue in fiscal year 2023.
The immediate response, we have seen for <unk> with our customer group has been strong and gives us even more confidence about the long term opportunity all gives us to meet this initial demand. We currently have approximately 20 <unk> being built.
Power as a service is where we have most of our legacy business autonomous probability platforms convert very for energy or soda energy into electrical power for offshore applications and payloads, producing and delivering that power to the end user as a service OTT provides why the power buoy and subsea battery platforms, which could be sold or leased to.
The customer, but again these buying cycles are long and unpredictable. Therefore, we recently expanded our service offering based on customer feedback.
We now have a model where the power be a subsea battery platform is owned and operated by ADT owned affiliate and then sales to power produce to the customer for a recurring fee.
Additional services can also be built into sales and leases, including routine maintenance specialized integrations on hardware and software updates.
The revenues for this service in the 20 to $30000 per month per barrel range.
Finally in addition to expert witness services Apt's strategic consulting services provides engineering and design services for oil and gas wave energy and offshore wind customers such as drilling contractors defense contractors construction yards in engineering and service firms.
Our dedicated team has expertise in structural engineering hydrodynamics Naval architecture applied to services, including simulation Engineering software engineering concept design admissions monitoring all of which help our customers increase operational efficiencies and reduce risk.
We are quickly becoming known as a very effective firm to help address a wide range of issues for companies with the ocean assets.
I want to switch gears now and provide you with an update on several of our important projects in process throughout the world fastest.
So this is our project in Chile, which we classify as data as a service we have team members on site. This week finalizing all work for our customer which was delayed due to COVID-19, and recent inclement weather if everything goes well, we should complete work this quarter and our full acceptance from the customer we are discussing ocean monitoring with other entities as a result of.
Our work in Chile.
Another data as a service project is our work with the U S. Naval Postgraduate school Slammer initiative to support its autonomous offshore Defense Network initiative.
Most initiatives involving government agencies at home or abroad. Most of the information is classified while we believe we provide an incredible value proposition to government agencies without technology and teams and look forward to additional projects like this.
Based on the business drivers of data power and strategic consulting services, we're very optimistic about the future of MPT.
We believe that they are solid opportunities for business growth and creating shareholder value and that way on the right path for making that happen.
With that let me turn the call over to book to discuss the financial results in more detail.
Thanks, Phil I'll start my comments with my initial observations of our finance function. So if I now have my first quarter under my belt.
I've been pleased by what I've seen today. This is not a situation that needs an overhaul or a big fix the team is lean and strong we have an excellent balance sheet and the process and control environment met my expectations for a company our size.
But as with everything in business. If there was a vision things can become even stronger.
Company's strategy is bold and achievable our number one job within finance is to make sure. We stay a step ahead and to ensure we can scale. It provide the analytic visibility into our sales and operations teams to drive growth.
Not been lost on me that revenue traction has been slow over the years. However, I joined <unk>, because I see where Philip and the operations teams are heading and it is exciting our.
Finance team will continue to work hard to maintain strong cost management and optimal visibility to our sales pipeline.
Moving to our financial highlights during the quarter I'll start with revenues.
Revenue for the third quarter of fiscal 'twenty to increase to $484000 compared to $317000 in the third quarter of fiscal year 2021.
As Philip mentioned this was due to revenue contributed by Marine advanced Robotics. Following the acquisition and continued growth of our strategic consulting services.
Due to lower project costs engineering and product development costs were down sequentially $617000 from the previous quarter.
As you can appreciate projects like our NDA software development do not come in at the same level each quarter.
Micron resulted in some slowdowns in the third quarter due to absenteeism Gen.
Generally speaking, we expect our engineering and product development to be somewhere between the second quarter and third quarter levels over the next few quarters as we advanced this initiative.
SG&A cost increased by approximately $925000 from the third quarter of fiscal year 2021, compared to the third quarter of fiscal year 2022, primarily due to approximately $300000 of costs related to our acquisition of Marine advanced robotics, and an increase of approximately 225000.
To share based compensation we.
We expect SG&A to be around $2 $3 million near term.
We continue to operate with a strong balance sheet, ending the third quarter with $63 $9 million of total cash cash equivalents and restricted cash and no bank debt, which continues to give us significant flexibility to drive our strategy.
Regarding our near term plans for the use of cash we continue to expect to use approximately $5 million of cash per quarter to cover our operating expenses. Additionally.
Additionally, we will continue to look for tuck in acquisition opportunities that reinforced the three components of our growth strategy now.
Now Philip and I are happy to take your questions operator.
Okay.
Thank you.
We will now be conducting a question and answer session. Please press star one on your telephone keypad to join the question queue.
Information until will indicate your line is open the question Kim you.
You May press Star two if you want to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up the handset before pressing Mr. Keys. Once again Thats star one to ask a question at this time, one moment, while we poll for questions.
Our first question is from Jeffrey Campbell with Alliance Global Partners. Please proceed.
Good morning.
Well, if you've guided approximately $2 million in wound be revenues for fiscal year 'twenty. Three I was just wondering what sort of work.
Supports this revenue during the fiscal year.
Yeah. Thanks for the question Jessica Good morning, and good to hear from you again.
The primary efforts that they are.
These are being used for is hydrographic survey efforts when it comes to the smaller omb's on it is government and defense work when it comes to the 16 and 22 photos that are that that that we're building out.
Okay.
You mentioned that 21 days.
Being constructed.
What's the.
Let's try to think of that in terms of what you have currently like what's the <unk>.
Size of the current one BP athlete what sort of units are you building in terms of size and are.
Are any of these units as part of your 2023 guidance for the division.
Yes.
The current fleet is about our Huntsville, just because of the size that <unk> been operating out prior to the acquisition.
In terms of where we're going we took a we took a deep cut of the various proposals that were sitting at <unk> pipeline.
On that basis our building.
<unk>, eight <unk> and 'twenty twos, but with a preference towards the eighth.
And yes, you are correct. The the 20 vehicles that we're building out.
Featuring into the 'twenty three guidance, so that we can go and enable recurring lease revenues from the fleet.
There's a significant amount of all offshore wind development beginning to gather steam.
In the Eastern U S did you see us in power price.
Aspects in that area and if so could you.
Point out, which tools would be most applicable to this area.
Yeah, so actually to that point I'll be I'll be I'll be testifying in front of the New Jersey legislature on Thursday morning, as part of New Jersey Broda efforts for wind power in Ocean technology writ large.
How waste power features into into that mix.
Our primary asset on wind development is actually for both sets of our primary products, which is the power buoys to do monitoring of the sites to ensure that developers know who's going in and who is going out.
Doing hydrographic survey development with the Ymmv's and then longer term you know, obviously looking at supporting inspection maintenance and repair intervals with surface vehicles with buoys, but obviously with when those development a few years out that's going to come down the line, but in the in the in the very near term there.
There is site monitoring.
Surveillance that is going to go okay.
Okay and then.
Bob mentioned.
Some are interested in tuck ins.
Time goes by I was just wondering are there any significant revisions less ads in the marine domain awareness still get or do you expect.
The business is hard to store some customer wins as currently configured.
The business, Ken can and will a school customer wins as currently configured but obviously, we haven't we have an active active business development.
Yes, going on and we continuously look for opportunities to add to what we have in our toolbox to make us even more attractive for the customers and accelerate revenue growth further.
Okay. Thanks, very much for the color.
Thank you Jeff.
Our next question is from Robert Savannah.
With R E. Silvera. Please proceed.
Hi, Thanks for taking my call.
My first.
Commvault is thank you for telling us.
Update on the Chile Boy.
It is getting to the point, where it can generate some significant revenue.
Do you have any other applications out there.
That are approaching that point or a point.
Yeah. Thanks, Thanks for dialing in Robert and Thanks for your question.
Just to reiterate.
Top revenue producing projects.
We currently have obviously, the maybe the efforts with.
<unk> in Chile, which is staying in a data as a service there is the ongoing MAA all revenues for <unk>.
As we said we see that in terms of a 2 million guidance for FY 'twenty three.
We are finishing the power as a service project, which is the most weight efforts for the department of energy and are currently working on a submission for phase III, which would be a material driver of the development of that system.
And we're currently priming to have our our MDA software in the next generation that we have.
Going going into the water off the coast of New Jersey, and we've got several government agencies that are already booked to witness various demonstrations of that system. So that is where we see the bulk of the the revenue growth coming from right now.
So that's new Jersey.
Yes.
Newmont told all the application what would yield 20 to $30000 a month revenue.
Can you expand on that and how close might that be.
Yes, essentially it is.
A shift from what the company has historically been focused on which is trying to find a market to sell our platforms into.
Shifting to an effort to lease these platforms on a longer term basis and by taking a look at how the useful economic life of the assets that we have developed.
We can and by building out having having assets on our own books. We are now in a position where we can go and offer customers <unk> and hybrids and <unk> on a lease basis.
It reduces it shifts the burden from Capex to Opex for the customer the 20 to 30000, specifically is related to powerful platforms.
<unk>.
With a primary focus on the PD <unk> three.
You will recall.
Obviously, we've refurbished the buoys that we have deployed in the Mediterranean and in the North Sea. Previously said these are now available for customers to utilize on being specced into proposals right now.
Very good so do you have any kind of an estimate when that might actually materialize.
Oh.
Don't want to provide you guidance at this time, but based on the way that we've been expanding the business strategy and the growth in the pipeline that we've been seeing in terms of proposals on discussions. We believe the path is well defined and will be providing updates on that as they occur.
Oh God.
You mentioned also a market to monitor crude oil.
Can you expand on what size of a market that is in all much of that is going on.
Yes.
Yeah, absolutely. So just dimension crude oil theft in general is a.
It is a rather large existing issue.
Is this primarily in parts of West Africa to a large extent.
Given the fact that we have a maritime domain awareness system operates autonomously and collect an alert operators.
And when vehicles.
Approach Offloading buoys that are otherwise unmanned.
That is what is one of the primary areas primary areas that we're focusing on so it is it is another example of us utilizing what we have in our toolbox in this case maritime domain awareness on the range of platforms that we have.
Looking at deploying it into markets, where there is a direct need for this type of monitoring application.
Oh, great Okay.
Thank you very much.
All my questions.
Thank you Rob I'd appreciate it.
Thank you. This concludes our question and answer session I would like to turn the conference back over to Philip for closing comments.
Thank you.
Said earlier I am very optimistic about the future of <unk>, our investments in strategic consulting services and innovative autonomous vehicles are truly transformative for this company.
Emily belief that our concentration on developing data as a service capabilities and next generation power as a service platforms will pay off for the company and our shareholders are truly appreciate your continued support.
Thank you for your participation today. This concludes today's teleconference and webcast you may disconnect. Your line at this time.
Okay.
Yes.
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