Q3 2023 Ocean Power Technologies Inc Earnings Call

Speaker 1: And.

Speaker 2: Good morning, and welcome to the Ocean Power Technology's third quarter fiscal 2023 earnings conference call. Welcome to the Ocean Power Technology's fourth quarter fiscal 2023 earnings conference call.

Speaker 2: The webcast of this call is also available on the company's website at www.oceanpowertechnologies.com. This conference call is being recorded and will be available for replay shortly after its completion.

Speaker 2: On the call today are Dr. Philip Stradman, President and Chief Executive Officer, Bob Powers, Senior Vice President and Chief Financial Officer, and Joseph DiPietro, Controller, and Principal Accounting Officer.

Speaker 2: Following the prepared remarks, there will be a question and answer session. Now I am pleased to introduce Joseph DiPietro. Thank you and good morning. After the market closed yesterday, we issued our earnings press release and filed our quarterly report on Form 10Q for the period ended January 31, 2023.

Speaker 2: Our public filings are available on the SEC website and within the investor relations section of the OPT website.

Speaker 2: During this call, we will make forward-looking statements that are within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker 2: Forward-looking statements may include financial projections or other statements of the company's plans, objectives, expectations or intentions.

Speaker 2: 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.

Speaker 2: Additional information about these risks and uncertainties can be found in the company's Form 10-K and subsequent filings with the SEC.

Speaker 2: The company disclaims any obligation or intention to update the forward-looking statements made on this call.

Speaker 2: Finally, we posted an updated investor presentation on our IR website. Please take a moment to review it as it provides a nice overview of our company and strategy.

Speaker 2: Now I am pleased to introduce Dr. Philip Stratton.

Speaker 3: Thank you, Joe, and good morning. We appreciate you joining us.

Speaker 3: I am pleased with our progress on building our order book and sales pipeline. We are at $3.8 million of orders through nine months, which is more than double what it was at the same point last year. I like the direction we are headed, and I remain confident in our ability to achieve our $9 million order target for the year.

Speaker 3: I'd like to spend a moment on Pipeline. Over the past few months, we have materially reorganized our sales organization to drive activity of WAMB sales and leases, feasibility studies, demonstrations and future orders and to accelerate our bookings with defense customers.

Speaker 3: We are having success building awareness with our key customers and making inroads with a variety of projects across a broad range of project sizes.

Speaker 3: We have potential orders in the low tens of thousands for shorter term leases, all the way to multimillion projects consisting of a mix of assets.

Speaker 3: It is not a surprise that the higher the number, the longer it takes to get to a signed order that we can act on, especially when we're dealing with multi-party contracting, which is often the case. The important point for me to communicate is that I'm very pleased with the efforts of our sales team. Our pipeline is never be better and gets stronger monthly.

Speaker 3: We made meaningful progress on a number of key projects during the third quarter and so far in the fourth quarter.

Speaker 3: First, we partnered with Task Force 59 of the US Navy on a project in Bahrain to support the Digital Horizon exercise for use of unmanned surface vehicles in that area.

Speaker 3: This initial demonstration for Digital Horizon was completed in January 2023 and has already led to a follow-on deployment.

Speaker 3: This came in January when we were awarded another contract with Task Force 59 to provide WAMVs to support the International Maritime Exercise 2023. This is a smaller project that is less than $1 million but is incremental progress with one of our strategic customers.

Speaker 3: Also in January , we obtained final acceptance for the buoy deployed at the now green-powered Chile.

Speaker 3: We are now in the warranty phase of our contract with the customer and look forward to using this project to drive discussions about other ocean sensing opportunities.

Speaker 3: We are starting to gain traction with our recently launched MDAS platform.

Speaker 3: As we announced on October 5th, we secured a contract to deploy a PV3 equipped with MDAS for a government customer off the coast of California.

Speaker 3: October 5th, we secured a contract to deploy a PB3 equipped with MDAS for a government customer off the coast of California. No preparations are underway.

Speaker 3: Additional MDOS demonstrations are currently being finalized with various agencies of the US government.

Speaker 3: We are also continuing to use our demonstration array of New Jersey to advance opportunities for MDAS deployments to support illegal, unreported and unregulated fish reinterrence and deter smuggling activities.

Speaker 3: Also in February , we secured an order for the second WAMB 16 for Somara Subsea. Somara is a forward-thinking company focused on subsea activity for the offshore energy sector.

Speaker 3: What was noteworthy about this deal is that it was the first long-term lease arrangement we had entered into 4MV.

Speaker 3: To date, Samara has ordered two leased RANv 16s and we're actively discussing future support.

Speaker 3: We were pleased to begin work on Phase 1 of the National Oceanic and Atmospheric Administration SBIR Dynamic Swarming of Un-Unsurfaced Vehicles this third quarter.

Speaker 3: This project is for hydrographic surveys in NOAA's Disaster Recovery Project that is ongoing. The goal is to design a command and control infrastructure to optimize SONAR data and unmanned surface vehicle survey lines.

Speaker 3: This is expected to autonomously survey a disaster area such as those created by hurricanes.

Speaker 3: And finally, we continued work on the U.S. Department of Energy Phase 2 development of a Next Generation Wave Energy Converter Program Award.

Speaker 3: Over the next 18 months, we will develop and test a modular and scalable mass on spring wave energy converter power buoy for reliable powering of autonomous ocean monitoring systems, bringing an entirely new power buoy into our offering.

Speaker 3: In fact, the first offshore demonstration of the Mass On Spring Wave Energy Converter is being deployed off New Jersey this spring.

Speaker 3: We had a nice quarter of steady progress on each of our strategic focus areas of data as a service, power as a service and strategic consulting services.

Speaker 3: We are on the cusp of finishing our fiscal year strong. We are working hard to close a number of orders to meet our goal for the year. Even more exciting than the possibility of achieving our 2023 order number is that our pipeline suggests we will build upon that next year. We are gaining traction. With that, I will turn it over to Bob for more details on our financials.

Speaker 4: Thanks, Philip. Let's start with revenue. For the quarter, our top line was $734,000, which was up 52% from the prior third quarter.

Speaker 4: Through nine months, our revenue generation of $1.8 million, which is up 75%, or nearly 2x from where we were last year.

Speaker 4: A key driver of our revenue trajectory is our order activity.

Speaker 4: As Philip indicated, our orders are up 111% to $3.8 million year-to-date, with significant additional order activity in various stages of negotiation.

Speaker 4: We continue to expect order activity and revenue to ramp meaningfully as we close out the fourth quarter and head into Fiscal 2024.

Speaker 4: Deferred revenue is another indicator of our sales activity.

Speaker 4: We had a net decrease in deferred revenue as several projects were started or completed during the quarter.

Speaker 4: As a reminder, the biggest component of deferred revenue is related to the $1.1 million Mileswick buoy project which started in December 2022.

Speaker 4: This project is expected to be active through the second quarter of fiscal 2024.

Speaker 4: We are Manning your archives well.

Speaker 4: We see ample supply and availability of parts and materials and costs have stabilized.

Speaker 4: With our WAMB business helping us operate with more predictability than the recent past, our gross margin is 21% year to date.

Speaker 4: Moving to our cost structure, we continue to manage costs well with deliberate investments in our sales organization and our WAMB business.

Speaker 4: Our sales teams continue to make strong inroads with our growing list of prospective customers, and we believe this additional sales talent investment has helped us maintain this momentum.

Speaker 4: strong inroads with our growing list of prospective customers and we believe this additional sales talent investment has helped us maintain this momentum. Moving to the balance sheet.

Speaker 4: We ended the quarter with $41 million of cash, which includes our cash, cash equivalents, restricted cash, and short-term investments.

Speaker 4: We continue to operate with no bank debt, with no plans to use debt.

Speaker 4: Our year-to-date net cash used in operating activities was $15.8 million and reflects a quarterly run rate in line with the past few quarters.

Speaker 4: A component of this operating cash flow use is the continued building of inventory level for WAN-V activity.

Speaker 4: That covers our financial update. As you can see, we remain prudent with our cost structure as we position the company for ramping order volumes and sales activity. With that, Philip and I are happy to take your questions.

Speaker 2: Thank you. We will now be conducting a question and answer session.

Speaker 2: If you would like to ask a question, please press star 1 on your telephone keypad.

Speaker 2: A confirmation tone will indicate your line. This is question Q.

Speaker 2: You may press star two if you would like to remove your question from the queue.

Speaker 2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker 2: Once again, that's star one to ask a question at this time. One moment please while we poll for your questions.

Speaker 2: Our first questions come from the line of Sean Severson with Water Tower Research. Please proceed with your questions. Please proceed with your questions.

Speaker 5: Well, good morning guys. Congratulations on the progress. I think my question is really around the sales.

Speaker 5: Alfred, in what you're doing differently. I know, Phillip, you mentioned you were talking about making, you made some changes there. I was wondering if you could expand on that a little bit and talk about what's different now than before.

Speaker 3: Yeah, thanks Sean and I appreciate you joining us. Yeah, certainly the biggest change we have made is really reorganizing the sales team in its entirety to focus more on the areas where we see the biggest growth when it comes to recurrent revenues.

Speaker 3: So that's the asset service provision that we take into the market.

Speaker 3: So we brought in a new sales lead just over a year ago Who comes from you know a decade and a half of experience in the marine technology industry? And he has continued to build out a team alongside and underneath them

Speaker 3: with several ex-military personnel. We've got people that have joined us that come out of the defense industrial kind of area that really understand the Marine.

Speaker 3: side of that, and we've also brought people in that come from the kind of, you know, the intelligence community.

Speaker 3: including some people with experience in autonomous vessel operations. What that has meant is that we now have people in the sales organization that truly understand the customer requirements and customer needs and can tailor the approach that we take into the market. And I think that is well reflected in what we've seen in our overall pipeline, which is...

Speaker 5: as you know these bookings turn into into revenue.

Speaker 3: Yeah, again, good question and thank you for that. The way we're looking at inventory is, what we're trying to position, is the ability to really enable customers.

Speaker 3: to take our vehicles or buoys or other data solutions that we provide at short-term notice.

Speaker 3: What we're trying to remove is the barrier to purchase for them or barrier to lease. Because if somebody turns around to us and says, hey, I would like, you know, I want to do a survey off the west coast of Alaska, and we turn around going, okay, well, we'd have to build you a boat. You've just introduced a four to six week delay.

Speaker 3: We can turn around and saying yeah, we've got one available We just need to put the sonar head on it and it will be ready for shipment within the week that materially helps

Speaker 3: get to more bookings. It helps increase the recurring part of the bookings because those vehicles obviously come back into inventory afterwards. And it also enables a quicker conversion from bookings into revenues as we start recognizing revenues quicker.

Speaker 5: Great, appreciate that. Thank you. I'll step back. Thank you.

Speaker 2: Thank you. There are no further questions at this time. I'd now like to hand the call back over to Dr. Philip Stratton for any closing comments.

Speaker 3: Thank you. We appreciate you joining us. As you can see, we're making meaningful progress on our transformed business. Thank you for being shareholders and potential shareholders of our company. We are very excited about closing out the year strong. Have a great rest of your day.

Speaker 2: Thank you for your participation. This does conclude today's teleconference and webcast. You may disconnect your lines at this time. Enjoy the rest of your day.