Q2 2024 Ocean Power Technologies Inc Earnings Call

Good morning, and welcome to the Ocean power technologies second quarter of fiscal year 2024 earnings Conference call.

Good morning and welcome to the Ocean Power Technologies second quarter of fiscal year 2024 earnings conference call.

The webcast of this call is also available and can be accessed by a link on the company's website at www.oceanpowertechnologies.com.

A webcast of this call is also available and can be accessed by a link on the company's website at www Dot Ocean power technologies Dot com.

This conference call is being recorded and will be available for replay shortly after its completion.

This conference call is being recorded and will be available for replay shortly after its completion.

On the call today are Dr. Philip Strattmann, President and Chief Executive Officer, Bob Powers, Senior Vice President and Chief Financial Officer,

Speaker Change: On the call today are Dr Phillips, Chapman, President and Chief Executive Officer.

Speaker Change: Bob Powers, Senior Vice President and Chief Financial Officer.

and Joseph DiPietro, Controller, Treasurer, and Principal Accounting Officer. Following the prepared remarks, there will be a question and answer session.

Joseph Dipietro controller, Treasurer, and principal accounting officer.

Speaker Change: Following the prepared remarks, there will be a question and answer session.

Speaker Change: Now I am pleased to introduce Joseph D. P H L.

Thank you and good morning. After the market closed yesterday, we issued our earnings press release and filed our report on Form 10Q for the quarter ended October 31, 2023.

Speaker Change: Thank you and good morning. After the market closed yesterday, we issued our earnings press release and filed a report on Form 10-Q for the quarter ended October 31 2023.

Speaker Change: Our public filings are available on the SEC website and within the Investor Relations section of the O P T website.

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

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 Change: 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.

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

Speaker Change: 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

Speaker Change: 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 on certain fees, and other factors that make causal results to be materially different from any future results expressed or implied by such forward-looking things.

Speaker Change: Or no control and involve risks uncertainties and other factors that may cause actual results to be materially different from any.

Speaker Change: 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 Form 10-K.

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

Speaker Change: Subsequent filings with the SEC.

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

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

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. Now I am pleased to introduce...

Speaker Change: Finally, we posted an updated investor presentation on our IR website. Please.

Speaker Change: Please take a moment to review it as it provides a nice overview of our company and strategy.

Speaker Change: Now I'm pleased to introduce Dr. Philip scrapping.

Thank you, Joe. Good morning, everyone. We're pleased to have you join us on this call and you continue to support us greatly, value.

Thank you Jay and good morning, everyone. We're pleased to have you join us on this call and your continued support is greatly valued.

Before we delve into the numbers, I'd like to highlight that I'm pleased with our quarterly results and our continued positive momentum. The market demand is clear.

Speaker Change: Before we delve into the numbers I'd like to highlight that I am pleased with our quarterly results and our continued positive momentum the market demand is clear.

Our customers are procuring autonomous resident and roaming assets that protect marine environments, collect essential ocean data, and enhance national security.

Speaker Change: Customers are procuring a ton of them as a resident in roaming assets protect marine environments collective central Ocean data and enhance national security. We continue building, our pipeline and are converting opportunities into backlog and revenues.

We continue building our pipeline and are converting opportunities into backlog and revenues, as seen with wins like the recently announced multi buoy and multi vessel contract.

With wins like the recently announced multi buoy and multi vessel contracts. We believe we are well positioned to translate this momentum into profitable growth in the next 15 to 18 months and deliver value for all shareholders.

We believe we're well positioned to translate this momentum into profitable growth in the next 15 to 18 months and deliver value for our shareholders.

Speaker Change: Let's talk about some recent developments in November 2023, we announced that we have substantially completed our research and development phase and are primarily focused on commercial activities. We.

In November 2023, we announced that we have substantially completed our research and development phase and are primarily focused on commercial activity.

We've built a suite of products and solutions that we believe will be the basis for our current and future commercial success, resulting in meaningful progress in backlog, revenue and profitability.

Speaker Change: We've built a suite of products and solutions that we believe will be the basis for our current and future commercial success, resulting in meaningful progress and backlog revenue and profitability.

with contracted backlog increasing from $3.1 million on July 31, 2023 to $4.5 million at October 31, 2023.

Speaker Change: With contracted backlog, increasing from $3 $1 million at July 31st 2023 to $4 $5 million at October 31st 2023.

This pivot to commercial and operational activities has enabled a reduction in reallocation of headcounts that are vestial of our three dent and the material reduction in third party expenses.

Speaker Change: Pivot to commercial and operational activities.

Speaker Change: Neighborhood, a reduction and reallocation of headcount the divesture of our <unk> and a material reduction in third party expenditures as it was.

As a result, the majority of our employees are now dedicated to customer delivery.

Speaker Change: The majority of our employees are now dedicated to customer delivery.

We expect that recent meaningful contract wins, which I will describe more fully in a moment, the growth in our commercial pipeline and the expense savings noted, will enable us to reach profitability during calendar year 2025 using current capital resource.

Speaker Change: We expect that we seen recent meaningful contract wins, which I will describe more fully in a moment the growth in our commercial pipeline and the expense savings noted what enabled us to reach profitability during calendar year 2025, using current capital resources.

This expectation does not account for extraordinary expenses, such as those related to the Paragon litigation that could cause OPT to seek additional capital from financing.

This expectation does not account for the extraordinary expenses such as those related to the Paragon litigation that could cause a BT to seek additional capital from financing sources.

In December 2023, we secured our first multi-brewy letter contract. This is a subcontract with a US-based train contractor with a $6.5 million ceiling to deliver maritime domain-aware solutions for US government aid.

Speaker Change: In December 2023, we secured our first multi buoy. That's a contract. This is a subcontract with a U S based try and contract with a $6.5 million ceiling to deliver maritime domain awareness solutions for U S. Government agencies. This contract exemplifies our commitment to innovation and the schools the crucial role.

This contract exemplifies our commitment to innovation and underscores the crucial role our technology plays in bolstering maritime national security and providing state-of-the-art solutions, including multi-Berry arrays that contribute to a safer maritime environment.

Speaker Change: Technology plays in bolstering Maritime National security and providing state of the art solutions, including multi buoy erase that contribute to a safer maritime environment.

In October 2023, we're awarded our first Multivessel 1V Order. A volume order from Samara, a prominent player and offshore service.

Speaker Change: In October 2023 were awarded our first multi vessel M B.

Speaker Change: Volume order from Tomorrow, a prominent player in offshore services.

The order, valued at $1.6 million, underscores the recognition by customers of our ability to provide innovative, unsustainable solutions for the off-sharing.

Speaker Change: The order valued at $1 $6 million underscores the recognition by customers of our ability to provide innovative and sustainable solutions for the offshore industry.

Due to demand, production has already under way to fulfill the order and will allow for revenue recognition this fiscal year.

Speaker Change: Due to demand production is already underway to fulfill the order and will allow for revenue recognition this fiscal year.

We recently retained Reartmo Vicarino Vick Makado, as a special advisor to the company's sport of directors. We plan to leverage Vick's experience expertise and networks as we build an our momentum in providing intelligent maritime solutions to the US government and defense and security So here are two seconds.

Speaker Change: We recently retained react know Victoria Vic Mecate as a special adviser to the company's board of directors, we plan to leverage fixed experience expertise and networks as we build on our momentum and providing intelligent maritime solutions to the U S government and defense and security sectors.

and carefully navigate the challenges of securing access to on protecting highly sensitive and confidential information.

Speaker Change: And carefully navigate the challenges of securing access to on protecting highly sensitive and confidential information.

Finally, we recently appointed Mudbiddi to the newly created role of Chief Commercial Officer.

Speaker Change: Finally, we recently appointed Mark <unk> to the newly created role of Chief Commercial Officer, Mike will report directly to me and we will leverage mats vast experience to drive the next phase of our growth and the commercialization of our cutting edge products, particularly for the National security and defense markets.

Matt will report to me and we will leverage Matt's vast experience to drive the next phase of our growth on the commercialization of our cutting-edge products, particularly for the national security and defense.

And short, I'll have the increased commercial and operational activity levels I'm seeing throughout the organization. We continue to position the company well within the industries we serve. Our opportunity pipeline continues to grow. In addition to the orders I just discussed, we've also continued to add to the top of the pipeline.

Speaker Change: And should I be increased commercial and operational activity levels I'm seeing throughout the organization, we continue to position the company well within the industries. We serve our opportunity pipeline continues to grow in addition to the orders I. Just discussed we've also continued to add to the top of the pipeline pipeline on October 31st 2023.

Pipeline of October 31st, 2023 is approximately $93 million. For a net gain of approximately $26 million during the first half of the fiscal year.

Speaker Change: <unk> has approximately $93 million for a net gain of approximately $26 million during the first half of the fiscal year.

We are continuing to grow our revenues and our growth profit margins are increasing. Our strategy is working and we see additional opportunities for multi-system orders on the horizon.

We are continuing to grow our revenues and our gross profit margins are increasing.

Speaker Change: Strategy is working and we see additional opportunities for multi system orders on the horizon.

Now, before we dive into the financial highlights, I'd like to introduce our CFA Bob Pals. Bob will provide you with more detailed information about our financial performance in Q2 fiscal 20.

Now before we dive into the financial highlights I'd like to introduce our CFO Bolthouse, Bob will provide you with more detailed information about our financial performance in Q2 fiscal 'twenty.

Bob Powers: Thanks, Bill, let's begin with revenue in Q2 24, our revenues reached $900000, marking a significant increase compared to the $300000 reported for the same period in the prior year.

Thanks, Bill. Let's begin with revenue. In Q224, our revenue has reached $900,000, marking a significant increase compared to the $300,000 report for the same period in the prior year.

Your to date, our revenue generation is an excess of 2X where we were last.

Bob Powers: Year to date, our revenue generation is in excess of <unk>, where we were last year.

This growth can be primarily attributed to the conversion of backlog from our strong performance in WAMB cells and revenue generated from our DOE contract.

Bob Powers: This growth can be primarily attributed to the conversion of backlog from our strong performance and Wham b cells and revenue generated from our D O contract.

Our rotors are 2.9 million year to date and growing, with backlog standing at $4.5 million at October 31st, 2023.

Bob Powers: Our orders are 2.9 million year to date and growing with backlog standing at $4 $5 million at October 31, 2023.

We continue to expect order activity and revenue to ramp meaningfully throughout the second half of the year.

Bob Powers: We continue to expect order activity and revenue to ramp meaningfully throughout the second half of the year.

Bob Powers: Our gross profit for Q2, 'twenty four stood at $500000 a substantial improvement compared to the Q2 'twenty three figure, which showed a gross profit of under $100000.

Our gross profit for Q224 so did $500,000. A substantial improvement compared to the Q223 figure would show the gross profit of under $100,000.

Bob Powers: This improvement is primarily attributed to our unmanned vehicles business, particularly the higher margin will be leasing business I'm enthused about progress we've made in this area and the expansion of the progress made in fiscal 2023.

This improvement is primarily attributed to our unmanned vehicles business, particularly the higher margin WANV leasing business. I am enthused about progress we've made in this area and the expansion of the progress made in fiscal 2020 trade.

Our operating expenses for Q224 amounted to $8 million, reflecting our investments in both personnel and systems to support the growth of Philip and I discussed previous.

Our operating expenses for Q2, 'twenty four amounted to $8 million, reflecting our investments in both personnel and systems to support the growth Philip and I discussed previously.

As for the net result, we reported the net loss of $7.2 million for Q224 compared to a net loss of $5.9 million for Q223.

Bob Powers: As for the net result, we reported a net loss of $7 $2 million for Q2, 24 compared to a net loss of $5 $9 million for Q2 'twenty three.

We continue to manufacture a cost tightly, making targeted investments in the personnel and structure needed to support our strategy and plans for growth.

Bob Powers: We continue to manage our cost tightly making targeted investments in personnel and structure needed to support our strategy and plans for growth.

As Philip mentioned, we expect our operating expenses to decrease materially going forward as a result of our plan to achieve profitability.

As Philip mentioned, we expect our operating expenses to decrease materially going forward as a result of our plan to achieve profitability.

On the balance sheet front are combined cash, cash equivalence and short termed investments as of October 31st, 2023, told 18.9 million dollars.

On the balance sheet front, our combined cash cash equivalents and short term investments as of October 31, 2023 totaled $18 $9 million.

Notably, we continue to maintain a debt free balance sheet with no bank debt and off financial structure.

Bob Powers: Notably we continue to maintain a debt free balance sheet with no bank debt and our financial structure.

In terms of cash flow, the net cash used an operating activities for the first half of fiscal 2024 amounted to $15.5 million.

Bob Powers: In terms of cash flow the net cash used in operating activities for the first half of fiscal 2024 amounted to $15 $5 million.

This primarily reflects our net loss, the payout of employment bonus is a crude during fiscal year 2023, and the payment of the earn out of crude during fiscal 2023 related to the outstanding performance of our autonomous vehicles business.

Bob Powers: This primarily reflects our net loss the pay out of employment bonuses accrued during fiscal year 2023, and the payment of the earn out accrued during fiscal 2023 related to the outstanding performance of our autonomy autonomous vehicles business.

Finally, you will note that our inventory balance increased by approximately $1.5 million to $2.5 million.

Bob Powers: Finally, you will note that our inventory balance increased by approximately $1 $5 million to $2 $5 million.

This investment in inventory was necessary in order to satisfy the growing backlog as well as our planned growth and revenue for fiscal 2024. That-

Bob Powers: This investment in inventory it was necessary in order to satisfy the growing backlog as well as our planned growth in revenue for fiscal 2024.

Bob Powers: That covers our financial update.

Bob Powers: Before we enter the Q&A I'd like to remind everyone that the purpose of today's call is to discuss our second quarter of fiscal year 2024 results as well as our financial outlook.

Before we enter the Q&A, I'd like to remind everyone that the purpose of today's call is to discuss our second quarter of fiscal year 2024 results as well as our financial album.

As we head into Q&A, we ask you to limit your questions to these topics. Thank you.

Bob Powers: As we head into Q&A, we ask that you limit your questions to these topics. Thank you.

Bob Powers: 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. Confirmation tone indicate that your...

Bob Powers: Please press star one on your telephone keypad to join the question queue.

A confirmation tone will indicate that your lines in the question queue.

You may press star two if you want to remove your question from the queue.

Bob Powers: You May press Star two if you want to remove your question from the queue.

For just for choosing speaker equipment, it may be necessary to pick up your hands that before pressing the star keys. Once again, that's star one to ask a question at this time. One moment please, will we...

Bob Powers: Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Bob Powers: Once again, that's star one to ask a question at this time.

Bob Powers: One moment please poll for questions. Thank you.

Bob Powers: Thank you.

Our first question is from Sean Severison with Water Tower Research. Please leave your question.

Speaker Change: My first question is from Shawn Severson with Watertown Research. Please proceed with your questions.

Thank you, good morning, everyone. I still have a great move on the pipeline, and I'm curious.

Shawn Severson: Hey, Thank you good morning, everyone.

Shawn Severson: Great Great move on the on the pipeline and I am curious when you talk about the pipeline and look at that $93 million is there any way to go.

We can talk about the pipeline and look at that 93 million. Is there any way to look at that and figure out how much reoccurring revenue something like that can drive? I guess I'm trying to understand the mix of that pipeline and what it would look like, you know, should convert and go into backlog and sales. Is it really heavy towards this mix of recurrent revenue? Thank you, morning.

Shawn Severson: Look at that and figure out how much reoccurring revenue something like that can drive I guess I'm trying to understand the mix of that pipeline.

Shawn Severson: And what it would look like should convert on the backlog and sales is this is it really heavy towards this mix of recurring revenue.

Speaker Change: Hey, good morning, Sean Thanks, Thanks for the question.

One thing we are definitely noticing in the mix of the pipeline.

Speaker Change: One of the thing we are definitely noticing in the mix of the pipeline.

is an ongoing shift.

Speaker Change: It is an honor.

Speaker Change: Going shift from what the company was kind of two years ago. When the current management team stepped in to.

from what the company was two years ago when the current management team stepped in to, you know, it was primarily product sales back then. So now really materially shifting towards lease opportunities, which obviously are recurring revenue as well as sort of more the data and robotics as a service.

Speaker Change: It was primarily product sales back then to now.

Speaker Change: Now really materially shifting towards lease opportunities, which obviously a recurring revenue as well as all of them all the data and robotics as a set aside and if you look at some of the example was even some of the larger multi volume orders that we got contain.

If you look at some of the examples, even some of the larger multi volume orders, that...

contain, you know, whilst there might be leases in the first place, they also contain minimum operating day guarantees. So it ultimately becomes a take or pay contract, under which we can provide assets to our customers. And what that enables us to do is to provide and stack on top of each other kind of, ask me move into the forecast and start providing guidance.

Speaker Change: I'll stay might be leases in the first place. They also contain minimum operating day guarantees. So it ultimately becomes a take or pay contract under which we can provide assets to our customers.

Speaker Change: He was asked to do is to provide in stock on top of each other and kind of as we move into the forecast.

Speaker Change: Start providing guidance moving forward.

Speaker Change: And just a second question on that I know, it's going to vary project by project of course, but what are the key triggers that convert this pipeline I mean are you waiting for budgetary approval for pilot program, just trying to understand what what triggers conversion in that pipeline.

And just a second question on that. I know it's going to be a very project by project, of course, but what are the key triggers that convert this pipeline? I mean, are you waiting for budgetary approval for pilot programs? Just try and understand what triggers conversion in that pipeline in a generalization.

Speaker Change: Utilization.

Speaker Change: Yes.

Bob Powers: Thank you for the question Sean.

Partially penned by the customers, we said the boge of our customer base.

Bob Powers: Partially depends on the customers, we said the bulk of our customer base and opportunities that we have now our government related and.

opportunities that we have now are Government related and you know within that government sector it is primarily Defense and national security

Bob Powers: Within the government sector. It is primarily defense and National security.

And in most instances, it is often times just the speed of contracting and definitiveizing terms before anything can be provided.

Bob Powers: And in those instances. It is it is often times just the speed of contracting on definitive rising terms before anything can be provided.

In other cases, it is just, you know, it is aligning the project that these assets are looking, you know, that these assets are being deployed on if it's on a larger project until that project gets financing.

Bob Powers: And in other cases it is just.

Bob Powers: It is aligning the project that these assets.

Bob Powers: Looking at these assets are being deployed on if it's on the larger project until that project gets financing.

But overall we're also seeing a shortening of the pipeline.

Bob Powers: But overall, we're also seeing a shortening of the pipelines in order.

In order from a conversion perspective, as we're stepping from opportunity identification into pipeline, into discussions with the customer and into it being a purchase order. And that is largely due to the fact that we're not really seeing a lot of demonstration requirements anymore because the vehicles and the buoys are now being seen as commercialized and productized offerings.

Bob Powers: From a conversion perspective, as we're stepping from an economic.

Bob Powers: Opportunity identification inter pipeline into discussions with the customer and into it being a purchase order.

Bob Powers: And that is largely due to the fact that we're not really seeing a lot of demonstration requirements anymore, because the vehicles and the buoys and now being seen as commercialized product highest offerings.

Great that's.

al: That's great. Thanks al.

al: Yeah.

al: Thank you.

At this time I will turn the floor back to management for any closing or loss.

al: At this time I will turn the floor back to management for any closing remarks.

Thank you. We continue progressing towards profitability. We never take any of your support for granted and we thank you for being a valued shareholder.

We continue progressing towards profitability and we never take any of your support for granted and we thank you for being a valued shareholder.

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

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

al: Okay.