Q3 2024 Ocean Power Technologies Inc Earnings Call

Operator: www.oceanpower.com Good morning, and welcome to the Ocean Power Technologies third quarter of fiscal year 2024 earnings conference call. A webcast of this call is also available and can be accessed by a link on the company's website at www.oceanpowertechnologies.com. This conference call is being recorded and will be available for replay shortly after it is completed.

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

Cast 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 on.

Joseph DiPietro: Today's caller is Dr. Philipp Stratmann, President and Chief Executive Officer, Bob Powers, Senior Vice President and Chief Financial Officer, and Joseph DiPietro, Controller, Treasurer, and Principal Accounting. Following prepared remarks, there will be a question and answer session. It's now my pleasure to introduce Joseph DiPietro. Please go ahead.

On today's call are Dr. Philip Stratman, President and Chief Executive Officer, Bob Powers, Senior Vice President and Chief Financial Officer, and Joseph Dipietro Controller, Treasurer, and principal accounting officer. Following our prepared remarks, there will be a question and answer session.

It's now my pleasure to introduce Joseph DPA Trop. Please go ahead Sir.

Joseph DiPietro: Thank you and good morning. After the market closed yesterday, we issued our earnings press release and filed our report on Form 10-Q for the quarter ended January 31, 2024. 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. 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.

Thank you and good morning after the market close yesterday, we issued our earnings press release and filed a report on Form 10-Q for the quarter ended January 31 2024.

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

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.

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

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

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.

Let's take a moment to review it as it provides a nice overview of our company and strategy now.

Now I am pleased to introduce Dr. Philip strapped man.

Yes.

Philipp Stratmann: Thank you, Joe, and good morning, everyone. We're pleased to have you join us on this call, and your continued support is greatly valued as we advance with our plans to enhance shareholder value. Before we delve into the numbers, on February 28th, we conducted our 2023 Annual General Meeting. I am pleased to announce that all of the resolutions proposed at the Annual General Meeting were duly passed by our shareholders, including the re-election of all of our board members by a strong majority of the votes cast. I'd like to thank you for this bit of companionship.

Thank you Jay and good morning, everyone.

Please do you have you join us on this call and your continued support is greatly valued as we advanced our plans to enhance shareholder value.

Before we delve into the numbers on February 28, we conducted a 2023 annual general meeting.

I'm pleased to announce that all of the resolutions proposed at the annual general meeting with Julie Pasta washout.

Including the reelection of all of our board members by a strong majority of the votes cast.

I'd like to thank you for this vote of confidence diminished team, we have put together over the past two years has the right skills to take advantage of the market demand which is clear.

Philipp Stratmann: The management team we have put together over the past two years has the right skills to take advantage of the market demand, which is clear. Our customers are procuring autonomous resident and roaming assets that protect marine environments, collect essential ocean data, and enhance national security. We continue building our pipeline and are converting opportunities into backlog and revenue, as seen with wins like the recently announced vehicle order from a Latin American customer and the latest subcontract from a U.S.-based prime contractor for multiple maritime domain awareness buoys. We believe we're well positioned to reward your confidence and turn this momentum into profitable growth and deliver value for our shareholders. Let's talk about some recent developments. We continue to make progress on our path to profitability in line with our November 2023 announcement that we have substantially completed our research and development phase and are primarily focused on commercial activity. This pivot to commercial activities has enabled reallocation of headcount resulting in approximately $4.5 million in annual run rate savings on a go-forward basis and a material reduction in third-party expenditures.

Customers are procuring economists are resident and roaming assets that protect marine environments collect essential ocean data and enhance national security.

We continue building, our pipeline and converting opportunities into backlog and revenues as seen with wins like the recently announced vehicle order from our Latin American customer and then that's a sub contract from a U S based prime contractor for multiple maritime domain awareness buoys.

Leif, we're well positioned to reward your confidence on 10, this momentum into profitable growth and deliver value for our shareholders.

Let's talk about some recent developments.

We continue to make progress on our path to profitability in line with that on November 2023 announcements that we have substantially completed our research and development phase and are primarily focused on commercial activities. This pivot to commercial activities has enabled reallocation of headcount, resulting in approximately $4 $5 million.

Annual run rate savings on a go forward basis in a material reduction in third party expenditures.

Philipp Stratmann: The majority of our employees are now dedicated to customer delivery, which includes manufacturing, vehicle operations, and marine deployment. We've built a suite of products and solutions that we believe will be the basis for our current and future commercial success and is driving meaningful progress in backlog, revenue, and profitability, with our pipeline of $77 million increasing over 5X year-over-year. 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. In February 2024, we received multiple orders of fully integrated WAMV unmanned surface vehicles, also known as USVs, from clients in Latin America, highlighting the wide-ranging capabilities and applications of the WAMV USVs and heightened interest and trust in our WAMV technology from clients across the globe.

The majority of our employees are now dedicated to customer delivery, which includes manufacturing vehicle operations on marine deployments. We have built a suite of products and solutions that we believe will be the basis for our current and future commercial success and is driving meaningful progress and backlog revenue unprofitability without pipeline.

$77 million, increasing and the five X year over year.

We expect the 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.

In February 2024, we received multiple orders for fully integrated one V unmanned surface vehicles.

And then as Usb's from clients in Latin America highlights the wide ranging capabilities and applications of the Webmd Usb's and heightened interest and trust in our M. B technology from clients across the globe.

Philipp Stratmann: These orders underscore the growing demand for OPT's advanced marine technologies and their applications in maritime surveillance, environmental monitoring, and ocean data collection. Also, in February 2024, OPT received funding from the Naval Postgraduate School in Monterey, California, for a year-long deployment of a power buoy in Monterey Bay. The power buoy, integrating OPT's Maritime Domain Awareness System, along with cutting-edge satellite communication and AT&T 5G technology, will demonstrate its persistent surveillance and communication capacities in a maritime environment.

These orders underscore the growing demand for Apt's advanced Marine technologies, and applications and maritime surveillance environmental monitoring and Ocean data collection.

Also in February 2020, full we receive funding from the Naval postgraduate school in Monterey, California for a year long deployment of a power buoy in Monterey Bay, probably integrating opt's maritime domain awareness system, along with cutting edge satellite communication and AT&T five G technology well.

It's persistent surveillance and communication capabilities and the maritime environment. This advancement is a testament to the ongoing collaboration between OTT and a T N T.

Philipp Stratmann: This advancement is a testament to the ongoing collaboration between OPT and AT&T. In December 2023, we secured our first multi-billion dollar letter contract. This is a planned subcontract with a U.S.-based prime contractor to deliver Maritime Dampeno Energy solutions for U.S. government agencies. We are currently working on the conversion of the letter contract to firmware.

In December 2023 we secured our first multi buoy letter contract.

The planned subcontract with this U S based prime contractor to live in Maritime domain awareness solutions for U S government agencies.

We are currently working on the conversion of the letter contract to a fan motor.

Philipp Stratmann: In addition to these contracts, we also completed several deployments with our OMVs and delivered additional vehicles from our facilities in New Jersey and California. In addition to the aforementioned activities, we continue to see increased levels of commercial activity. The company is positioned well to deliver to our customers in the defense and national security space, and over 20% of our workforce are military veterans. Our Opportunity Pipeline continues to grow. In addition to the orders I just discussed, we have also continued to enter the top of the pipeline.

In addition to these contracts. We also completed several deployments, but one piece and delivered additional vehicles from our facilities in New Jersey and California.

In addition to the aforementioned activities, we continued to see increased levels of commercial demand that.

Company is positioned well to deliver to our customers in the defense and national security space and over 20% of our workforce our military veterans.

Our opportunity pipeline continues to grow in addition to the orders I. Just discussed we have also continued to add to the top of the pipeline. We are continuing to grow our revenues and our gross profit margins are increasing.

Philipp Stratmann: We're continuing to grow our revenues, and our gross profit margins are increasing. Our strategy is working, and we see additional opportunities for multi-system orders, vehicles, and buoys on the horizon. Now, before we dive into the financial highlights, I'd like to introduce our CFO, Bob Powers. Bob will provide you with more detailed information about our financial performance in Q3 2024. Thanks, Philip.

Strategy is working and we see additional opportunities for multi system orders vehicles I'm movies on the horizon.

Now before we dive into the financial highlights I'd like to introduce our CFO Bob powers, Bob will provide you with more detailed information about our financial performance in Q3 'twenty to 'twenty four.

Thanks, Philip let's begin with revenue.

Robert Patrick Powers: Let's begin with revenue. In Q3'24, our revenues reached $1.8 million, marking an increase of over 2.5x compared to the $0.7 million reported in the same period the prior year. Year-to-date, our revenue generation is in excess of 2x where we were last year. This growth can be primarily attributed to the conversion of backlog from our strong performance in WAMV sales and revenue generated from our DOE contracts. Our orders are at $3.4 million year-to-date and growing, with backlog standing at $3.3 million as of January 31st, 2024. We continue to expect order activity and revenue to ramp meaningfully throughout the final quarter of our fiscal year. Our gross profit for Q3'24 stood at $0.8 million, a substantial improvement compared to the Q3'23 figure, which showed a gross profit of $0.1 million.

In Q3, 24, our revenues reached $1.8 million, marking an increase of over 2.5 X compared to the point $7 million reported in the same period in the prior year.

Year to date, our revenue generation is in excess of two weeks, where we were last year.

This growth can be primarily attributed to the conversion of backlog from our strong performance in <unk> sales and revenue generated from our DLA contract.

Our orders are at $3 4 million year to date and growing with backlog standing at $3.3 million at January 31st 2024.

We continue to expect order activity and revenue to ramp meaningfully throughout the final quarter of our fiscal year.

Our gross profit for Q3, 'twenty four stood at $8 million, a substantial improvement compared to the Q3 23 figure which showed a gross profit of $1 million.

Robert Patrick Powers: This improvement is primarily attributed to our unmanned vehicles business, particularly the higher-margin WAMBI leasing. I am enthused about the progress we've made in this area and the expansion of the progress made throughout fiscal 2024. Our operating expenses for Q3-24 amounted to $8.5 million and $24.6 million on a year-to-date basis. The year-to-date figure includes approximately $3.2 million in extraordinary expenses related to the company defending litigation and other failed offensive tactics by Paragon Technologies Inc. to achieve control of OPT without following the required applicable legal requirements. As for the net result, we reported a net loss of $6.5 million for Q3'24 compared to a net loss of $6.1 million in Q3'23.

This improvement is primarily attributed to our unmanned vehicles business, particularly the higher margin whammy leasing business.

I'm enthused about the progress we've made in this area and the expansion of the progress made throughout fiscal 2024.

Our operating expenses for Q3, 'twenty four amounted to $8 $5 million and $24 6 million on a year to date basis.

The year to date figure includes approximately $3 2 million in extra ordinary expenses related to the company defending litigation and other failed offensive tactics by Paragon Technologies, Inc. To achieve control of OTT without following required applicable legal requirements.

As for the net result, we reported a net loss of $6 $5 million for Q3 24 compared to a net loss of $6 1 million in Q3 23.

Robert Patrick Powers: This is despite the materially higher extraordinary expenses. We continue to manage our costs tightly, making targeted investments in the personnel and structure needed to support our strategy and plans for growth. As Philipp 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, combined cash, unrestricted cash, cash equivalents, and short-term investments as of January 31st, 2024 totaled $9.1 million. Notably, we continue to maintain a debt-free balance sheet with no bank debt in our financial structure.

This is despite the materially higher extraordinary expenses.

We continue to manage our cost tightly.

Making targeted investments in the personnel and structure needed to support our strategy and plans for growth.

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, our combined cash unrestricted cash cash equivalents and short term investments as of January 31, 2024 totaled $9 $1 million.

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

Robert Patrick Powers: In terms of cash flow, the net cash used in operating activities for the first nine months of fiscal 2024 amounted to $24.7 million, which primarily reflects our net loss. The payout of employment bonuses accrued during fiscal year 2023 and the payment of the earnout accrued during fiscal 2023 related to the outstanding performance of our autonomous vehicles business, in addition to payment of expenses related to Paragon activities, as I just mentioned. Finally, you will note that our inventory balance increased by approximately $2.5 million to $3.5 million.

In terms of cash flow the net cash used in operating activities for the first nine months of fiscal 2024 amount of the $24 $7 million.

This primarily reflects our net loss.

Payout of employment bonuses accrued during fiscal year 2023, and the payment of the earn out accrued during fiscal 'twenty, joining three related to the outstanding performance of our autonomous vehicles business and.

In addition to payment of expenses related to Paragon activities as I just mentioned.

Finally, you will note that our inventory balance increased by approximately $2 $5 billion to $3 5 million.

Operator: This investment and inventory was necessary in order to satisfy backlog as well as our planned growth and revenue for fiscal 2025. That covers our financial. Before we enter Q&A, I'd like to remind everyone that the purpose of today's call is to discuss our fourth quarter fiscal year 2024 results as well as our financial outlook. As we head into the Q&A, we ask that you limit your questions to these topics. Thank you; we will now be conducting a question and answer session. If you would like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

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

That covers our financial update.

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

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

<unk>.

Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. One moment. Please what would you poll for questions and Thats Star one to be placed in the question queue. Our first quest.

Operator: One moment, please, while we poll for questions. And that's star number one. Our first question is coming from Jeff Grant from Alliance Global Partners. Your line is now live. Good morning, guys.

One is coming from Jeff Grant from Alliance Global Partners. Your line is now live.

Good morning, guys. Thanks for the time.

I was curious first.

Philipp Stratmann: Thanks for your time. I was curious first to start on this Power Buoy contract with the U.S. Prime, $6.5 million or up to that. I'm curious, what are the main variables in play when kind of assessing how much of that is potentially available to you guys, and is there a rough timetable that you'd expect to recognize the potential revenue of that project? Hey Jeff, good morning. Thanks for being on and thanks for the question.

To just start on this power buoy contract with the U S Prime and $6 5 million or up to that.

I'm curious what are the main variables in play when when kind of assessing how much of that is potentially available to you guys and is there a rough timing that you would expect to recognize the potential revenue of that project.

Hey, Jeff Good morning, Thanks, Thanks for being on and thanks for the question.

Philipp Stratmann: So in this specific case, it's for an unnamed U.S. government agency. A letter subcontract is essentially the way that the U.S. government and its prime contractors work on finalizing statements of work and what would need to be done. And then they work on what in the government they refer to as definitizing the contracts. So I'm actually in Washington, D.C. this week, and part of the ongoing discussions we're having is finalizing the exact timeline of when this contract and others are going to be definitized and then when we start shipping the product. In general speaking, we will start recognizing revenues. From a non-recurring engineering point of view, once the contract is signed and we start doing the work, and then, in the case of a sale, we would recognize revenues once the products, in this case, buoys, leave the facility and are heading to the customers. And obviously, in the case of a lease, they're recognized over time.

And in this specific case and sports one U S government agency and Thats, a subcontract is essentially the way that in the U S government in its prime contractors work on.

Finalizing statements of work on what would need to be done and then they work on what in maybe other than a reset. So that's definite timing of contracts say I'm actually in Washington D. C. This week on part of the ongoing discussions we're having is finalizing the exact timeline.

When this contract and others are going to be any ties and then when we start shipping the products.

Generally speaking, we will start recognizing the revenues.

From a nonrecurring engineering point of view once the contract is signed and we start doing the work.

And then in the case of a sale.

We would recognize the revenues once the products and in this case due east beef that vicinity.

Heading to the customers and always be in case of at least are recognized at the time.

Philipp Stratmann: Generally speaking, we would look at getting these; generally speaking, these contracts are sort of set at a level that you're going to get very close to that total number. As soon as it is defined, we will end up putting out an additional release that gives more details on the terms and the timings for these. But I expect these to be fairly short-term in nature. Okay, great.

Generally speaking, we would look to getting there.

Generally speaking these contracts yourself set at a level that you're going to get very close to that total number of seniors in this definitive highs we will end up putting in additional release that shows kind of more details on the terms and the timing studies, but I expect needs to be fairly short term in nature.

Okay, Great I appreciate those details.

Philipp Stratmann: I appreciate those details. My follow-up question, Jeff, is to dig into what you guys have called out Latin America as a pretty interesting near-term growth market for you guys. I'm curious, is there something specific about either the customer base or the geography that you guys are really trying to understand, I suppose, how you can potentially replicate that success elsewhere or maybe even accelerate or grow further in Latin America? Yeah, that's a great question, Jeff.

My follow up I'm curious to dig into and you guys have called out Latin America as as a pretty interesting near term growth market for you guys. I'm curious is there something specific about either the customer base or the geography, and really trying to understand I. Suppose you know how you can potentially replicate that success elsewhere or maybe even accelerate a real further.

In Latin America.

Yes, that's a great question Jeff.

Philipp Stratmann: Latin America for us is actually an interesting market for us. It's one we haven't specifically targeted before. As we have grown the solution offering, and particularly on the vehicle side, there is a huge appetite in places like Brazil, like Colombia, like Mexico, to utilize autonomous vehicles for offshore infrastructure surveys.

For us it's actually it's an interesting market for us it's one we haven't.

Specifically targets.

Yeah.

As we have grown the solution offering, particularly on the vehicle side.

A huge appetite in places like Brazil, Colombia, Mexico to utilize autonomous vehicles.

Oh, yeah offshore infrastructure surveys so Latin America. So you saw for US is less of a defense and national security market and it's really a more focused on.

Philipp Stratmann: So Latin America, so far for us, is less of a defensive national security market and is really more focused on offshore energy and offshore infrastructure survey work. Given the vast expanse of the coastline, If you're looking from the oil-producing regions, you go from Brazil, Guiana, all the way up and into the Bay of Campeche, you end up with autonomous vehicles really being a great solution in order to help the customers there do what they need to do in an environment where cash is constrained and interest rates are high. That's really interesting. Okay, that makes sense. If I can just sneak one more in, you guys called out the New Jersey State NLL program as a source of liquidity here. Is there a way to handicap kind of how much that can continue to be a source of liquidity over the coming, you know, 6, 12, 18 months? Sure. Thanks, Jeff. It's Bob.

Offshore energy offshore infrastructure survey work.

Given the vast expands off the coastline.

Looking from the kind of the the.

The oil producing regions, you guys from Brazil, Guiana, or all the way up.

The Bea compassion.

You end up with a ton of those vehicles really being a great solution in order to help the customers that do what they need to do in an environment, where cash is constrained on interest rates are high.

That's really interesting okay that makes sense if I can just sneak one more in the you guys called out E Jersey State NOL program as a source of liquidity here is there a way to handicap kind of how much that can continue to be a source of liquidity over the coming you know 612 18.

<unk>.

Sure Thanks, Jeff It's Bob.

Robert Patrick Powers: Yeah, so there are limits in place with the state of New Jersey. Currently, we have about $4 million left over the course of the next several years. And the amount that we receive on an annual basis is determined by the state.

Yeah. So there are limits in place with the state of New Jersey. Currently we have about $4 million left on what we can obtain from the state over the course of the next several years.

And the amount that we receive on an annual basis as determined by the state.

Robert Patrick Powers: But obviously, you know, our NOLs have continued to add to the amount that we can receive from New Jersey. But at this time, I would expect about $4 million or so over the course of the next several years.

But obviously you know our Nols.

And our wells have continued to add to the amount that we can receive from new Jersey, but at this time I would expect about $4 million or so over the course of the next several years.

Got it alright, thank you guys for that.

Operator: All right. Thank you guys for your time. Thank you. The next question today is coming from Shawn Severson from Water Tower Research. Your line is now live. Thank you. Good morning, everyone.

Thank you. Your next question today is coming from Swan Shepperson from water tower research providers that life.

Good morning, everyone.

Shawn Severson: Hey, Philipp, I was curious about the ability to deploy more WAMPs. So when you look at it longer, I guess I have two questions. We look at longer-term contracts, and these vehicles are being deployed for longer contracts. How much can you grow that business? Kind of an available capacity, if you want to call it that. And then that's tied also to the question of the length of these contracts, what they are today and what you think they might be in the future, multi-year deployments or at least six-month type runs to get a good perspective on that recurring revenue, which is so important. Yeah, Sean, and thanks for being on and both very good questions. I think in terms of the market demand that we're seeing, to go back to your first point, I mean, we're only just starting to scratch the surface of what is possible with eResMe. And we, you know, we think.

Oh.

Philip I was curious about the.

The ability to deploy more we haven't so when you look at longer I guess I have two questions in there when you look at longer term contracts.

And these vehicles are being deployed for longer.

For longer contracts, how much can you grow that business as kind of our available capacity. If you want to call it that and Thats tied also to the question.

Eight of these contracts what they are today and what do you think it might be in the future is going to be multi year deployments are these six month type runs to get a good perspective on that recurring revenue, which is so important.

Yes sure.

Thanks, Thanks for being on and very.

Very good questions I think I think in terms of market demand.

We're seeing it.

To go back to your first point.

I mean, we are only just starting to scratch the surface of what is possible with <unk>.

We think.

Philipp Stratmann: And I think the numbers back this up, that there is several orders of magnitude of market demand still to come when it comes to USVs, which the WAMVs fit into. And you can see that across the range of applications. You're seeing, obviously, Samara, which is one of our strategic partners, continues to scale at a rapid pace. We recently announced one of the Latin American deals, and we're actively looking at other opportunities in the region.

And I think the numbers back up and there is several orders of magnitude of market demand still to come when it comes to U S East reached around these fit into.

And you can see that across the range of applications, you're seeing obviously, you know tomorrow, which is one of our strategic partners continues to scale.

Rapid pace.

Yeah, you know, we recently announced one of the Latin American deals.

We're actively looking at other opportunities in the region.

Philipp Stratmann: Outside of work that we're supplying directly at the moment, if you're looking at the U.S. V market in general, look at the thousands of vehicles that are being built and supplied in places like, you know, the Ukraine, and look at the efforts that the United States Navy is going through in terms of increasing automation and the introduction of artificial intelligence into warfighting capabilities. And I think we see that over the longer term, you know, there are, as I said, several orders of magnitude of growth left in the market. In terms of the length of deployment, It varies, and I would put it into two buckets.

Outside of work that we are supplying directly at the moment, if you're looking at the U S. D market in general you look at the thousands of vehicles that are being built and supplied in places like the Ukraine.

If you look at the efforts that the United States Navy is coming through in terms of the increasing automation.

You know an introduction of artificial intelligence into war fighting capabilities.

And I think we see that over the longer term.

Best ever orders of magnitude greater lift in the mountains.

In terms of length of deployment.

Okay.

Barry and I would put it into two buckets.

I mean, the long term supply of vehicles to customers you know on either a take or pay or at least structure, which we have in place for some of our customers.

Philipp Stratmann: There is the long-term supply of vehicles to customers on either a take-or-pay or a lease-to-own structure, which we have in place for some of our customers. And they would typically stretch for, I can say, a year or two. And then you have still a fairly sizable contingent of the market that particularly at the earlier stages when they're taking one or two vehicles, is trying out a vehicle on a job that they've got. But I think what we are showing is that a lot of the larger contracts that I just referred to that stretched over two years or so, they tend to originate from customers who took a vehicle for one or two jobs for maybe two months or three months at a time, and have then converted that into, well, great, I really like what I did with this one vehicle, I'm going to take two next year, and then actually I want to take six, or I want to take eight.

And that got you in.

They would typically stretch what I can say a year or two.

And then you have still a fairly sizeable contingent all.

The market that particularly at the earliest stages, when they're taking one or two vehicles.

Is trying out a vehicle on a job that they've got.

But I think as we are showing a lot of these larger contracts got industrial start to that especially in those two years, let's say.

They tend to originate some customers who took.

Oh cool for one or two.

So maybe two months or three months at a time and then converting that into well great I really liked what attainment is one vehicle.

Gonna take two next year, and then actually I wanted to take six Oh, when I take eight and I think that's what excites us and I think there is a deck that link of deployment increasing on the order of magnitude of the demand increase, especially really helping us.

Philipp Stratmann: And I think that's what excites us, and I think there is that length of deployment increasing, and the order of magnitude in the demand increase is what's really helping us grow our profit margin, as you can see in the SEC and the Q3 financials. So it's really the two factors coming together, much more overall demand, right? Unit growth, but as time goes on, you expect the length of those contracts to increase, creating this much bigger stream of reoccurring revenue. Obviously, that's great business and has good margins. So both of these should be happening at the same time, units and length of contracts, right? Yeah, I think you're right, Sean. Let's go hand in hand. And there is still a materially untapped part of the industry, you know, let's call it the ocean industry in general, where vehicles aren't being used. I think, you know, and they, that, to tap into that market doesn't require us to do any material R&D. It only requires us to integrate different deployment tools into our platforms.

Grow our profit.

Profit margin. So you can see in the FCC in the Q3 financials.

So it's really the two factors coming together much more overall demand right unit.

But as time goes on do you expect the length of those contracts too.

Kris creating this much bigger stream of reoccurring revenue I mean, obviously, that's that's a great business and good margin. Both of these should be happening at the same time units and and length of contracts right.

And again I think youre right.

And there is still a materially untapped part of the industry.

And that's called the <unk> industry in general.

Vehicles aren't being used having.

And they need to tap into that market doesn't require us to do any material.

It requires us to just integrate different deployment tools on our platform. So I think that's what is exciting and you saw that with a demonstration that our team did an analogy in London. This week.

Philipp Stratmann: And I think that's what's exciting. And you saw that with the demonstrations that our team did at Oceanology in London this week. You know, different types of sonars and sensing equipment that can be deployed on the same platform that, you know, might have done work with an aerial for a couple of weeks beforehand, or that might have deployed a radio for a military customer and different.

Different type of Somos sensing equipment that can be deployed on the same platform.

And I might have done a work with an area. We're doing a couple of weeks beforehand or that might have deployed to radio full for a military customer at a different time.

Philipp Stratmann: Okay, thanks for that, Philip. And another question is, I know you don't want to say too much about it, but if we're modeling out growth in... commercial versus military. Should we think about differences in margins, and is military or commercial more likely to have more contracts, right, longer-term contracts? I'm just trying to understand the dynamics of margin growth as these two businesses grow at different rates or separately? I think the margins are pretty similar on both sides.

Okay. Thanks for that Phil and another question is I know you don't want to say too much about it but if we're modeling out growth.

Commercial.

Versus versus military should we think about differences.

Margins in us military or commercial more likely to have more and more contracts right longer term contracts I'm just trying to understand the dynamic.

The margin growth as these two businesses grow grow differ.

Different rates or separately.

Well I think that the margins are pretty similar on both sides I think.

Philipp Stratmann: And we're starting to see an increase in the duration of the terms that our commercial customers are wanting to sign up for, which is something that in the past we've seen primarily from, you know, defense and national security customers. I think the other bit that is starting to really gain traction is the interest in the buoy side of the business, which is the longer term. And, you know, almost all of that is sitting in the defense and national security. Okay, and then my last question is, you know, on the commercial side, talking about Latin America or wherever it might be... Are you seeing a lot of new projects, or are you coming in and displacing conventional practices or conventional solutions?

And we're starting to see an increase in the duration of the terms that our commercial customers are wanting to sign up for when does something in the past we've seen primarily from.

From from defense and National Security customers.

A bit of it is starting to really gain traction is the interest in the beauty side of the business, which has been longer than that.

Any longer term deployments and you know what.

Almost all of that is sitting in the defense and National security space.

Okay and then my last question is.

On the commercial side talking about Latin America, or wherever it might be.

Do you see that.

Most of these projects that youre working on new projects or are you displacing.

Conventional practices of conventional solutions with your solution or.

One more on new things that are going on the new projects that are going on.

Philipp Stratmann: with Both It is often, in certain cases, it is a new project, but it's a new project that may have originally envisaged using a traditional tool for doing the work, but they're now open to using different tools, or it is an existing project where a customer is looking for alternative ways of doing the work, and therefore, we're displacing, let's say, a much larger carbon-emitting fully crude vessel which then So it's definitely a mix of both.

Bush.

<unk>.

It is.

In certain cases, it is a new project, but its a new project that may have mentioned he envisage choosing a traditional tool of doing the work.

But then now open to using different tools.

Oh, it is an existing project where it.

Looking for alternative ways of doing the work.

Before we displacing let's say a much larger carbon emitting.

Fully crewed vessel, which then have somebody can you all of the benefits that we would provide in terms of lower cost points and lower emissions.

So it's definitely a mix effect.

Philipp Stratmann: Great. Thanks, Frank. Congratulations on the progress. Yeah, thanks, John.

Great Thanks for that and congratulations on the progress.

Thanks, Sean.

Operator: We have reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing. Thank you for being an OPT shareholder. We have materially transitioned the company from an R&D product provider and developer to a provider of solutions in the ever-growing ocean technology sector. We look forward to further enhancing shareholder value and thank you for your trust. That does conclude today's teleconference; you may disconnect your line at this time and have a wonderful day.

We reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.

Thank you for being an OTT shareholder we have materially transitioned the company from an R&D product provider and divert it to a provider of solutions and the ever growing Ocean technology sector.

We look forward to further enhancing shareholder value and thank you for your trust.

Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.