Ocean Power Technologies, Inc. (AMEX:OPTT) Q2 2023 Earnings Call Transcript

Ocean Power Technologies, Inc. (AMEX:OPTT) Q2 2023 Earnings Call Transcript December 15, 2022

Operator: Good morning and welcome to the Ocean Power Technologies Second Quarter Fiscal 2023 Earnings Conference Call. A 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. On the call today are 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 Officer. Following the prepared remarks, there will be a question-and-answer session. I am now pleased to introduce your host Mr. Joseph DiPietro. Thank you, sir, please go ahead.

Joseph DiPietro: Thank you. After the market closed yesterday, we issued our earnings press release and filed our quarterly report on Form 10-Q for the period ended October 31, 2022. Our public filings are available on the SEC website and within the Investor Relations section of the OPT 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 and 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 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.

Philipp Stratmann: Thank you, Joe and good morning. We appreciate you joining us. I’m pleased with our progress on building our order book and sales pipeline were up $2.9 million of orders, which is nearly 6x what it was at the same point last year. We remain on track for our $9 million audit target over the year as we continue to build our pipeline of feasibility studies, demonstrations and future orders. Our most recent win has been the demonstration we’re doing in Bahrain to show the effectiveness of autonomous vehicles when they’re used in combination with PowerBuoys and our proprietary MDA software. We just completed this demonstration and are actively discussing next steps in support of a digital horizon exercise. We had a nice quarter of steady progress on each component of our stated strategy which is working.

From a high level, we provide autonomous ocean intelligent solutions. These can be roaming or stationary and are usually powered by renewable energy. Our systems offer benefits to customers across multiple governmental entities, as well as customers in the commercial space. Whether it is protecting offshore operations, gathering ocean intelligence, or supporting offshore developments. We reduced carbon footprints and lower operational expenses. Specific to our strategy, first, we have data as a service, where we had a good quarter on our pipeline of order activity of WAM-Vs. We also made progress on our MDA solution which is now available commercially and as expected to begin to generate revenue in the second half of this fiscal year. We believe it is the start of a game changing aspect to our business.

We continue to get the most interest from divisions of the government and we believe we’re building a strong recurring customer base. As mentioned last quarter, we are working with the U.S. Department of Energy and the Phase 2 development of next generation wave energy converter. Specific to this project, we received the $1.1 million payment in the quarter, which is intended to be used to develop and test a modular and scalable Mass-on-Spring Wave Energy Converter PowerBuoy over the next 24 months. This amount is included in the year-to-date order activity I referred to earlier. I would like to take a moment to make a few comments about our autonomous vehicle division. This division came to us via acquisition back in November 2021. So a little over a year ago.

I could not be more pleased with the management team and the efforts to integrate the business with ours. Most notably, we’re close to fully consolidating the manufacturing operations to our facility in New Jersey. This will make us faster and be more cost effective. We continue to seek opportunities to expand our customer base, mostly in the government sector and oil and gas industry. Second is, Power-as-a-Service. During the quarter we continue to have solid activity related to this component, especially with inquiries on leasing as opposed to owning. We will continue to like our move in this direction, since it brings the upfront investment level down significantly for our customers. In addition, we’re having good success to-date by pairing our PowerBuoys with our WAM-Vs. And we expect this trend to continue going forward.

Third, is our strategic consulting services. We had another good quarter of activity related to consulting, especially around simulation engineering, software engineering, concept design, and motions monitoring. In short, I like the energy I’m seeing throughout the organization. We continue to position the company well with the industries we serve and our chosen verticals. With that, I’ll turn it over to Bob for more details on our financials.

See also 20 Countries That Produce the Most Coal and 12 Stocks Insiders Are Buying.

Bob Powers: Thanks, Phil. I’ll start with revenue. For the quarter, our top-line was $303,000, which compares favorably to the $247,000 in the prior second quarter. Year-to-date our revenue generation is nearly 2x, where we were last year. As Philip indicated, our orders are at $2.9 million year-to-date and growing. We continue to expect order activity and revenue to ramp meaningfully throughout the second half of the year. In terms of deferred revenue, our deferred contract liabilities are up $1.4 million in the quarter, most of which is related to the 1.1 million advance payment received in the under development. I expect this to be recognized as revenue over the next 24 months as the project takes place. We are managing our COGS well.

So far, we have had minimal issues with our supply, and we expect this to continue. Our parts materials are available when we have adequate inventory to continue to ramp up production, especially of WAM-Vs. With our established WAM-V business and the continued growth of our higher margin strategic consulting business, we expect to build gross margin going forward. Moving to our cost structure, we continue to manage costs well. Our operating costs inched up sequentially by less than $100,000 in the first quarter and are now at $6.4 million. This includes our engineering and product development costs in our D&A. From a high level, we expect our revenue growth rates to far outpace our operating costs. Over the next few quarters, we expect similar movement in our cost structure, as you saw in the second quarter.

One final income statement item of note is the $1.2 million of other income in the quarter. This relates to the employee retention credits we apply for with the IRS in the second quarter for tax returns that we filed in 2020 and 2021 during COVID, when stay at home restrictions were in place. You can see a corresponding increase on our balance sheet and accounts receivable. We started to receive payments in November and expects full payments by the end of fiscal 2023. This is great work by our team to make this happen. Moving to our balance sheet, we ended the quarter with $46.2 million of combined cash, cash equivalents, restricted cash and short-term investments and no bank debt. Our year-to-date net cash used in our operating activities was $11 million for the period and plus a quarterly run rate in line with the past few quarters.

From a financial perspective, we had a steady quarter. We are maintaining strong oversight of our costs and positioning our company for top-line growth. With that Philipp and I are happy to take your questions.

Q&A Session

Operator: Thank you. The floor is now open for questions. The first question today is coming from Shawn Severson of WTR. Please go ahead.

Shawn Severson: Could you expand a little bit on the trip to Bahrain and the digital horizon? Specifically, I’m trying to figure out kind of what’s your — what did you learn there from what you were seeing from them and what they were looking for. And then, second of all, what would be the next steps there, I’m trying to figure out? Are we in like the third inning here, the seventh inning for some type of deployment or get important material orders?

Philipp Stratmann: That’s a great questions. Thank you, Shawn. Certainly, we were very proud and humbled to be able to support the U.S. Navy in its efforts to increase its autonomous and artificial intelligence capabilities. Starting through Fifth Fleet in the Middle East and what plans U.S. Navy may have after that. Now we were one of several participants that was out there. So, we had three of our assets deployed during digital horizon, including several long duration deployments that we carried out that when in excess of 24 plus hours. And we continue our discussions now on what this may mean in terms of next deployments that will go on. You’ve probably seen the public statements that U.S. Navy has made through Central Command, General Kurilla, who stated during the Manama dialogues in Bahrain, I think it was the weekend before Thanksgiving, the plans for the Department of Defense are to have 100 USVs deployed in the region, by the summer of 2023.

We obviously, applaud and congratulate U.S. Navy on that approach and increasing its autonomous footprint. And we look forward to supporting it, whichever way we can.

Shawn Severson: What other applications do you think this makes sense for we look outside military deployment?

Philipp Stratmann: If you look at the deployments we’ve been doing and demonstrating during digital horizon, it’s very similar to some of the other work we have done previously and build upon the abilities that we have developed as part of our proprietary maritime domain awareness solution. You get into the realms of supporting oil and gas companies and other offshore energy companies with monitoring of ocean areas on the surface. It quickly expanded into areas that are similar to what we are doing for EGP down in Chile, where we’re doing subsea monitoring and water quality sensing. And then that obviously extends into illegal fishing and monitoring of protected areas. And quite frankly, infrastructure assessments in harder to reach areas where you’re trying to remove operator out of arms way.

Shawn Severson: And the last question is on R&D roadmap? So I think talk specifically about the MDA solution will be helpful, but also bigger picture question. When you look at where you need to spend, watch or spend, emerging technologies, sort of commercializing technologies, can you just walk-through framework of what you’re working on and where the spend is going to be in priorities. And again, I’m particularly interested in that next round of MDA as well.

Philipp Stratmann: Sure. I mean, MDA, we are offering and discussing it with commercial customers right now. But obviously, it being a technology-based solution, there’s ongoing development that we do for additional user features, additional integration of other sensors that we didn’t have before, and so on so forth. Our primary focus is not on coming up with the next thing, but combining the current technologies that we have into a holistic offering, that gives our customers the ability to utilize roaming and/or stationary assets that can be combined with surface and subsea monitoring equipment, without having to kind of need to pick and choose amongst a whole range of companies, but rather offering them a one stop shop of an integrated solution that can be as integrated or as diverse as they may require for their solutions.

Shawn Severson: So this isn’t so much looking for next gen, let’s call it leading edge technology. This is really becoming its commercializing solutions at this point using the portfolio of technology. Is that what I’m hearing?

Philipp Stratmann: Absolutely. We have a robust set of platforms. And obviously, we will continue to work on improved user features and additional features we can integrate into it. And we are continuing the development of the next generation mass-on-spring wave energy converter, which we working together with the DoE under the grant funding that we have received to utilize that. But generally speaking, the primary effort is on getting a holistic set of assets out into our customers hands that can easily collaborate and work with each other.

Shawn Severson: Great. Thanks. I’ll step back in the queue. Thanks, Philipp.

Philipp Stratmann: Thanks, Shawn. Appreciate it.