Ocean Power Technologies, Inc.

Good morning, ladies and gentlemen. Welcome to the Ocean Power Technologies fourth quarter fiscal year 2021 conference call. A webcast of this call is also available on the company's website at www.oceanpowertechnologies.com. As a reminder, this conference call is being recorded and will be available for replay after its completion. Today, Philip Stratman, President and Chief Executive Officer, and Matthew Schaefer are Senior Vice President, Chief Financial Officer, and Treasurer are on the call. Following prepared remarks, we will open the call to questions. On July 19th, 2021, OPT issued its earnings press release and filed its quarterly report on Form 10-K for the quarter and fiscal year ended April 30th, 2021 with the Securities and Exchange Commission. All OPT public filings are available on the SEC website at sec.gov or in the OPT website's investor relations section. Please note that management's prepared remarks may contain forward-looking statements that are within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by certain words or phrases and 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 materially differ from any future results expressed or implied by such forward-looking statements. For a further discussion of these risks and uncertainties, please refer to our most recent Form 10-K and subsequent filings with the SEC. We disclaim any obligation or intent to update the forward-looking statements in order to reflect events or circumstances discussed in this call. Now I'd like to introduce Dr. Philip Stratton. Thank you, you may begin.

Thank you and good morning. Today, I will review OPT's business operations and provide an update on activities and developments during fiscal year 2021 and up to today. Then Matt will review our financials before we open the line for questions. Off the top, I'd like to take a moment to introduce myself. I joined OPT in 2019 as Vice President of Global Business Development global energy industry experience and leadership positions with Velocis, Intermoor, an acting group company, and Ernst & Young, in addition to experience with VT Shipbuilding and Shell. I was born in Germany, studied in England, and hold a doctorate in engineering management and a master's degree in ship science from the United Kingdom's University of Southampton. I served in the German Navy, and I've worked worldwide and in many other regions OPT is working to sell its solutions. Until recently, I have worked in our Houston office, and I am now in the process of moving my family closer to OPT's New Jersey headquarters. I am proud that the Board of Directors has chosen me to lead the next chapter of OPT's development, and I'm excited to execute the company's ambitious plans for growth. Despite the challenges of the COVID-19 pandemic during fiscal year 2021, OPT continued to progress, notably successfully acquiring 3DEM technology. The addition of Freedent grew our presence in Houston and opened up new avenues for strategic consulting services, providing engineering and design services for offshore energy customers, including oil and gas contractors, offshore wind, wave energy, and marine construction and service companies. The fiscal year also saw OPT delivering studies for defence contractor Adams Communication and Engineering Technology for the US Navy Naval Postgraduate School SLAMA initiative. and oil and gas consortium Deepstar on subsea oil production applications for the PV3 power buoy. OPT also deployed a PV3 power buoy in Chile, achieved a PV3 operational milestone in the Adriatic Sea, and launched two new products, hybrid power buoy and subsea battery. The company had a key goal of improving its financial position and reducing capital risk in fiscal year 2021. I'm going to ask Matt to expand on that now as he discusses OPT's financials.

Thank you, Philip, and good morning, everyone. We are all very excited to have Philip in this capacity and are all very much looking forward to working together. I want to highlight that during fiscal year 2021, OPT significantly improved its cash position, generating more than $80 million in net proceeds through utilization of its at-the-market facilities and equity line common stock purchase agreements. Also recently, OPT changed its listing from the NASDAQ capital market to the NYSE American Stock Exchange. We believe this transition enhances the visibility of the company, and like our recent addition to the Russell Microcap Index, not only benefits our existing shareholders, but will also lead to greater exposure to potential investors. With that, now turning to the OPT financials. Revenue for the fourth quarter of fiscal year 2021 was $600,000. That was essentially flat compared to the same period in the prior year. Revenue for the full fiscal year 2021 was $1.2 million, reflecting a 28% decrease from fiscal 2020. The decline in revenue for the full year was mainly attributable to COVID-19 pandemic-related project delays. The net loss for the fourth quarter and fiscal year 2021 was $5.2 million and $14.8 million, respectively, representing increases over the prior year comparable periods primarily attributable to higher costs incurred due to COVID-19 pandemic delays, higher engineering, product development, and general and administrative costs, and the impact of an arbitration settlement. On the balance sheet, total cash, cash equivalents, and restricted cash was $83.6 million as of April 30th, 2021. Net cash used in operating activities increased by $1.1 million compared to the 12 months ended April 30, 2020. With that, I'll turn it back to Philip.

Thanks, Matt. Going forward, OPT will continue to develop and commercialize our proprietary systems that generate electricity by harnessing the renewable energy of ocean waves and solar power. As noted in our 10K, our strategy includes developing holistic solutions and services, including cloud-based delivery systems for ocean data and predictive analytics, using ocean and third-party data to provide actionable intelligence. We believe there's an increasing need for our products and solutions in markets such as fishery protection, offshore wind farm support, and maritime domain awareness applications. We continue to build upon our mission of connecting the ocean with those who operate there. Based on our proprietary renewable power platforms and engineering skills, our solutions focus on three major services, data as a service, supported and enabled by power as a service, and all underpinned by our strategic consulting services, which we broadened with the acquisition of Freedom Technology. Throughout fiscal 2022, we fully intend to continue developing, evolving, and strengthening our offerings as we solidify our position as a leader in maritime power and data solutions. Operator, we're ready to open up the call for questions.

Thank you. We will now be conducting a question and answer session. To join the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time. One moment, please, while we poll for questions. Our first question comes from Robert Silvera with Silvera Associates. Please proceed with your question.

Hi. Good job, guys. Could you give me a picture of your current cash burn rate for the next quarter, so to speak, as opposed to this last basically $3 million in the last quarter?

Yeah. Robert, how are you? This is Matt. I know you called in a couple quarters ago. Hope you've been doing well. Thanks for calling in. Good questions. Yeah, our cash burn rate is slightly higher than it historically has been. It's been around the $1 million. So it's slightly higher with the slight pivot we've done that we've talked about. And, yeah, so that's what we're looking at going forward.

Approximately $3 million and a quarter then still?

That's correct, approximately.

Yeah. Okay. How would you say it looks for the next three to six months on pending sales?

Well, hi, Robert. Nice to talk to you. As much as I'd love to be able to share details on it, I believe you know that's not something I can do in any great detail. We're working very hard with a number of different customers in a range of geographies. Obviously, the global pandemic hasn't helped by curtailing travel and slowing the cycle of projects, be those in the private markets or related to government work. We're optimistic that we'll soon be able to travel more freely and the cycle of projects will pick up, but we're not able to say anything in detail right now. Okay.

You did not elaborate on the installation of the PV buoy in Chile. Now that it's in, how is it going? How does the customer feel about it? Kind of feedback on that.

In April, we did deploy the PV-3 power buoy in Chile, and we continue to work with our customers for any follow-up that may be required down there.

But have they given you an impression as to, you know, is it functional at this point and doing a particular job? And are they happy with it? You know, give us a little bit of feedback on the results there because that may translate into bragging rights to other customers, et cetera.

The buoy is being installed. I can't comment on the internal matters for other companies. Mm-hmm.

Oh, it's still in the process of installation then?

It's being deployed.

I see. Okay. And the one that's over in Europe, that one now has gone long service duty. And what is the impressions on that from the customer?

The PD3, I presume you're referring to the one that was in the Adriatic for ENI. That one is back in New Jersey following the slowdowns related due to COVID-19, and it will be refurbished after the long deployment ready for the next mission.

I see. And it was very successful on the first mission?

It was successfully deployed for nearly two years.

Wonderful. Great. Okay. On the balance sheet that you presented, you have a item that i'd like you to expand on a little bit where it says litigation payable i presume that's 1 million 224 000 and what is what is that about and when is it due yeah robert so this is matt again um that relates to and it's all disclosed in our 10k that we just filed yesterday as well

That's from the former president and CEO of the company that was a litigation matter that started back in, I want to say, 2014. And it's all disclosed. The payment has been made. Yeah.

So in other words, that is now settled?

That's correct.

The number that's going out at the date that you had this. Go ahead. And so all litigation is now free and clear. That's right. Wonderful. Okay, I guess that's it for me. Thank you very much. Keep working at it, guys. I think you've got great ideas, and let's get some sales.

Thanks, Robert.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Joe Dirge, a private investor. Please proceed with your question.

Hello gentlemen. Hey, question on the, uh, do we have any, um, information on the deep star project? Um, number one and a number two is, uh, that was a pretty really, really vague answer on the chili, um, buoy. Um, I mean, for April, May, June, July to get, uh, deployed. That's the only answer that we have. You kind of got a, or would like a little more elaboration on that, what kind of feedback or anything? Thanks.

Hi, Joe. Thanks for the question. You asked about Deep Star specifically. Deep Star, same as ACET, those two studies are complete and And with any study that we are contracted to complete, we're working towards next steps, which could include a sale or release of the solutions. I'm very excited about the studies because DeepSTAR gives us visibility to several large oil and gas operators in the consortium. There's more to come.

And is there anything more you can say about the Chile deployment? I mean, that's it just deployed and it's sitting out there, or is it operational?

The information that we can give is, as we said, the buoy is being deployed. It's in the water. We can't comment on internal matters relating to other companies, and that's where it sits right now.

Great. Thanks, guys. Good year end there. Thank you, Jeff.

There are no further questions at this time. At this point, I'd like to turn the call back over to Philip Stratman for closing. Oh, excuse me. Someone jumped into the queue. We do have a question from Peter Ruggiero with Dawson James.

How are you doing, Matt? Good, Peter. How are you? I'm good. I'm I got a lot of questions. I don't know where to start, but... Sure. About George, why did he... What happened there?

Yeah, sure. George Kirby departed OPT to pursue other endeavors.

Okay. I was just wondering because he hasn't been there for a while. The thing with ending in the Adriatic Sea, the The stuff with the chili wasn't there really answered, but there was, I was, I, as far as I was. Understand it was the $2.1 million you guys would get for the deployment and for the sale of the building. I haven't seen that come up on the balance sheet and revenue yet for the whole thing on a different notes with the Navy, um, that you're working with about the illegal fishing or stuff going on in Asia. And then the thing in France, you're doing something there. I had questions a couple quarters ago about Microsoft with the underwater data centers. Where does everything stand? I'm just really kind of a little bit confused myself. I've been here for over four years. Yep.

So, Peter, I'll start off answering and then turn it over to Philip on the latter part. You know, with regards to EGP showing up on the financials, you said balance sheets, We recognize revenue on our contracts over time using the percentage of completion accounting, and under the new accounting rules for revenue recognition, you have performance obligations. I won't get into how all that works, but the revenue has been being recognized over time as we have been working on that contract and deploying that asset in Chile. With regards to the Navy and illegal fishing, that's one of our you know, revised strategies that Philip can talk a little bit more about. And then maybe we can touch upon your question that you had last quarter. And I believe you're referring to Microsoft's underwater data centers. And if I recall correctly, you had asked a question, have we had any conversations with them? I can't fully speak to that, so I'll turn it over to Philip on those two, on the Navy and that. Okay.

Yeah, so as Matt said, maritime domain awareness is one of the key aspects of any defense or security operation in the ocean. We're developing a system that will work with other participants of the MDA space, as it might be, which includes satellite providers, other vessels, shore-based station, and so on and so forth, in order to provide additional gateway nodes, edge computing capabilities, and upload links into the cloud in order to speed up the gathering of actionable intelligence. To your question on illegal fishing, in order to mitigate IUU fishing, so illegal, unreported, unregulated fishing, you only have two options, really. Either you need to be there in the present and stop it in there and now. That requires you to spend millions of dollars on larger vessels, train crews, and have them go out there, all of which while they're burning fuel to be there. Or you can deploy autonomous systems, such as our buoys, which, at the instant it occurs, might not be able to prevent that specific day of illegal fishing, but generates the data that you can then use to go and prosecute the fishing vessels' owners, carry out the transgressions, and then prevent other IUU activities taking place.

Okay. On a different note, three years ago in July was a deadline for... I believe it was Anadarko, which was bought by Accidental. You were going to do a project in the Gulf of Mexico, and then you opened an office in Houston. Where does any project stand with the deep commissioning of oil in the Gulf of Mexico?

We continue to have discussions with the various operators, particularly through the connections that we've recently made with the Deep Star Consortium. I'm sure as you're well aware, Anadarko is now part of Occidental Petroleum. As I said, our conversations down here in Houston with the marine operators and the oil and gas companies are plentiful.

Okay. And with all this cash, because since I've been involved with your company, you've never had as much cash in the balance sheet I've ever seen. Are you planning on maybe possibly doing some type of acquisition or What's your plans? Because that's plenty of money to have sitting there.

So this three-day acquisition is the first opportunity with an OPT long-term growth strategy to expend market value proposition while building revenues. So we are continuing to look at other opportunities that add value to our company as we execute our growth strategy.

Okay. How many buildings do you have so far? The PV three is at this point.

Yeah. Yeah. I think we've got serial number six is in the warehouse undergoing final outfitting. Okay.

What is there anything further going with premier oil?

Premier Oil, Harbour Energy, obviously Premier Oil merged with Chrysler Energy late last year, early this year. I think it was completed and approved in the United Kingdom. So we, as with any of our other customers, as Harbour is looking at its next opportunities, we continue to have discussions with them around various opportunities.

Okay. All right, well, thank you.

Peter, thank you very much. I appreciate always hearing from you and your good questions. Same. Thank you.

Our next question comes from Robert Silvera with Silvera & Associates. Please proceed with your question. Hey, Robert, you're live with our speakers. Are you muted?

Yeah, I guess I am. How's that? Can you hear me now?

Yes, we can. Thank you.

Okay. Sorry. I would like you to elaborate to me a little bit about what you acquired when you got 3Dent technology as far as capabilities and how they mesh with the existing business. Can you elaborate a little on that? Thanks.

Yeah, of course. Sweden technology serves and has served the offshore oil and gas industry. We aspire to move into offshore wind and their dedicated team of engineers and naval architects will allow us to do that. What it enables us, it expands our ability to provide comprehensive solutions to customers operating in rapidly evolving markets. Sweden has been a strategic partner in developing our hybrid power buoy and subsea battery products and having them onboard strengthens our value propositions. They have expertise in the form of offshore engineers and naval architects that we have not had in the past. We see 3D as not only being... Good.

I understand better now. Thank you. So you can even couple in with wind power?

With 3Den, we can provide offshore engineering services to wind farm developers so that we can start having discussions across the lifecycle with them.

Gotcha. Okay, thank you. That's all I have.

Thank you very much. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. There are no further questions at this time. I'd like to turn the call back over to Philip Stratman for closing comments.

Thank you. As we've discussed here today, despite the impact of the global pandemic, fiscal year 2021 was the period of growth for OPT. We continue to develop and commercialize solutions into high-growth markets. We're well capitalized. We're continuously expanding our expertise and capabilities, allowing us to bring additional value to our customers. And we are energized and excited for the year ahead and our plans to grow our business to benefit our shareholders. Thank you for joining us today.

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