Ocean Power Technologies, Inc.

Good morning and welcome to the Ocean Power Technologies fourth quarter and full fiscal year 2025 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 its completion. On the call today are Dr. Phil Stratman, President and Chief Executive Officer, and Bob Powers. Senior Vice President and Chief Financial Officer. Following the prepared remarks, there'll be a question and answer session. Now I am pleased to introduce Bob Powers. Please go ahead, sir.

Thank you and good morning. After the market closed yesterday, we issued our earnings press release and filed our annual report on Form 10-K for the period ended April 30th, 2025. Our public filings are available on the SEC website and within the Investor Relations section of the OPP website. During this call, we will make forward-looking statements that are within the safe harbor provisions of the Private Securities Litigation Reform Act 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. 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. Philip Stratman. Good morning.

Thank you for joining us today. Fiscal 2025 was a transformational year for OPT. We delivered real, measurable value in a global market undergoing rapid change, and we entered fiscal year 26, positioned to lead in the sustainable, data-driven blue economy. Today, I'll walk you through our most important achievements, the momentum they've created, and the opportunities ahead as we execute our strategic growth plan. In fiscal 25, OPT was granted a US Department of Defense facility security clearance at the secret level. a milestone that significantly expands our eligibility for classified defense work. This clearance not only affirms OPT's compliance with federal security protocols, but also opens the door to high-value, multi-year programs where few companies are even allowed to compete. It expands our addressable market and deepens our partnership potential. Let's talk about backlog and visibility. I am incredibly excited to announce that we entered fiscal 26, with $12.5 million in funded backlog, the highest in our history. This reflects multi-quarter fulfillment of both international defense and commercial contracts and signals strong customer confidence in our solutions and our ability to execute. It is a clear indicator that our strategy is working and that demand is real and growing. Over the past year, we deployed our artificial intelligence-capable MERAS and WAM-V platforms across the Middle East Latin America, and the Indo-Pacific, establishing a meaningful global footprint in allied defense and commercial markets. These deployments validate not just demand, but our readiness to deliver. They demonstrate that our autonomous platforms can operate across maritime, surface, and subsea domains in some of the world's most demanding environments. That's real-world mission relevance, and it sets us apart. We also expanded key partnerships with defense, drone, and subsea leaders, including REDCAT, Teledyne Marine, and regional integrators in the Middle East and Latin America. These partnerships extend our reach, improve integration and distribution, and help reduce customer acquisition costs. They are a force multiplier for OPT, enabling faster scale, broader validation, and deeper market access, especially in regions where local partners accelerate credibility. OPT's WAMV platforms were selected to participate in the US Navy's Project Overmatch autonomy exercises, one of the Pentagon's most advanced and future-focused initiatives. Our involvement speaks volumes. It reflects a high-trust relationship with the Navy, confirms our alignment with multi-domain intraoperable system goals, and positions OPT for access to future large-scale defense procurement channels. This year's performance reflects the strength of our disciplined operating model. We're executing with a streamlined team and leaner OPEX structure, yet delivering more for our customers, our partners, and our shareholders. By aligning resources with top priorities, we've increased our operating efficiency without compromising our delivery capability or innovation roadmap. This positions us not only to weather volatility, but to scale with purpose as demand accelerates. We view this phase of lean execution not as a constraint, but as a foundation. With core systems, processes, and leadership in place, we are prepared to scale responsibly as opportunities mature. We have retooled our go-to-market engine with purpose and position. Under new leadership, our sales organization has been redesigned to drive mission alignment, speed, and scale, not just transactions. We've upskilled the team. deepening their ability to engage on operational needs and procurement realities across defense and maritime domains. At the same time, we've expanded internationally, matching talent to strategic growth corridors in NATO-aligned Latin America and Middle Eastern markets. Complementing this internal transformation is a growing network of region-specific resellers. force multipliers who understand local dynamics and are helping us deliver OPT solutions faster and further than ever before. This is not just a strategic investment. It's already delivering results. We're seeing improved customer engagement, higher win rates, and increasing traction in markets where we previously had limited presence. This go-to-market evolution is a foundational pillar of our growth strategy, enabling us to solve real-world customer missions at scale. We are taking some important steps to reduce our customer acquisition costs. First, as I've just mentioned, we have repositioned our commercial team to place greater emphasis on achieving more scalable, repeatable sales. Second, we are expanding our dedicated demonstration fleet to accelerate customer engagement and close new business in less time and with greater efficiency. Finally, We have realigned our operations and development teams to drive best in class customer experience through more innovation and enhanced operational execution. In turn, that empowers us to concentrate more on deepening relationships with existing customers and expanding value-added services like training. Our commitment to continuously strengthen our commercial effectiveness and operational agility underscores our professionalism and readiness as a leading provider in autonomous maritime systems. Becoming an AUVSI trusted operator marks an important milestone in this evolution. Additionally, I want to highlight a significant milestone that speaks to the discipline and maturity we're building across OPT. Just two weeks ago, we achieved ISO 9001 certification for our quality management system, a globally recognized benchmark for excellence in engineering, manufacturing, and service delivery. This is not just a compliance achievement. It is a reflection of OPT's evolution into a scalable, repeatable, and process-driven provider of maritime solutions. Whether we are deploying a WAMV for autonomous ISR missions, activating a power buoy for persistent offshore power, or integrating MEROS to enhance maritime domain awareness, we are now doing so under a globally standardized framework of quality and continuous improvement. For our customers, ISO 9001 is often a prerequisite for long-term engagement. It is a signal that we're not just innovative, but dependable at scale. In fact, we're already seeing this resonate with procurement teams who have told us that certification materially strengthens our position in upcoming opportunities. Internally, this also reinforces our operational foundation as we expand internationally and engage with increasingly complex supply chains and mission profiles. It's about delivering excellence consistently, which is exactly what the market demands from the next generation of maritime intelligence providers. We believe this certification will meaningfully support our growth strategy while deepening the confidence of our partners, investors, and customers alike. Finally, fiscal year 2025 brought headwinds, particularly in defense, where election-related uncertainty and the pending administration transition delayed procurement activity. Combined with broader macroeconomic volatility, these factors float pipeline conversion, resulting in revenue below expectations and a shortfall against our Q4 calendar 25 profitability target. Still, OPT ended fiscal 25 with strong momentum, record backlog, a growing pipeline, and increasing demand across core markets. These results reflect the strength of our positioning and the resilience of our teams. We remain confident that fiscal 26 will mark a step function in execution as we advance towards sustained growth, profitability, and long-term value creation. In closing, we have turned a corner. OPT is no longer just about wave energy. We provide full-service maritime domain awareness that is persistent and deployed from platforms that enable multi-asset capabilities. We have become a multi-solution platform company. One that's enabling customers to operate further offshore, stay deployed longer, and lower costs through intelligent autonomy. Our strategy has been simple but disciplined. Diversify, scale, and improve margins. We've moved beyond grant-funded R&D into real commercial contracts. We've expanded into defense, energy, and international markets. And we've focused on repeatable, scalable services that drive long-term value. We're not pitching potential, we are executing. Every contract validates our pioneering efforts to develop our model. We are well positioned to meet all challenges on our prosperous horizons and capitalize on the heavy lifting completed to date. The technology is proven, yet continuing to accelerate. The customers are buying. With capital in hand, platforms in the water, and a growing global footprint, OPT is no longer proving, it's scaling. Thank you for your continued support. I will now turn it over to Bob, who will walk through our financial performance in more detail.

Thanks, Philip. Let's begin with our financial performance for the year. Fiscal 2025 was a record year for revenue. We generated $5.9 million, a 7% increase over the $5.5 million recognized in the prior year. What makes this growth especially meaningful is that it was achieved alongside a 26% reduction in operating expenses which I'll cover in more detail shortly. The revenue growth reflects the strength of our strategy, the discipline of our execution, and the growing demands for OPT's autonomous and maritime solutions. One of the biggest drivers was our expansion in Latin America, which made a meaningful contribution to both our FY25 revenue and the $12.5 million in backlog Phillip referenced. This underscores our focus on diversifying revenue across high-growth international markets, and we believe it sets the stage for future expansion. Looking ahead, scaling revenue remains a key priority as we convert backlog into deliveries and expand into new channels. Our focus remains squarely on delivering consistent performance and long-term value for shareholders. Turning to expenses. Operating expenses for fiscal 2025 totaled $23.4 million, down 27% from the $32.2 million in FY24. This $8.8 million reduction reflects deliberate organization-wide efforts to optimize headcount, reduce third-party costs, and tighten expense control across all functions. This level of cost discipline, combined with top-line growth, shows that we're building a model with meaningful operating leverage, a critical step towards sustainable profitability. As a result, our loss for the year improved by 22% from 27.5 million to 21.5 million. This progress shows we're staying disciplined with spending while still growing the business and meeting our customer commitments. On the balance sheet, As of April 30th, 2025, our total cash position, including cash, restricted cash, equivalents, and short-term investments stood at $6.7 million compared to 3.2 million for the close of FY24. Just after year end, we further strengthen our liquidity by securing a $10 million in unsecured debt financing from an institutional investor. This investment represents a clear market endorsement of OPT's platform, technology roadmap, and long-term value creation strategy. Their participation not only bolsters our capital base, it also equips us to execute on our record backlog, scale up international operations, and pursue near-term profitability with greater confidence. On cash flow, Net cash used in operating activities for the year was $18.6 million, an improvement of over 38% compared to the $29.8 million in FY24. This reduction reflects the impact of our cost management initiatives, but partially offset by final payouts related to bonuses and earnouts accrued in the prior fiscal year. That concludes our financial update. We're encouraged by the demand signals we're seeing across defense and commercial markets and energized by the progress we've made. As Philip noted, new initiatives, particularly our strategic partnerships and international deployments, position us to capitalize on momentum, expand our customer base, and continue advancing towards scalable recurring growth. As we move into Q1 of FY26, our focus is on executing backlog deliveries converting demonstrations into multi-year deals, and maintaining tight expense control. Thank you again for your support.

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into 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 move your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one. One moment, please, while we poll for questions. Our first question is coming from Glenn Madsen from Vandenberg-Fallman. Your line is now live.

Hi, guys. Thanks for taking the question. Congrats on the strong growth and backlog of pipeline. I'm curious a little bit more about the pipeline. Just can you give us some understanding and background about how you compile that number and, you know, uh, just some, some background around the conversion and, and, and how, how well, uh, you know, how mature some of that, that is some just color on that'd be great.

Yeah, absolutely. Uh, Glenn, thanks for being on the way, you know, as you've seen is the way we look at our pipeline. It is everything that is a, an actual opportunity where we're under discussions with a customer. With the retooling of the commercial team, and you've seen we recently onboarded a new SVP for commercial, Jason Wheat, who's a retired US Navy captain, and others that we've brought on, we've really positioned the company to now start increasing and accelerating the conversion rate as we're looking at what is a qualified opportunity or opportunity under negotiation with a customer to then focusing on the delivery portion of the pipeline and then converting that to revenues. With the key appointees in the presidential administration in place, we feel very confident about seeing an increase in the conversion rates and equally, As the world starts recognizing that a hybrid fleet and unmanned operations in the ocean are a critical portion of operations, we look forward to participating in that. As we stated, these are qualified opportunities, opportunities under negotiation. And we are increasing or we're feeling confident about increasing the conversion rate as we move to the current fiscal year.

Thank you. And then I guess as a follow-up, you know, you've done a great job cutting costs. You know, can you just talk about your capacity and ability to meet demand? Should it accelerate faster than you'd expect or?

Yeah, absolutely. Obviously, we've got the facility in New Jersey where we've got just under 60,000 square feet. We've got our smaller prototyping facility in the Bay Area in Northern California. And under the leadership of our operational team, we have redesigned the layout of parts of our facilities so that we can scale up more quickly. But obviously, as you pointed out on the cost cutting, We're doing so in a way that is conscious of working capital so that we can convert as and when required without front-loading too much into inventory prior to starting the conversion.

Okay, great. Good luck, and thanks for taking my questions.

Appreciate it. Thanks for being on.

Thank you. Next question is coming from Peter Gastrich from Water Power Research. Your line is now live.

Yes, good morning. Peter from Water Tower. So congratulations to the team on your results and executing on your strategy in 2025. You know, it's really great to see this meaningful momentum in your backlog and also the cost cuts. It looks like you're well positioned, you know, starting off in 2026. I just have a couple of questions, one on the backlog and the other is on the gross margin. Just related to the backlog, could you talk, first of all, so thanks for the previous question on that as well. But could you please talk about the breakdown of the backlog in terms of product type? Any type of color you can give on that would be great.

Thanks for being on, Peter. What we are pleased with in the backlog is the fact that it is a very healthy split between buoys, vehicles, and associated services. What we're also starting to see, and as I mentioned in my remarks earlier, with becoming an AOV as our trusted operator, we're seeing an uptake in service revenues related to training that are starting to sit in backlog and certainly sitting in the pipeline. We feel good about the fact that this is not based on one single one of our solutions. but truly is part of what we set out to do, which is deliver autonomous, persistent, and resident ocean intelligence, whether that is buoys, vehicles, enabled software that sits at the edge across them, or whether it is services that are related to getting these items deployed.

Okay, thank you very much. Yeah, just a question on the gross margin. So, you know, over the last year, your gross margin was on the decline, and you know, just looking out toward your backlog right now and eventually having that feed through, how should we be thinking about, you know, how your gross margin would be evolving sort of broadly going forward?

Yeah, I think we are seeing an uptick again where gross margin is going to start heading. Some of that has been related to the fact, as Bob mentioned, we've been working on projects such as Overmatch and others, which have been you know, revenue generating but more focused on larger scale demonstration efforts. As we transition further into operational use of the systems, we look forward to seeing that corresponding uptake in gross margins which are driven to some extent by the service revenues that I just mentioned. as those, A, they're recurring, and B, they do carry with them a higher gross margin when we start delivering them.

Okay, great. Thank you very much.

Thank you.

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

Thank you for being a shareholder and for supporting our ongoing growth and execution of our strategy. We look forward to continuing to deliver for you. our customers, and all of our stakeholders. Thank you.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.