Ocean Power Technologies, Inc.

Good morning. Welcome to the Ocean Power Technologies second quarter fiscal 2026 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. Philip Stratman, President and Chief Executive Officer, and Bob Powers, Senior Vice President and Chief Financial Officer. Following the prepared remarks, there will be a question and answer session. Now, I'm pleased to introduce Bob Powers.

Thank you, and good morning.

This morning, we issued our earnings press release for the second quarter of fiscal 2026, ended October 31, 2025, and filed our Form 10-Q with the SEC. 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 and involve risks and uncertainties that may cause actual results to differ materially. Additional information about these risks can be found in the company's SEC filings. The company disclaims any obligation to update the forward-looking statements made on this call. Finally, we've posted an updated investor presentation on our IR website. With that, I'll turn the call over to our CEO, Dr. Philip Strapp.

Good morning, and thank you for joining us. This quarter continued to show increasing traction across our markets. Backlog stands at approximately $15 million, and our pipeline has expanded to more than $137 million. These levels reflect broad engagement across defense, government security, offshore energy, and commercial applications. and they demonstrate the strengthening demand for persistent maritime surveillance and autonomous surface vehicles. With the US government fully reopened, activity has accelerated across several programs. Discussions that were paused have resumed with clear direction, and we're seeing concrete steps from multiple agencies to expand maritime domain awareness and autonomous operations. In addition to participating in the Rapid Capabilities Office launch in Washington DC, We are tracking new initiatives such as the US Coast Guard's Raptor effort, which further increasing signals the government's intent to employ scalable uncrewed systems and long duration sensing solutions. These efforts align directly with the capabilities of our platforms. We're also seeing growing interest in buoy-based persistent surveillance. While we will speak to specific awards once finalized, we are preparing for anticipated buoy orders and our operational planning reflects this expectation. The combination of long-duration power solutions and our ASB platform positions as well for programs requiring continuous maritime presence. Internationally, we continue to advance customer engagement. We conducted demonstrations in Latin America and the UAE with both defense and commercial customers. These demonstrations validated system performance in real-world operating environments and have opened additional avenues for follow-on work. Our international presence has become an increasingly important contributor to pipeline quality and customer diversification. Operationally, we maintained steady OMV deliveries, advanced power buoy readiness for national security and border-related missions, and supported customer-driven trials and integration activities. To ensure we can meet rising demand and execute larger programs, we reorganized our delivery and internal R&D teams. The intent is to strengthen coordination, improve platform readiness, and ensure scalability as opportunities grow in size and complexity. Taken together, the progress across backlog, pipeline expansion, government engagement, and international demonstrations reflect a business building capability and customer confidence. Our focus remains consistent, deliver reliable systems, support our customers' missions, and position the company for the... Thanks, Philip.

I'll begin with backlog, which provides the clearest view of future revenue. As Philip mentioned, backlog at October 31st was approximately $15 million, an increase of $11.2 million from the same period last year. This reflects conversion of opportunities across defense, government security, offshore energy, and commercial applications. Our pipeline ended the quarter at $137.5 million, up $53.2 million year-over-year. The pipeline includes larger and more strategic opportunities, including multi-vehicle ASB programs, integrated buoy and ASB surveillance solutions, and autonomy-enabled commissions. These indicators reinforce the momentum we are seeing in customer engagements. We also delivered eight WAMVs during the quarter, supporting demonstrations, customer milestones, and ongoing user trials. Production throughput remains stable, and we are prepared to meet scaling requirements as additional programs move forward. Revenue for the three months ended October 31st, 2025 was 0.4 million, compared to 2.4 million in the prior period. Month period revenue was 1.6 million compared to 3.7 million a year ago. As noted in the press release, the primary driver of this year-over-year change was the timing shutdown, which delayed several deliverables into subsequent periods. Gross profit for both the three and six-month periods was a loss of 1.4 million compared to gross profit of $0.8 million and $1.2 million for the respective prior year periods. These results include full recognition of losses on certain strategic startup contracts in accordance with U.S. GAAP. The related project costs are substantially complete, and these programs will continue generating revenue going forward. Operating expenses were $8.8 million for the quarter and $15.8 million year-to-date. compared to 4.7 million and 9.6 million in the prior year periods. The increases primarily reflect higher non-cash stock-based compensation. Excluding stock-based compensation, operating expenses increased approximately 34% for the quarter and 17% year-to-date, driven by targeted investments to support growth and execution. Net losses were 10.8 million for the quarter and 18.2 million year-to-date. compared to net losses of $3.9 million and $8.4 million in the respective prior year periods. Combined cash, cash equivalents, and short-term investments were $11.7 million as of October 31 compared to $6.7 million at the beginning of the fiscal year. Net cash used on operating activities for the six-month period was approximately $13 million compared to $10.9 million in the prior year. With that, I'll turn the call back over to Philip for closing remarks and Q&A. Thanks, Bob.

To summarize, we continue to see strengthening demand signals across our core markets. Backlog and pipeline remain at significantly higher levels than last year. Government engagement has regained momentum, supported by new initiatives across multiple agencies. International demonstrations are expanding our footprint and validating performance in the field. And operationally, we have aligned our teams and resources to support the opportunities developing ahead of us. Our focus remains on execution, reliability, and supporting customer missions with systems that perform consistently in real-world environments.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question at this time, you may press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question from the queue. Participants are using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Thank you. And our first question is from the line of Michael Legg with Leidenberg Thalmann. Please receive your question.

Thank you. Thank you. Good morning. I wanted to dig a little deeper into the pipeline, obviously a very impressive number. Can you talk a little bit about how many customers, how many orders, or some type of magnitude there? Also, which product lines, if there's any concentration there, and then just secondly, you talked about building out the headcount. Can you just give us a little more explanation on where the headcount has grown and how that helps support the pipeline? Thanks.

Yeah, good morning, Michael. Thanks for the question. To the first point on pipeline, At a high level, it is a continuing diversification that we've seen before. The change we have seen, probably unsurprising to you and many other observers in the space, is the continuation of the growth in terms of demand signals and efforts we're working on finalizing when it comes to the United States government. particularly in the areas of homeland security and the Department of War. So those are ongoing discussions, and they've really accelerated in recent months and weeks. And in particularly what Bob alluded to, efforts that we've got ongoing in terms of converting backlog to revenues, those discussions have really started picking up steam again since the government has reopened. In terms of the product lines, it is a very balanced mix. If you're looking at it in terms of just the pure dollar values, it is fairly evenly split between buoys and vehicles. I think the key thing to note is that the usual point of entry nowadays is not because of a buoy or a vehicle. It is usually because of a demand and requirement for intelligence surveillance and reconnaissance services, mine countermeasures, unexploded ordnance detection, or various other efforts that could be related to, say, border patrol or facility protection. Then we work with the prospective customers to figure out jointly with them whether that is permanently fixed systems with roaming systems or primarily roaming systems. And then the last part of the pipeline outside of U.S. government is there is a lot of effort and interest, and as you've seen in announcements we've made publicly, it's really Latin America and the Middle East, and more recently starting to see some efforts around the Baltic Sea. But we are continuing to follow that kind of targeted track for expanding thoughtfully internationally and making sure that we have meaningful large customers that we're going after. So that's on the pipeline side. Does that answer the question?

Yeah, no, that's great, Dan. And then just on the head count, how much like those dev professionals type of people helping you close this pipeline have you put in place?

Yes, so on the headcount, it is a mix of commercial and then really operational delivery-focused functions. We recently announced that we are one of a very few select companies that's been given trusted operator status by AUVSI out of Washington, D.C. So with that, we've started opening up bookings for our training school that we were running out of our California facility for people to receive a trusted operator certificate for USVs. So obviously with that came the need for us to have more USV operators that we wanted, a marine operations type people. And then at the same time, obviously with OPT having a facility clearance with, with the united states government we've also broadened up our commercial team to be able to facilitate those discussions with the department of war and specifically within that department of the navy and then also with homeland security and coast guard and as we mentioned in the call you know things like the navy's rapid capabilities office the united states coast guards raptor initiative Those are efforts where we really brought in people that are all veterans that have worked in those areas that can now help us deliver and convert that backlog to revenue and then hand it over to the operations team that we've brought in so that we can then successfully deliver for the customer.

Great, thank you. And then just one last piece on the government shutdown impact on revenues this quarter. Is that something that we should see additive to next quarter or did it push everything out in sequence?

It's hard to say whether it was additive or whether it was a push out. We would say we are seeing the definite uptake in pace rapidly over the last couple of weeks. And we feel good about some of the efforts that we are looking at shipping very shortly. And as Bob mentioned, we shipped eight vehicles or built eight vehicles and delivered eight vehicles in the quarter just gone, which were a lot worth of demonstration efforts, which would start unlocking some of that conversion. And then equally, we've started pre-building some of our buoy assets for anticipated orders that we're looking at being able to deliver in the very short near future. Great. Thank you.

Thank you. The next question is from the line of Peter Gastry with Water Tower Research. Please proceed with your questions.

Good morning. Thank you very much. So congratulations on your continued momentum with the backlog, especially given the obvious challenges of the government shutdown. And thanks for taking my question. So just to, you know, first of all, please follow up on the headcount question. Do you feel like, are you kind of where you need to be now in terms of that, you know, headcount expansion for converting the backlog, or are you still going to be growing the headcount?

I think we've done a lot of the work that we wanted to get done and catch up so that we can get into that conversion cycle more effectively. As we convert some of these larger orders that we anticipate coming through, there will obviously be targeted increases, particularly around things like building out maintenance, repairs, and operations hubs as the installed base grows. But these will be tied more directly to conversions that are occurring, and we'll be able to announce them almost concurrently.

Okay, thank you. And also there was some recent news about a federal court striking down some federal freezes on wind permits in 17 states. And I know that defense is a bigger momentum focus for you now, but I'm just kind of curious whether this regulatory developments in wind energy have impacted your momentum at all within that industry over the last quarters.

Yeah, I mean, outside of the defense industry, offshore energy, and the civilian sector in the maritime areas is the other part of our business. And you have seen publicly, we're still heavily engaged in that sector. However, we're mainly heavily engaged in that sector outside the United States right now. We're working in the UAE. In the sector we delivered over the last fiscal year, we had assets operating in Sub-Saharan Africa. We've got assets operating in offshore energy in Taiwan. So it is continuing sector. So yes, the fact that there is currently very little being done in terms of survey work for offshore wind in the United States obviously doesn't benefit us. So any kind of type of survey work that's needed on the civilian side, we can supply very cost-effectively. And in the meantime, on the civilian side, we'll continue operating and growing our footprint outside the U.S.,

Okay, that's great. Are you able to give any sort of color on what the magnitude of international on the wind side when compared to U.S. looks like?

I wouldn't be able to say on the wind side specifically because most of the work we're doing in the Middle East and in the UAE is oil and gas related. International offshore oil and gas is just as interested in USVs as the US wind sector used to be. And that's because USVs materially enable our customers to lower their OPEX or you're exploring for natural gas, or you're going after critical minerals, we can support all of those civilian sectors. And we look forward to continuing to grow that market segment.

Okay, great. Thank you. Just one more question from me, kind of high level, but I just wonder if you could give us a refresher about how you identify and quantify pipeline versus backlog in terms of timing to conversion or certainty or whatever metrics you use for forming those buckets.

Yeah, so pipeline is what we would consider to be qualified opportunities. So this isn't like TAM or SAM metrics. When we talk pipeline, it is potential customers under NDA where we're discussing actual projects with them. And then when we're talking about backlog, backlog is contracts in hand. Backlog is POs that we have received. They could be for immediate delivery, or they could be for delivery over a period of, say, two years' time. But backlog is confirmed, contracted, purchase orders. Pipeline is qualified to be converted to backlog.

Okay, great. Thanks for taking my questions again.

Appreciate it. Thanks, Peter. Thank you. At this time, I'd like to turn the floor right to management for closing remarks.

Thank you. Before we conclude, I want to thank our shareholders for their continued support. Our team works tirelessly to deliver value, both for you and for the customers who rely on our systems in demanding real-world maritime missions. We are committed to building a company that executes consistently, delivers reliably, and stands behind the solutions we put into the field. Thank you again for your support. We look forward to updating you on our progress in the quarters ahead.

This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation. Have a wonderful day.