good morning and welcome to the ocean power Technology's 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 Phillip stratman president and chief executive officer Bob power 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 thank you after the market closed yesterday we issued our earnings press release and filed our quarterly report on form 10q for the period ended October 31st 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 10K and subsequent violence 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 Phillip strathman 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 we are 2.9 Million Dollars of orders which is nearly six times what it was at the same point last year we remain on track for our nine million dollar order 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 are doing in Bahrain to show the effectiveness of autonomous vehicles when they're used in combination with power buoys and our proprietary MDA software we just completed this demonstration and are actively discussing next steps in support of the 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 intelligence 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 reduce carbon Footprints and lower operational expenses specific to our strategy first we have data as a service where we had a good quota on our pipeline of order activity of wambi's we also made progress on our MDA solution which is now available commercially and is 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 on the phase
2 development of a Next Generation wave energy converter specific to this project we received the 1.1 million dollar payment in the quarter which is intended to be used to develop and test a modular and scalable mass on spring wave energy converter power buoy 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 its 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 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 power buoys with our mvs and we expect this trend to continue going forward third is our strategic Consulting Services we add 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 thanks Philip I will start with Revenue for the corner our Top Line was 303 000 which compared favorably to the 247 000 in the prior second quarter year to date a revenue generation is nearly 2x where we were last year as Philip indicated our orders are at 2.9 Million dollars here to date and growing we expect we continue to expect order activity and revenue to rent meaningfully throughout the second half of the year in terms of deferred revenue our deferred contract liabilities are up 1.4 million dollars a recorder most of which is
related to the 1.1 million Advanced payment will receive from the modular belief under development I expect this to be recognized as Revenue over the next 24 months as the project takes place we are managing our Cogswell so far we have had minimal issues with our supply and we expect this to continue our parts materials are available where we have adequate inventory to continue to wrap our production especially of Wham bees with our established ymb 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 cost inched up sequentially by less than one hundred thousand dollars in the first quarter and are now at 6.4 million dollars this includes our engineering and product development costs and our DNA from a high level we expect our Revenue growth rates the far outpace our operating costs growth over the next few quarters we expect similar movement in our cost structure as we saw in the second quarter one final income statement item of note is the 1.2 million dollars of other income in the quarter this relates to the employee retention credits we applied for with the IRS in the second quarter for tax returns that we filed in 2020 and 2021 during covid and when stay at home restrictions were in place you can see a corresponding increase on a balance sheet in accounts receipt you're starting to receive payments in November and expect full payment by the end of fiscal 2023. this is great work by our team to make this happen moving to our balance sheet we end the quarter with 46.2 million dollars of combined Cash Cash equivalence restricted cash and short-term
Investments and no Bank debt our year-to-date net cash used in operating activities was 11 million dollars for the period and reflection quarterly run rate in the line of the past few quarters from a financial perspective we have a steady order we are maintaining strong oversight of our costs and positioning our company for Top Line growth with that Philip and I are happy to take your questions thank you the floor is now open for questions if you would like to ask a question please press star one on your telephone keypad a confirmation tone will indicate that your line is in the question queue you may press star 2 if you want 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 is star one to ask a question at this time the first question today is coming from Sean Severson of wtr please go ahead thanks good morning guys I'm Phillip Tony Sean thanks for joining us thank you 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 um you know from from uh what you were seeing from them and what they were looking for and then second of all what will 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 or you know getting towards material orders yeah no that's uh great great questions thank you thank you Sean um so you know we we're very proud and humbled to be able to support the US Navy and its efforts to increase its autonomous and artificial intelligence capabilities you know starting through fifth Fleet uh in the Middle East and uh what what plans U.S Navy may have after that you know we were one of several participants that was out there um we had three of our assets deployed during digital Horizon including several long duration um deployments that we carried out that went you know in excess of you know 24 plus hours and you know 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 um through Central Command and general carrilla who stated during the Manama dialogues in Bahrain um I think it was the weekend before Thanksgiving that the plans for the Department of Defense are to have a hundred usvs deployed in the region by the summer of 2023 you know we obviously uh approved and congratulate U.S Navy on on that approach and increasing its autonomous footprint and and we look forward to supporting you in whichever way we can what what other applications do you think this makes sense where we look outside military deployment if you look at the deployments that we have been you know doing and demonstrating during during digital Horizon it's very similar to some of the other work we have done previously and built 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 you 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 fissuring monitoring of protected areas and quite quite frankly infrastructure Assessments in harder to reach areas where you're trying to remove operator out of Harm's Way my last question is is on R D roadmap so I think talk specifically about the MBA solution will be helpful but also a bigger picture question when you look at where you need to spend want to spend um you know emerging Technologies sort of commercializing Technologies can you just walk through uh you know framework of of what you're working on and where the spend is going to be in in priorities and again I'm particularly interested in that next round of MBA as well sure I mean MDA you know 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 without having to kind of you know needing 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 so this isn't so much leaky looking for next gen let's call it Leading Edge bleeding edge technology this is really becoming this commercializing solutions at this point using the portfolio of technology is that is that what I'm hearing absolutely we have a robust set of platforms and obviously we will continue to you know work on improved user features and additional features we can integrate into it and we are continuing the development of the Next Generation math on Spring wave energy converter which we working together with the bre under the grant funding that we have received to utilize that but it generally speaking the primary effort is on in you know getting a holistic set of assets out into our customers hands that can easily collaborate and work with each other great thanks I'll step back in the queue Okay so excellent appreciate it once again that is star one if you would like to register a question at this time we'll pause a moment for additional questions our next question is coming from Jeffrey Campbell of Alliance Global Partners please go ahead good morning um Phillip first I just want to ask what are the expected benefits of the must work uh Power Boy versus the current Solutions thanks Jeff uh good morning and uh thanks for joining us the the power buoy that we have right now is entirely fit for purpose what we are looking at and similar to what I I mentioned to Sean is having a a you know a seamless Consolidated offering in the marketplace by finishing the development of the mosque system will be able to start consolidating Hull shapes when it comes to the buoy platforms which will give us the ability to have one common Hull shape whether you're using it with a wave energy converter or without a wave energy converter as we've done in the past with hybrid thus further streamlining the the offering and making it more cost efficient for our customer base and do you anticipate there'd be any manufacturing benefits from that as well maybe in terms of internal costs for the companies absolutely if you think about the supply chain benefits of moving to a common Hull shape across all of the buoy systems you know you can start you rapidly start being able to scale up you know raw material sourcing you can you can use start consolidating working on whip assets and obviously it becomes much easier to install the finished good sites so there's a there's a whole bunch of benefits that come from the consolidation of those efforts as opposed to you know just the quote unquote benefit of a common hole shape of the customer and I was wondering can you provide us with any kind of sense of what the revenue implications might be if the USB sales if you get some meaningful portion of that USB um stated Desire by the Navy in 2023 yes off we've stated you know we we we feel comfortable with the 9 million bookings forecast we put out for the current fiscal year and we will work on expanding that for the next fiscal year and you know I think the interest that we're seeing in the market and the broader demand picture you know is giving us comfort that our sales team and Commercial team you know can start concentrating on converting opportunities into additional orders and backlog uh well with that without asking for too much specificity and should I take from that the 9 million estimate that's on the books contains both commercial sales and and you know forward payments of development projects and but also some military sales as well yes I mean as you're seeing with the efforts that we've got ongoing you know currently on a digital Horizon and the work that you know we've discussed previously that we've been doing for Naval Postgraduate School you know we we look we look forward to having a robust pipeline that contains a healthy mix of government and Commercial orders and government being the defense and National Security space as well as efforts around you know non-defense uh spending on the government side okay and my last question is with regard to the oil and gas business I mean we're we're generally led to believe that that offshore oil and gas development is due to be fairly static over the next future years there can be a few exceptions like ExxonMobil offshore Guyana but in general apparently fairly static so I'm wondering what um what areas of application you find that you believe you can grow into that industry even as it itself seems to be sort of consolidating and pulling back yeah I think we we will continue as I mentioned we will continue to support our you know oil oil and gas and sort of energy writ large customers in the offshore world with Solutions around monitoring of lease areas surface and subsea um you know as we've previously stated you know we we can support decommissioning efforts and well monitoring and those those specifically on the oil and gas side our efforts will continue to pursue from uh from an opportunistic standpoint thanks very much I appreciate the answers oh you're welcome thank you Jeff thank you the next question is coming from Sean Severson of wtr please go ahead with your follow-up great thanks uh Phillip a quick follow-up question how how will you be looking at and how's maybe the the government looking at maintenance on a product like this so you know how you're talking about in any field deployments um how would that how would maintenance be taken care of would you train them to do this or do you envision deploying I mean it's a bigger picture question too not just for that but um you know bigger rollout of Maintenance and and you know service things that you need to you need to take account for yeah I can't I can't directly comment on how each individual agency or you know um division of the government is going to deal with maintenance specifically the way we look at it and as itself we've mentioned this before you know similar to data as a service also on the vehicle side we've been offering robotics as a service for a while you know so we will provide operators that can support the onboarding and in service training of our systems with our customers and if there is a desire by the customer to maintain that service we will obviously you know maintain that service and equally if there's a desire by our customer you know specifically in certain spaces of the government to move into maintenance and Servicing by that agency or service itself you know we will provide a train the trainer approach where we will support and upskill the the government and then provide you know spare parts and Logistics maintenance as and when is required going forward so my my last question is regarding uh you know through the customization of the Big Data Big Data side is very interesting obviously subscription business um how how much can you manage and customize what you're looking from as soon as it's a function of this instrumentation right which you're putting out on there so if you know that there's a big demand for service a you can equip um you know equip them with the correct instruments and be able to provide that service so I'm just trying to understand how do you figure out what you how you commercialize and what do you Market to the to um you know potential customers for Big Data yeah so on the proprietary side obviously we have our Maritime domain awareness solution which at the moment you know at the proprietary part of that is primarily surface surveillance intelligence and reconnaissance focused but as long as it fits within the power budget I mean we've stated this before we're sensor agnostic so when to the extent that anybody wants to integrate other sensors into it be they surface or subsea you know we we will we will accommodate any of those customer requests we're obviously collecting a large amount of data from our deployments that we have internally and to the extent where customers allow us to retain some of the data that that we can collect from deployments that we'll be doing on behalf of others and uh so yeah we and we continuously use that data to refine approaches and and provide additional insights to the customer base as we scale up and continue rapidly scaling up the deployments that we have globally great thank you thank you thank you the next question is coming from Jon Snow a private investor please go ahead hey guys uh just a quick question on the projected 9 million of Revenue will you be cash flow positive with potential 9 million of Revenue I really appreciate the question um it was the the 9 million of bookings that we have forecast for the current fiscal year are a forming the basis of further growth as Bob mentioned during the uh during during our during our um earnings announcement you know we're continuing to manage our sgna and our our you know our margins in general and we will be building on the 9 million which will put us on a solid path forward to achieve cash flow positive operations going forward so is that a 2024 cash flow positive and uh with that another question on why the delay in the annual meeting so the delay in the annual meeting is is is very straightforward it was simply the fact that we were about 1 million votes short for quorum um our corporate by loss dictate that at least 50 at least 50 percent of our shareholders to have their say on the items we put to vote and we were a million million just about a million votes short um of that you know we've got just under 56 million shares outstanding um and yeah we'll just just slightly shorter the Quorum so we are giving our shareholders an opportunity to continue putting their votes in for or against the proposals that we've put out there and reconvene on January the 13th and uh the first question 2024 does that mean cash flow positive we're not providing any any additional guidance uh right now other than the guidance that we've put out in the in the earnings release thanks thank you John thank you we're showing no further questions in queue at this time I'd like to turn the floor back over to Mr stratman for closing comments thank you we appreciate you joining us I hope you can sense that our company is headed in the right direction thank you for being shareholders or potential shareholders of our company we wish you a great holiday season and look forward to Future updates have a great rest of your day ladies and gentlemen thank you for your participation this concludes today's event you may disconnect your lines and log off the webcast at this time and enjoy the rest of your day
2022-12-22