Ocean Power Technologies, Inc. (OPTT) Earnings Call Transcript & Summary

Hello, and good morning, everyone. My name is Shawn Severson, Co-Founder and Head of Sustainability Research at Water Tower Research. As a reminder, at Water Tower, we are an open access investor engagement platform. All of our content, including our webinar today and all of our research is complementary for investors to access. I would encourage you to take a look at our website at www.watertowerresearch.com, where you'll find information on today's presenter as well as all of our other research as an open access for investors. I'm very excited today to have Matt Burdyny, Vice President of Global Sales and Marketing with Ocean Power Technologies. Many of you have seen of our research as well as our other webinars on the company. Today, we're going to be discussing a variety of topics with some interesting aspects about the sales side of the business and how that works as well as some of the bigger macro issues and drivers that are going on at the company. So again, thank you for joining us today, Matt. As a reminder, this will be available on demand for investors as well. And if you're good, I'll jump right on the first question, Matt.

Perfect. Thank you.

I guess let's start with a little bit about yourself. I don't know if many investors are familiar with you and kind of your background of joining the company and talk a little bit about your background and what you bring to OPT.

Certainly, yes, I appreciate it. So I grew up in Canada, spent the first 20-some-odd years in my life there. I ended up going to the University of Victoria, where I got my undergraduate degree in engineering which is actually where I got involved in the subsea robotics space. So during that time, I got involved building autonomous underwater vehicles as well as remotely operated vehicles. And that's when I actually got involved with some of the defense side, was stay worth the time, now it's [ NIW ] and got engaged with Teledyne where I ultimately went to work for. During that time, I went and did my masters in management at Harvard. And through my experience at Teledyne, I've done everything from the customer service to engineering, through sales, business development and even into acquisitions where on departure of my time with Teledyne, I was part of the leadership team at the Teledyne Marine segment, which kind of brought me to OPT, a little over a year ago. So I joined OPT March 1, 2022. And since then being retooling the organization and making a lot of changes to kind of position us to what the future is going to hold and what we've done over the last 12 months.

And just a 30-second review of what OPT does for investors that are new would be helpful. Just a quick overview. And then my question into that is, I'm curious, what does sales and marketing mean at OPT. Obviously, when you talk a little bit about the business and what we do in technology, military and commercial applications, but I don't think many of the investors are necessarily familiar with how a sales process works in those types of industries.

Certainly, certainly. So I guess first question is, what does OPT do? OPT is -- they really started out as a renewable energy company that does power generation from weight power buildings. They continue to grow through a myriad of different ways, both acquisition, including the acquisition of 3Dent Technologies, now our strategic consulting business, really focusing on efficiencies of systems, FEA analysis, et cetera, as well as our Marine Advanced Robotics acquisition in November '21, which is our unmanned service vehicles. And that's been a good strong catalyst for us as well in our strategy and the growth we're going after. Part of what we've been doing is kind of marrying these technologies, and we'll talk a little bit more about that later as we get through this but on the buoy side, that power generation is really an enabling technology that's kind of moved us into the maritime domain awareness space, the intelligence domain, so on and so forth. So your other question was how does the sales and marketing process work? What does it mean to us at OPT. Really, sales and marketing is how do we deliver value to our customers. How do we bring that either making them more efficient or allowing them to do something that they haven't done before. If you think about our customers at large, the markets we're going after is really defense and security, energy and fisheries. Those are core markets that we're targeting. And we're fortunate enough at this point in life that all of those are growing, some more aggressively than others. But if you think about our customers at the end of the day, the people who really benefit from it, take defense and security as an example, what they're doing is they're really going after that part of the market where it's drug in human trafficking, it's illegal fisheries, which in many cases, also leads to onboard [ Labor ] and other things. And so what we get really excited about is here at OPT, we're being able to provide the technology to the war fighters to give them a chance, to give them a better likelihood of finding these challenges. It's a little bit of a needle in a haystack in many cases, looking for those problems. What allows us to give a voice to those people who don't normally have one. A lot of the time, these victims of these crimes unknowingly are coming out of good intentions but end up in bad scenario. So we're really excited about what we're able to do and how we're able to help our customers do what they do best.

So when you go to sell to a customer and build that pipeline, is this something that they come to you and they have a need, they need a solution for? Or are they using an incumbent technology and solution that's inefficient and dangerous to the war fires. What drives the -- from you and the sales position, what starts this conversation with customers?

No, that's a great question. At the end of the day, a lot of our customers are trying to do what they're doing now, but they're doing it in a different way, right? So take the Coast Guard as an example, right? The Coast Guard has their cutters and their helicopters, and they're looking for some of these, in many cases, small boats, right? You may have a small thing, a boat that has 2 dozen people on it. And best case scenario, they find a worst-case scenario, it overturns in the seas and becomes a recovery situation. So a lot of the time when they are operating and doing this job, they're doing it in a less effective manner. And that's part of the technology development, right? These technologies weren't available years ago. And in some cases, they're doing some of this activity from a land-based scenario but being on the water line, at sea in persistence is a unique capability that we're able to bring to the table.

From that standpoint, when I think of right or wrong, when I think dozen of contracts and I think the military, I often think of very long sales cycles. I think investors are familiar with more like the aerospace and defense. So I take a jet fighter platform and it hardly a decade maybe of development. Help us understand how the business works from kind of a long-term development cycle versus shorter-term, say, discretionary-type spending and so when we think about the business or think about the business pipeline and we think about revenue growth, what are the -- are there different or different tracks that this follows?

Yes. No, that's a great question. And the way we're positioned now is we're diversified in terms of markets, and we're also diversified in terms of product lines. Each one brings their unique opportunities and challenges. But from our perspective, the way we see it is, if you look at one segment, choose defense and security, it's going to be a balance between the long-term programs, which is large, long process opportunities as opposed to discretionary money, which is usually tied to operation and maintenance. And it's different for each product line, as I mentioned, but also a different for each space, right. In the oil and gas space or the renewable wind space. If you're getting into the initial FEED study of the project, again, it can be that long 3-, 5-plus years cycle to get there but you can also have the opportunity to get some short-term business to be able to get in there and prove yourself, show the success, which is going to get you some of that longer-term stuff as well. So it's definitely a delicate balance, but we've had some great success. Certainly, some very material change in bookings over the last 12 months, and we expect that to continue.

My next question is very open-ended and probably could spend the whole 30 minutes talking about just this topic, but what's happened at government agencies that have been specific and drivers for OPT. So we understand, of course, can be -- we're talking about military applications and coastguard. But what has been some tailwinds out there recently from the government side that you would point out for investors to take note of.

Yes, certainly. We've released a series of public statements and public press releases. Clearly, we're involved in a number of different government agencies. We are fortunate enough that we are both a green technology as well as provide both security for our borders as well as our members out in the field. So there's a lot of things we can talk about, but there's a number of things we can't talk about. For those we can, clearly, Department of Energy is very forthcoming with continuing development of green technologies and what we can do to be able to move that forward. But you're obviously seeing what's transpiring in the wind domain. The wind domain is definitely very active, although it hasn't picked up the steam that you've seen on the wind side. But also even on the defense and security space. It's the Department of Defense as well as our politicians have been very aggressive on their discussions of what they're planning to do in the unmanned system space. The U.S. coast guard came out and launched their unmanned system strategy. If you look at our product offering across the board, we have a deep capability to go and support where their strategy is going to go. And in some cases, we're already working with Department of Homeland Security and coast guard, as you well know.

And I think that's a great point to maybe spend a second talking about, unmanned reconnaissance, observation, we hear a lot about it across all the different agencies, right, as well as commercial applications. But help us understand, investors understand how you fit into an unmanned strategy. Let's say, it doesn't matter whether it's across military or commercial, just -- what do you do that makes your solution attractive to those applications and rollouts?

No, certainly. So there's a number -- if you kind of look at our systems and what we do, we fill some very convincing niches. And what I mean by that is our buoy is a phenomenal asset from a detection standpoint. So detection and identification. So if you want to sit there and say, okay, we want to be able to know everything and anything that's going to be coming through above the waterline or below the water line, this is an ideal asset to be able to make that happen, right? Because for us, we talk about the way PowerBuoy. The way PowerBuoy is an enabling technology to provide that persistence. We can use whatever sensors that are available to the market to be able to go and do that and provide that information in real time anywhere in the world. I've been overseas in the Middle East, and I can see in real time what's going on in the Port of San Diego as an example. And our buoy acts as kind of that stationary [indiscernible], right? So you can kind of set up a geofence and have a full solution understanding what's going on along the water line and before you even deploy a Coast Guard cutter or a helicopter to go interdict it, you've got all the intelligence you have, all the information and instead of sitting on a ship and making a decision, you have that information that is not only there in real time to make that decision, but it's admissible in the court of Law. So when you can then go and actually have that discussion and say, do we do this or do we not do this, you've got that and you've got the proof to be able to go and do that. And that's our buoy, right? So then you have our unmanned surface vehicle that can act as our mobile and go and actually provide further intel for their introduction. We've launched aerial drones off of our WAM-Vs before and so on and so forth.

And before, it would have been dependent basically on a regular coast guard boat, let's say, how cutter out, running normal operations, looking for something, right? Have the chance to see it or not see it was this as you said, more of a geofence unmanned buoys that are kind a working 24/7.

Certainly. And one of the -- I think we've all probably seen the viral video of some of the Coast Guard folks jumping on the semi subs, that's an easy one to think about because you may have the above the waterline sensors looking for potential challenges and then you have below the water line capability too, where if you hear something under the water, but you don't see something on the surface, that's a definite red flag and being able to go detect that, anybody who's driving a semi sub along our coastal waters is up to no good. So providing that intelligence in real time is invaluable to our service members.

Let's continue down that road of commercial versus military. And talk about how do you maintain a solid commercial market offering and position yourself for the government. And one of the things that I find interesting about the business is oftentimes technologies develop and military move to commercial. But I think your situation is a little more unique in that perspective. But how do you balance the 2? What's the relationship between the 2 and then in particular, in the commercial -- well, let's start with that. I do have a follow-up I'd like to discuss on the commercial applications as well.

Absolutely. And all of our technologies and all of our capabilities that we build as standard offerings are commercial off-the-shelf, right? So they're intended to be dual-use purpose where we can go and, for example, on our unmanned surface vehicle side, go and serve the hydrographic market, where we can provide surveys or force multiplier surveys. In many cases, if the seas are too rough and unmanned vessel can't be on the water, we can still operate our unmanned surface vehicle or you can operate them in tandem. So instead of being able to survey and see what the floor looks like, you can have multiple vehicles working in pairs, and so the job gets done a lot quicker. So we do a lot of work in that space, but also even in the offshore wind in the offshore energy space. If you think about what goes into putting these structures offshore, understanding security around these systems to provide, to ensure continued uptime, no bad actors are involved in what's going on out there, but even the pre-construction, understanding what the sea floor looks like. Being able to map the sea floor and then monitor the environmental conditions in real time, especially if there's environmental events coming through like hurricanes. So one of the things we do is we segmented our go-to-market side of the business. So we're paying the right attention and giving the right dedication to each one of those areas because there's very reliable market spaces that we can certainly serve in each one of them.

And my follow-up on the commercial side was -- is this an ROI sale to, let's say, a wind developer, right? I mean what is the return that they get on using this versus doing nothing or whatever they were doing before. I'm trying to understand the value proposition to a commercial user. I think it's clear the military, right, in defense applications, security. In the commercial world, what is their thought process and economic process to make a decision to work with you?

No, certainly. And we have -- I would say we have several different operating models, right? So in many cases, depending on the customer, they may really want to own the asset for a myriad of reasons. In other terms, they're just interested in the data, right? They don't necessarily worry about the logistics of how they get there. They may want a green solution or they may want this side or the other thing. But at the end of the day, what they're really interested, what they really need is the data. We're able to provide that to them. If it's off of our buoy as an example, it's in persistence. So we can put it there. You don't have to worry about sending a vessel out every several months to service it, recharge batteries, replace batteries, take data off of the instrumentation. It's the vessel time that choose up a lot of -- if you're thinking from an ROI perspective, a lot of that cost, if you're -- especially if it's a week transit out to the location, a week here, a week back, plus your time on site, that becomes very expensive very quickly. And even from our perspective, the cost of deploying something like a buoy that generates power and can provide that persistent information or even other assets that can transit autonomously, those costs end up falling in a noise compared to the cost of the vessel well.

Absolutely. Next question, and we have a number of questions from audience so we'll try to take a couple of those, but I did want to get this last one in. [indiscernible] to everybody participants to try to use max 30 minutes. So I'll try to get through a couple more here to a great conversation today. When you look at technology and you look at the road map, I've been familiar with the company for many, many years, and I think it's important for investors to understand as well that this isn't some leading edge technology that's in the pilot stage. Technology has been around, the guys has been developing it for quite some time. So you give a very brief history, just to help investors understand what has already happened in the heavy lifting side, but then more importantly, let's talk about what [indiscernible] technology, road map, R&D spend, we still have a lot to do. Obviously, a question investors always are care is about and commercialization spend, things like that. So a moment to address it would be helpful.

No, certainly. And so I think we've all probably seen the latest press release around our MASWEC buoy. Just so everybody knows, MASWEC stands for mass on spring wave energy converter. And that's an exciting technology because it's a shift from how we're currently doing our Way PowerBuoys, which means no exterior moving parts. The value to this is driving longer-term higher reliability. In addition, it also means you don't necessarily have to have a service footprint, right? We can deploy below the water line without having that float that needs to move up and down. All the moving parts that generate the power are internal. In addition to that, we've also got things in the works that's going to give us kind of multiple buoys in our portfolio, which means if customers interested in doing A, B, C or D, we look at the power requirements associated with that and we can choose the right tool for the right job, meaning that we can provide them, depending on what they want to do, 100% uptime anywhere in the world that they want to deploy because we all know that in many cases, things like wave energy is strong during the winter, but less so in the summer as opposed to something like solar, which is stronger in the summer and less in the winter. And doing things like that allows us to minimize the size of our platforms, bring down the overall cost, require less batteries and do all these things, which allows us to be more aggressive in different places and operate more dynamically too.

So expanding on that a bit, looking at the spend, what you would need to do, I guess, these are more development costs, let's call it that or implementation and application costs. I assume there you take the core technology, right, that you've already developed and now you're just continuing to -- or maybe -- I don't have a lot to do to tweak for multiple applications. So long way, I guess, I'm asking is it doesn't take a whole lot of money and spend on the R&D to continue to grow both the commercial and the military applications. Is that understanding correct?

That's correct. So it's the same core technology that's used for all of our markets and all of our applications. It's just deployed in different ways, the different -- the data that comes out of it is different as well. And we're sensor agnostic. So if a customer is interested in collecting additional information, we can certainly do that very easily. And those are the product developments that are right ahead of us, right? There are other things in the works. You can -- it doesn't take a lot of imagination to look at the technologies that we have and understand how can we marry those and provide further value downstream.

Great. I do want to take a couple of questions, and I try to get the audience involved and we've got a bunch of questions, only a few minutes left. I'm going to hit a couple of them. The first one is a specific question, but I want to broaden it out. The question is how does this compare what say, satellite can do or does do today from a security perspective, obviously or even some commercial applications, quite frankly. But let's take that and expand it a little bit. We talked about some of the other existing solutions, right, but the incumbent solutions, but maybe run through the -- some of the big advantages you have and compare with the satellite especially. And are there any other technologies out there that would have crossover with what you're doing at least in the near term.

No, I appreciate the question. I would say satellite is complementary to what we're doing. And that's good for a number of reasons, right? It's like anything, right? It's -- you're only going to get the satellite image if there's a satellite over top of the location of interest at that point in time. But what I would also say is what we're able to do is we're able to provide real-time direct maritime domain intelligence right from the water line, right? So that means we have direct access to what's going on below the surface, which you won't necessarily get from a satellite unless they're sitting right on the surface. In addition to being able to pick up other images and other pieces of data that you are from directly there. So merging in and marrying the satellite technology to what we do is only going to be complementary and more beneficial to the end user.

So if I take that question around a little bit more about looking at a network solution, let's say, a multiple solution, is that right way to think about this. So you would have a spectrum of buoys, right, potentially unmanned watercraft, unmanned aircraft. You would have satellite and is that the way we should think about this when we look at deployment or maybe the way that the defense agencies are looking at this is creating a net using multiple technologies to provide a solution.

Yes, that's a great example. If you kind of look at what Naval Postgraduate School and it's done with the SLAMR consortium. And we've been partner in that for some time with the team there or what Taskforce 59 has done during digital Horizon and the information that they put out, that's the absolute direction. It's how do we take these different technologies, take -- they all have their unique perspective, they're unique advantages and how do we take all of that intelligence, marry together to be able to provide the most intelligent response.

And last question, we're running out of time, is regarding unmanned watercraft versus buoys. And I think this ties in a little bit on the last -- to the last question and answer, but how does that -- how do those 2 marry -- do they compete? Are they complementary? Why -- what's advantage of one versus the other is that just on the question?

Certainly. So again, I would say they each have their place. Even on the unmanned surface vehicle side, you've got a number of different unmanned service vehicles in the market. And each one of those have their place, right? There are folks that we're complementary with. There's folks that we compete with. There's folks where we still overlap. On the buoy side, the unique perspective in ads is it gives you that stationary node. So it is a line in the sand. If you're going to come through here, we will see you, we will know what's going on. As opposed to unmanned vehicles, they're continually moving. So if it's there, we will see it. But if the vehicle moves and something comes through that area, you're kind of leaving a hole in defense, so to speak.

This has been very helpful, Matt. I really appreciate your time. I appreciate the audience's participation, thanks for joining me today. As a reminder, you can access all of research and content about the company at www.watertowerresearch.com. Feel free to e-mail me as well [email protected] and of course reach out to Matt and Philip and the team at [indiscernible] if you have questions. I'll turn it over to you, Matt, for any final comments and then we'll wrap it up for today.

Shawn, no, I just wanted to say thank you, really appreciate the time today and the conversation. I know here at OPT, we're really excited about where we're going, how we've retooled the organization in the last 12 months or so. And then just stay tuned. Let's watch the next 12 months. I think we've got some very exciting things ahead of us.

Great. Thank you, Matt. Everyone, have a great weekend, and we'll talk to you again soon. Thank you.

Thank you.