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Edited Transcript of OPTT earnings conference call or presentation 18-Sep-19 3:00pm GMT

Q1 2020 Ocean Power Technologies Inc Earnings Call

PENNINGTON Sep 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Ocean Power Technologies Inc earnings conference call or presentation Wednesday, September 18, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George H. Kirby

Ocean Power Technologies, Inc. - President, CEO & Director

* Matthew T. Shafer

Ocean Power Technologies, Inc. - CFO, VP of Finance & Treasurer

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Conference Call Participants

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* Peter G. Ruggiere

Dawson James Securities, Inc., Research Division - Financial Professional

* Matthew Abenante

Porter, LeVay & Rose, Inc. - SVP

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Ocean Power Technologies First Quarter Fiscal Year 2020 Conference Call.

As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Mr. Abenante, Investor Relations for power -- Ocean Power Technologies. Please go ahead, sir.

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Matthew Abenante, Porter, LeVay & Rose, Inc. - SVP [2]

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Thank you, Donna, and good morning, everyone. Thank you for joining us on the Ocean Power Technologies conference call and webcast. On the call with me today are George Kirby, President and Chief Executive Officer; and Matthew Shafer, Chief Financial Officer and Treasurer.

Following our prepared remarks, we'll open the call to questions. This call is being webcast on the company's website at www.oceanpowertechnologies.com. It will also be available for replay after this call.

On September 16, 2019, OPT issued its earnings press release and filed its quarterly report on Form 10-Q for the first quarter of fiscal year 2020 with the Securities and Exchange Commission. All of our public filings can be viewed on the SEC website at sec.gov, or you may go to the Investor Relations section of the OPT website, oceanpowertechnologies.com.

Now let me reference the safe harbor provisions of the U.S. securities laws for forward-looking statements. This conference call 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, such as may, will, aim, will likely result, believe, expect, will continue, anticipate, estimate, intend, plan, contemplate, seek to, future, objective, goal, project, should, will pursue and similar expressions or variations of such expressions. These forward-looking 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. Some of these factors include, among others, the following: future financial performance, expected cash flow, ability to reduce costs and improve operational efficiencies, revenue growth and increased sales volume, success in key markets, competition, ability to enter into relationships with partners and other third parties, delivery and deployment of PowerBuoys, increasing the power output of PowerBuoys, hiring new key employees, expected cost of PowerBuoys and building customer relationships.

Please refer to our most recent Forms 10-Q and 10-K and subsequent filings with the SEC for a further discussion of these risks and uncertainties. We disclaim any obligation or intent to update forward-looking statements in order to reflect events or circumstances discussed in this call.

Now I'm pleased to introduce Mr. George Kirby. Good morning, George.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [3]

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Thanks, Matt. Good morning, everyone. I'm going to review our business operations and commercialization activities during the first quarter and up to today. Then Matt Shafer will provide a review of our financials. And then we'll open the floor for questions.

I mentioned last quarter that we've had several growth catalysts on the near and midterm horizon posing significant opportunities for us. In recent weeks, we've seen some of these opportunities take shape for OPT. In early August, we announced the successful deployment of the PB3 PowerBuoy in the North Sea for our customer, Premier Oil. This PowerBuoy is serving Premier Oil as an autonomous, intelligent platform to provide surveillance services throughout the decommissioning process at Premier Oil's Huntington field offshore operations.

During the deployment, we'll demonstrate the PB3 PowerBuoy capabilities, its ability to monitor the local environment and alert ships of the field's position. This deployment began the initial 3-month trial of its 9-month lease. We're just over halfway through that initial trial with that PowerBuoy operating flawlessly in very rough seas with average wave heights of over 17 feet. This lease also includes an option to extend the initial 9-month period. Before the voyage to the North Sea, the PB3 PowerBuoy was featured at a technology day event we held in Scotland together with our partners Acteon and The Oil & Gas Technology Centre. Over 2 days, we had over 100 participants, including oil and gas industry leaders and media that met with our team and saw the PB3 PowerBuoy and its payloads up close to examine its uses and capabilities. The feedback we received was hugely positive, which helps elevate the profile of OPT in the oil and gas industry.

The feedback suggests that we have the attention of the offshore oil and gas decommissioning world on this project, and I believe our successful performance for Premier Oil can only help fuel opportunities for our solutions.

We recently announced the completion of another detailed feasibility study, with a leading oil and gas operator to monitor subsea wells during decommissioning in the Gulf of Mexico. The results of the study were quite compelling. We were able to demonstrate that our solution can successfully provide power for well monitoring in the Gulf in water depths up to 3,000 feet. We defined a solution, which can provide enough power to support the monitoring of 2 wells at once. This is a major development because it enables us to decouple the decommissioning of subsea assets from that of surface assets, such as platforms, which can provide significant cost savings to the customer.

With the completion of this feasibility study, this represents a successful first step with this customer and could result in a field trial. Our robust pipeline of opportunities reinforces our confidence in our long-term growth. Over the last few months, we've met with some of our top prospects, and they continue to tell us how our solutions could be integral to solving some of their more difficult challenges. Our growing reputation as a leader in remote offshore power and communications is helping us to fill our opportunity pipeline, which now stands at more than 70 leads and opportunities, many of which are in various stages of the proposal process.

This covers subsea applications in the oil and gas, defense, security, science and research and telecommunications markets.

Now let me turn the call over to Matt to discuss the financials. Matt?

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Matthew T. Shafer, Ocean Power Technologies, Inc. - CFO, VP of Finance & Treasurer [4]

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Thank you, George, and good morning, everyone. We recorded revenues of $202,000 in the first quarter of fiscal year 2020 for the period ended July 31, 2019, as compared to $31,000 of revenue for the first quarter of last year. This increase in revenue was the result of our new contracts with Eni, Premier Oil and the U.S. Navy.

Cost of revenues increased $225,000 to $367,000 compared to $142,000 in the 3 months ended July 31, 2018. The increase in cost of revenues was due to higher upfront spending and material cost on new customer revenue-generating products compared to the same period the prior year.

The net loss for the first quarter of fiscal 2020 was $3 million as compared to a net loss of $3.2 million for the prior year period. The decrease in net loss was mainly attributable to the decrease in selling, general and administrative costs.

Turning now to the balance sheet. As of July 31, 2019, total cash, cash equivalents, restricted cash and marketable securities were $13.5 million as compared to $17.2 million on April 30, 2019. Net cash used in operating activities during the 3 months ended July 31, 2019, were $3.6 million, a decrease of $0.2 million compared to $3.8 million during the 3 months ended July 31, 2018.

With that, I'll turn it back to George.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [5]

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Thanks, Matt. I want to emphasize that we are laser-focused on closing new business for our company. We're actively staffing up our sales team with experienced professionals who can identify and close new business. We're actively working on commercial activities, which we're expecting to close in the near future. I remain extremely optimistic about our prospects. And I am proud of how my team is delivering for our customers. And I wanted to take a moment to thank everyone at OPT, who continue to work tirelessly to execute our vision. I'm extremely proud to lead this team at such an exciting time.

With that, operator, we're now ready to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Our first question today is coming from [Victor Aguayo] of [ENP Transport.]

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Unidentified Analyst, [2]

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Congratulations on the success that you've been doing at the company so far, which also begs the question, how would you expect that such success will impact the current stock market?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [3]

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[Victor,] thanks for the question, and thank you for your congratulations. Although, everybody sitting around this table is immensely dissatisfied with our progress. So we are expecting great things to come. I really can't speak about how it affects the stock price. We have a very diverse investor base. And it's difficult to predict. Sometimes, it's difficult to watch. All that we continue to do is remain laser-focused on closing orders. And as I mentioned, we're hiring up great salespeople, people with oil and gas experience, people with defense experience. We just hired a person in Aberdeen, Scotland to augment our North Sea operations. That seems like the epicenter of where the commercial activities are really coming from with the Gulf of Mexico seeming to follow close behind here sooner than we hoped. So we have a great person with oil and gas experience now in Aberdeen. That makes 3 people in that area in order to address customer requests and -- requests for information and proposals and so forth. So that's what we're focused on, really can't speak to the stock price.

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Operator [4]

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Our next question is coming from Peter Ruggiere from Dawson James.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [5]

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A couple of questions on the Huntington site or oilfield.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [6]

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Peter, yes. Yes.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [7]

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How many wells are there? I looked at it. It was actually -- there was a lot. I just -- was question why they would only use 1 PowerBuoy? Why wouldn't you need 5 or 6?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [8]

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Well, that's a good question. Huntington field has multiple wells, but right now, Premier Oil asked us to provide topside surveillance, which is above the sea surface. We have our -- first of all, let me describe what's going on there. I'm looking at the seas right now on an app on my phone, and it's showing 7-foot seas. When we see an average of 7 feet, what it really means is they're seeing 7 to 14 feet. And we're -- we continue to operate in this type of weather. So it's remote, it's overlooking a platform, which is a few miles away. And the idea is that our PowerBuoy has radar, it has thermal imaging cameras and it creates this, what's called augmented reality in the industry through a system back to Premier Oil's headquarters that they're actually watching the site. They can see radar images, they can turn on the camera, they can manipulate the camera. So they're surveilling topside. Next step would be to look at subsea and monitoring wells. We provide a lot of this out on social media. I would also mention that you can continue to see information that we're posting there as well. So that's a good question, Peter, but with Huntington field right now, at least from the customer standpoint, we're not focused on monitoring wells yet.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [9]

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Okay. How -- is anything new going on with MES in Japan?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [10]

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There are some new things going on right there. I can't talk about them. I have to say that I'm pretty excited about the direction that this relationship is going with MES. But when I could talk about that, you can rest assured that I will. And then that begs an important point. There are many small wins with customers that we experience along the way that I can't share, whether it's because maybe it's information that shouldn't be shared, maybe the customer would rather us not talk about these small wins, but I'm glad you brought up MES because we are making important progress with them, and it was a direct result or is a direct result of the time that I spent with them over in July. So I am trying to get out in the field more with my sales team, more and more to meet with customers. I'll be in the U.K. next week, meeting with a new customer, a very big potential customer as well as an existing customer to see what more we could do with them and some other folks as well. So good question.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [11]

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On the Gulf of Mexico, on that -- when would -- what would be the next step? And how many possibilities is that market? Because I know I mean the Gulf of Mexico and I guess the North Sea are the 2 biggest fields in the world, right?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [12]

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Yes, and interestingly from a decommissioning standpoint, the Gulf of Mexico is the largest market in the world. There is that many wells. Now not every well needs our service, not every field needs our PowerBuoys or our solutions, if you will. When are next steps? I can tell you this. This operator that we're working with on this, they have multiple opportunities that they're looking at in time, in the future. We are trying to target a near-term opportunity. A lot of that has to do with timing because there's a lot of internal work from the customer's standpoint that needs to happen. So we're doing everything that we can to help them to position us to be used on a future field, the next decommissioning opportunity. If that doesn't happen for whatever reason, there are more behind it.

So I can say multiple wells, multiple systems from OPT over time, and that's 1 customer. But what -- single customers with applications like this are very, very important, and we're seeing this with Premier Oil. Premier Oil was working with us for years. In fact, they were talking to us when I came on board back in 2015. They joined our technical advisory panel as we were developing our product, the PB3 PowerBuoy. And they were very interested in providing input. And then they developed this project and put us on it. And now we're executing. We're doing what we said we would do. The buoy continues to perform very, very well. And eyes are all over this project from throughout the decommissioning market globally. The same thing would happen with this operator in the Gulf of Mexico. So these become showcase projects. They become demonstration projects but also showcases. And what we're trying to do is we're trying to leverage these showcases to bring customers from around the world to show them what we can do and try to replicate with these other customers. This is the low-hanging fruit that we're seeing, and that's what we're working hard to replicate in terms of new contracts.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [13]

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What type of revenue do you think you guys could put together this particular year?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [14]

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I wish I could talk about that. We have internal goals. But we're not giving guidance, Peter. But I want to emphasize again, we have definitive internal goals that are broken up by salesperson. Every salesperson has a revenue target. They're being measured on it, and they're being resourced around their goals. So we're just not at a point now where we can really outwardly talk about what our revenue targets are.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [15]

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Right. And how many buoys do you have available for sale right now?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [16]

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Interesting question. We've got more than 1 buoy in the facility going on -- under -- at different points of manufacture. We're trying to only build when we need to. The thought was, and I'll share this, this is not new news, but we have a buoy on the floor that we're building actually as a spare. And the idea would be potentially that we would move a finished buoy over to the North Sea over to -- to be stationed there on land for 2 reasons. Number one, we're seeking out new contracts there. So it could allow us to deliver that much quicker and have a quicker turnaround. We're always looking at how do we compress this sales cycle that ends up being very, very long. But number two, if something were to happen to our PowerBuoy, it's all about delivering to our customer, execution and responsiveness. So we would want to have 1 positioned there ready to go. So we're still considering that right now, but that's a thought. We do have another buoy that's in its final state that we have been working with a particular customer on, and we're hoping to have good news sometime in the future on that one.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [17]

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Okay. And with Eni up there in the Baltic, are they maybe interested in getting another couple of buoys themselves? Or they just...

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [18]

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That's a great question. Not the Baltic, but it's actually in the Adriatic Sea. We are talking to Eni, I would say, probably weekly about opportunities and they're both near-term opportunities as long as -- as well as long-range opportunities. So we're really lucky to have 2 launch customers, like Premier Oil and like Eni, 2 totally different organizations, great -- both very good to work with, great partners, if you will. But also both of these organizations are very forward-looking in terms of new technologies and how they can reduce their carbon footprint, how they can do -- execute their operations more safely or more efficiently, more cost effectively. And that's really why they're talking with us and working with us. We're -- we are actively trying to find more customers like these 2 right now.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [19]

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Right. And you said the market for this is how big. You had -- if you got 10% of the market, I think a couple of calls back, it was hundreds of millions of dollars you said. Is that a good statement? Or...

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [20]

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You know what, let me answer it this way. First of all, we want to rebuild our total addressable market study, and we're working to do that. We -- when we first put together our total addressable market, we did it from top-down. And that's really because we were limited on information. We were really just launching into our new markets. Today, we've got a much better understanding around our markets and we want to do a bottoms-up that gives a more detailed and rigorous assessment for investors and analysts and banks to understand our business. So that's number one.

Number two, if you look at one market segment, decommissioning market segment of the offshore oil and gas market, we have been told by a customer that this is a robust enough -- in their eyes, that this is a robust enough market globally that we could build a business around that alone. We estimate that we could potentially apply hundreds and hundreds of PowerBuoys for decommissioning over the next 6 or 7 years, right? That's how big the market is and that's only taking a slice of what's actually there. That's assuming a close rate, as you said, of 10% or 15%. So when you look at 1 buoy transaction, whether it's a lease or whether it's a sale, it ends up being pretty big dollars because it's not only the asset that we're putting on lease or that we would sell, but it's also all the service that we're able to provide around that and that we need to provide because we're the only ones doing this right now. And our customers are recognizing the value of the services that we can provide. So that increases the revenue opportunity as well. And that's why around that market segment, we feel very, very bullish and we're putting a lot of effort around trying to generate momentum there. And we believe we have momentum with this deployment, with this great event that we had, south of Aberdeen, Scotland. We had well over 100 people, I said that earlier. And the interest was beyond our expectations. So I'm glad that we invested in having the buoy stationed there and having this event, having people in. It ended up being a really important marketing event for us and for our customers to let them know what the solution looks like, what the payloads actually look like when they're integrated on the PowerBuoy.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [21]

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Sounds like everything is right there right now. It's great.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [22]

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It is. We feel as though it is. We are positioned right now where we have to strike, and that's why we're staffing up with the right salespeople, people that can hit the ground running, that already know the customers that we're calling on. They have relationships. They understand our technology. They understand our value proposition. There is very little ramp-up time for the people that we're bringing on board. And we expect big things from them. It's just the way that it is. As I mentioned before, everybody -- all of our salespeople have a revenue target. Some of them are quite steep in terms of dollar value. But that's more than just expectations around their performance. It's what we're seeing in the market and what we believe the market can bear and what the market needs in terms of our solutions.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [23]

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You know what, somebody else asked about the stock price, it's pretty funny as you guys are trading under cash value.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [24]

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Yes. I don't know if I would characterize that as funny, Peter. But I know what you're saying. It's frustrating, right? Because we come here every day and we're executing. We're making progress. But I understand, and I share the sentiment of shareholders. We need contracts.

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Peter G. Ruggiere, Dawson James Securities, Inc., Research Division - Financial Professional [25]

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Right. We've done pretty close.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [26]

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Thank you, Peter. Appreciate the dialogue.

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Operator [27]

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(Operator Instructions) Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [28]

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Thank you, operator. Before we conclude, I really want to thank everyone, who's been a stakeholder in the company, including our employees, our customers, our vendors and our loyal shareholders. I want to invite everyone to follow us on social media, including LinkedIn, Facebook, Twitter and to watch our YouTube channel for some terrific footage.

Thank you very much for joining, and we'll be speaking with you again very soon.

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Operator [29]

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Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time.