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Edited Transcript of OPTT earnings conference call or presentation 10-Mar-20 3:00pm GMT

Q3 2020 Ocean Power Technologies Inc Earnings Call

PENNINGTON Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Ocean Power Technologies Inc earnings conference call or presentation Tuesday, March 10, 2020 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

* Ronald Silvera;R.E. Silvera & Associates;Analyst

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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 Third Quarter Fiscal Year 2020 Conference Call. This call is being webcast on the company's website at www.oceanpowertechnologies.com. As a reminder, this conference call is being recorded and will be available for replay after its conclusion.

On the call today are George Kirby, President and Chief Executive Officer; and Matthew Shafer, Chief Financial Officer and Treasurer. Following prepared remarks, there will be a time for questions.

On March 9, 2020, OPT issued its earnings press release and filed its quarterly report on Form 10-Q for the third quarter of fiscal year 2020 with the Securities and Exchange Commission. All 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 Security Litigations 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, goals, 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 parties and other third parties, delivery and deployment of PowerBuoys, increasing the power output of PowerBuoys, hiring new key employees, expected cost of PowerBuoys products 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 the forward-looking statements in order to reflect these events or circumstances discussed in this call.

I'm now pleased to introduce Mr. George Kirby.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [2]

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Thank you, and good morning, everyone. I'm going to review our business operations and provide an update on our commercial activities and developments during the third quarter and up to today. Then Matt Shafer will provide a review of our financials. After that, we'll open the call to questions.

I'm excited that we can report substantially increased third quarter revenue, an increase of more than 170% as a result of revenue generated from the Enel Green Power project or EGP.

In the first quarter of this fiscal year, we announced the first sale of our PB3 PowerBuoy in the company's history to EGP. Last week, we shipped the PB3 to South America on schedule to install a turnkey ocean-based laboratory in April off the coast of Chile. We anticipate recognizing revenues of nearly $1.8 million from this project in fiscal year 2020.

We recently announced that Eni, one of the world's largest energy companies, has extended its lease of the PB3 PowerBuoy and contracted an additional scope of work to provide a power and communication solution for an entirely new application in the Adriatic Sea. After more than a year of continuous and error-free operation, we're looking forward to redeploying the PB3 as any explorer's ecologically sustainable life-extension strategies for oil and gas platforms at the end of their productive phase.

On the heels of our repeat business with Eni, we repeat -- we recently announced that we are working with Taiwan-based BAP precision to provide PowerBuoy joint surveillance solutions for government agency contract pursuits for policing territorial waters. This relationship with an established satellite data solutions provider to industry and government has the potential open -- to open new markets to OPT. Together, we're looking to provide power and data communication solutions for surveillance challenges related to protecting fisheries, trafficking and foreign encroachment upon territorial waters.

We also recently announced we're working with Modus Seabed Intervention and Saab Seaeye on a groundbreaking, carbon-free subsea residency solution for autonomous underwater vehicles known as AUVs. A self-contained system exempt from any existing ocean infrastructure has the potential to revolutionize the industrial use of AUVs and make untethered long-term residency of cost-effective reality. We're jointly pursuing U.S. government development and demonstration funding for the concept, which will include development of an innovative, integrated mooring and subsea power and data transmission cable that we believe will also bring substantial savings to future deployments.

Production of our newest product, the hybrid PowerBuoy, is advancing rapidly. We plan to have a prototype ready for in-water testing before the end of the fiscal year in April. Discussions are underway with prospective launch customers in advance of open water testing of the hybrid PowerBuoy planned for this spring. The hybrid PowerBuoy will provide OPT with flexibility in the reliable commercial sea power and data communication solutions we can offer to customers. The hybrid's onboard batteries will be charged with solar power, with a clean-fueled Stirling engine as backup when environmental conditions don't allow for solar charging. Designed for easy deployment almost anywhere in the world, applications for the hybrid PowerBuoy include surveillance, subsea charging and secure data connectivity for offshore industries, including defense, security, oil and gas, science and research, aquaculture and telecommunications.

We've seen a very real desire for carbon-reducing autonomous offshore power and communications solutions. And we're just beginning to tap into those possibilities. We believe that our success will bring strong financial performance to OPT and value to our shareholders.

Finally, I'd like to spend a moment reflecting on OPT's ongoing commitment to safety. At the end of December, we reached a safety milestone with more than 1,000 continuous days without a lost time incident. Several years ago, we made a conscious decision to foster and maintain a culture of safety.

We've built and deployed multiple PowerBuoy projects around the world, developed new products and even relocated our headquarters and manufacturing base without incident. I'm genuinely proud of our team's safety record and what it means to our relationships with customers and partners.

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

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Matthew T. Shafer, Ocean Power Technologies, Inc. - CFO, VP of Finance & Treasurer [3]

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Thank you, George, and good morning, everyone. We recorded revenue of $725,000 for the third quarter of fiscal 2020, an increase of $457,000 as compared to $268,000 for the prior year third quarter. The increase was attributable to revenue generated from the new EGP project. Cost of revenues increased $281,000 to $681,000 as compared to $400,000 for the prior year third quarter. This increase was due to higher upfront spending and materials cost on the new customer revenue-generating project with EGP.

The net loss for the third quarter of fiscal 2020 was $2.9 million as compared to a net loss of $2.6 million for the prior year third quarter. The $300,000 increase in net loss was mainly attributable to a delay in receipt of funds from the sale of net operating losses credits, which was partially offset by lower spending in product development costs. We anticipate receiving proceeds from this year's sale of net operating loss credits in the coming weeks.

Revenue for the first 9 months of fiscal 2020 was $1.1 million, an increase of $700,000 as compared to $400,000 for the prior year period. This was mainly attributable to the new project with EGP. Cost of revenues increased $1.3 million during the 9 months ended January 31, 2020, from $1.2 million during the 9 months ended January 31, 2019. This increase was a result of higher costs associated with the new EGP project and was offset by lower spending on both the Eni and Premier Oil projects as compared to the same period in fiscal 2019.

The net loss for the first 9 months of fiscal 2020 was $9.1 million compared to a net loss of $9.7 million for the prior year period. The decrease in net loss was due primarily to the higher revenues, lower spending in engineering and product development and a decrease in selling, general and administrative-related costs. These were all partly offset by the delay in receipt of funds from the sale of the net operating loss credits.

Turning now to the balance sheet. Total cash, cash equivalents and restricted cash was $10.8 million as of January 31, 2020, down from -- down $6.4 million from April 30, 2019. Our net cash used in operating activities during the 9 months ended January 31, 2020, was $8.6 million, a decrease of $1.3 million compared to $9.9 million during the 9 months ended January 31, 2019, mainly as a result of increased cost containment efforts and the new revenue-generating customer contract with EGP.

With that, I will now turn it back to George.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [4]

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Thanks, Matt. Operator, we're now ready for 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 Robert Silvera (sic) [Ronald Silvera] of R.E. Silvera & Associates.

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Ronald Silvera;R.E. Silvera & Associates;Analyst, [2]

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You seem to be doing very well in growing the business. I had an observation. You said in the North Sea, where you have particularly active wave action, you can actually generate extra power. Is that correct?

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

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Yes. Robert. And absolutely, that's correct.

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Ronald Silvera;R.E. Silvera & Associates;Analyst, [4]

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Okay. Have you given any thought to taking the extra electric power and using it through electrolysis to convert to hydrogen -- to some hydrogen, which can then be used in hydrogen cells? And those cells are capable of driving tremendous electric motors. They are now being -- and like a company like Plug Power, they -- if you investigate them, you'll see what I'm talking about. They're driving vans. They're driving forklifts. Their customer base is Walmart and on Amazon, and they're developing for -- literally for vans on the road, trucks on the road for delivery. These are how powerful these hydrogen cells and their compact units. So I'm thinking, here, you've got extra power. You can generate hydrogen, and then that hydrogen can feed these kind of cells to power electric motors on platforms or wherever else you wish to use it. And it's all self-contained and it's all totally green power. Have you ever given any thought to something like that?

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

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Robert, we're aware of the technology. I think you might have even e-mailed us with some thoughts on that as well. We've talked to the team about that as well as our customers. And the general feeling predominantly from our customers is they would rather use the extra power that we're actually generating for onboard payloads. So for instance, the buoy that we had in the North Sea, for the particular payloads that we had onboard, we were not using that extra power. But our customer, Premier Oil, is looking at other opportunities to use that additional power directly as opposed to through hydrogen creation and then turning electric motors. But I appreciate the thought. And it's something that, like all new technologies, we're open to looking at.

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Operator [6]

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(Operator Instructions) Our next question is coming from Peter Ruggiere of Dawson James.

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

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A couple of questions for you. On the contract with the satellite company in Taiwan, how many buoy is that potentially to monitor illegal fishing activities or what you're doing over there?

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

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All right. That's a good question. The LOI actually states one or more. And we're looking at this particular market in particular because of the multi-buoy opportunities that are there. So I wish I could say a little bit more about exactly what's going on there and how far we are along in the process, but unfortunately, I can't. I cannot.

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

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Okay. On the Gulf oil and gas company, what's the status with that?

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

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When -- do you mean the Gulf of Mexico oil and gas company that we announced a study with?

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

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Yes. Last year, because it was approved, I saw on the last filing. What's the next stage?

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

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Well, first of all, we completed that study, and we completed it successfully with that customer. We have, as you may recall from about this time last year, we have an existing master service contract with them where they can purchase further services or equipment under that MSC just simply by writing work orders, if you will. So it tremendously simplifies the contracting process. We continue to talk to them. There's obviously a lot going on with these oil companies right now. But we're far from done with our potential work in the Gulf of Mexico right now.

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

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Okay. And on Premier Oil, I know you have -- you got $1 billion there for almost 9 months now. And it was a 9-month lease, and then they could go further if they want to. Where does that stand right now? Because it looks like it's coming up for the 9 months.

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

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Yes. No, that's a great question. Premier Oil and OPT and also the partners that went into this project, InterMoor and Pulse, we decided to bring that buoy back in. It's actually quayside right now. We're looking at bringing that buoy back over to the U.S. to get it refurbed. We've got a number of opportunities that we're positioning it for that could require a quick turn on units with new customers.

With regards to Premier Oil, we haven't really talked a whole lot about this yet, but the customer has gone on record in a very public way about moving forward with OPT on new projects. In particular, we're anxious to work with Premier around a Phase 2, especially with the decommissioning of the Huntington field coming next April, which I had also talked a little bit about in the public. So we're really excited about Premier Oil as a repeat customer, and we are trying to figure out how we can accelerate work with them here in the near future. First step, get that buoy back here, and get it turned around so that we can redeploy it for someone else.

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

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So the buoy is not (inaudible)

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

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Say again?

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

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(inaudible)

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

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I'm sorry, Peter, you're breaking up.

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Operator [19]

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(Operator Instructions) Our next question is coming from [Bill Carson] of [Carson Accounting].

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Unidentified Analyst, [20]

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Two questions there. What is the -- what do your power buoys cost? I know the new one and your -- the other -- I don't know, the P3, whatever. And then that's first thing. And when do you think you're going to need to go to market for some more finance?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [21]

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Both very good questions. So to address the cost question first. Naturally, this is competitive information, but we'll tell you what we've put out in the marketplace. The PB3 on average is anywhere is from $700,000 to $900,000. Of course, that price will go down based on volume because our costs go down naturally. And also as we continue to commercialize, we're driving costs out of all of our products. So we're able to address it that way.

What I can say about the hybrid, because we don't have the prototype released yet, is we're planning on it being a fraction of what the PB3 is.

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Unidentified Analyst, [22]

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And regards financing?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [23]

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With regards to financing, as we reported right now, we have -- Matt, it's over $10 million in cash?

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Matthew T. Shafer, Ocean Power Technologies, Inc. - CFO, VP of Finance & Treasurer [24]

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That's right. It's $10.8 million as of January 31.

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [25]

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Right. So outside of the current vehicles that we have in place, we really don't have any plans to raise any capital.

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Unidentified Analyst, [26]

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So you think you're good for another 9 months or so, depending on business, I guess?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [27]

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Well, we anticipate business picking up, and that's what our anticipation is, and we're trying to bring that to fruition. But with regards to our existing vehicles, I mean, for right now all that I can say is we're not planning on doing anything different.

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Matthew T. Shafer, Ocean Power Technologies, Inc. - CFO, VP of Finance & Treasurer [28]

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And then furthermore, as we talked about in our 10-Q that we filed yesterday, we have cash into the quarter ended October 31 of this year.

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Unidentified Analyst, [29]

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Right. Maybe a dumb idea, but I think your stock is down at like $0.55, $0.56, which is substantial -- least substantially under your cash value. And I know you're hoarding your money, but is it possible you're going to buy back some of that stock for -- to decrease the float on the stock and also increase maybe potentially the price of the stock once the -- you start doing some business here?

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George H. Kirby, Ocean Power Technologies, Inc. - President, CEO & Director [30]

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We have no plans to conduct a stock buyback right now. Obviously, like all public companies right now with the current market conditions, we're watching our share price very closely. But we believe with news that we anticipate coming out in the future that we're hoping that it has a positive effect for shareholders and -- resulting in a positive effect on the stock.

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Unidentified Analyst, [31]

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And how many shares outstanding do you have right now?

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Matthew T. Shafer, Ocean Power Technologies, Inc. - CFO, VP of Finance & Treasurer [32]

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Yes. We have 9.1 million shares outstanding.

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Unidentified Analyst, [33]

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At the end of last quarter, you had 6.3 million shares, and now you get 9-point whatever? Why is that?

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Matthew T. Shafer, Ocean Power Technologies, Inc. - CFO, VP of Finance & Treasurer [34]

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Sure. So we have equity line of credit and an ATM in place at the market facility, which we currently use from time to time.

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Unidentified Analyst, [35]

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Okay. 9.3 million shares outstanding now. Okay.

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Operator [36]

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(Operator Instructions) 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 [37]

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Thank you, operator. I want to close on the following points. There's a lot of good news coming out of OPT with new product development, new partnerships and new and returning customers. As we look at the long-term outlook, there are many more positive developments to come, and we fully intend to continue to build on this momentum. As always, I want to thank the entire OPT team for their continuing contributions to our ongoing success. Thank you all for joining us today.

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Operator [38]

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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, and have a wonderful day.