Ocean Power Technologies Inc

AMEX:OPTT

Q2-2026 Earnings Call

[Operator]

Good morning. Welcome to Ocean Power Technologies Second Quarter Fiscal 2026 Earnings Conference Call. A webcast of this call is also available and can be accessed by a link on the company's website at www.oceanpowertechnologies.com. This conference call is being recorded and will be available for replay shortly after its completion.

On the call today are Dr. Philipp Stratmann, President and Chief Executive Officer; and Bob Powers, Senior Vice President and Chief Financial Officer. Following the prepared remarks, there will be a question-and-answer session. Now I'm pleased to introduce Bob Powers.

[Robert Powers, executive]

Thank you, and good morning. This morning, we issued our earnings press release for the second quarter of fiscal 2026 ended October 31, 2025, and filed our Form 10-Q with the SEC. Our public filings are available on the SEC website and within the Investor Relations section of the OPT website.

During this call, we will make forward-looking statements that are within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include financial projections or other statements of the company's plans, objectives, expectations or intentions. These statements are based on assumptions made by management regarding future circumstances and involve risks and uncertainties that may cause actual results to differ materially. Additional information about these risks can be found in the company's SEC filings. The company disclaims any obligation to update the forward-looking statements made on this call. Finally, we posted an updated investor presentation on our IR website.

With that, I'll turn the call over to our CEO, Dr. Philipp Stratmann.

[Philipp Stratmann, executive]

Good morning, and thank you for joining us. This quarter continued to show increasing traction across our markets. Backlog stands at approximately $15 million, and our pipeline has expanded to more than $137 million. These levels reflect broad engagement across defense, government security, offshore energy and commercial applications, and they demonstrate the strengthening demand for persistent maritime surveillance and autonomous surface vehicles. With the U.S. government fully reopened, activity has accelerated across several programs.

Discussions that were paused have resumed with clear direction, and we're seeing concrete steps from multiple agencies to expand maritime domain awareness and autonomous operations. In addition to participating in the Rapid Capabilities Office launch in Washington, D.C., we are tracking new initiatives such as the U.S. Coast Guard RAPTOR effort, which further increasing signals the government intends to deploy scalable uncrewed systems and long-duration sensing solutions. These efforts align directly with the capabilities of our platforms.

We're also seeing growing interest in buoy-based persistent surveillance. While we will speak to specific awards once finalized, we are preparing for anticipated buoy orders and our operational planning reflects this expectation. The combination of long-duration power solutions and our ASV platform positions us well for programs requiring continuous maritime presence. Internationally, we continue to advance customer engagement. We conducted demonstrations in Latin America and the UAE with both defense and commercial customers.

These demonstrations validated system performance in real-world operating environments and have opened additional avenues for follow-on work. Our international presence has become an increasingly important contributor to pipeline quality and customer diversification. Operationally, we maintained steady OMV deliveries, advanced PowerBuoy readiness for national security and border-related missions and supported customer-driven trials and integration activities.

To ensure we can meet rising demand and execute larger programs, we reorganized our delivery and internal R&D teams. The intent is to strengthen coordination, improve platform readiness and ensure scalability as opportunities grow in size and complexity. Taken together, the progress across backlog, pipeline expansion, government engagement and international demonstrations reflect the business building capability and customer confidence.

Our focus remains consistent: deliver reliable systems, support our customers' missions and position the company for the opportunities we see developing across our core markets.

With that, I'll turn it over to Bob to discuss backlog in more detail and review the quarter's financial results.

[Robert Powers, executive]

Thanks, Philipp. I'll begin with backlog, which provides the clearest view of future revenue. As Philipp mentioned, backlog at October 31 was approximately $15 million, an increase of $11.2 million from the same period last year. This reflects conversion of opportunities across defense, government security, offshore energy and commercial applications. Our pipeline ended the quarter at $137.5 million, up $53.2 million year-over-year. The pipeline includes larger and more strategic opportunities, including multi-vehicle ASV programs, integrated buoy and ASV surveillance solutions and autonomy-enabled missions.

These indicators reinforce the momentum we are seeing in customer engagements. We also delivered 8 WAM-Vs during the quarter, supporting demonstrations, customer milestones and ongoing user trials. Production throughput remains stable, and we are prepared to meet scaling requirements as additional programs move forward.

Revenue for the 3 months ended October 31, 2025 was $0.4 million compared to $2.4 million in the prior period. 6-month period revenue was $1.6 million compared to $3.7 million a year ago. As noted in the press release, the primary driver of this year-over-year change was the timing of shutdown, which delayed several deliverables into subsequent periods.

Gross profit for both the 3- and 6-month periods was a loss of $1.4 million compared to gross profit of $0.8 million and $1.2 million for the respective prior year periods. These results include full recognition of losses on certain strategic startup contracts in accordance with U.S. GAAP. The related project costs are substantially complete and these programs will continue generating revenue going forward. Operating expenses were $8.8 million for the quarter and $15.8 million year-to-date compared to $4.7 million and $9.6 million in the prior year periods.

The increases primarily reflect higher noncash stock-based compensation. Excluding stock-based compensation, operating expenses increased approximately 34% for the quarter and 17% year-to-date driven by targeted investments to support growth and execution. Net losses were $10.8 million for the quarter and $18.2 million year-to-date compared to net losses of $3.9 million and $8.4 million in the respective prior year periods.

Combined cash, cash equivalents and short-term investments were $11.7 million as of October 31 compared to $6.7 million at the beginning of the fiscal year. Net cash used in operating activities for the 6-month period was approximately $13 million compared to $10.9 million in the prior year.

With that, I'll turn the call back over to Philipp for closing remarks and Q&A.

[Philipp Stratmann, executive]

Thanks, Bob. To summarize, we continue to see strengthening demand signals across our core markets. Backlog and pipeline remain at significantly higher levels than last year. Government engagement has regained momentum supported by new initiatives across multiple agencies.

International demonstrations are expanding our footprint and validating performance in the field. And operationally, we have aligned our teams and resources to support the opportunities developing ahead of us. Our focus remains on execution, reliability and supporting customer missions with systems that perform consistently in real-world environment.

[Operator]

[Operator Instructions] Our first question is from the line of Michael Legg with Ladenburg Thalmann.

[Michael Legg, analyst]

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

[Philipp Stratmann, executive]

Michael, thanks for the question. To your -- to the first point on pipeline, at a high level, it is a continuing diversification that we've seen before. The change we have seen probably unsurprising to you and many other observers in the space is the continuation of the growth in terms of demand signals and efforts we're working on finalizing when it comes to the United States government, particularly in the areas of Homeland Security and the Department of War. So those are ongoing discussions, and they've really accelerated in recent months and weeks.

And in particularly, what Bob alluded to efforts that we've got ongoing in terms of converting backlog to revenues, those discussions have really started picking up steam again since the government has reopened. In terms of the product lines, it is a very balanced mix. If you're looking at it in terms of just the pure dollar values, it is fairly evenly split between buoys and vehicles. I think the key thing to note is that the usual point of entry nowadays is not because of a buoy or a vehicle. It is usually because of a demand and requirement for intelligence, surveillance and reconnaissance services, mine countermeasures, unexploited ordinance detection or various other efforts that could be related to, say, border patrol or facility protection.

And then we work with the prospective customers to figure out jointly with them, whether that is permanently fixed systems with roaming systems or primarily roaming systems. And then the last part of the pipeline outside of U.S. government is there is a lot of effort and interest. And as you've seen in announcements we've made publicly, it's really Latin America and the Middle East and more recently starting to see some efforts around the Baltic Sea. But we are continuing to follow that kind of targeted track for expanding thoughtfully internationally and making sure that we have meaningful large customers that we're going after. So that's on the pipeline side. Does that answer the question?

[Michael Legg, analyst]

Yes. No, that's great there. And then just on the headcount, how much like biz dev professionals, type of people helping you close this pipeline have you put in place?

[Philipp Stratmann, executive]

Yes. So on the headcount, it is a mix of commercial and then really operational delivery-focused functions. We recently announced that we are one of a very few select companies that's been given trusted operator status by AUVSI out of Washington, D.C. So with that, we are -- we've started opening up bookings for our training school that we're running out of our California facility for people to receive a trusted operator certificate for USVs. So obviously, with that came the need for us to have more USV operators that we wanted, the marine operations type people.

And then at the same time, obviously, with OPT having a facility clearance with the United States government, we've also broadened up our commercial team to be able to facilitate these discussions with Department of War and specifically within the Department of the Navy and then also with Homeland Security and Coast Guard. And as we mentioned in the call, things like the Navy's Rapid Capabilities Office, the United States Coast Guard's RAPTOR initiative, those are efforts where we really brought in people that are all veterans that have worked in those areas that can now help us deliver and convert that backlog to revenue. And then handed over to the operations team that we've brought in so that we can then successfully deliver for the customer.

[Michael Legg, analyst]

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

[Philipp Stratmann, executive]

It's hard to say whether it was additive or whether it was a push out. We would say we are seeing the definite uptick in pace rapidly over the last couple of weeks. We feel good about some of the efforts that we are looking at shipping very shortly. And as Bob mentioned, we shipped 8 vehicles or built 8 vehicles and delivered 8 vehicles in the quarter just gone, which were a lot worth of demonstration efforts, which would start unlocking some of that conversion.

And then equally, we've started prebuilding some of our buoy assets for anticipated orders that we are looking at being able to deliver in the very short near future.

[Operator]

The next question is from the line of Peter Gastreich with Water Tower Research.

[Peter Gastreich, analyst]

Congratulations on your continued momentum with the backlog, especially given the obvious challenges of the government shutdown. So just first of all, please, a follow-up on the headcount question. Do you feel -- like are you kind of where you need to be now in terms of that headcount expansion for converting the backlog? Or are you still going to be growing the headcount?

[Philipp Stratmann, executive]

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

[Peter Gastreich, analyst]

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

[Philipp Stratmann, executive]

Yes. I mean outside of the defense industry, offshore energy and the civilian sector in the maritime area is the other part of our business. And you have seen publicly, we're still heavily engaged in that sector. However, we're mainly heavily engaged in that sector outside the United States right now.

We're working in the UAE in this sector. We delivered over the last fiscal year, we had assets operating in sub-Saharan Africa. We've got assets operating in offshore energy in Taiwan. So it is continuing sector. So yes, the fact that there is currently very little being done in terms of survey work for offshore wind in the United States. Obviously, it doesn't benefit us.

So any kind of type of survey work that's needed on the civilian side, we can supply very cost effectively. And in the meantime, on the civilian side, we will continue operating and growing our footprint outside the U.S.

[Peter Gastreich, analyst]

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

[Philipp Stratmann, executive]

I wouldn't be able to say on the wind side, specifically because most of the work we're doing in the Middle East and in the UAE is oil and gas related. International offshore oil and gas is just as interested in USVs as the U.S. wind sector used to be. And that's because USVs materially enable our customers to lower their OpEx. And if they are acquiring the assets, it enables them to lower their CapEx. So it's a win-win on all sites for them.

I think in Taiwan, interestingly enough, what we're seeing is our customer over there is using them for offshore wind, but a lot of the work they're doing are around unexploited ordinance detection and general survey work. So whether you're building a new breakwater or you're installing offshore wind or you're laying a new oil pipeline or you're exploring for natural gas or you're going after critical minerals, we can support all of those civilian sectors, and we look forward to continuing to grow that market segment.

[Peter Gastreich, analyst]

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

[Philipp Stratmann, executive]

Yes. So pipeline is what we would consider to be qualified opportunities. So it's -- this isn't like TAM or SAM metrics. When we talk pipeline, it is potential customers, under NDA, where we're discussing actual projects with them. And then when we're talking about backlog, backlog is contracts in hand. Backlog is POs that we have received.

They could be for immediate delivery or they could be for delivery over a period of, say, 2 years' time. But backlog is confirmed contracted purchase orders, pipeline is qualified to be converted to backlog.

[Operator]

At this time, I'd like to turn the floor back to management for closing remarks.

[Philipp Stratmann, executive]

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

Thank you again for your support. We look forward to updating you on our progress in the quarters ahead.

[Operator]

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