Good day, ladies and gentlemen, and welcome to the Ocean Power Technologies’ Fiscal Year 2011 Fourth Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded and webcast. I would now like to turn this conference over to the Chief Financial Officer of Ocean Power Technologies, Mr. Brian Posner. Please proceed.

Thank you. Welcome to Ocean Power Technologies' Earnings Conference Call for the Fourth Quarter and Fiscal Year Ended April 30, 2011. OPT issued its earnings release earlier today, and later today, we'll file the company's annual report on Form 10-K 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 OPT website, www.oceanpowertechnologies.com. With me on today's webcast is Charles Dunleavy, our Chief Executive Officer. Please advance to Slide 2 of our presentation. During the course of this conference call, management may make projections or other forward-looking statements regarding future events or financial performance of the company within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. As indicated in the slide, these forward-looking statements are subject to numerous assumptions made by management regarding future circumstances over which the company may have little or no control and involve risks and 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. We refer you to the company's Form 10-K and other recent filings with the Securities and Exchange Commission for a description of these and other risk factors. I'll now turn the call over to Chuck Dunleavy, OPT's CEO.

Thank you, Brian, and thanks to everyone for being with us today. Brian and I will be available to answer questions following our prepared statement. Turning to Slide 3. I'd like to note some recent developments of which we're particularly proud. We've accomplished a great deal this past quarter and ended this fiscal year on a high note, with plenty of traction heading into fiscal year 2012. We deployed our first utility-scale PB150 PowerBuoy off the coast of Scotland on April 15, 2011. Since that time, we've been measuring the performance of the unit, and we've been very pleased by the results. I'll go into this in a little more detail in a moment. In addition, we have continued to make progress with the construction and land testing of our PB150 unit for Reedsport, Oregon. We've made advances on our next-generation PowerBuoy, the PB500, and also on our Autonomous PowerBuoy for the U.S. Navy's LEAP program. Our grid-connected PowerBuoy in Hawaii continues to be going strong. Total fiscal 2011 revenue rose over 30% compared to fiscal 2010, and during the year, we brought in $10.3 million of new orders. With a record backlog of $8.9 million at April 30, 2011, we are well positioned for further success in fiscal 2012. Moving to Slide 4. Let me add some information about the initial deployment of our PB150 off Scotland. This 150-kilowatt-rated device was designed by OPT to generate utility-scale renewable wave energy in arrays of multiple buoys for commercial power stations in locations around the globe. In January 2011, we are very pleased to announce that OPT achieved an independent certification of the PB150 structure and mooring system by the internationally respected Lloyd's Register. This certification confirmed that the PB150 design complies with certain international standards for floating offshore installations. During…

Thanks, Chuck. As noted on Slide 11, OPT reported revenue of $1.9 million for the fourth quarter as compared to revenue of $2.4 million in the 3 months ended April 30, 2010. The decline year-on-year primarily reflects a reduction in revenue from OPT's Deep Water Active Detection System, or DWADS, project with the U.S. Navy as that contract moved towards completion. OPT's contract backlog at April 30, 2011, was a record $8.9 million, as Chuck just mentioned, compared to $5.7 million at April 30, 2010 and $5.8 million at January 31, 2011. The reported backlog at our fiscal year end included 2 previously-announced awards from the U.S. Department of Energy totaling $4.8 million for the deployment of one of OPT's PowerBuoys at Reedsport, Oregon and for the development of the PB500. The company reported an operating loss of $5.4 million for the 3 months ended April 30, 2011 as compared to a loss of $6.4 million for the 3 months ended April 30, 2010. The reduction in operating loss in the current fiscal quarter was primarily due to a decrease in product development costs, principally for the PB150 system in Oregon and an increase in gross margin, partially offset by an increase in selling, general and administrative costs. The increase in SG&A expenses was largely due to higher compensation and marketing costs. OPT reported a net loss of $5.3 million for the 3 months ended April 30, 2011 as compared to $6.2 million for the same period in the prior year. This decrease in net loss was primarily due to the decrease in operating loss and a decrease in foreign exchange loss, partially offset by a decrease in interest income. Interest income for the quarter decreased $142,000 compared with $268,000 for the same period last year. This decrease was largely…

Thanks, Brian. Now turning to Slide 13. Ocean Power Technologies is gaining the necessary traction to move us into full commercialization of our PowerBuoy technology. We're now proving the efficiency and durability of our PowerBuoys for both grid-connected and autonomous applications. External third-party validation of our technology includes the PB150 design certification by Lloyd's Register, certification of our grid connection by Intertek Testing Services and our having received the highest rating in connection with an independent environmental assessment performed on our technology. Our commercial partners include Mitsui, Lockheed and the U.S. Navy, among others. But we see this as only the beginning as we continue to work with governments and utilities across the globe to validate our systems and accelerate deployment opportunities. We're focused on achieving specific goals during fiscal 2012, including finalizing our ocean trials in Scotland, deploying our PB150 off the coast of Oregon and deploying an autonomous PowerBuoy for the Navy's LEAP program in the Atlantic Ocean off New Jersey. We also expect to make business development progress in North America, Europe, Australia and Japan. To our investors, we want to assure you that we remain focused on the fundamentals: demonstrating the survivability of our technology, increasing the efficiency of the PowerBuoy, reducing the cost of energy, bringing in new business and expanding our relationships with strategic partners. We expect that our balance sheet will continue to be strong, and we believe 2012 will be a year of significant accomplishment for OPT, one that sees further deployments, increased demand and additional technology achievements. We thank our investors for their continued interest in our success. This concludes our prepared statement for the fourth quarter review. We'll now open the call for questions, so please go ahead, Operator.

[Operator Instructions] Our first question comes from the line of George Santana with Ascendiant Capital.

There's been a lot of interesting developments over in Australia with their carbon tax and talk about the clean energy development fund. Can you talk a little bit about that and whether that would help OPT?

Sure, happy to. We've been following it very closely. The most recent story, which is the government's announcement of this proposed, I guess they call it the climate change plan, but it's more commonly known as the carbon tax plan, actually has its antecedence in the previous administration but it did not get too much traction. Now under Prime Minister Gillard's government, we're very happy to see these proposals in the nation's dialogue, and it looks like it's going to really gain some strong reception within the government. A couple of -- by the way, I think for our project that we're pursuing in Australia, to really cut to the heart of your question, this very definitely will help the building of the finance to support the project, the financing, and I think as well will speak very positively to further initiatives as not only relate to our 19-megawatt project, but to scale it up beyond the 19 megawatts. A couple elements of the program that we're following closely, this is, again, the carbon tax plan, as we understand it, first of all, that they are setting a floor price for carbon. I believe it's AUD $23 per ton starting in 2012, and rising with an inflation rate in years thereafter. So that's important to us in that it really establishes, I think, a market structure that supports pricing. And we have been talking with some parties with respect to power purchase agreements on this project, and this particular aspect of the carbon tax plan will be very helpful. Also, another big part of it is, as you rightfully point out, I think it's several billion dollars of monies that are allocated for investment by this newly-formed clean energy finance corporation. And these are billions of Aussie dollars for investment in renewable energy, I think energy efficiency technologies and also related industries. So we see that as a very important part of the picture for our work in Australia. And one thing that was also rather stunning to us was the fact that apparently, they're going to be looking to close something like 2,000 megawatts of polluting-energy electricity-generation plants by 2020. And when you kind of look back in the history, certainly over the last 20, 30 years in Australia's industrial development, the use of highly-polluting ground coal has really been an important part of what has provided energy for their industries. So that's a very bold measure by the government. All told, very positive for our work in Australia.

And Chuck, you mentioned a few times this financing and how do you plan or propose to finance each of these projects in Oregon, Scotland? Would you do project finance at the project level? Or actually fund it, retain a piece of the equity? Can you talk a little bit about that?

Right. Generally speaking, we seek to form special purpose vehicles that are project-specific, and that would be the vehicle that would be utilized to bring in the money for the project. And I framed it as the money for the project. Because, for example, in the case of Oregon, there are a number of avenues for us to pursue, including the business energy tax credit, which is very favorable, I think, as a provision that's been set up in Oregon. We have received the benefits of this by the issuance of some certificates by the state of Oregon, with respect to our first PowerBuoy, and as well the second phase that I referred to in the prepared statements. But the recipient of that is the special-purpose vehicle that we set up. That's one aspect of the money for the Oregon project that, or the financing for it. Another would be, I think, to which you referred a little bit earlier in your question, set up the question, which is that, yes, for the second phase, that is to say 9 additional buoys as well as the grid-connection infrastructure, we're looking for partners and customers for that who would put money into that project. So it would not be financing that runs to OPT Inc. It would run to the special-purpose vehicle. And we're taking the same tack, by the way, in Australia with the formation of an entity called Victorian Wave Partners, which was set up by Leighton, our partner there. And it is that entity, Victorian Wave Partners, which is the beneficiary of the grant that we announced to the AUD $66.5 million grant that runs from the Commonwealth to this project. So generally speaking, we utilize special-purpose vehicles, and that's the level at which we bring in the financing, which in turn can come from a number of different sources.

Our next question comes from the line of Jason Feldman with UBS.

So has the tone of conversations with potential customers changed at all following the deployment of the PB150 in Scotland now that you have an actual buoy out there and some testing data? Or is it still too early and the data's too new for that to have made much difference yet?

No, it has made a difference. And we're seeing that in a number of parts of the world in which we're targeting our business development activities, which again, as we may have said in previous calls, our BD efforts are focused on North America, Europe, Japan and Australia. So very definitely, that is helping in the dialogue, also by jumping out in the marketplace and announcing hard data. That's, I think, that is helping and creating a sense of greater transparency in the industry. One other thing I would add is that, what has helped also, helped us a great deal, Jason, is the continuing success of the Hawaii PowerBuoy, which is grid connected. It's been out there for, now, since December 2009. And the absence of any news about it tends to take it sometimes off of the newspapers or any reporting about us as a company. But simply the fact that there's no news, the fact that it has continued to be connected to the grid, it's out there, survived storms, is really fabulous news. And when we talk with customers, we certainly bring out that point. So the combination of these 2, I think, has very definitely added and increased the levels of interest we're getting, including new interest as well as existing dialogues with prospective customers in those 4 parts of the world.

Okay. And how has the dialogue been, I mean? Are customers saying they want to wait for the PB500? Is it they're saying they want to see some incremental testing time for the PB150? Or is it really just uncertainty, depending on the country, about energy policy and what the economics of the power generation are going to be going forward? What's holding customers back?

Sure. Well, we very definitely are engaging a lot of discussion about our PB150. We do indeed see that as our workhorse over the next several years. What we intend to be selling in the utility power markets, that's the level of discussion that we're having right now with a number of customers. By the way, the first phase of our project in Australia would be with 150s, talking with Mitsui about 150s, likewise in Oregon and also in Europe. So there's no waiting for the next generation, if you will, from the standpoint of interest that at least we're seeing at this point in a lot of our dialogues. To the other part of your question though, another dimension in a few of these areas, by the way, not only Australia but also U.K., and kind of following in up on the question asked by George Santana a little bit earlier is that the greater certainty associated with carbon price stabilization very definitely helps. And that uncertainty in Australia that had existed and which we see now is becoming result, will help, and I believe that perhaps has slowed things down in Australia. Similarly, in the U.K., what's almost directly in parallel with what's going on in Australia, the U.K. government, the Department of Energy and Climate Change, has recently issued a White Paper which is very redolent of what we've heard associated with the carbon tax plan in Australia, for example. One of the key elements of their program being proposed in the U.K. also includes stabilization for the pricing of CO2. So those kinds of initiatives which add certainty to pricing and which in addition attach longer time frames for that certainty have, I think, definitely on a prospective basis, will help accelerate bringing customers in. And while it's hard for me to quantify, and it's never going to specifically be said to us, I got to believe that some of that uncertainty up to this point has slowed things down and been something that customers have thought about.

That's very helpful. And just lastly, and I'm sorry, I'm not trying to be overly picky, but in the press release, the comments about backlog says it includes snap [ph] of funded and unfunded amounts, which is slightly different language than prior releases? Has there been a change in the way that you're recognizing backlog? Or is there something else there that I'm just not following?

Jason, we've actually been very conservative on how we report our backlog. The DoE awards were announced in September of 2010, and we did not include those in our backlog until we had executed contracts with the DoE. Just basically the reason for the disclosure language here is just to comply with SEC regulations. We expect these awards to be fully funded. But again, in conformance with SEC regulations, we have to denote what's funded and what's unfunded at this point. But again, the company expects these awards to be fully funded.

I would also add one quick point to that, Jason, which is that in prior years, we've had some unfunded amounts related to a few of our government contracts, but the unfunded amount was generally very small. Because we cut these big contracts from DoE and the funding is coming over 2 fiscal years, we needed to disclose that, as Brian said, in compliance. It's just a more material amount than in the past. So it's really the materiality of the unfunded amount, which has grown a little bit from what it was in the past. It's that increased materiality that has precipitated this new -- what looks like new disclosure.

Okay. So it's increased materiality, but the point is there's not a change in policy in any way?

Exactly right. Yes.

Our next question comes from the line of Aram Fuchs with Fertilemind Capital.

I was just wondering if you can give us a little more specifics on the system that was quantified in the power generated off Scotland? Was there something built in-house, or was it a system built by a third party?

Sure, Aram. The system itself, the metal structures associated with it were all built in Scotland. Much of the power take-off system resident inside the buoy and the controls, much of that was assembled and tested in the United States, then moved over to the U.K., where it underwent a great deal of land cycle testing. We then integrated it in Scotland into the buoy itself. And I would say that certainly the vast majority of the system itself was not only procured, but as well built and assembled in Scotland.

But the actual meter that calculated the electricity generated. That is something that a third party built, or is that something in-house? In other words, I just want to be confident that it's an accurate number that you have.

You and us as well. Absolutely. The PowerBuoy, to that specific point, the PowerBuoys have a great deal of instrumentation and sensors within them, all of which we buy off the shelf. In fact, it's a great part about the PowerBuoy, there's virtually nothing in it that is highly customized. Instead, we can procure almost everything off the shelf. So the instrumentation and equipment that is used in gathering the data is all externally procured. The data that it gathers is then transmitted by satellite to our land-based computers. And so we then take it from there. We get that data, and we compare it to what our models predict.

And then on the survivability front. Were the peak waves typical for the season in Scotland? Or was it better weather, worse weather?

Sure. It's fairly consistent, from what our marine people as well as our advisers in Scotland has told us. It did include some storm weather. There's one storm system that came through, if I remember correctly, I think it was the first half of May. And we had some peak waves in that timeframe that were as high as 3 meters, a significant wave height that came through. But fairly consistent with experience in the past. One thing that's just you can count on is that it's irregular. In general, you have seasonality, but within whatever season you may be doing your testing or having your system in the water, you still have a high degree of irregularity to the wave patterns. And that was part of the reason why we're so pleased with the results.

Right. And why didn't you release this data for the Hawaii buoy?

Well, the Hawaii buoy, for one thing, was a is system that was much smaller. It is one that at its outset was a test system. So we wanted to make sure that we had a fair amount of data that we could track easily to our model, that was more robust as a system. And in turn, with respect to the 150, that's our bread and butter, that's our utility system, and we wanted to get that information out. I think on the Hawaii system, that's, again, a smaller system that was originally was autonomous. It was not pre-connected, and then we effected the grid connection back in September 2010.

Are you getting similar capacity factors in it? Or is there something different because it's smaller that it's sort of meaningless to even do commercial equations like that?

Well, all data is good data, first of all, picking up on your word "meaningless". You always get good information. Whether it's good or bad, it helps perfect your model, it helps perfect your technology. But that particular system, you're right in that the earlier stages of it is something where we -- when we spec-ed this particular buoy, it was as a 40. We ended up putting it in fairly shallow water, by the way. So to maybe get a little more specific, though, because I'm not trying to dance around your question, here, to get a little more specific about the data, it's rated as a PB40, so it should be producing, on average, about 10 to 12 kilowatts. And that gives you a sense of capacity factor there, the 12 out of 40. We've been experiencing a bit less than that 10 to 12 range because it's in shallow water and also because of the way we spec the systems, the -- actually, more precisely, the generator and the transformer in it. So the power output of that has been less than that archetypal or expected capacity factor.

Got it, that's helpful. And then one last question. Brian, you mentioned that you think cash burn will go down. But I'm just trying to do some back-of-the-envelope calculations on your backlog, and then you're mentioning that the cost for Scotland should go down. What I would have assumed is that in the second quarter, the costs had already started going down in Scotland. So can you give me some further evidence of why you think this burn rate will start declining?

Well, the big driver is the product development expense. Again, that's one of the biggest numbers on our P&L, if not the biggest number, $13.3 million this year. And the big components or the major components of that expense are the PB150 in Scotland and Oregon. So with those construction projects complete and behind us, we believe the rate will go down, the rate of cash burn will go down. It could be still lumpy in the first and second quarters of the fiscal year. But, however, we're very confident. We're confident over the full fiscal year that the cash burn should go down. Again, with the deployment of the PB150 in Scotland in particular, that burn was a significant component, and that a lot of that or almost -- most of that is behind us.

And so of that $13.3 million, you're saying that a vast majority was real checks to the fabricators and to buy this off-the-shelf equipment?

Final assembly and deployment and those kind of other expenditures.

And then on this backlog, how do you price the gross margin into that? I mean, is it sort of what we're seeing? Or can you talk about that? Or is this just...

I don't want to get too detailed. It really depends on the nature of the contracts we have, as we disclosed in our SEC filings.

And our last question comes from the line of Robert Littlehale with JPMorgan.

Chuck and Brian, just wanted to ask about the milestones that you anticipate reaching fairly quickly. Is that prompting any triggers on any additional funding or access to any additional grants or anything along those lines?

You mean in terms of what monies might be needed in order to achieve these funds?

Are these internal milestones that you guys set? Or were these milestones set by someone who said, "If you achieve these levels of success, the following will happen?"

Sure.

Like you'll have access to additional monies or grants or anything like -- I just needed a little clarification on that.

Right. Well, certainly the general statement, success on any of these is, we believe, going to help in the successive rounds of either grants or funding from the specific customers who might be involved, such as on the LEAP program. Progress in one phase definitely helps, moving forward, in getting additional financing. In the case of the Scotland program, the successful conclusion of these trials is one where, or at least one related to our ongoing efforts to find a customer for that system. The next step would be, I guess, for that system, again, we find a customer. So in that sense, achievement of this and the success that we've reported on this PB150 is something that will, we believe, lead to further funding. It's not a specific milestone that those prospective sources funding have said to us, "Gee, do this, and then we'll put in more money." So we don't have quite that sense of quid pro quo and that straight line between the 2 dots in most cases. And we certainly never presume anything when it comes to our business development efforts. But in general, all of these goals which, yes, are set by us internally or result from a contract, again, such as LEAP, that's all a contractual step. And we hope that they will point to additional opportunities for us to either get new contracts or bring in new sources of grants.

Thank you, and that concludes our questioning period. Mr. Dunleavy, you may proceed with any closing remarks.

Thank you very much. And thanks again to all of you for attending today's call and for your continued interest in Ocean Power Technologies. If you do have any further questions, please don't hesitate to contact us, either myself or Brian Posner. Otherwise, we look forward to speaking with you all in the next quarter.

Thank you, everyone. This concludes our presentation. Everyone may now disconnect, and have a great day.