Good day, ladies and gentlemen, and welcome to the Ocean Power Technologies' Fiscal Year 2012 Second Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded and webcast. I will now turn the call over to the Chief Financial Officer of Ocean Power Technologies, Mr. Brian Posner.

Thank you. Welcome to Ocean Power Technologies' earnings conference call for the second quarter ended October 31, 2011. OPT issued its earnings press release earlier today, and this coming Monday we will file the company's quarterly report on Form 10-Q 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, oceanpowertechnologies.com. With me on today's call is Chuck 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 this 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. First, turning to Slide 3. Let me briefly review our major accomplishments of recent months. It's been a very active period. We deployed our unique autonomous PowerBuoy for the Navy's Littoral Expeditionary Autonomous PowerBuoy or LEAP program off the coast of New Jersey in August. Having performed very well, including surviving Hurricane Irene, the LEAP PowerBuoy represents an exciting stage in the development and delivery of our autonomous PowerBuoys. The ocean trials of our PB150 PowerBuoy in Scotland came to a successful conclusion in October as planned. As previously discussed on our conference calls, we are very pleased with the performance of the PB150 and are now speaking with various potential customers and government entities, who may wish to utilize the PowerBuoy for commercial applications in the future. Most recently, we announced an important collaboration with Lockheed Martin, plus significant progress in Spain as I'll review further momentarily. OPT will shortly retrieve its PB40 PowerBuoy device, which has been deployed at the test site of the U.S. Marine Corps Base at Oahu, Hawaii, following the successful completion of this demonstration project. During its 2-year period of deployment, the buoy became the first-ever wave energy device to be connected to the U.S. grid, survived tsunami wave conditions and achieved over 5.5 million cycles in operation. In addition, the system features our new direct drive power take-off system, which is a major technology upgrade from our previous hydraulic power take-off. The U.S. Navy remains a valued OPT partner, and we are in discussions regarding the next stage of prospective commercial-scale wave power stations in Hawaii. We ended the quarter with a backlog of nearly $9 million as compared to $7 million at July 31, 2011, and also with cash-on-hand of…

Thank you, Chuck. As noted on Slide 8, OPT reported revenues of $1.5 million for the second quarter of fiscal 2012, as compared to revenues of $1.9 million for the 3 months ended October 31, 2010. This decrease primarily reflects lower revenues related to the company’s PB150 PowerBuoy being prepared for deployment off Reedsport, Oregon, and reduced revenues for the U.S. Navy's LEAPs and DWADS programs compared to the second quarter of fiscal 2011, as these programs are near completion. OPT's contract backlog as of October 31, 2011, was $8.8 million compared to $7.1 million as of July 31, 2011. This increase -- the increase is due primarily to the contribution of a $3 million grant tied to the company's WavePort project in Spain as Chuck discussed. The operating loss for the 3 months ended October 31, 2011 was $4 million, as compared to an operating loss of $5.7 million for the 3 months ended October 31, 2010. The reduction in operating loss year-over-year was due primarily to a decrease in product development costs, principally for the PB150 system. The net loss was $3.9 million for the 3 months ended October 31, 2011, compared to $5.5 million for the same period in the prior year. This decrease in net loss was due primarily to the decline in operating costs, partially offset by a decrease in interest income and a lower foreign exchange gain. Interest income for the quarter decreased to approximately $126,000 compared with $161,000 for the same period last year. This decrease was largely due to the decline in average yield and in the total invested cash from marketable securities. For the 6-month period ended October 31, 2011, OPT posted revenues of $3.4 million as compared to revenue of $3.2 million for the 6 months ended October 31, 2010.…

Thanks again, Brian. And now turning to Slide 10. In the coming months, we expect our momentum to continue in several fronts. First, we expect to complete land testing of the PTO, the power take-off for the PB150, to be deployed off the coast of Oregon. Second, we plan to report progress on the PowerBuoy system for the WavePort project in Spain. Third, we'll release data from the LEAP PowerBuoy deployment. And finally, we look forward to report on favorable results from our ongoing business development efforts. Before opening the call to questions, I want to also mention that we recently announced 2 new members of our Board of Directors, David Davis and Bruce Peacock. David, the Vice President of PJM Grid Development for an independent power producer, NRG Energy, brings strong relationships with regulators, legislators and other stakeholders within both the renewable and conventional energy sectors, with over 20 years of applicable experience. Bruce, currently the Chief Business Officer of Ophthotech, a bio-pharmaceutical company, has over 30 years’ experience at companies with international operations, bringing new products to commercial status in regulatory-driven markets. We welcome to Ocean Power Technologies both of these individuals who have already played active roles in shaping our strategy for 2012 and beyond. As always, we thank our investors for their continued interest and support, and we remain very excited for OPT's future within the wave energy sector. With an active business development pipeline, strong relationships with industry leaders, such as Lockheed Martin and Mitsui Engineering & Shipbuilding, the future looks bright. We remain focused on the fundamentals, commercialization of our PowerBuoy products, new market opportunities and cash management, and we look forward to reporting progress in 2012. This concludes our prepared statement for the second quarter review and we'll now open the call for questions. Please go ahead, operator.

[Operator Instructions] And our first question will come from the line of Rob Stone with Cowen and Company. [ p id="26858707" name="Robert Stone" type="A" /> I wanted to dive a little deeper into the LEAP market opportunity. Can you give us some sense of how to think about sizing the market, would be the first part of the question. And second, in your preliminary explorations, how would you rate the criteria that would lead operators of facilities that would use the product to choose it versus diesel? Is it mainly the reliability and fueling issues associated with diesel? Or how do they think about the tradeoffs?

This is Chuck speaking. First of all, with respect to the initial part of your question about market size, we view the total worldwide market for autonomous, our autonomous PowerBuoy, as being an up to $10 billion market for equipment. Remember that this encompasses not only oil and gas, which would be driven generally by rig count, which are very significant worldwide. Also in addition to the oil and gas, we believe that maritime security, homeland security, is also a very large burgeoning market. One that we view as addressable, not just with respect to the United States, but also U.S. has a number of very strong defense partners with reciprocal defense agreements. And another area is with respect to aquaculture and fish farming as increasingly such activity is driven off the coast to avoid pollution. And that creates a problem with respect to power out there in deeper oceans. So we view it as a very large and substantial market. And one that is of the size that I mentioned and articulated at the outset of my response. With respect to the criteria that some of these prospective customers might use, one thing that is really neat about the success of our LEAP system is that we were able to demonstrate power production in very wide range of wave conditions, which include not only the Hurricane Irene, but also nonexistent waves. And that in that latter case, we have an onboard power management and storage system. So the bandwidth of performance time or just availability, the time within which we're producing power is very, very wide and extremely close to baseload power. So one criterion that they're looking at is with respect to just baseload power production. They can achieve that for diesel as long as they have enough…

That's extremely helpful. Do you have a sense of what the average nameplate would be for this kind of installation? I imagine it would vary quite a bit from something smaller for surveillance versus something bigger for an active operation like an oil rig.

Well, you're exactly right. For some of the activity that may be taking place again to that climate about the radius emanating from the hub or from the main platform, the power requirements for much further out, which includes such things as bathymetric surveys, also some of the heating systems that might be required to facilitate the flow of liquids, and also the defense or security measures. Those would be lower power, and to answer your question a little more specifically, would be up to a massive 10 kilowatts. Then as we focus instead right at the platform and the power needed at the platform, our PB150, the 150-kilowatt rated system, would be well-suited to the power needs of, especially the smaller autonomous platforms, of which there are many out there them now. As you might consider the power requirements for larger platforms than several PB150s would be apt for that. And again it underscores the point that the same core PowerBuoy technology that we sell into the utility grid connected markets is virtually identical to that which we're selling in these autonomous markets.

Great. A final question if I may, related to the PB150. I think on prior calls you've said the CapEx might be something approximately $4 million a megawatt. With the improvements to the direct drive, do you have a sense of what as a -- O&M might look like for that system?

The O&M? The way we've approached that is that starting with that $4 million per megawatt, which is in large production volumes of 400 buoys per annum, by the way, the related cost per kilowatt hour target is $0.15. Of that $0.15, Rob, about 20% of that is represented by O&M. So I'm answering your question not in absolute dollars but in terms of the portion of the total cost of energy.

And our next question will come from the line of Gerard Adams with the National Inflation Association.

I just wanted to first congratulate you on the new grant, and I can't believe how undervalued the company is right now. I was wondering if you can just touch base on how you plan on cutting cost to get the burn rate down, and just the timeline on some of the upcoming projects?

It's Brian. First of all, we've taken a hard look at our fixed cost structure. We're not a build-it-and-hope-they-come type of company. We've reduced costs, such as the A market, we've looked at our legal fees, we looked at our insurance costs. So I think we've done a very prudent job. In fact, our headcount is slightly down from about a year to 18 months ago. In terms of margins, it's basically about increasing production efficiency and effectiveness and growing our business, which obviously will help us absorb overhead. And so we have a very keen eye on both our cost structure, and obviously, our cash flow and will continue to do that.

I would add as well, Gerard, that one of the major progenitors of our cash burn in prior years has been from the R&D spending. And going forward, the majority, in fact virtually all of the ongoing developments associated with our PB500, would be externally funded from grants, other funded development contracts. And we've been very successful to date so far having brought in, USD $6.2 million towards the PB500 development. Also, we see, as we kind of look out for this year and then the next few years, in addition, what had been in prior years, a major a source of burn associated with the development of the PB150, will realize or result in a far decreased amount of spend related to our PB150, as we completed the Scotland PB150. And then in addition, and this kind of goes to your second question about the timeline of projects, as we look to complete the PB150 for Reedsport in 2012 that too would result in a significant decrease in any R&D spend related to that particular 150. So in a nutshell, reduced R&D spending would be one way in which we see a very significant reduction in cash burn as it might be compared to prior periods. And then again, on a timeline of projects, I addressed that part of your question with respect to the Reedsport system. Also the WavePort system, we haven't given specific guidance on when we expect that to go in the water, but we're really going all out during calendar 2012 to bring that whole project well along to a point of completion. So on our near-term buoys in the water target certainly include both Reedsport as well as that WavePort system.

And our next question will come from the line of Robert Littlehale with JPMorgan.

Just a couple of quick questions. PB500 -- is the direct drive take-off system going to be utilized on the PB500? Is that clear?

Yes, indeed. In fact, just to add one point. Also we have a lot of work on-going to significantly modularize that direct drive system. And we're already going to be implementing that on the WavePort project. So the PB500 will really benefit heavily from not only direct line but also this modularization that I just mentioned.

And then as it relates to -- is there any way to determine just in terms of FERC's decision as it relates to Reedsport? Is there a certain amount of time that you envision that they'll finally come back and make a determination?

Well, very broadly, we do expect a final decision on that during calendar 2012. But we really are hopeful that it will be in the first half of calendar '12. We, and also FERC, as well as a number of the other agencies at both federal and state levels are, as you know and I think we've talked about it in the past on some of our calls, we've really done a lot of homework on this, and sought to build -- and take an extra time to build a strong consensus among a lot of different stakeholders on this. And we think that as a result, that's being well-regarded by FERC and some of the other agencies. So at any rate, a quick answer to your question is we hope to see some -- a decision on this during the first of calendar 2012.

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

Thank you, all, once again for attending today's call. And if you do have any further questions, please don't hesitate to contact either Brian or myself, and otherwise, we look forward to speaking with you all next quarter.

Thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.