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Cleco’s (CNL) CEO Bruce Williamson on Q2 2015 Results – Earnings Call Transcript

Cleco Corporation (NYSE: CNL ) Q2 2015 Earnings Conference Call July 28, 2015 9:30 AM ET Executives Sybil Montegut – Senior Investor Relations Analyst Bruce Williamson – Chairman, President and Chief Executive Officer Tom Miller – Senior Vice President and Chief Financial Officer Darren Olagues – President of Cleco Power Analysts Paul Ridzon – Keybanc Brian Russo – Ladenburg Thalmann Kent Escalera – RBC Capital Markets Operator Welcome to the Cleco Corporation Second Quarter 2015 Earnings Call. My name is Sophia, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to, Sybil Montegut, Senior Investor Relations Analyst. Sybil, you may begin. Sybil Montegut Good morning, and welcome to Cleco Corporation’s 2015 second quarter earnings call. You can access this call and slide presentation live via the Internet from Cleco’s website at www.cleco.cominvestors. Telephone and Internet replays can be accessed through our website. The dial-in number for the telephone replay is 888-843-7419 if in the U.S., or 630-652-3042 if outside the U.S. The conference ID is 38458259. With me on the call today is Bruce Williamson, Chairman, President and Chief Executive Officer of Cleco Corporation; and Tom Miller, Senior Vice President, Chief Financial Officer and Treasurer, along with other members of Cleco management. Before we begin, please keep in mind that during the conference call, we will make some forward-looking statements. These statements are subject to many risks and uncertainties. Actual results may differ materially from those contemplated in our forward-looking statements. Please refer to our cautionary note regarding forward-looking statements and risk factors in various reports filed with the U.S. Securities and Exchange Commission, or SEC, including our 2014 Annual Report on Form 10-K, our 2015 Quarterly Report on Form 10-Q, current reports on Form 8-K and other reports filed with the SEC. In addition, please note that the date of this conference call is July 28, 2015, and any forward-looking statements that we make today are based on assumptions as of this date. With that, I will turn the call over to Bruce. Bruce Williamson Thanks, Sybil. Good morning and thank you for joining us. Let’s start with the agenda for today’s call, which is on Slide 3 of our presentation for those of you following along via the webcast. I’ll begin with a quick recap of second quarter earnings, followed by an update on the merger transaction. Tom will then provide an overview of second quarter and year-to-date financial results and then we’ll move to Q&A. Please turn with me to Slide 4. We continue to be impacted in 2015 with lower rates that came about as a result of the formula rate plan extension that began July 1 of last year and the loss of a wholesale customer late last year. That said, we had slightly warmer weather and fewer planned outages this quarter. Tom will provide more detail on second quarter results and our year-to-date earnings later in the call. Please turn to Slide 5 for the transaction update. As many of you are aware, last week we released an update regarding our strategic transaction. Since receiving Federal Energy Regulatory Commission or FERC approval, we are now within one approval of finalizing the merger led by Macquarie Infrastructure and Real Assets and British Columbia Investment Management Corporation, in order to deliver exceptional value to our public shareholders. In addition to FERC, we’ve received approval from the committee on foreign investment in the United States, the Federal Communications Commission has also granted consent to the merger. We filed applications with both of these agencies during the second quarter and I told you on our call last quarter that we filed for approval into the Hart-Scott-Rodino Act and I am happy to report that the waiting period has expired. And as I stated before on the previous calls, we received outstanding shareholder support for the transaction at a Special Shareholder Meeting in February. This now only leaves the Louisiana Public Service Commission or LPSC as our final approval to obtain. Recently, we’ve been working with the LPSC Staff’s counsel and consultants and interveners by answering their remaining beta request, as they may submit their testimony on the transaction. As many of you are aware the commission’s staff requested two extensions to the front-end of the full procedural schedule in order to allow time and work needed to review the final beta request and complete the analysis and prepare their testimony. However, the extension did not impact the end date of the full litigated schedule. We expect the LPSC staff and potentially any interveners to file their testimony later this week with the documents typically becoming available on the LPSC’s website a few days later. We will also post links for the testimony on our website. If you have any questions or need additional information, please contact our Investor Relations department. We have been and will continue to work closely with the staff, their counsel and their consultants and any interveners to resolve remaining items in an expeditious manner. So we expect the merger transaction to close later this year. And with that, I will turn the call over to Tom to discuss financial results in more detail. Tom Miller Thanks, Bruce. Good morning, everyone. Please turn to Slide 6 for a review of our second quarter operational results. GAAP earnings for the quarter were $0.50 per share, or $0.10 lower than the second quarter last year. Second quarter operational earnings were $0.53 per share, or $0.04 lower than the second quarter of 2014. 2015 operational earnings for the quarter exclude $0.02 per share of tax levelization and a penny a share of merger costs. Power’s non-fuel revenue was flat from this period last year. Lower net sales to wholesale customers including the exploration of a wholesale contract decreased earnings by $0.16 per share. The July 2014 FRP extension decreased revenue by $0.07 per share for the quarter. And anticipated refunds associated with FERC transmission, return on equity, and energy efficiency programs decreased earnings by $0.03 per share. These decreases were offset by $0.22 per share earnings increase related to the absence of the one-time customer refund in the second quarter last year that was part of the FRP extension. Warmer weather and higher customer usage in 2015 added $0.04 per share. Our other revenue increased earnings by $0.01 per share primarily related to higher transmission revenue. In terms of expenses, lower 2015 cost increased earnings by $0.02 per share, primarily due to $0.05 per share related to fewer planned outages at our generation facilities compared to second quarter last year and $0.01 per share related to lower depreciation and amortization expense and $0.01 per share of lower miscellaneous expense. These increases to earnings were partially offset by $0.03 per share of higher pension expense due to lower discount rates and the adoption of new mortality tables and $0.02 per share related to higher non-recoverable fuel expenses related to MISO transmission expenses as a result of the new wholesale customer and higher administrative fees. Lower interest expense increased earnings by $0.01 per share primarily related to the absence of a customer surcredit. AFUDC decreased earnings by $0.03, primarily due to the completion of MATS capital spend. And, finally, higher income taxes decreased earnings by $0.05 per share, $0.04 of those were related to the absence of a 2014 favorable settlement with taxing authorities and $0.01 per share to record tax expense at the projected annual effective tax rate. Now, please turn to Slide 7 for a review of year-to-date results. GAAP earnings were $0.94 for the first six months of 2015, a decrease of $0.09 per share compared to the same period last year. Operational earnings were $0.98 per diluted share for the first six months, a decrease of $0.02 per share compared to the first six months last year. Operational earnings exclude non-operational items associated with $0.04 of merger cost. Looking from left to right on the operational earnings reconciliation chart, power’s non-fuel base revenue was down $0.03 per share from this time last year. Lower net sales to wholesale customers including the expiration of a wholesale contract decreased earnings by $0.14 per share. The July 2014 FRP extension decreased revenues by $0.10 per share and anticipated refunds to customers associated with FERC transmission ROE and energy efficiency programs decreased earnings by $0.03 per share. Offsetting these decreases were an increase of $0.22 per share related to the absence of the one-time customer refunds in 2014 as part of the FRP extension, slightly more favorable weather contributed to earnings of $0.01 per share and lower site-specific refunds increased earnings by $0.01. Other revenue increased earnings by $0.04 per share primarily related to higher transmission revenue. Lower expenses increased earnings by $0.09 per share, primarily due to $0.20 per share related to fewer planned outages at our generation facilities for the first half of the year, $0.05 per share related to lower depreciation and amortization expense. These increases to earnings were partially offset by $0.06 of higher pension expense due to discount rates and the adoption of the new mortality tables. $0.05 per share related to higher non-recoverable fuel expense related to MISO transmission expenses. $0.04 per share from the absence of the recovery of capacity expense related to cost of tooling agreement and $0.01 per share of higher miscellaneous expenses. Lower interest expense increased earnings by $0.01 per share due to the absence of a customer surcredit, AFUDC decreased earnings by $0.04 per share primarily due to completion of MATS capital spend. And, finally, higher income taxes decreased earnings by $0.09 per share, $0.04 of these were related to the absence of a 2014 favorable tax settled – tax settlement with taxing authorities, $0.03 per share to record tax expense at the projected annual effective tax rate, and $0.02 per share related to a settlement with taxing authorities this year. Operator, at this time, we will open the call for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] And your first question comes from Paul Ridzon from Keybanc. Paul Ridzon Good morning. How are you? Bruce Williamson Good. Paul Ridzon I got a quick question, industrial sales were down, I think, 20% in the first quarter and then down again in this quarter. Is that one customer is that – kind of what’s going on there? Bruce Williamson Tom? Tom Miller Paul, that remains the same customer we talked about last year, the last quarter, pardon me. Paul Ridzon Good, Tom. Is this is – or are they coming back? Tom Miller We think they are going to be coming back, but it’s not a permanent loss. Darren Olagues Paul, it’s Darren, this is not a permanent loss as Tom said, we expect to see those industrial sales pick back up from that customer. Paul Ridzon And can you talk what sector they are? Darren Olagues Sorry, Paul, you broke up. Paul Ridzon Can you talk what sector they are at? Darren Olagues Paper products. Paul Ridzon Paper? And is there – call it that in the procedural schedule settlement timeline? Darren Olagues No, there is – if I understand your question, is there a procedural schedule for – with the settlement timeline to it? Paul Ridzon Yes. Darren Olagues There is not public – the only public schedule is the fully litigated schedule that I think is on the commission’s left side. Paul Ridzon And then lastly, are these higher pension costs captured in rates or will they be captured in July, when you – due to the annual rate proceeding? Darren Olagues Paul, they are not captured, we – at each rate case, costs are projected at the time to the test year and to that process, but there is no tracker or rider that trues that up, that will be at the next rate case reset in which we would recalibrate rates to reflect that. Paul Ridzon So it’s not part of the FRP? Darren Olagues It’s not part of the FRP. Paul Ridzon And then, what period does this FERC refund go back, does that all go back to 2012? Tom Miller Yes, it goes back to when we started in December 2013. Paul Ridzon Okay, thank you very much. Tom Miller Thank you very much. Operator And the next question comes from Brian Russo from Ladenburg Thalmann. Brian Russo Hi, good morning. Just to clarify, staff and intervener testimony is due tomorrow, July, 29, is that correct? Tom Miller Correct. Brian Russo Okay, and it will be posted shortly thereafter within a day or two or could we expect it tomorrow? Bruce Williamson I guess, in theory it’s expected tomorrow, but we try to always head this for when things get put on the calendars and then get ultimately uploaded to the website. So I would say, maybe by Friday. Darren? Brian Russo Okay. Darren Olagues Yes, that’s right. No later than Friday. Brian Russo Okay and then, when is hearing is scheduled to start? Bruce Williamson I mean, there is no – other than the schedule that’s been laid out, there is no specific hearing dates that have been set. I think tomorrow, Friday would be, we’ll set down the dues of staff as well as any interveners that file testimony. That will then drive the process, the process will be fluid from there. But there is no specific hearing date that has been scheduled other than what’s on the public schedule, again the fully litigated schedule that’s out there. Brian Russo Okay. Got it. That’s all I had. Thank you very much. Bruce Williamson Thanks, Brian. Operator And the following question comes from Kent Escalera from RBC. Kent Escalera Hey, good morning. I was just wondering if – sort of a follow-up on these other question, whether there have been any substantive issue that have come in your discussions so far with the PSC and whether you could speak to that dialogue at all? Bruce Williamson I’ll let Darren to have a word. Darren Olagues I mean, I wouldn’t want to go into the details of those discussions. I would tell you that, the commission staff and I guess, to a large degree any interveners are concerned with the same things that we have been concerned with is making sure that the employees, communities, that the health of the company, the health of the utility is all protected and strengthened through the regulatory commitment that we put out there. And we think we put forth a solid list of commitment. Those same concerns that we were trying to address are the same concerns I think what we are hearing from staff. So, we’ll get a view as to what of their assessment of that offering and that proposal we made tomorrow. But I’d rather not go in any details of the specific points. Kent Escalera Okay, thanks. Darren Olagues Okay. Operator And we have no further questions at this time. Bruce Williamson Okay, well, thank you for your questions this morning. I want to close the call today by thanking all of you for your continued interest in Cleco. Operator Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

Unitil’s (UTL) CEO Bob Schoenberger on Q2 2015 Results – Earnings Call Transcript

Unitil Corporation (NYSE: UTL ) Q2 2015 Results Earnings Conference Call July 23, 2015, 14:00 PM ET Executives David Chong – Investor Relations Bob Schoenberger – Chairman, President and Chief Executive Officer Mark Collin – Senior Vice President, Chief Financial Officer and Treasurer Tom Meissner – Senior Vice President and Chief Operating Officer Larry Brock – Chief Accounting Officer and Controller Analysts Michael Gaugler – Janney Montgomery Scott LLC Shelby Tucker – RBC Capital Markets Operator Good day, ladies and gentlemen, and welcome to the Second Quarter 2015 Unitil Earnings Conference Call. My name is [indiscernible]; I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to the Director of Finance Mr. David Chong. Please proceed sir. David Chong Good afternoon and thank you for joining us to discuss Unitil Corporation’s second quarter 2015 financial results. With me today are Bob Schoenberger, Chairman, President, and Chief Executive Officer; Mark Collin, Senior Vice President, Chief Financial Officer, and Treasurer; Tom Meissner, Senior Vice President and Chief Operating Officer; and Larry Brock, Chief Accounting Officer and Controller. We will discuss financial and other information about our second quarter on this call. As we mentioned in the press release announcing the call, we have posted that information, including a presentation to the Investor section of our website at www.unitil.com. We will refer to that information during this call. Before we start, please note that comments made on this conference call may contain statements that are commonly referred to as forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding the company’s financial condition, results of operations, capital expenditures and other expenses, regulatory environment and strategy, market opportunities, and other plans and objectives. In some cases, forward-looking statements can be identified by terminologies such as may, will, should, estimate, expect or believe the negative of such terms or other comparable terminology. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties, and the company’s actual results could differ materially. Those risks and uncertainties include those listed or referred to on Slide 1 of the presentation and those detailed in the company’s filings with the Securities and Exchange Commission, including the company’s Form 10-K for the year ended December 31, 2014. Forward-looking statements speak only as of the date they are made. The company undertakes no obligation to update any forward-looking statements. With that said, I will now turn the call over to Bob. Bob Schoenberger Thanks, David. Thanks for joining us today. If you turn to Slide 4 of our presentation, today we announced net income of $1.7 million or $0.12 per share, for the second quarter of 2015, an increase of $0.6 million or $0.04 per share compared to the second quarter of 2014. For the first half of this year, we reported net income of $15.3 million or $1.10 per share, an increase of $1.6 million or 12% and a $0.11 per share compared to prior year. 12% increase in net income for the first half of this year was Primarily driven by customer growth in higher natural gas sales. Our regulatory agenda and growing investment in our gas and electric distribution systems will continue to drive our earnings in the years ahead. Turning to Slide 5, the graph shows that our financial results have increased sharply over the past few years, with net income growing at an annual rate of 16% since 2012. Our financial results have been driven by the strong demand for natural gas in the areas we serve. Our growing investment in our gas and electric utility distribution systems and the successful execution of our regulatory strategy. As part of our regulatory strategy, in the second quarter we filed gas and electric phase rate cases for our Massachusetts Utility requesting a total of $6.8 million in rate relief. Mark will discuss these rate cases in more detail later in the presentation. Moving to Slide 6, natural gas remains a cost competitive fuel choice and offers all our customers the best choice of value efficiency and convenience of a competing fuel such as oil and propane. As a result of historical and economic factors somewhat unique to Northern New England which I’ve discussed many times in the past, we currently have a customer penetration rate of only 60% on our existing distribution system. We are working hard to change that, the relatively low customer penetration on our existing system provides us low cost opportunities to add customers along and near distribution means. Additionally, we recently filed a regulatory mechanism in Maine requesting approval to replace upfront customer contributions often required to expand into new areas with the rate surcharge mechanism for a period of time certain targeted areas. We expect that offering customers the ability to pay a rate surcharge rather than an upfront payment will help facilitate customer conversions and will help us target new areas of geographic expansion beyond our existing distribution system. Slide 7 highlights the growth we have achieved on our natural gas business. Our gas customer base grew 3% in 2014. In addition, natural gas unit sales have grown over 4% annually on a weather-normalized basis since 2012 which is right in line with our goal to grow our gas and sales between 4% to 6% annually. Moving on to Slide 8, our utility rate base continues to grow as we add new customers and improve both the gas and electric distribution systems. Over the past three years, our gas rate base has grown at an annual rate of 10%, driven by customer additions and our infrastructure replacement and improvement programs. Our electric rate base has grown 4% over the past three years. We believe that rate base will continue to grow around these levels for the foreseeable future. Finally, Slide 9 highlights our return on equity which has steadily increased over the past three years, reflecting strong customer and sales growth combined with constructive rate case results. Our regulatory strategy has helped us to achieve approximately $16 million in rate reliefs since 2010, which equates to a 50% increase in sales margin. This rate relief has enabled our earnings to match and exceed our rapid rate base growth and provides us with the opportunity to earn within our allowed rate of return. Now I’ll turn the call over to Mark to discuss our financial results and our current rate case proceedings. Mark? Mark Collin Thanks Bob. And good afternoon everyone. Turning to the next Slide, Slide 10 natural gas utility sales margins were $18.1 million and $56.9 million for the second quarter and six month periods reflecting increases of $1.8 million and $4.1 million or up 8% for the year so far compared to prior year. Natural gas sales margins was positively affected by higher therm unit sales, a growing customer base and higher distribution rates. Therm sales of natural gas increased 4% in the first six months of 2015 compared to 2014 driven by colder winter weather and new customer additions. There were 3% more heating degree days in the first six months of 2015 compared to the same period in 2014, which we estimate positively impacted earnings per share by about $0.02. Compared to normal, there were 13% more heating degree days in the first six months of 2015, which we estimated positively impacted earnings per share by about $0.09. Excluding the effect of weather on sales, weather normalized gas therm sales are estimated to be up 3% for the first half of this year compared to last year. Turning to Slide 11, this highlights our electric utility sales margin. Electric sales margins were $20.5 million and $41.7 million for the second quarter and six months period reflecting increases of $1.6 million and $3.6 million or up 9% for the year so far compared to prior year. Electric sales margins reflects higher electric base distribution rates and slightly higher sales volumes. Electric kilowatt hour sales increased slightly by 2.2% compared to the first half of 2014. Turning to Slide 12, Usource, the Company’s non-regulated energy brokering business, recorded revenues of $3.1 million for the six months period, an increase of $0.1 million compared to the same period of 2014. Operation and Maintenance expenses increased $1 million and $0.8 million for the second quarter and six months period compared to prior year. The year-to-date change in O&M expenses reflects higher compensation and benefit costs of $1.2 million and higher all other utility O&M costs, net of $0.3 million. This was partially offset by lower professional fees of $0.7 million in the current period. Depreciation and amortization increased $1.1 million and $2.3 million for the second quarter and the six months period compared to prior year for amortization cost. Taxes other than income taxes decreased $0.4 million and $0.1 million for the second quarter and the six month period compared to prior year reflecting lower local property tax expenses. Net interest expense increased $0.7 million and $1.3 million for the second quarter and six months periods reflecting higher levels of long-term debt and lower interest income on regulatory assets. Now, turning to Slide 13, we have provided an update on our financial results at the utility operating company level. The chart shows the trailing 12 months actual earned return on equity in each of our regulatory jurisdictions. Unitil on a consolidated basis earned a total return on equity of 9.6% in the last 12 months ended June 30, 2015. Also, as we have discussed in the past and as shown in the table in the right, we have long-term capital cost trackers in place to recover a significant portion of current and future capital spending, which we expect will help to maintain the level of earnings across our subsidiaries. Slide 14 highlights our recent electric and gas rate case filings in Massachusetts for our Fitchburg subsidiary. Both filings will reflect a 2014 test year a capital structure with a 53% equity ratio and a 10.25% requested return on equity. Electric division filing reflects a rate base of $57.3 million, the revenue deficiency of $3.8 million includes a multiyear rate plan for recovery of future capital additions. Gas division filing reflects the rate base of $57.5 million and our revenue efficiency of $3 million. We currently expect an order from the Massachusetts Department of Public Utilities on these rate cases in the second quarter of 2016. Lastly, Slide 15 details a settlement agreement which we recently filed the Federal Energy Regulatory Commission in June of 2015 for grant state, our Interstate Transmission Pipeline, the settlement extends a long-term rate plan currently in place and provides for an additional three years of a capital tracker mechanism to recover spending on several major projects. The first rate adjustment of $0.4 million is expected to become effective on August 1, 2015. And future rate adjustments in the range of $0.3 million to $0.4 million are expected to take place in 2016 and 2017. The settlement agreement is subject to approval from the FERC which is expected in the third quarter of 2015. Now this concludes our summary of our financial performance for the period. I will turn the call over to the operator who will coordinate questions. Thank you. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from Michael Gaugler with Janney. Please proceed. Michael Gaugler Well good morning everyone. Robert Schoenberger Hi Mike. Mark Collin Hi Mike. Michael Gaugler Just one question on gas conversions, we’ve seen the price of oil come down, prices of other fuels come down as well, just wondering if you are seeing any slowdown in demand for conversions given that pullback in energy prices. Mark Collin Yeah, Mike. I think it’s more a question of timing. I myself just converted to natural gas so that gives any idea I saw the economy value of doing it. We actually still see strong growth, I would say it’s probably a little bit off we saw a couple years ago. But I think that’s temporary because people tell us, these are the customers, what they are telling us at least, they see it as a temporary phenomenon and they expect in long-term and natural gas will be a better buy than home heating oil. So we expect to see that growth continue and given our new approach to serving unserved areas, we’re getting a lot of strong support from town officials saying [indiscernible], the benefit of natural gas long term. Michael Gaugler Okay. That’s all I had. Congrats on a really nice quarter. Mark Collin Thanks Mike. Robert Schoenberger Thank you. Operator Your next question comes from Shelby Tucker with RBC Capital Markets. Please proceed. Shelby Tucker Good afternoon. Just a quick question on gas demand for the second quarter, I know with weather residential demand was down 3.4 conversions stood down 0.8. If would weather normalize, do you have a sense where the sales growth would have been for both segments. Robert Schoenberger Second quarter is a colder period, Shelby, so there is not a lot of in weather, well, plays a role is relatively minor impact on sales during the period. I think what we talked about from financial perspective; we think weather contributed about $0.02 to earnings per share in the period. Shelby Tucker Got it. Okay. Thank you. End of Q&A Operator [Operator Instructions] There are no further questions. Ladies and gentlemen, this concludes today’s call. Thank you for your participation. You may now disconnect. Have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

Ocean Power’s (OPTT) CEO George Kirby on Q4 2015 Results – Earnings Call Transcript

Ocean Power Technologies, Inc. (NASDAQ: OPTT ) Q4 2015 Results Earnings Conference Call July 7, 2015 10:00 AM ET Executives Shawn Severson – Managing Director, Blueshirt Group George Kirby – President and CEO Mark Featherstone – Chief Financial Officer Analysts Amit Dayal – H.C. Wainwright Operator Good day, ladies and gentlemen. And welcome to the Q4 and Fiscal Year End 2015 Ocean Power Technologies’ Earnings Conference Call. My name is Halley, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. [Operator Instructions] As a reminder, this call is being recorded. I would like to turn the call over to Shawn Severson, Managing Director of Blueshirt Group. Please proceed, sir. Shawn Severson Thank you and good morning. Thank you for joining us on OPT’s conference call and webcast to discuss the financial results for the three and 12 months period ended April 30, 2015. On the call with me today are George Kirby, President and CEO; and Mark Featherstone, Chief Financial Officer. George will provide an update on the company’s recent developments, key activities and strategies, after which Mark will review the financial results for the fourth quarter and full fiscal year 2015. Following our prepared remarks, we will open the call for questions. This call is being webcast on our website at www.oceanpowertechnologies.com. It will also be available for replay approximately two hours following the end of this call. The replay will stay on the site for on-demand review over the next several months. Yesterday OPT issued it’s earnings press release and filed its annual report Form 10-K with the Securities and Exchange Commissions, and all our public — all of our public filings can be viewed on the SEC website at sec.gov or you may go to the OPT website oceanpowertechnologies.com. During the course of the 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 1985, excuse me, 1995. These forward-looking statements are subject to numerous assumptions made by management regarding future circumstances of which the company may have little or no control and involve risks and uncertainties, and other factors that may cause actual results to 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 SEC for a description of these and other risk factor. And with that, I’d like to turn the call over to George to begin the discussion. George Kirby Thanks, Shawn. Good morning, everyone. I’ll be — I’ll begin by reviewing our operations and provide an update on key activities and developments. After which Mark will briefly review our financial results. Mark and I will then be available to answer any questions. So let’s begin. First, I am excited to say that we are making headway and aggressively driving the deliverables that we established earlier this year. We have achieved fully permitted status for deployment of our PB40 buoy, we are in the process of deploying the mooring system and we continue to monitor for a suitable weather window for final buoy deployment off the coast of New Jersey. Second, we are about to achieve fully permitted status for deployment of our APB-350 A1 buoy, which we also expect to deploy this summer. We are in the process of factory testing the A1’s power take-off, also known as the PTO and the A1’s energy storage system prior to sea trials. We are also making significant progress towards development of our commercial generation A2 buoy. A2 is being developed with an optimized hall geometry for improved hydrodynamics and operating efficiency, as well as reduced costs associated with fabrication, transportation and deployment. Recently, the A2 program successfully completed rigorous internal preliminary design review. Third, as we highlighted in our recent press release, we’ve begun development of our PB10 PowerBuoy, which leverages a scaled-up version of the APB-350 PTO and a higher efficiency energy storage system for applications that require higher power output. The PTO design for the PB10 recently passed a stage-gate review with the U.S. Department of Energy or DOE and the detailed design review of the PTO is anticipated to occur around the end of summer 2015. Each of these activities demonstrates our progress toward commercialization of our cutting edge power solutions but our activities don’t stop there. As we share during the last earnings call, there are four key market segments which we’re targeting, offshore wind, ocean observing, defense and security, and oil and gas. To start, the offshore wind industry is very exciting for us. It requires substantial data to determine ocean environment and wind resource conditions for turbine design and layout, power generation prediction, turbine maintenance prediction and for financing purposes. A wave powered mobile monitoring system is a redeployable asset for use across multiple projects during early-stage development and can be advantageous during the entire project life cycle for continued monitoring and correlation of wind resources to project output. Our objective and future value proposition in the offshore wind market is to become the preferred integrated solution delivering 50% or more life cycle cost savings over incumbent solutions. The near-term addressable market for OPT includes multiple stakeholders across scores of sites in the U.S. and Europe over the next three years. We continue to see significant interest in our PowerBuoy throughout this market and were discussing potential applications with market participants using our APB-350 as the power solution platform. Moving on to the ocean observing industry, we see applications for our APB-350 such as power and docking systems for unmanned underwater vehicles, which could result in more frequent and reliable vehicle charging. We believe that our PowerBuoys could serve as a power platform, given the severe limitations of incumbent system power sources. We believe this could allow for consolidation of multiple sensors from individual incumbent systems and thus dramatically decreased life cycle costs. Turning to the defense and security market, we continue to identify funded applications in the U.S. and international defense markets. And we continue to seek strategic relationships with potential partners to service them. We’re currently pursuing multiple funding opportunities which if successfully secured, we hope to showcase in the coming months. Lastly, for the offshore oil and gas market, we’re seeking to further develop our technologies for applications which require higher power output through a combination of scaled-up PowerBuoy designs, enhanced mooring systems and array technologies. We continue to engage potential customers who are seeking solutions for offshore platforms, offshore communications and downhole applications. To address all of these market segments, we continue to collaborate with potential PowerBuoy users and to progress toward potential agreements for further development, demonstrations and applications. We also continue to increase our technical depth and our ability to execute by augmenting our team with outstanding engineering, operations and business development expertise through both new hires and external associates. I will now turn it over to Mark who will review our financial results for the quarter and full fiscal year 2015. Mark Featherstone Thanks, George, and good morning, everyone. I will now briefly review results for the fourth quarter and full year of fiscal 2015 before we go onto questions. For the three months ended April 30, 2015, OPT reported revenue of $0.5 million as compared to revenues of $0.4 million for the three months ended April 30, 2014. Revenue in both periods was primarily related to our project with Mitsui Engineering & Shipbuilding or MES. The MES project is currently undergoing a stage-gate review as discussed more fully in the MD&A section of our filing on Form 10-K for the fiscal year ended April 30, 2015. The net loss for both the three months ended April 30, 2015 and April 30, 2014 was $3.3 million. Compared to the prior year quarter, the current year quarter reflected an increase in gross profit due to a change in project costs related to the MES contract. In addition, SG&A expenses were $1.4 million lower than the prior year primarily due to reduced employee related expenses and the lower site development expenses related to our terminated project in Australia. This was offset in part due to increased product development as OPT continues to advance its technology and prepares for upcoming deployments. In addition, OPT received a refund related to research and development expenditures in Australia. Results in the prior year of fourth quarter reflected a favorable adjustment for a change in project loss reserve. For the full year ended April 30, 2015, OPT reported revenue of $4.1 million compared to revenue of $1.5 million in the prior year. The increase in revenue was primarily related to increased billable work for the removal of the anchor and mooring equipment from the seabed off the coast of Oregon, increased billable work under our current phase of our project with MES, and the completion of our WavePort contract with the European Union. These increases were partially offset by decreased revenue on other billable development projects. The net loss for the fiscal year ended April 30, 2015 was $13.2 million, compared to a loss of $11.2 million in the prior year. The increase in OPT’s net loss year-over-year primarily reflected an increase in estimated project costs associated with our contract with MES, increased legal fees, as well as higher consulting and patent amortization costs. These increases were partially offset by decreased product development costs due to the substantial completion of our cost-sharing contract with the DoE for our Reedsport project in Oregon, net of increased costs associated with other internally funded development. In addition, OPT experienced reduced employee related costs and site development expenses related to our terminated project in Australia, and received a refund related to research and development expenditures in Australia. Turning to the balance sheet, as of April 30, 2015, total cash, cash equivalents, and marketable securities, were $17.4 million, down from $28.4 million on April 30, 2014. At April 30, 2015 restricted cash was $0.5 million, compared to $7.3 million in the prior year. This significant decrease in restricted cash was primarily due to the return of $4.7 million in customer advance payments that we have received under our former contract with the Australian Renewable Energy Agency or ARENA. Net cash used in operating activities was $17.2 million and $6.5 million for the years ended April 30, 2015 and 2014, respectively. The increased cash used in operating activities included the return of $4.7 million to ARENA, while the prior year included the receipt of funds from ARENA. Over the last several months, we have taken a number of steps to reduce our run rate while also increasing our technical, operating, and business development resources. As a result, we currently project that our operating cash burn in fiscal 2016 will be lower than our operating cash burn in fiscal 2015, even as we deploy we believe in fiscal 2016. We have also substantially increased our proposal efforts and are actively pursuing commercial partnerships and other alliances with potential customers. As a result of these actions, we remain confident in our cash position and we expect to have sufficient cash to maintain operations through at least July 2016. With that, I’ll turn it back to George before we open up the call for questions. George Kirby Thanks, Mark. Before we move to questions, I thought I would highlight a few compelling reasons to consider OPT. Number one, we believe we are the technology leader in wave energy conversion for offshore applications. Our technology provides a critical solution for offshore distributed power generation for a number of industries discussed earlier. We have a clearly defined technology roadmap, which focuses on driving down costs, improving reliability and durability, and broadening commercial applications, and we currently have been continued to develop significant intellectual property around our technologies and applications. Number two, we are targeting a large addressable markets, including ocean-based communication and data gathering, security, defense, and offshore oil and gas. We are planning multiple upcoming PowerBuoy deployments which we believe will further advance our product validation and will serve as near-term market catalyst. And number three, we consider our staff to be world class. And we have a solid leadership team in place of both the executive management and board levels. So in summary, we’re laser focused on launching our PowerBuoys into offshore market applications, where reliable and cost effective power is critical yet currently unavailable. And we’re very excited about the progress that we’ve made in advancing our core technologies toward achieving this goal. We’re committed to meeting our business objectives, including this year’s successful deployments of the PB40 and the next generations of the APB-350 in order to validate durability and reliability, all while we aggressively seek new customers and partners as part of our commercialization efforts. We’re hopeful that we can share the news of our continued successes in the coming weeks and months. So, thank you for your time today. And operator, we’re now ready to take some questions. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from the line of Amit Dayal from H.C. Wainwright. Please go ahead. You are now live in the call. Amit Dayal Thank you. Good morning, guys. In regards to the three buoys that are potentially going to be put under trials, what level of costs do we incur on a quarterly basis to have these tests undergo? Mark Featherstone Yeah. So, there is obviously initial cost for this deployment. After that the primary costs are our internal cost of monitoring those devices. So there is some initial cost to deploy and then later to take out the buoy but the ongoing monitoring costs are somewhat nominal. Amit Dayal Got it. And in terms of your commercial opportunities you spoke about potential partnerships, do you expect to announce any partnerships or initiatives to begin tests or any feasibility study et cetera with some of those types of opportunities? George Kirby Hey, Amit. It’s George. Good question. Thank you. Yeah, so like I said, we’re speaking with a number of different parties right now. And we’re looking at specific applications that we could work on together. We are hopeful that in the coming months, we can speak to you about that as well as let the market know. But right now obviously, we can’t talk about it but we are definitely in discussions with multiple parties. Amit Dayal Got it. I guess, I mean that’s all I have. Thank you. I will get back in queue. George Kirby Thank you. Operator I see we have no more questions at this time. [Operator Instructions] Sir, you have no questions at this time. [Operator Instructions] Thank you. Sir, we have no questions at this time. [Operator Instructions] Thank you. We have no more questions. I would now like to turn the call over to George Kirby. Thank you. George Kirby Thank you, Operator. We believe our offshore autonomous PowerBuoys will effectively serve several market applications where current solutions remain either inadequate, costly or they simply don’t exist. We see our PowerBuoys as platform for integrated solutions to some of offshore industry’s toughest challenges. We believe that once implemented, our PowerBuoys will become an enabling technology for new applications, which today have only been conceptual at best. The offshore environment is extremely harsh and challenging, especially where solutions such as ours are required to operate for long periods of time without human interventions. We truly believe in the value of our solutions to our customers, to shareholders and for society and it is this belief, which drives us to innovate disruptive technology such as our PowerBuoys to validate this technology more quickly such as through our Accelerated Life Testing. And to relentlessly search for ways to merger solutions with those that will benefit the most. I want to thank everyone once again for attending today’s call. If there is any further questions please don’t hesitate to contact us. Otherwise, we look forward to providing further updates next quarter. Operator Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. 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