Business Context and Reporting Period
Company: Ocean Power Technologies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: October 31, 2009 (Six months ended October 31, 2009)
Business Overview: The Company develops and commercializes proprietary systems (PowerBuoy) that generate electricity from ocean waves. Operations include utility-scale systems for power grids and autonomous systems for remote locations. The Company has not been profitable since inception and relies on government contracts and development funding.
Key Financial Metrics
| Metric (Six Months Ended Oct 31, 2009) | Amount (USD) |
|---|---|
| Revenues | $1,892,812 |
| Cost of Revenues | $1,552,375 |
| Gross Profit | $340,437 |
| Operating Expenses | $9,144,252 |
| Operating Loss | $(8,803,815) |
| Net Loss | $(7,237,015) |
| Net Loss Attributable to OPT | $(7,290,248) |
| Cash and Cash Equivalents | $6,347,906 |
| Total Marketable Securities | $69,052,779 |
| Long-Term Debt | $345,386 |
| Accumulated Deficit | $(78,533,039) |
Liquidity: Total cash, cash equivalents, restricted cash, and marketable securities totaled approximately $76.7 million as of October 31, 2009. Management believes these resources are sufficient to meet anticipated needs through fiscal 2011.
Material Changes vs. Prior Period
- Revenue Decline: Revenues decreased 23% to $1.9 million for the six months ended October 31, 2009, compared to $2.5 million in the prior year period. This was driven by a $1.0 million decrease in revenue from the Spain wave power station project and the Oregon project, partially offset by increases in US Navy projects.
- Improved Gross Margin: The Company achieved a gross profit of $0.3 million, compared to a gross loss of $0.9 million in the prior year. This improvement was due to lower activity on loss-making contracts and a reversal of a $0.2 million provision for contract losses related to the Spain project.
- Reduced Net Loss: Net loss attributable to the Company decreased 27% to $7.3 million from $10.0 million in the prior year. This reduction was aided by a $0.5 million gain from the settlement of a supplier claim and a $0.5 million foreign exchange gain (compared to a $1.2 million loss in the prior year).
- Increased Development Costs: Product development costs increased 19% to $4.8 million, reflecting continued efforts to increase the power output of the utility PowerBuoy system.
Outlook, Risks, and Contingencies
- Spain Project Contingency: The first phase of the construction of a wave power station off the coast of Spain, originally due by December 31, 2009, has been delayed. The Company is in discussions with the customer (Iberdrola) regarding modifications. If no extension is agreed, the customer may terminate the agreement without further milestone payments. Management does not currently believe this will have a material adverse effect.
- Customer Concentration: The US Navy accounted for 84% of revenues for the six months ended October 31, 2009. The loss of or reduction in revenue from major customers could significantly impact financial results.
- Profitability Uncertainty: The Company has an accumulated deficit of $78.5 million and does not know if or when it will become profitable. Future capital requirements depend on the success of commercialization and government funding.
- Foreign Exchange Risk: The Company has significant exposure to fluctuations in the British pound, Euro, and Australian dollar. A 10% fluctuation in exchange rates could impact foreign exchange gains/losses by approximately $0.8 million.
- Backlog: As of October 31, 2009, the backlog was $7.1 million, an increase of $0.7 million from July 31, 2009.
Key Facts for Investor Verification
- Cash Burn Rate: Verify the sustainability of the $76.7 million cash position against the $6.7 million net cash used in operating activities for the six-month period.
- Spain Project Status: Monitor the outcome of negotiations regarding the delayed Spain construction agreement and potential termination risks.
- Revenue Mix: Assess the reliance on the US Navy (84% of recent revenue) versus the growth of commercial utility contracts.
- Contract Loss Provisions: Review the $801,000 in accrued contract loss provisions included in liabilities and the potential for future adjustments.
- Stock-Based Compensation: Note the $740,000 in share-based compensation expense for the six-month period and the $3.2 million of unrecognized compensation cost related to non-vested options.