Ocean Power Technologies, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2020, compared with fiscal 2019 ended April 30, 2019. The request references “2019 Q4,” but the supplied filing is an annual Form 10-K and does not provide a separate fourth-quarter financial statement.
Business Context
Ocean Power Technologies designs, manufactures, sells and services offshore power and communications solutions. Its principal products are the wave-powered PB3 PowerBuoy, a solar and propane hybrid buoy, and developing subsea battery systems. Target markets include offshore oil and gas, defense and security, science and research, communications, fishery protection and offshore wind support.
- Fiscal 2020 included the first commercial PB3 sale to Enel Green Power Chile and continued projects with Eni, Premier Oil, the U.S. Navy and an oil and gas operator.
- The Company completed a hybrid PowerBuoy prototype and continued subsea battery development.
- Backlog was $1.0 million at April 30, 2020, compared with $0.9 million at April 30, 2019; approximately 79% was expected to be recognized over the following 12 months.
Financial Results and Key Metrics
| Metric | Fiscal 2020 | Fiscal 2019 | Change |
|---|---|---|---|
| Revenue | $1.682 million | $0.632 million | Up 166% |
| Cost of revenues | $1.787 million | $1.303 million | Up 37% |
| Gross loss | $0.105 million | $0.671 million | Improved |
| Gross margin | Approximately -6.2% | Approximately -106.2% | Improved |
| Engineering and product development | $4.344 million | $4.984 million | Down 13% |
| SG&A | $6.916 million | $7.616 million | Down 9% |
| Operating loss | $11.365 million | $13.271 million | Improved 14% |
| Net loss | $10.352 million | $12.246 million | Improved 15% |
| Basic and diluted loss per share | $1.44 | $9.52 | Improved, partly reflecting higher share count |
| Net cash used in operating activities | $10.579 million | $12.140 million | Improved 13% |
Revenue growth was primarily attributable to the new Enel Green Power contract. Fiscal 2020 revenue was concentrated among Enel Green Power at 72%, Eni at 10%, Premier Oil at 9% and other customers at 9%. Commercial contracts represented 94% of revenue and government contracts 6%.
The Company had cash and cash equivalents of $10.002 million and total cash, cash equivalents and restricted cash of $10.930 million at April 30, 2020, down from $17.159 million in total cash, cash equivalents and restricted cash at April 30, 2019. Total assets were $13.538 million, total liabilities were $3.045 million and stockholders’ equity was $10.493 million. The filing does not identify material conventional debt; the balance sheet primarily reflects lease liabilities totaling $1.307 million after adoption of the new lease standard.
Material Changes Versus the Prior Period
- Revenue increased by $1.050 million, driven mainly by Enel Green Power, while the customer mix shifted from predominantly South America to 72% South America and 22% Europe.
- Gross loss narrowed substantially despite higher cost of revenues, reflecting increased revenue volume.
- Engineering and product development spending declined by $0.640 million, and SG&A declined by $0.700 million.
- Operating cash use declined by $1.561 million, but the Company still consumed significant cash and remained dependent on external financing.
- Financing cash inflows fell to $4.447 million from $17.183 million, as fiscal 2019 included approximately $15.7 million of net proceeds from a public offering.
- Common shares issued increased materially, from 5.425 million at April 30, 2019 to 12.939 million at April 30, 2020, reflecting equity financing through Aspire Capital and the A.G.P. at-the-market facility.
- The Company adopted ASC Topic 842 for leases on May 1, 2019, recognizing approximately $1.4 million of right-of-use assets and $1.5 million of lease liabilities at adoption.
Guidance, Outlook, Risks and Unusual Items
- Going concern: KPMG included an explanatory paragraph regarding substantial doubt about the Company’s ability to continue as a going concern. Management expected available liquidity to fund operations into the quarter ending April 30, 2021, but stated that additional equity or debt financing would be required.
- Fiscal 2021 spending: Management anticipated operating expenses of approximately $14.0 million, including more than $6.9 million of product development spending, subject to possible reductions if financing or product sales were insufficient.
- PPP loan: The Company received $890,347 under the Paycheck Protection Program on May 5, 2020, after the fiscal year-end. Potential forgiveness was subject to applicable payroll, rent, utility and interest requirements.
- COVID-19: The pandemic disrupted operations, travel and customer activity. A customer cancelled part of a contract, and deployment of the Chile PB3 was delayed from April to September 2020 because of travel restrictions.
- Customer concentration: Dependence on a small number of customers creates significant revenue volatility. The loss, cancellation or delay of a major contract could materially affect results.
- Commercialization risk: The Company has limited commercial manufacturing experience, has not deployed a multiple-PowerBuoy array and has a history of substantial operating losses.
- Financing and dilution: Continued equity issuance may be needed and could materially dilute existing stockholders. As of April 30, 2020, the Company had issued approximately $3.8 million of stock under its ATM facility and approximately $1.1 million under the new Aspire agreement.
- Nasdaq compliance: The Company received a bid-price deficiency notice. The COVID-19-related extension provided until November 13, 2020 to regain compliance by maintaining a minimum $1.00 closing bid price for the required period.
- Litigation: Former CEO Charles Dunleavy sought $5.0 million plus interest and attorneys’ fees in arbitration. No loss provision was recorded because an adverse outcome was not considered probable and the loss could not reasonably be estimated.
- Tax contingency: A Spanish tax audit relating to 2011–2014 governmental grant recognition was expected to result in a penalty estimated at $177,000, which was accrued.
Investor Verification Checklist
- Verify current liquidity, monthly cash burn and the timing and terms of any subsequent equity, debt or other financing.
- Confirm whether the PPP loan was forgiven, repaid or remains outstanding.
- Review the status and economics of the Enel Green Power, Eni and Premier Oil contracts, including remaining performance obligations and potential cancellations.
- Assess whether the Company achieved meaningful commercial deployments, repeat orders, positive gross margins or a multi-unit PowerBuoy array after fiscal 2020.
- Check the resolution and financial exposure from the Dunleavy arbitration, Spanish tax audit and any other litigation.
- Review Nasdaq listing status and the extent of dilution from ATM sales, Aspire financing, warrants and equity compensation.
- Evaluate whether COVID-19-related delays affected revenue recognition, deployment schedules, customer payments or product development plans.