Ocean Power Technologies, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended January 31, 2021. Although the request identifies “2020 Q3,” the filing reports fiscal 2021 third-quarter results. The filing was signed March 5, 2021.
Business Context
Ocean Power Technologies provides marine power and communications solutions, including PB3 and hybrid PowerBuoys, subsea batteries, marine surveillance systems, and related engineering services. The company remains focused on transitioning from research and development toward commercialization and is expanding into offshore energy, defense, surveillance, communications, and ocean science markets.
Key Financial Metrics
| Metric | Three months ended Jan. 31, 2021 | Three months ended Jan. 31, 2020 | Nine months ended Jan. 31, 2021 | Nine months ended Jan. 31, 2020 |
|---|---|---|---|---|
| Revenue | $0.317 million | $0.725 million | $0.604 million | $1.131 million |
| Gross profit/(loss) | $(0.381) million | $0.044 million | $(0.644) million | $(0.204) million |
| Gross margin | (120.2%) | 6.1% | (106.6%) | (18.0%) |
| Operating loss | $(3.163) million | $(2.945) million | $(9.569) million | $(9.236) million |
| Net loss | $(3.151) million | $(2.919) million | $(9.560) million | $(9.133) million |
| Basic and diluted loss per share | $(0.09) | $(0.46) | $(0.41) | $(1.40) |
| Cash used in operating activities | Not separately provided | Not separately provided | $(8.525) million | $(8.631) million |
At January 31, 2021, cash and cash equivalents were $79.801 million, restricted cash was $0.606 million, and total assets were $82.893 million. Total liabilities were $4.694 million and stockholders’ equity was $78.199 million. Debt included $0.891 million of PPP borrowings and $0.175 million of other current loan payable. Lease liabilities totaled $1.139 million.
Net cash provided by financing activities was $77.987 million for the nine months, primarily from equity offerings. Cash, cash equivalents, and restricted cash increased from $10.930 million at April 30, 2020 to $80.407 million at January 31, 2021.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined 56% to $0.317 million, primarily because of lower revenue from the EGP project.
- Nine-month revenue declined 47% to $0.604 million, reflecting lower revenue from EGP, Premier Oil, and U.S. Navy projects.
- Third-quarter gross results deteriorated from a $0.044 million profit to a $0.381 million loss, partly because contract-loss reserves increased.
- Nine-month gross loss expanded to $0.644 million from $0.204 million.
- Engineering and product development expense increased 14% in the third quarter to $1.019 million, while selling, general and administrative expense decreased 16% to $1.763 million.
- The company raised approximately $76.1 million of net proceeds during fiscal 2021 through ATM and Aspire equity facilities, including approximately $66.7 million in the third quarter. These financings substantially increased the share count, from 12.9 million issued shares at April 30, 2020 to 50.6 million at January 31, 2021.
- Backlog decreased to $0.5 million from $1.0 million at April 30, 2020. Approximately 89% of remaining performance obligations was expected to be recognized over the following twelve months.
Guidance, Outlook, Risks, and Unusual Items
- Management expects fiscal 2021 operating expenses of approximately $14.0 million, including more than $6.9 million of engineering and product development spending.
- Management believes existing unrestricted cash and available equity facilities will fund operations for at least twelve months from the filing date; however, the financial statements disclose substantial doubt about the company’s ability to continue as a going concern because of recurring losses and operating cash consumption.
- The company expects to continue relying primarily on equity financings and, to a lesser extent, customer revenue until positive operating cash flow is achieved. Additional equity financing may materially dilute existing shareholders.
- COVID-19 delayed deployments and customer work, including the EGP Chile project. The company also declared force majeure on that project and continues working with EGP on a new deployment date.
- Eni retrieved a leased PB3 in November 2020 because of a mooring issue; the company and Eni were evaluating next steps.
- The $0.890 million PPP loan was fully utilized, and the company applied for 100% forgiveness. Forgiveness had not been assured at the reporting date.
- The company paid a Spanish tax penalty of approximately $331,000 in January 2021 and plans to continue appealing the assessment.
- A former CEO’s arbitration claim seeks approximately $5.0 million plus interest and attorneys’ fees. No liability was accrued because a potential loss could not reasonably be estimated.
- On February 1, 2021, after quarter-end, the company acquired 3dent Technology for 361,991 shares valued at approximately $0.8 million, with potential additional performance-based stock awards valued at up to $0.36 million.
- Principal risks include commercialization and profitability, product reliability and development, customer concentration, deployment delays, COVID-19 effects, financing availability, dilution, litigation, acquisition integration, and continued dependence on strategic partners.
Most Important Facts to Verify
- Whether the company can convert its substantial cash balance into sustainable revenue and positive operating cash flow.
- The status and terms of remaining ATM or Aspire financing capacity after the reported facilities were substantially or fully utilized.
- Whether the PPP loan is forgiven and whether any additional repayment obligation remains.
- The resolution and potential financial exposure from the former CEO arbitration.
- The revised deployment schedule, contract economics, and loss exposure for the delayed EGP Chile project and the retrieved Eni PB3.
- The financial contribution, purchase accounting, and integration costs associated with the 3dent acquisition.
- The effect of the large equity issuances on dilution, per-share value, and future capital needs.