Ocean Power Technologies, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended October 31, 2013; filed December 13, 2013. The company develops and seeks to commercialize PowerBuoy systems and related marine-energy products and services. Financial statements are unaudited.
Financial Results and Position
| Metric | Three months ended Oct. 31, 2013 | Three months ended Oct. 31, 2012 | Six months ended Oct. 31, 2013 | Six months ended Oct. 31, 2012 |
|---|---|---|---|---|
| Revenue | $463,608 | $1,360,299 | $924,535 | $2,342,695 |
| Gross profit | $1,272 | $114,022 | $1,823 | $116,558 |
| Gross margin | 0.3% | 8.4% | 0.2% | 5.0% |
| Operating loss | $(3,417,709) | $(4,928,173) | $(7,235,862) | $(9,237,402) |
| Net loss attributable to OPT | $(3,270,557) | $(4,751,540) | $(7,020,527) | $(9,087,593) |
| Loss per share | $(0.31) | $(0.46) | $(0.67) | $(0.88) |
| Operating cash flow | Not separately provided | Not separately provided | $(6,483,460) | $(6,300,881) |
- Operating expenses for the six-month period were $7.2 million, including $2.9 million of product development costs and $4.4 million of selling, general and administrative costs.
- At October 31, 2013, cash and cash equivalents were $10.0 million, marketable securities were $6.5 million, and restricted cash was $2.2 million. Combined cash, marketable securities and restricted cash totaled approximately $18.7 million.
- Total assets were $21.3 million, compared with $24.8 million at April 30, 2013. Total liabilities were $6.6 million, including $0.3 million of debt and $0.6 million of deferred credits.
- Accumulated deficit was $147.7 million. Stockholders’ equity was $15.0 million, and total equity including noncontrolling interest was $14.8 million.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue declined 66% and six-month revenue declined 61%, primarily because the Oregon Mark 3 PowerBuoy project was suspended, billable work on the Mark 4 project decreased, and a prior MES project was completed.
- Gross profit declined 99% for both the quarter and six-month period. Most contracts were cost-sharing arrangements that produce little or no gross profit because customer funding is recorded as revenue and an equivalent amount is recorded as cost of revenues.
- Product development costs declined 45% for the quarter and 41% for the six-month period, principally due to lower Oregon project activity.
- The quarterly operating loss improved 31% and the six-month operating loss improved 22%, reflecting lower operating expenses, but the company remained substantially unprofitable.
- Net cash used in operations increased to $6.5 million from $6.3 million despite the lower net loss, reflecting less favorable changes in operating assets and liabilities.
- The company sold approximately 1.3 million common shares under its at-the-market facility during the six months, generating approximately $3.43 million in net proceeds. It sold an additional approximately 471,000 shares in November 2013 for approximately $1.24 million in net proceeds.
Guidance, Outlook, Risks and Unusual Items
- Management stated that available cash and marketable securities as of October 31, 2013 were expected to finance operations and capital requirements into the first calendar quarter of 2015. The company expects to require additional equity and/or debt financing to complete its growth strategy.
- If additional financing is unavailable, management may curtail product development and selling, general and administrative expenditures.
- Negotiated backlog was $5.8 million at October 31, 2013, compared with $5.2 million a year earlier. Management expects most backlog revenue to be recognized over more than 12 months. Approximately $1.2 million related to the suspended Oregon project and remains subject to regulatory, funding and stakeholder matters.
- The company received a $2.6 million MES contract for design services and key components for a PowerBuoy intended for deployment off Japan, and was selected for a $1.0 million Department of Energy award. The DOE award remained subject to definitive contract negotiations and confirmation of cost-sharing sources and was excluded from backlog.
- The Oregon project was suspended because of FERC requirements, anticipated delays and additional costs. Deployment also depends on additional project-specific funding.
- The planned Australian wave-power project remains dependent on external financing milestones and review of an approximately A$66.5 million government grant. The company has engaged a financial adviser to assist with power purchase agreements and financing.
- Material risks include continued losses and negative operating cash flow, dependence on government funding and subsidies, uncertain commercialization of wave energy, customer concentration, project delays, technology and execution risks, foreign currency exposure, and the availability of additional financing.
- Contingencies include a Spanish IVA tax inquiry involving an approximately $250,000 tax credit, letters of credit supporting Spanish tax authorities, and a commercial dispute related to Oregon anchoring and mooring equipment. Management believes these matters are accounted for or are not expected to have a material adverse effect.
- On December 12, 2013, Mark A. Featherstone became chief financial officer, secretary and treasurer. The company also extended temporary salary reductions for its executive vice chairman and chief executive officer through July 31, 2014, with equity grants to be provided in consideration.
Important Facts for Investors to Verify
- Whether the company can achieve commercialization and generate positive operating cash flow before available liquidity is exhausted.
- The terms, remaining capacity and potential dilution from the ATM equity offering and subsequent share issuances.
- The status, funding requirements and timing of the suspended Oregon project and the related $1.2 million of backlog.
- The outcome of the Australian grant review and the company’s ability to secure external financing and power purchase agreements.
- The collectability and timing of project receivables, including the $212,018 noncurrent receivable and the company’s allowance for doubtful accounts.
- Progress under the MES contract, the DOE award, the WavePort project and the company’s $5.8 million backlog.
- Potential effects of the Spanish tax inquiry, Oregon commercial dispute, letters of credit and other commitments.