Ocean Power Technologies, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Ocean Power Technologies, Inc. (NYSE American: OPTT) provides offshore power, autonomous maritime data collection, communications, maritime domain awareness and consulting solutions through its PowerBuoy, WAM-V and related platforms. The company acquired Marine Advanced Robotics, Inc. (MAR) in November 2021 and 3dent Technology, LLC in February 2021.
This quarterly report covers the three and nine months ended January 31, 2023, representing the third quarter and first nine months of fiscal 2023. The financial statements are unaudited and prepared under U.S. GAAP.
Financial Performance and Liquidity
| Metric | Three Months Ended January 31, 2023 | Three Months Ended January 31, 2022 | Nine Months Ended January 31, 2023 | Nine Months Ended January 31, 2022 |
|---|---|---|---|---|
| Revenue | $0.7 million | $0.5 million | $1.8 million | $1.0 million |
| Gross margin | $0.1 million | $(0.1) million | $0.4 million | $(0.3) million |
| Operating loss | $(7.1) million | $(5.5) million | $(19.3) million | $(15.7) million |
| Net loss | $(6.1) million | $(5.5) million | $(16.8) million | $(13.7) million |
| Net loss per share | $(0.11) | $(0.10) | $(0.30) | $(0.26) |
| Cash used in operating activities | Not separately provided | Not separately provided | $(16.1) million | $(15.8) million |
Revenue increased primarily from higher MAR-related activity. Nine-month revenue included approximately $0.9 million from MAR, compared with approximately $0.2 million in the prior-year comparable period. Operating expenses increased due to higher employee-related costs, product development spending, office expenses and corporate costs.
Gross margin improved to $0.4 million for the nine-month period, compared with a gross loss of $0.3 million in the prior year. Management attributed the improvement partly to better margins on strategic consulting services and government grants. Gross margin was approximately 21% for the quarter and 21% for the nine-month period, based on reported figures.
At January 31, 2023, the company had cash and cash equivalents of $10.9 million, short-term investments of $30.0 million, restricted cash of $0.2 million and total cash, cash equivalents, restricted cash and short-term investments of approximately $41.1 million. Total assets were $59.0 million, total liabilities were $6.1 million and shareholders’ equity was $52.9 million.
Short-term investments consisted primarily of investment-grade corporate bonds, government agency bonds and U.S. Treasury securities. The company had no outstanding debt reported in the balance sheet; the $0.9 million PPP loan was forgiven in the prior year.
Material Changes Versus the Prior Comparable Period
- Nine-month revenue increased approximately 75%, from $1.0 million to $1.8 million, primarily due to the MAR acquisition and related activity.
- Nine-month operating expenses increased approximately $4.1 million, from $15.5 million to $19.5 million, including higher employee costs and product development spending.
- Nine-month net loss increased approximately $3.1 million, from $13.7 million to $16.8 million.
- Operating cash use increased modestly by approximately $0.3 million to $16.1 million.
- Inventory increased to $1.4 million from $0.4 million, reflecting product-building activity and anticipated growth.
- Contract liabilities increased to $1.3 million from $0.1 million, primarily from customer payments for future grant and sales revenue not yet recognized.
- Interest income increased to $0.6 million from $0.1 million because the company held short-term investments during the current period.
- Current-period other income included approximately $1.2 million of employee retention credits and $0.5 million of insurance proceeds. The prior-year period included an $0.9 million gain from PPP loan forgiveness.
- Final acceptance of the PB3 deployment for Enel Green Power was achieved in January 2023. The customer paid its final invoice and released the related letter of credit, subject to warranty obligations through January 2024.
Guidance, Outlook, Risks and Unusual Items
Management believes the company’s cash, cash equivalents and short-term investments are sufficient to fund planned expenditures through at least March 2024. This is management’s liquidity estimate, not a profitability forecast. The company expects continued operating cash usage and losses until commercialization produces sufficient positive cash flow.
Backlog was $2.5 million at January 31, 2023, with approximately 85%, or $2.1 million, expected to be recognized as revenue over the following twelve months. Backlog may change due to contract modifications, cancellations, production delays and changes in estimates.
The company commenced a Department of Energy SBIR Phase II program in the third quarter of fiscal 2023 for next-generation wave energy technology, planned to extend through the fourth quarter of fiscal 2024. A major U.S. government services contractor demonstration of the company’s maritime domain awareness system is scheduled to begin in the first quarter of fiscal 2024 and is expected to run for nine months.
Key risks include continued operating losses, uncertain commercialization and demand, dependence on additional equity financing, customer concentration, product reliability and power-output limitations, supply-chain and labor disruptions, inflation, COVID-19 effects, acquisition integration, competition, intellectual-property protection, key-personnel retention and maintenance of the NYSE American listing. Revenue concentration remains significant: the top customers represented approximately 63% of quarterly revenue and 28% of nine-month revenue.
The company had approximately $50.0 million remaining under its ATM facility, subject to applicable filing requirements, and approximately $0.7 million remaining under its Aspire Capital equity facility. Future equity financing could dilute existing shareholders, while debt or preferred securities could impose senior claims or restrictive covenants.
Other unusual or nonrecurring items included the employee retention credit, insurance proceeds, fair-value adjustments to contingent consideration related to MAR, and the prior-year PPP loan forgiveness gain.
Important Facts for Investors to Verify
- Whether revenue growth from MAR, WAM-V, PowerBuoy, consulting and data services becomes recurring and commercially scalable.
- The company’s ability to reduce its approximately $16.1 million annualized operating cash burn and move toward positive cash flow.
- Whether the reported $2.5 million backlog converts to revenue on the stated timing and without material contract losses or delays.
- The timing, terms and potential dilution of any future equity or debt financing.
- The company’s ability to achieve successful commercialization, reliable product performance and customer acceptance of its maritime domain awareness and offshore power solutions.
- The collectability and timing of the employee retention credit receivable and the financial impact of other unusual income items.
- The remaining MAR contingent consideration liability of approximately $1.7 million and related future cash or equity settlement requirements.
- Warranty and contingent obligations associated with the PB3 deployment and other customer contracts.
- Execution of the DOE SBIR Phase II program, the planned government demonstration and the company’s Oakland, California facility lease.