Ocean Power Technologies, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Ocean Power Technologies develops and commercializes marine power, data, autonomous ocean, and engineering solutions, including PowerBuoy products, hybrid power systems, subsea batteries, maritime domain awareness solutions, and strategic consulting services. The filing covers the three and six months ended October 31, 2021, the second quarter and first half of fiscal 2022. The financial statements are unaudited and prepared under U.S. GAAP.
Financial Highlights
| Metric | Three Months Ended Oct. 31, 2021 | Three Months Ended Oct. 31, 2020 | Six Months Ended Oct. 31, 2021 | Six Months Ended Oct. 31, 2020 |
|---|---|---|---|---|
| Revenue | $247,000 | $118,000 | $519,000 | $287,000 |
| Gross loss | $(53,000) | $(98,000) | $(204,000) | $(263,000) |
| Operating loss | $(5.185 million) | $(3.002 million) | $(10.215 million) | $(6.406 million) |
| Net loss | $(5.171 million) | $(3.024 million) | $(8.250 million) | $(6.409 million) |
| Basic and diluted loss per share | $(0.10) | $(0.15) | $(0.16) | $(0.36) |
| Net cash used in operations | Not separately provided | Not separately provided | $(10.375 million) | $(5.682 million) |
Six-month revenue increased approximately 81% year over year, while the gross margin remained negative at approximately 39% in 2021 versus 92% in 2020 when expressed as gross loss divided by revenue. The six-month operating margin was approximately negative 1,968%, compared with negative 2,232% in the prior period. The improvement in gross loss was more than offset by higher engineering, product development, and selling, general and administrative expenses.
At October 31, 2021, cash and cash equivalents were $72.630 million, and total cash, cash equivalents, and restricted cash were $73.236 million, compared with $83.028 million and $83.634 million, respectively, at April 30, 2021. Total assets were $75.820 million and shareholders' equity was $72.773 million. Total liabilities were $3.047 million, including $1.017 million of operating lease liabilities; the PPP loan had been fully forgiven and no longer remained outstanding.
Material Changes Versus the Prior Comparable Period
- Revenue increased by $129,000 in the quarter and $232,000 for the six-month period, driven primarily by the EGP contract, Department of Energy work, and consulting revenue from 3Dent.
- Engineering and product development expense increased to $5.053 million for the six months from $2.315 million, reflecting higher materials, labor, overhead, and subcontractor costs, including work with Greensea and Fathom5.
- Six-month selling, general and administrative expense increased to $4.958 million from $3.828 million, primarily due to higher professional, legal, accounting, consultant, employee-related, investor-relations, and software costs.
- The six-month operating loss increased to $10.215 million from $6.406 million, and net loss increased to $8.250 million from $6.409 million despite a $1.041 million tax benefit and an $891,000 gain from PPP loan forgiveness.
- Operating cash use increased by $4.693 million year over year, partly due to higher project and employee costs and the $1.224 million payment resolving former CEO Charles Dunleavy's arbitration award.
- No capital raises occurred during the first six months of fiscal 2022. Financing cash inflows were only $21,000, compared with $10.575 million in the prior-year period from equity offerings and PPP-related proceeds.
- Backlog increased to $0.3 million at October 31, 2021, from $0.2 million at April 30, 2021. Management expected to recognize the full $0.3 million over the following twelve months.
Guidance, Outlook, Risks, and Unusual Items
Management stated that available cash was expected to fund planned expenditures through at least December 2022. The filing also states that the company expects continued cash use from operations until commercialization generates positive cash flow. No revenue or profitability guidance was provided.
The company continued development of its PowerBuoy, hybrid PowerBuoy, subsea battery, and maritime domain awareness offerings. It launched an initial offshore MDA-S demonstration in October 2021 and planned additional demonstrations during the third and fourth quarters of fiscal 2022. Management reported increased consulting activity in offshore wind and oil and gas markets and continued efforts to transition from research and development toward commercialization.
On November 15, 2021, after the reporting date, the company acquired Marine Advanced Robotics, Inc. for $11.0 million, consisting of $4.0 million in cash and $7.0 million in common stock representing 3,330,162 shares, plus potential earn-outs. The acquisition expanded the company's autonomous surface vehicle product offerings and will reduce liquidity after the reporting period.
Principal risks include persistent operating losses and accumulated deficit, uncertain commercialization and customer adoption, substantial research and development spending, dependence on a limited number of customers and suppliers, project deployment and technology reliability risks, acquisition integration, possible need for additional financing and shareholder dilution, COVID-19 impacts, litigation, competition, intellectual-property protection, and maintaining the NYSE American listing. The company reported an accumulated deficit of $243.2 million at October 31, 2021.
The Dunleavy employment arbitration was closed after the company paid $1.224 million in May 2021. The company also paid a Spanish tax penalty of approximately $331,000 in January 2021 and had appealed the underlying decision; the filing did not provide a schedule for a ruling.
Important Facts for Investors to Verify
- Reconcile the filing's liquidity references, which cite cash of $72.6 million, approximately $73.0 million, and total cash including restricted cash of $73.2 million.
- Assess whether the $0.3 million backlog and planned MDA-S demonstrations can translate into material recurring product, data, and service revenue.
- Evaluate the effect of the November 2021 Marine Advanced Robotics acquisition on cash, share count, operating expenses, integration requirements, and future revenue.
- Monitor operating cash burn, funding availability, and the timing and potential dilution of any future equity financing.
- Review customer concentration and contract execution, particularly the EGP deployment, government programs, and consulting projects.
- Assess whether engineering and product development spending can improve product reliability, power output, commercialization, and gross margins.
- Review contingencies related to the Spanish tax appeal, lease obligations, letters of credit, and any remaining litigation or contractual claims.