Ocean Power Technologies, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended January 31, 2020, representing fiscal 2020 third quarter. The filing was signed March 9, 2020. The company develops and commercializes PowerBuoy ocean-wave energy systems, including the PB3, hybrid PowerBuoy and subsea battery solutions.
Financial performance and liquidity
| Metric | Three months ended Jan. 31, 2020 | Three months ended Jan. 31, 2019 | Nine months ended Jan. 31, 2020 | Nine months ended Jan. 31, 2019 |
|---|---|---|---|---|
| Revenue | $0.725 million | $0.268 million | $1.131 million | $0.440 million |
| Gross profit/(loss) | $0.044 million | $(0.132) million | $(0.204) million | $(0.740) million |
| Gross margin | 6.1% | (49.3%) | (18.0%) | (168.2%) |
| Operating loss | $(2.945) million | $(3.522) million | $(9.236) million | $(10.754) million |
| Net loss | $(2.919) million | $(2.611) million | $(9.133) million | $(9.741) million |
| Basic and diluted loss per share | $(0.46) | $(2.72) | $(1.40) | $(10.46) |
| Cash flow from operations | Not separately reported for the quarter | Not separately reported for the quarter | $(8.631) million | $(9.850) million |
- Cash and cash equivalents were $9.877 million at January 31, 2020, compared with $16.660 million at April 30, 2019. Including restricted cash, total cash, cash equivalents and restricted cash were $10.805 million versus $17.159 million.
- Total assets were $13.756 million and total liabilities were $3.982 million. The filing does not report conventional funded debt; liabilities primarily include accrued expenses, contract liabilities and operating lease liabilities.
- Operating lease liabilities totaled $1.361 million, including $0.222 million current and $1.139 million long term, following adoption of the new lease standard.
- Stockholders’ equity declined to $9.774 million from $15.775 million, primarily reflecting the nine-month net loss, partially offset by equity issuances.
- Backlog was $1.4 million at January 31, 2020, with approximately 99%, or $1.3 million, expected to be recognized over the following twelve months.
Material changes versus the prior comparable period
- Quarterly revenue increased 171% to $0.725 million, driven primarily by a new EGP contract, while revenue from Eni and Premier Oil declined.
- Nine-month revenue increased 157% to $1.131 million, primarily due to EGP activity, partly offset by lower Eni, Premier Oil and U.S. Navy revenue.
- Quarterly gross results improved to a $44,000 profit from a $132,000 loss. Nine-month gross loss narrowed to $204,000 from $740,000.
- Engineering and product development expense decreased 35% for the quarter and 17% for the nine-month period, reflecting lower buoy-build spending, partly offset by new-product development.
- Operating loss improved by $577,000 for the quarter and $1.518 million for the nine-month period, although the company remained substantially unprofitable.
- Net loss increased for the quarter because the prior-year period included an $850,000 income-tax benefit from the sale of New Jersey tax attributes. The nine-month net loss improved by $608,000 for the same reason and lower operating costs.
- The company raised approximately $2.353 million through financing activities during the nine months, including $850,000 from the Aspire facility and $1.520 million from the AGP at-the-market program, net of issuance costs. These financings increased share count and diluted existing holders.
- EGP represented 93% of quarterly revenue and 68% of nine-month revenue, highlighting significant customer concentration.
Guidance, outlook, risks and unusual items
- Management expects fiscal 2020 operating expenses of approximately $12.4 million, including more than $5.3 million of engineering and product development spending. This is management’s expense outlook, not revenue or earnings guidance.
- Management believes available cash, cash equivalents and restricted cash can fund operations into the quarter ending October 31, 2020, but states that additional equity and/or debt financing will be required to continue operations into fiscal 2021.
- The filing states that recurring losses and expected future financing needs raise substantial doubt about the company’s ability to continue as a going concern. The financial statements contain no going-concern adjustments.
- The company continues commercialization efforts for the PB3 and development of hybrid PowerBuoy and subsea battery products. Commercial success, reliability, deployment performance and market adoption remain uncertain.
- In March 2020, Nasdaq notified the company that its stock had traded below the $1.00 minimum bid price for 30 consecutive business days. The company had until August 31, 2020 to regain compliance, subject to possible additional remedies.
- Charles Dunleavy arbitration seeks approximately $5 million in compensatory and punitive damages, plus interest and attorneys’ fees. No provision was recorded because management considered a loss neither probable nor reasonably estimable as of January 31, 2020.
- The company recorded a $177,000 accrued penalty related to a Spanish income-tax audit. The filing also describes two EGP letters of credit secured by restricted cash, including one for $645,467 subject to scheduled reductions.
- The company had three revenue-producing contracts identified in its risk disclosures: EGP, Eni and Premier Oil. The Premier Oil PB3 was retrieved in early March 2020, affecting third-quarter revenue and removing remaining fiscal 2020 lease payments from backlog.
Important facts investors should verify
- Whether the company secured the additional financing required before its projected cash runway expired and on what dilutionary or other terms.
- Whether revenue growth from EGP and other customers converted into positive gross margins and recurring operating cash flow.
- The status of Nasdaq minimum-bid-price compliance and any subsequent reverse split, delisting appeal or additional grace period.
- The outcome and potential financial impact of the Dunleavy arbitration and Spanish tax audit.
- Actual conversion of the $1.4 million backlog into revenue, including any contract modifications, delays or cancellations.
- Customer concentration, particularly dependence on EGP, and the commercial performance and reliability of deployed PB3 systems.
- Future dilution from the Aspire and AGP equity facilities, outstanding warrants and stock-based compensation awards.