Ocean Power Technologies, Inc. Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended January 31, 2022, compared with the corresponding periods ended January 31, 2021. The source metadata labels this “2021 Q3,” but the filing reports fiscal 2022 Q3.
Business Context
Ocean Power Technologies provides ocean data, marine power, autonomous vehicle, and consulting solutions. Its offerings include PowerBuoy systems, hybrid PowerBuoys, subsea batteries, maritime domain awareness solutions, WAM-V autonomous surface vehicles, and strategic offshore engineering services.
- Acquired Marine Advanced Robotics, Inc. (MAR) on November 15, 2021, adding WAM-V autonomous surface vehicles and related robotics services.
- Continued development of maritime domain awareness, wave-energy, hybrid power, subsea battery, and cloud-based data solutions.
- Backlog was $0.8 million at January 31, 2022, versus $0.2 million at April 30, 2021; management expects to recognize approximately 100% within twelve months.
Financial Performance and Position
| Metric | Three Months Ended January 31 | Nine Months Ended January 31 |
|---|---|---|
| Revenue | $0.484 million, versus $0.317 million | $1.003 million, versus $0.604 million |
| Gross loss | $0.113 million, versus $0.381 million | $0.317 million, versus $0.644 million |
| Gross margin | Approximately negative 23% | Approximately negative 32% |
| Operating loss | $5.552 million, versus $3.163 million | $15.768 million, versus $9.569 million |
| Net loss | $5.471 million, versus $3.151 million | $13.721 million, versus $9.560 million |
| Net loss per share | $0.10, versus $0.09 | $0.26, versus $0.41 |
Revenue increased approximately 53% for the quarter and 66% for the nine-month period. The increases reflected MAR sales, 3Dent consulting work, higher EGP-related revenue, and Department of Energy activity. Gross losses narrowed despite higher revenue, but operating losses increased substantially because of expanded engineering, product development, selling, general and administrative, professional, and employee-related costs.
- Engineering and product development expense increased to $7.518 million for the nine months from $3.334 million, primarily due to higher materials, labor, overhead, subcontractor, Greensea, and Fathom5 costs.
- Selling, general and administrative expense increased to $7.933 million from $5.591 million, primarily due to higher professional fees, employee-related costs, and stock compensation associated with 3Dent.
- The nine-month results included an $0.890 million gain from forgiveness of the PPP loan and a $1.041 million income tax benefit from the sale of New Jersey tax attributes.
Cash Flow, Liquidity, and Capital Structure
- Cash and cash equivalents were $63.454 million at January 31, 2022, compared with $83.028 million at April 30, 2021. Cash, cash equivalents, and restricted cash totaled $64.060 million.
- Net cash used in operating activities was $15.787 million for the nine months, versus $8.525 million in the prior-year period. Management’s MD&A separately describes operating cash use as approximately $15.3 million.
- Net cash used in investing activities was $3.863 million, including approximately $3.544 million for the MAR acquisition and $0.319 million for property and equipment.
- Net cash provided by financing activities was only $0.090 million, compared with $77.987 million in the prior-year period, when the company raised substantial equity capital.
- The PPP loan was fully forgiven in June 2021. The filing reports no conventional debt outstanding, although operating lease liabilities totaled $0.938 million, including $0.323 million current and $0.615 million long-term.
- Total liabilities were $4.814 million and shareholders’ equity was $73.542 million at January 31, 2022.
- Management believes existing cash is sufficient to fund planned expenditures through at least March 2023, but the company continues to use cash in operations and may require additional financing.
Material Changes Versus Prior Comparable Period
- Revenue grew, but operating and net losses widened because investment in product development and corporate infrastructure outpaced revenue growth.
- MAR was acquired for total consideration of approximately $11.902 million, comprising $4.0 million cash, $5.855 million of restricted common stock, $0.456 million of assumed advances payable, and $1.591 million of contingent consideration. The preliminary purchase accounting included $7.754 million of goodwill and approximately $3.9 million of intangible assets.
- Shares outstanding increased to 55,894,213 from 52,458,011 at April 30, 2021, principally reflecting shares issued for the MAR acquisition and other equity activity.
- The company did not conduct material capital raises during the first nine months of fiscal 2022, unlike the prior-year period.
- Customer and geographic mix shifted toward North America and newly acquired MAR and 3Dent activities. North America represented 83% of nine-month revenue, versus 10% in the prior-year period.
Guidance, Outlook, Risks, and Unusual Items
- No formal revenue or earnings guidance was provided.
- Management expects continued investment in product development, sales, marketing, manufacturing, and commercialization, with operating losses and negative operating cash flow expected to continue until sufficient commercial scale is achieved.
- Management is pursuing growth through Data as a Service, Power as a Service, strategic consulting, WAM-V offerings, maritime security, offshore wind, defense, and subsea applications.
- Supply-chain disruption, semiconductor and specialty-metal shortages, labor constraints, transportation delays, and COVID-19 effects were continuing risks at the filing date.
- Commercialization depends on product reliability, power output, survivability, customer adoption, strategic partnerships, successful integration of acquisitions, and the company’s ability to obtain financing.
- The company remains exposed to customer concentration, contract execution and deployment risk, potential litigation, intellectual-property risk, NYSE American listing requirements, and continued operating losses.
- The Dunleavy employment arbitration was settled and paid for approximately $1.224 million in May 2021. A Spanish tax penalty of approximately $0.331 million had been paid, while an appeal remained pending.
- In February 2022, after quarter-end, the company sold an additional $4.0 million of New Jersey tax attributes and recognized a $0.4 million tax benefit.
Important Facts for Investors to Verify
- Whether cash burn and operating expenses are declining sufficiently to support management’s March 2023 liquidity assessment.
- The timing and economics of converting the $0.8 million backlog into revenue and cash.
- MAR’s revenue contribution, integration costs, contingent consideration, and the recoverability of acquired goodwill and intangible assets.
- Progress toward commercial deployments of MDAS, PB3, hybrid PowerBuoy, subsea battery, and WAM-V solutions.
- The company’s ability to improve gross margins, achieve positive operating cash flow, and reduce reliance on equity financing.
- Potential dilution from the remaining Aspire Capital facility, the expanded 2020 ATM facility, stock options, restricted stock, and other equity instruments.
- The impact of supply-chain conditions, customer concentration, deployment delays, litigation contingencies, and the pending Spanish tax appeal.