Business Context and Reporting Period
Ocean Power Technologies, Inc. is a marine power, data solutions and services provider focused on autonomous offshore applications for defense and security, offshore oil and gas, science and research, and offshore wind. Its offerings include the wave-powered PB3 PowerBuoy, hybrid solar/propane PowerBuoy, subsea batteries, maritime domain awareness solutions, and strategic offshore engineering services.
This Form 10-K covers the fiscal year ended April 30, 2021. The requested “2020 Q4” period does not match the filing, which is an annual report rather than a quarterly filing. Comparisons below are to the fiscal year ended April 30, 2020.
In February 2021, OPT acquired 3Dent Technology, an offshore engineering and design company, to expand its Strategic Consulting Services. The company had 46 full-time employees at April 30, 2021, compared with 36 one year earlier.
Financial Performance and Position
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $1.206 million | $1.682 million | Down 28% |
| Cost of revenues | $2.279 million | $1.787 million | Up 26% |
| Gross loss | $1.073 million | $0.105 million | Materially higher loss |
| Gross margin | Approximately -89% | Approximately -6% | Deteriorated |
| Operating loss | $13.592 million | $11.365 million | Loss increased 20% |
| Net loss | $14.760 million | $10.352 million | Loss increased 43% |
| Basic and diluted loss per share | $0.49 | $1.44 | Lower loss per share due primarily to share issuance |
| Cash used in operating activities | $11.674 million | $10.579 million | Use increased 10% |
| Cash, cash equivalents and restricted cash | $83.634 million | $10.930 million | Increased substantially |
| Stockholders’ equity | $80.468 million | $10.493 million | Increased substantially |
Engineering and product development costs increased 5% to $4.747 million, while selling, general and administrative costs increased 12% to $7.772 million. The increase in SG&A reflected higher employee costs, insurance premiums, and an additional Spanish tax penalty. The fiscal 2021 results also included a $1.224 million litigation settlement charge.
Revenue concentration remained high: EGP represented 61% of revenue and Eni represented 22%. Customer locations were concentrated in South America at 61%, Europe at 25%, and North America at 14%. Backlog declined to $0.2 million from $1.0 million.
Operating cash flow was negative, but financing activities provided $84.170 million, primarily from equity offerings. Cash and cash equivalents were $83.028 million at year-end, with total restricted cash of $0.606 million. The balance sheet included a $0.743 million PPP loan liability at April 30, 2021; the loan was fully forgiven in June 2021. Other recorded liabilities included $1.224 million for the litigation settlement and approximately $1.314 million of operating lease liabilities.
Material Changes Versus the Prior Comparable Period
- Revenue decreased $0.476 million, primarily because of COVID-19-related project delays.
- Cost of revenues increased despite lower revenue, mainly because of higher deployment and material costs on the EGP contract.
- Gross loss widened from $0.105 million to $1.073 million, reflecting materially negative project economics.
- Net loss increased from $10.352 million to $14.760 million, including the $1.224 million litigation settlement and the absence of the prior-year $0.895 million income tax benefit.
- Cash increased by approximately $72.7 million after the company raised capital through ATM and Aspire equity programs, exercised warrants and options, and received PPP proceeds.
- Shares outstanding increased substantially through equity financing; 52,458,011 shares were reported outstanding as of July 15, 2021.
- OPT acquired 3Dent for issued shares and recognized approximately $0.280 million of identifiable intangible assets. 3Dent contributed $35,000 of revenue and a $0.463 million net loss from acquisition through year-end.
- The company began deployment of the EGP PowerBuoy in Chile in March 2021 after a COVID-19-related delay. Additional deployment activity was planned for summer 2021.
Outlook, Commentary, Risks and Unusual Items
Management stated that available cash was expected to fund planned expenditures through at least July 31, 2022. However, OPT expects continued operating cash use while it develops products, expands sales and marketing, and builds manufacturing capabilities. The company remains dependent on additional commercialization success and may require further financing.
Management’s strategy is to transition from research and development toward integrated product, data, power, and consulting solutions. Near-term priorities include expanding the 3Dent engineering business, commercializing the PB3, hybrid and subsea battery products, developing maritime domain awareness solutions, and increasing participation in offshore wind, offshore oil and gas, and defense markets.
- OPT has a long history of operating losses, including a $234.8 million accumulated deficit at April 30, 2021, and has not achieved positive operating cash flow.
- Commercialization remains unproven at scale. The company has manufactured only limited quantities of PowerBuoys and has not demonstrated a multi-buoy wave-power array.
- Revenue is concentrated among a small number of customers, with EGP and Eni accounting for 83% of FY2021 revenue.
- Sales cycles are lengthy, proposals can take three months to more than one year, and customer contracts may include cancellation-for-convenience provisions.
- Project revenue is recognized over time using cost-to-cost estimates. Changes in estimated costs to complete can materially affect revenue, margins, backlog, and reported losses.
- Offshore deployments require environmental, safety, site, and other regulatory approvals and are exposed to weather, mooring, deployment, permitting, and third-party contractor risks.
- The company relies on outside manufacturers and suppliers without long-term contracts and has limited commercial manufacturing experience.
- COVID-19 delayed customer projects and deployments, although management stated its impact was no longer significant at the filing date.
- The former CEO departed on June 18, 2021, and Philipp Stratmann became CEO and a director. Matthew Shafer was elevated to Senior Vice President, CFO and Treasurer.
- The company is subject to ongoing tax and litigation risks. The Spanish tax penalty was paid in January 2021, while an appeal remained pending; the Dunleavy employment litigation was paid and closed in May 2021.
Most Important Facts to Verify
- Whether revenue growth and gross-margin improvement materialize beyond the $0.2 million year-end backlog.
- Cash burn, remaining liquidity, and the timing and terms of any additional equity or debt financing.
- The extent of dilution from ATM offerings, Aspire financing, options, warrants, and performance-based awards.
- Commercial performance and acceptance of the PB3, hybrid PowerBuoy, subsea battery, and maritime domain awareness products.
- Completion, customer acceptance, and economics of the EGP Chile deployment and other announced projects.
- Customer concentration and the risk of contract cancellation, delay, force majeure, or non-renewal.
- Progress and financial contribution from the 3Dent acquisition and Strategic Consulting Services.
- Whether project-cost estimates and percentage-of-completion accounting produce further material revenue or loss revisions.
- Current status of the Spanish tax appeal, regulatory approvals, offshore deployment risks, and any new litigation or contingencies.
- The company’s ability to achieve positive operating cash flow before its available cash is exhausted.