Business Context and Reporting Period
Company: Ocean Power Technologies, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: January 31, 2010
Business Overview: The Company develops and commercializes proprietary systems (PowerBuoy) that generate electricity by harnessing ocean wave energy. Operations include utility-scale systems for power grids and autonomous systems for remote locations. The Company has not been profitable since inception and relies on government contracts (primarily US Navy) and development funding.
Key Financial Metrics
| Metric | Three Months Ended Jan 31, 2010 | Nine Months Ended Jan 31, 2010 |
|---|---|---|
| Revenues | $856,482 | $2,749,294 |
| Net Loss | $(5,652,178) | $(12,889,193) |
| Net Loss Per Share (Basic/Diluted) | $(0.55) | $(1.27) |
| Gross Profit | $165,392 | $505,829 |
| Operating Loss | $(6,073,657) | $(14,877,472) |
| Cash and Cash Equivalents | $8,467,926 | (Balance Sheet Item) |
| Total Marketable Securities | $61,565,392 | (Current + Noncurrent) |
| Long-Term Debt | $339,378 | (Balance Sheet Item) |
| Accumulated Deficit | $(84,182,535) | (Balance Sheet Item) |
Liquidity: As of January 31, 2010, total cash, cash equivalents, restricted cash, and marketable securities totaled approximately $71.3 million. Management believes these resources are sufficient to meet anticipated needs through fiscal 2011.
Material Changes vs. Prior Period
- Revenues: Decreased 11% for the three months and 20% for the nine months ended January 31, 2010, compared to the prior year periods. The decline was driven by reduced billable work on the Spain wave power station project and the Hawaii US Navy project, partially offset by increased activity on autonomous PowerBuoy data gathering projects for the US Navy.
- Cost of Revenues: Increased 8% for the quarter but decreased 43% for the nine months. The nine-month decrease reflected lower activity levels on revenue-bearing contracts.
- Product Development Costs: Increased significantly, up 76% for the quarter and 38% for the nine months, primarily due to efforts to increase the power output of the utility PowerBuoy system (specifically the 150kW system).
- Foreign Exchange: The Company recorded a foreign exchange gain of $172,128 for the quarter and $674,517 for the nine months, compared to losses in the prior year periods. This was primarily due to the relative change in the value of the British pound sterling against the US dollar.
- Other Income: Recognized $549,258 in other income for the nine months ended January 31, 2010, resulting from the settlement of a claim against a supplier. No such income was recorded in the prior year period.
Outlook, Risks, and Contingencies
- Spain Project Contingency: The first phase of the construction of a wave power station off the coast of Spain was delayed past the December 31, 2009 deadline. The Company is in discussions with the customer (Iberdrola) regarding modifications. If no agreement is reached, the customer may terminate the agreement and cease milestone payments. The Company does not currently believe this will have a material adverse effect.
- Customer Concentration: The US Navy accounted for 79% of revenues in the quarter and 82% in the nine-month period. Loss of or reduction in revenue from the US Navy would significantly impact financial results.
- Profitability: The Company has an accumulated deficit of $84.2 million and does not know if or when it will become profitable. Future capital requirements depend on development costs, commercialization success, and the ability to secure external funding.
- Market Risk: The Company has exposure to foreign currency fluctuations (GBP, EUR, AUD) and interest rate changes on its investment portfolio, though it currently does not hedge exchange rate exposure.
Investor Verification Checklist
- Verify the status of negotiations regarding the delayed Spain wave power station project and potential termination risks.
- Confirm the timeline and funding status for the 150kW PowerBuoy system development, which is driving increased product development costs.
- Assess the sustainability of US Navy contracts, which represent the vast majority of current revenue.
- Review the Company's cash burn rate against its $71.3 million liquidity position to validate the runway through fiscal 2011.
- Monitor the impact of foreign exchange rates on future earnings given the significant unrealized gains recorded in the current period.