Ocean Power Technologies, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Ocean Power Technologies, Inc. provides marine power and communications solutions, including wave-powered PB3 PowerBuoys, hybrid PowerBuoys, subsea batteries, and marine surveillance systems. The filing covers the fiscal second quarter and six months ended October 31, 2020, compared with the corresponding 2019 periods. The company is a smaller reporting company listed on Nasdaq under OPTT.
Financial Performance and Position
| Metric | Three months ended October 31, 2020 | Three months ended October 31, 2019 | Six months ended October 31, 2020 | Six months ended October 31, 2019 |
|---|---|---|---|---|
| Revenue | $0.118 million | $0.204 million | $0.287 million | $0.406 million |
| Gross loss | $0.098 million | $0.084 million | $0.263 million | $0.249 million |
| Operating loss | $3.002 million | $3.231 million | $6.406 million | $6.290 million |
| Net loss | $3.024 million | $3.189 million | $6.409 million | $6.214 million |
| Net loss per share | $0.15 | $0.51 | $0.36 | $1.01 |
Quarterly revenue declined 42%, while six-month revenue declined 29%. Gross margins remained substantially negative at approximately negative 83% for the quarter and negative 92% for the six-month period. The company continued to report significant operating and net losses.
- Six-month engineering and product development expense was $2.315 million, down from $2.507 million.
- Six-month selling, general and administrative expense was $3.828 million, up from $3.534 million, primarily due to higher employee costs and the Spanish tax penalty accrual.
- Net cash used in operating activities was $5.682 million for the six months, compared with $6.418 million in the prior-year period.
- Net cash provided by financing activities was $10.575 million, primarily from equity issuances, the PPP loan, and an insurance-premium financing loan.
- Cash, cash equivalents, and restricted cash totaled $15.850 million at October 31, 2020, versus $10.930 million at April 30, 2020. Unrestricted cash and cash equivalents were $15.244 million.
- Total liabilities were $4.911 million, including $891,000 of PPP borrowings, $350,000 of loan payable, and $1.198 million of operating lease liabilities.
- Accumulated deficit was $226.545 million at October 31, 2020.
- Backlog was $0.8 million at October 31, 2020, compared with $1.0 million at April 30, 2020; approximately 93% was expected to be recognized over the following twelve months.
Material Changes Versus the Prior Comparable Period
- Revenue decreased primarily because of lower activity on the Enel Green Power project and the absence of prior-year revenue from Premier Oil and the U.S. Navy.
- Engineering and product development spending declined, but SG&A increased, resulting in a slightly higher six-month net loss of $6.409 million versus $6.214 million.
- Shares outstanding increased materially through ATM and Aspire financings. Common shares issued and outstanding rose to 24.154 million at October 31, 2020 from 12.939 million at April 30, 2020, creating substantial potential dilution.
- The company sold approximately $6.1 million of common stock through its 2019 ATM facility and approximately $3.2 million through the Aspire facility during the six months.
- In November 2020, the company established a new $50 million ATM facility and filed a shelf registration allowing offerings of up to $100 million.
- The company regained Nasdaq’s minimum bid-price compliance in August 2020 after its share price exceeded $1.00 for ten consecutive trading days.
Guidance, Outlook, Risks, and Unusual Items
- Management expects fiscal 2021 operating expenses of approximately $14.0 million, including more than $6.9 million of engineering and product development spending. These amounts are subject to possible reductions if additional capital is not obtained.
- Management believes existing cash and available equity facilities will fund operations for at least the next twelve months, but states that additional equity and/or debt financing will be required to continue operations into fiscal 2022.
- The financial statements include a going-concern uncertainty because of recurring losses, negative operating cash flow, and the $226.5 million accumulated deficit. Management cannot assure that additional financing will be available on acceptable terms or at all.
- COVID-19 caused customer changes, travel restrictions, a force-majeure declaration, and delays to the Chile deployment for Enel Green Power, which was moved to December 2020. The pandemic also creates risks involving customers, suppliers, manufacturing, workforce availability, and capital markets.
- In November 2020, Eni retrieved a leased PB3 because of a mooring issue. The company was evaluating next steps with Eni.
- The company accrued an additional approximately $0.117 million for a Spanish tax penalty, bringing the total reserve to approximately $0.326 million. The company is appealing the assessment.
- The $0.890 million PPP loan bears 1% interest and may be forgiven, but forgiveness had not been granted as of the filing. Failure to obtain forgiveness could result in repayment obligations.
- A former CEO seeks approximately $5 million in an employment arbitration claim. The company has not accrued a loss because it believes a loss is not probable and cannot be reasonably estimated.
- Commercialization remains dependent on successful product development, reliability, customer adoption, strategic partnerships, manufacturing scale-up, and the company’s ability to convert proposals and demonstrations into revenue-generating contracts.
Most Important Facts for Investors to Verify
- Whether the company can obtain the additional financing it expects to need before fiscal 2022 and the resulting dilution or debt burden.
- Actual monthly cash burn and the duration of liquidity after subsequent equity sales.
- Status and terms of the new $50 million ATM facility, including shares issued and dilution after October 31, 2020.
- Progress, costs, and revenue recognition for the delayed Enel Green Power Chile deployment and the Eni contract following the PB3 retrieval.
- Whether the PPP loan is forgiven and the ultimate outcome of the Spanish tax appeal.
- Resolution and potential financial exposure from the Dunleavy arbitration.
- Evidence that backlog, strategic partnerships, and product-development initiatives are converting into sustainable revenue and positive gross margins.
- Continued Nasdaq listing compliance and the effect of share-price volatility on access to capital.