Ocean Power Technologies, Inc. — Form 10-Q Summary
Business context and reporting period
Ocean Power Technologies develops and seeks to commercialize PowerBuoy systems that generate electricity from ocean waves, with a strategic focus on autonomous, grid-independent applications. The unaudited filing covers the quarter and six months ended October 31, 2015, within fiscal 2016.
Financial performance and condition
| Metric | Three months ended October 31, 2015 | Six months ended October 31, 2015 |
|---|---|---|
| Revenue | $0.5 million | $0.6 million |
| Gross profit (loss) | $0 | $0 |
| Operating loss | $3.0 million | $7.4 million |
| Net loss attributable to OPT | $3.0 million | $7.2 million |
| Loss per share | $1.71 | $4.08 |
| Net cash used in operating activities | Not separately provided | $7.0 million |
- Six-month revenue fell 82% year over year, while product development expense increased 220% to $3.7 million. SG&A declined 36% to $3.7 million.
- Cash and cash equivalents were $10.3 million at October 31, 2015, compared with $17.3 million at April 30, 2015. Marketable securities were $25,000 and restricted cash was $437,732.
- Total assets were $11.8 million and total equity was $8.4 million at October 31, 2015. The accumulated deficit was $171.9 million.
- Total debt was $100,000, all classified as current, compared with $150,000 at April 30, 2015. A separate $600,000 deferred credit remained payable on a noncurrent basis.
- The company reported no gross profit because certain cost-sharing contracts recognize equal revenue and cost of revenues. It has not been profitable since inception.
Material changes versus the prior comparable period
- Quarterly revenue declined 72% to $494,412 from $1.75 million; six-month revenue declined 82% to $600,078 from $3.29 million. The decline reflected completed or reduced work under prior contracts, including MES and the WavePort project.
- Quarterly net loss attributable to OPT improved to $3.0 million from $4.4 million, while six-month loss improved modestly to $7.2 million from $7.7 million.
- Operating cash use decreased to $7.0 million from $12.1 million, primarily because the prior-year period included the return of approximately $4.7 million of ARENA-related advance payments and other working-capital effects.
- The company completed a one-for-ten reverse stock split effective October 27, 2015 and reduced authorized common shares to 50 million. Reported share and per-share amounts were retroactively restated.
- In September 2015, the company acquired the remaining 11.8% noncontrolling interest in its Australian subsidiary for nominal consideration.
- The company entered a new ATM offering in October 2015 and sold 1,500 shares for approximately $5,000 net proceeds during the quarter.
Guidance, outlook, risks, contingencies, and unusual items
- Management stated that approximately $10.4 million of cash and marketable securities should finance operations and capital requirements into the quarter ending October 31, 2016. The company also stated that additional equity or debt financing will be required and that no committed financing sources exist.
- Negotiated backlog was $0.7 million at October 31, 2015, down from $0.9 million at April 30, 2015. Management expects backlog to continue declining in the near term.
- Management projected substantial testing of the APB350 and expected a maturity level supporting commercial launch and early-adopter demonstrations in calendar 2016. This is a projection, not a firm customer or revenue commitment.
- The PB40 was deployed off New Jersey in July 2015 and retrieved approximately three weeks later after unexpected performance data indicated likely braking-system component failures. Retrieval costs were included in product development expense.
- The APB350 A1 was deployed in August 2015, retrieved for repair in early October, and redeployed in late October for continued sea trials.
- The MES project was under stage-gate review with activity suspended. MES may resume, reduce, or terminate the project, creating uncertainty for future revenue and backlog.
- The company received an ongoing SEC subpoena and investigation concerning the terminated VWP/ARENA project. It also faces securities class-action and derivative litigation, plus related shareholder demands. No loss provision was recorded because the company could not reasonably estimate potential exposure.
- The $1.0 million EVE grant for a Spain deployment was expected to expire December 31, 2015 and was not expected to be used.
- Other significant risks include technology reliability, scalability, commercialization, customer concentration, deployment and permitting requirements, foreign-exchange exposure, dependence on external funding, and potential dilution from future equity issuance.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether cash usage and operating performance support management’s stated liquidity runway through October 2016.
- Progress, reliability results, repair history, and commercialization timing for the APB350 A1 and related autonomous PowerBuoy products.
- Whether the MES contract resumes and how the stage-gate review affects backlog and revenue.
- The status and potential financial exposure of the SEC investigation and shareholder litigation; the filing provides no clear estimate of ultimate losses.
- The company’s ability to obtain additional financing within the Form S-3 and ATM limitations, and the resulting dilution risk.
- Whether revenue can transition from government-funded development and cost-sharing contracts to recurring product and maintenance sales.