Ocean Power Technologies, Inc. Form 10-Q Summary
Business Context and Reporting Period
Unaudited results cover the three months ended July 31, 2012, the company’s fiscal first quarter. Ocean Power Technologies develops and seeks to commercialize PowerBuoy systems and related marine-energy products and services. Government agencies, particularly the U.S. Department of Energy and U.S. Navy, remained significant customers. The company reported 10,377,621 common shares outstanding as of August 31, 2012.
Financial Performance and Position
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Revenue | $982,396 | $1,910,852 |
| Gross profit | $2,536 | $8,950 |
| Gross margin | Approximately 0.3% | Approximately 0.5% |
| Operating loss | $4,309,229 | $5,111,379 |
| Net loss | $4,362,128 | $4,999,652 |
| Net loss attributable to OPT | $4,336,053 | $4,995,064 |
| Net loss per share | $0.42 | $0.49 |
| Net cash used in operating activities | $3,374,213 | $4,865,193 |
- Operating expenses were $4.3 million, including $1.9 million of product development costs and $2.4 million of selling, general and administrative costs.
- Cash and cash equivalents were $5.1 million at July 31, 2012. Marketable securities were $23.0 million and restricted cash was $1.3 million, for total cash, cash equivalents, marketable securities and restricted cash of approximately $29.4 million.
- Total assets were $33.8 million, compared with $37.4 million at April 30, 2012. Total equity was $28.1 million.
- Total debt was $425,000, consisting of $100,000 current debt and $325,000 long-term debt.
- Accumulated deficit was $130.3 million at July 31, 2012.
- Cash used in investing activities was $812,394, primarily reflecting purchases of marketable securities exceeding maturities. Cash used in financing activities was $34,122.
Material Changes Versus the Prior Comparable Period
- Revenue declined 49%, primarily because the U.S. Navy LEAP autonomous PowerBuoy project was completed during fiscal 2012. Utility PowerBuoy revenue increased due to higher billable work on the WavePort project in Spain.
- Cost of revenues declined 48%, broadly tracking the lower revenue level. Most contracts were cost-sharing arrangements that generated little or no gross profit.
- Product development costs decreased 38%, mainly because of reduced activity on Oregon and Scotland PowerBuoy projects.
- SG&A increased 18%, primarily due to Australian site-development expenses and recruiting fees.
- The net loss attributable to OPT improved 13%, despite the revenue decline, because of lower product development costs and lower cost of revenues.
- Interest income declined 54% to $55,424 due to lower invested cash and yields. Foreign exchange loss increased to $108,323 from $9,041.
- Operating cash usage improved by approximately $1.5 million, but the company continued to consume cash.
Guidance, Outlook, Risks and Unusual Items
- Negotiated backlog was $5.8 million at July 31, 2012, compared with $7.1 million a year earlier; funded backlog was $5.0 million. Management expected most backlog to be recognized over the following 12 months.
- Management stated that existing cash, cash equivalents and investments were expected to fund anticipated working capital and capital expenditures through April 30, 2014. The filing provides no revenue or profitability guidance.
- The company expects continued operating cash outflows until commercialization produces positive cash flow. Additional equity or debt financing may be required if resources are insufficient, with potential dilution or restrictive debt covenants.
- Commercial adoption depends significantly on government incentives and subsidies because wave-generated electricity costs substantially exceed conventional electricity prices in many markets.
- Revenue is concentrated: the U.S. Department of Energy represented 63% of Q1 revenue and the European Union WavePort project represented 17%. The loss or reduction of major customers could materially affect results.
- The company maintained a $600,000 deferred credit liability related to an option for carbon-emission credits. Because it expected not to generate eligible credits by December 31, 2012, it could be required to return the option fee, subject to contractual adjustments.
- A Spain construction agreement remained subject to modification discussions. If no modification were reached, the customer could potentially terminate the agreement and seek specified direct damages; management did not expect a material adverse effect.
- The company reported no material changes to the risk factors in its fiscal 2012 Form 10-K, no material litigation impact, and no impairment of long-lived assets during the quarter.
- Management concluded that disclosure controls and procedures were effective as of July 31, 2012.
Important Facts for Investors to Verify
- Whether the company can convert its $5.8 million backlog into revenue on the anticipated schedule and maintain or expand funded government and commercial contracts.
- The pace of cash consumption relative to the stated funding runway through April 30, 2014.
- Progress, costs and external funding for the Oregon, PB500, WavePort and Australian projects.
- Whether commercialization can improve the company’s near-zero gross margin and reduce reliance on cost-sharing and government-supported contracts.
- The resolution of the Spain construction agreement and the potential $600,000 carbon-credit repayment obligation.
- Exposure to foreign exchange movements, customer concentration, subsidy changes and possible future equity or debt financing.