Odyssey Marine Exploration, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results for the quarter and six months ended June 30, 2011. Odyssey conducts shipwreck exploration, marine archaeological recovery, artifact sales, exhibits, and subsea mineral exploration services. The company had 72,793,773 common shares outstanding as of July 28, 2011.
Financial performance and position
| Metric | Three months ended June 30, 2011 | Six months ended June 30, 2011 |
|---|---|---|
| Total revenue | $6.745 million | $8.839 million |
| Operating loss | $(0.929) million | $(4.711) million |
| Net loss | $(1.931) million | $(7.105) million |
| Net loss per share | $(0.07) | $(0.15) |
| Operating margin | Approximately (13.8)% | Approximately (53.3)% |
| Net margin | Approximately (28.6)% | Approximately (80.4)% |
| Net cash used in operating activities | Not separately provided | $(4.201) million |
Expedition revenue was $6.611 million for the quarter and $8.313 million year to date. At June 30, 2011, cash and cash equivalents were $17.529 million, restricted cash was $0.298 million in the mortgage collateral account, and total current assets were $19.615 million versus current liabilities of $19.993 million. Total assets were $34.496 million and stockholders’ deficit was $0.979 million.
Debt consisted principally of a $5.0 million term loan and mortgage obligations, with total mortgage and loans payable of $7.851 million. The term loan was scheduled to mature April 23, 2012; a $2.0 million principal payment was made in July 2011. The company also reported $7.854 million of derivative liabilities and $5.250 million of redeemable Series G preferred stock.
Material changes versus the prior comparable periods
- Second-quarter revenue increased 56% to $6.745 million from $4.335 million, primarily from higher subsea mineral mining charters.
- Six-month revenue increased 22% to $8.839 million from $7.263 million.
- Operating losses narrowed in the second quarter from $(3.118) million to $(0.929) million, but widened for the six-month period from $(6.111) million to $(4.711) million only in absolute comparison? The 2011 loss was lower by $1.400 million; however, the six-month operating margin remained substantially negative.
- Six-month net loss increased from $(6.610) million to $(7.105) million, mainly because of a $1.595 million loss from the unconsolidated mining investment and a $0.585 million unfavorable change in derivative fair value.
- Cash increased by $17.293 million, primarily from $15.680 million of common-stock issuance proceeds and $7.313 million received under Galt Resources revenue participation rights.
- Deferred revenue increased to $3.857 million from $0.730 million, representing marine service obligations to be recognized as services are performed.
- Common shares outstanding increased materially, including a June public offering of 5.520 million shares at $3.05 per share.
Guidance, outlook, risks and unusual items
- Management stated that existing cash, expected project revenues, sales, and potential project financing were expected to fund operating cash flows through the remainder of 2011. No formal revenue or earnings guidance was provided.
- Management anticipated redeeming the remaining $5.3 million of Series G preferred stock on or before October 15, 2011. Additional capital could be required if operating cash flow or project financing is insufficient.
- The company remains dependent on successfully recovering and monetizing high-value shipwrecks and securing additional financing. Black Swan artifacts cannot be monetized unless Odyssey obtains title, a salvage award, or a settlement; the timing remains uncertain.
- The Black Swan appeal was awaiting an Eleventh Circuit decision. The company also described ongoing HMS Victory, Robert Fraser, Gairsoppa, and other project risks, including delays, unsuccessful recoveries, legal claims, and uncertain project financing.
- Odyssey began Gairsoppa search operations in July 2011 under an agreement providing an 80% salvage award on net recovered cargo value after expenses.
- Odyssey held approximately 5.32 million Neptune Minerals shares, representing approximately 31% ownership before further dilution. The investment was accounted for under the equity method with a zero carrying basis, and approximately $1.5 million of additional losses remained unrecognized because they exceeded the investment basis.
- Derivative liabilities were measured using Level 3 valuation techniques and were sensitive to the company’s stock price, volatility, interest rates, and other assumptions.
- The company reported no material changes to previously disclosed risk factors and stated that disclosure controls and procedures were effective.
Important facts for investors to verify
- Whether the company generated sufficient operating cash flow after June 30, 2011 to fund the $2.0 million term-loan payment, scheduled mortgage payments, and planned $5.3 million preferred-stock redemption.
- The status and financial impact of the Black Swan appeal, HMS Victory negotiations, Gairsoppa recovery operations, and other shipwreck projects.
- The collectability and valuation of Neptune Minerals equity and the remaining DOR-related receivables and obligations.
- The potential dilution and cash obligations associated with Series G preferred stock, warrants, derivative instruments, and other convertible securities.
- Whether project syndications, additional financing, charter revenues, and artifact sales materialize as expected, given recurring operating losses and negative operating cash flow.