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Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Research from Water Tower Research

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Equity Bottom-Up

Ocean Power Technologies / Equity Bottom-Up

<h3>KEY POINTS</h3>
<ul>
<li>Revenue grew 22.7% Y/Y to $0.3 million, compared with $0.2 million in 2Q22. The Y/Y increase was primarily due to higher levels of revenue, stemming from the acquisition of&nbsp;MAR, which produced $0.1 million in 2Q23. Sales of WAM-Vs also drove growth. Complete results can be accessed&nbsp;here.</li>
<li>For the first six months of FY23 (6M23), OPTT’s Strategic Consulting Services division contributed ~53% of total revenue ($1.0 million). About 77% of total revenue came from the North American market, while the remainder came from Asian and Australian markets.</li>
<li>Gross margin rose 34.4% Y/Y to 12.9% from -21.5% in 2Q22 on higher sales and lower direct costs. Operating expenses increased 24.9% Y/Y to $6.4 million. The increase of $1.3 million was due to a $0.2 million increase in employee-related costs and a $1.0 million increase in overhead-related expenditures.</li>
<li>The company recorded a net loss of $4.8 million (-$0.09 per share), compared with a net loss of $5.2 million (-$0.10 per share) in 2Q22. The decrease in net loss was primarily owing to an increase in interest income ($0.2 million) from purchasing marketable securities and utilizing employee retention credits ($1.2 million).</li>
<li>As of October 31, 2022, the company had total assets worth ~ $64.6 million of mainly cash, unrestricted cash, cash equivalents, and short-term investments (~$46.4 million). Contract liabilities (~$1.4 million) and accrued expenses (~$1.5 million) constituted most of the total liabilities of ~$5.9 million. OPTT has accumulated a deficit of $264.5 million and no bank debt.</li>
<li>During 6M23, the company used $11.0 million in cash in its operating activities, primarily due to an increase in net loss and inventory. OPTT received $13.1 million from investing activities, primarily due to the redemption of marketable securities of $33.0 million and dividend income of $0.7 million, partially offset by the purchase of marketable securities of $20.1 million.</li>
</ul>
<h2>EARNINGS SNAPSHOT</h2>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/316/240/original/image_234547939171671289972649.png?1671289975" class="editor-image img-responsive" data-smartkarma-image-id="316240"></figure>
<h2>HIGHLIGHTS</h2>
<ul>
<li>Total orders for 2Q23 were worth $2.3 million, compared with $0.1 million for 2Q22. OPTT targets $9.0 million in orders for FY23, out of which $2.9 million has been achieved.</li>
<li>OPTT has partnered with Task Force 59 of the US Navy on a new project in Bahrain to support the Digital Horizon exercise for using Unmanned Surface Vehicles (USVs), expected to be completed by December 2022.</li>
<li>OPTT continued the second round of field testing of a proprietary next-generation Maritime Domain Awareness (MDAS) solution planned for completion during 3Q23.</li>
<li>The company collected a $1.1 million payment in advance for the planned Phase II development and test of a modular and scalable Mass-on-Spring Wave Energy Converter (MOSWEC) PowerBuoy (PB), a next-generation wave energy converter. This project is expected to be completed over the next 18-24 months.</li>
<li>OPTT entered the final phase of integration of Marine Advanced Robotics (MAR), including the start of manufacturing WAM-Vs at its New Jersey facility.</li>
<li>In October 2022, OPTT signed with&nbsp;WildAid&nbsp;to further develop capabilities to combat illegal, unreported, and unregulated (IUU) fishing. This is the third consecutive year that MAR has been selected for this work.</li>
<li>In September 2022, OPTT secured a contract with a major US government services provider to showcase the capabilities of MDAS. The scope comprises the delivery of a PB3 outfitted with MDAS and a deepwater mooring system and technical assistance for the system's installation offshore. The technology will be deployed for a nine-month demo starting in 1Q24.</li>
<li>In September 2022, OPTT was part of a group awarded funding by the US DOE to develop advanced autonomous robotic technology for environmental monitoring of marine ecosystems at and below the waterline and offshore wind power sites on the West Coast of the United States.</li>
<li>In August 2022, OPTT received an NOAA Phase I SBIR Grant for research related to the dynamic swarming of USVs for hydrographic surveys in post-disaster recovery efforts.</li>
<li>Our prior content on OPTT can be accessed&nbsp;here.</li>
</ul>
<h2>OUR PREVIOUS RESEARCH CONTENT</h2>
<h2>Initiation of Coverage Report</h2>
<p>11/28/22&nbsp;Riding the Wave of Renewable Energy-as-a-Service for Offshore Applications and Maritime Products and Services for Commercial and Military Markets</p>
<p>Ocean Power Technologies, Inc. (OPT) offers products and consulting services for ocean data collection and reporting, maritime power, offshore communications, and Maritime Domain Awareness (MDA).</p>
<h2>Fireside Chat Invitation</h2>
<p>12/13/22&nbsp;Fireside Chat: President and CEO Philipp Stratmann December 16, 2022, at 2:00 pm ET</p>
<p>Topics include a general overview of the company’s history and evolution, a primer on the company’s technology and product and service offerings, key target end-markets and emerging applications, building a reoccurring revenue model, and a review of milestones and strategic growth initiatives.</p>
<h2>COMPANY OVERVIEW</h2>
<p>Ocean Power Technologies, Inc. (OPT) offers products and consulting services for ocean data collection and reporting, maritime power, offshore communications, and Maritime Domain Awareness (MDA). Its PowerBuoys system generates clean electricity independent of the grid in offshore sites. OPT offers Wave Adaptive Modular Vessel (WAM-V) technology, which enables roaming capabilities for uncrewed maritime systems in waters. The company also provides subsea battery systems, strategic consulting services, software, controls, sensors, and marine installation services. From 1994 until 2015, OPT’s business focused on delivering grid-connected wave power. After that, the company shifted its emphasis to autonomous power that is not connected to the grid. The company asserts that its products emit no carbon during operation, pose no substantial danger to marine life, and produce no contaminants; as a result, its environmental impact is minimal.</p>
<p>OPT has delivered products and services to a wide array of customers, including those in government and military, offshore energy, oil &amp; gas, construction, wind power, and other industries in need of offshore power solutions. OPT indirectly contributes to the transition toward clean energy. As a result, the US Department of Energy chose the company to develop the next generation of wave energy conversion systems. The company was incorporated in 1984, began commercial operations in 1994, and is headquartered in Monroe Township, New Jersey.</p>
<h2>Products and Services</h2>
<p>Maritime Domain Awareness Solution (MDAS): OPT has designed a system to deliver precise localized marine domain knowledge that applies to various market applications. The basic components include a high-definition radar, a stabilized high-definition optical and thermal imaging camera, and a vessel automatic identification systems (AIS) detection module. These devices are installed on products such as PB3 or WAM-V, and then, using integrated command and control software, data is sent to the company and its clients over secure communication channels.</p>
<p>Autonomous Vehicles (WAM-V):&nbsp;OPT acquired&nbsp;Marine Advanced Robotics, Inc. (MAR), a developer of the Wave Adaptive Modular Vessel (WAM-V) technology, which allows global roaming capabilities for unmanned marine systems. These autonomous surface vehicles deliver robust, real-time data collection and reporting. WAM-Vs are now in use in eleven nations for commercial, military, and scientific purposes and are available in three sizes: 8, 16, and 22 feet.</p>
<p>PowerBuoy (PB3):&nbsp;The PB3 employs proprietary technologies that transform the kinetic energy from ocean waves’ movement into electricity. It features a unique onboard power take-off (PTO) system, which incorporates energy storage, management, and control systems. The PB3 generates a nominal capacity rating of up to 3 kilowatts of peak power. The PB3 is intended to produce electricity for use in offshore sites that are not connected to the power grid and are designed for longer-term deployment in maritime environments with moderate to high wave conditions.</p>
<p>Hybrid PowerBuoy: Announced in June 2020, the&nbsp;hybrid PowerBuoy&nbsp;(hybrid PB) is an alternate platform to the PB3 that can utilize solar and wind power. The company considers this product a supplement to the PB3 since it serves a larger range of client deployment requirements, including low-wave and nearshore situations, and has the opportunity for better product integration within each customer project. It is equipped with a 30kW-hour battery system and can carry up to 1.2MW-hours of energy when paired with the present onboard propane storage system.</p>
<p>Subsea Battery:&nbsp;Subsea battery is complementary to the PB3 and hybrid PB products and may be installed independently with PowerBuoys. Customers can deploy additional modular and extensible energy storage near existing or to-be-installed subsea equipment on the seafloor. Pressure-tested lithium-ion phosphate subsea batteries provide power for subsea equipment, sensors, communications, and the recharging of AUVs and eROVs.</p>
<p>Strategic Consulting Services:&nbsp;This division focuses on providing value to clients in maritime engineering, structural and dynamic analysis, Front End Engineering and Design (FEED) studies, and motion simulation. Consulting services include simulation engineering, software engineering, concept design, and motion analysis. The acquisition of&nbsp;3Dent Technology, LLC&nbsp;(3Dent) significantly boosted this division and increased the company’s staff of specialist consultants/designers with competence in structural engineering, hydrodynamics, and naval architecture.</p>
<h3>DISCLOSURES</h3>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Shawn Severson, who is the writer of this report, covers the BioEconomy, Emerging Growth &amp; Special Situations, and ClimateTech &amp; Sustainable Investing sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

Revenue grew 22.7% Y/Y to $0.3 million, compared with $0.2 million in 2Q22. The Y/Y increase was primarily due to higher levels of revenue, stemming from the acquisition of&nbsp;MAR, which produced $0.1 million in 2Q23. Sales of WAM-Vs also drove growth. Complete results can be accessed&nbsp;here.
For the first six months of FY23 (6M23), OPTT’s Strategic Consulting Services division contributed ~53% of total revenue ($1.0 million). About 77% of total revenue came from the North American market, while the remainder came from Asian and Australian markets.
Gross margin rose 34.4% Y/Y to 12.9% from -21.5% in 2Q22 on higher sales and lower direct costs. Operating expenses increased 24.9% Y/Y to $6.4 million. The increase of $1.3 million was due to a $0.2 million increase in employee-related costs and a $1.0 million increase in overhead-related expenditures.
The company recorded a net loss of $4.8 million (-$0.09 per share), compared with a net loss of $5.2 million (-$0.10 per share) in 2Q22. The decrease in net loss was primarily owing to an increase in interest income ($0.2 million) from purchasing marketable securities and utilizing employee retention credits ($1.2 million).
As of October 31, 2022, the company had total assets worth ~ $64.6 million of mainly cash, unrestricted cash, cash equivalents, and short-term investments (~$46.4 million). Contract liabilities (~$1.4 million) and accrued expenses (~$1.5 million) constituted most of the total liabilities of ~$5.9 million. OPTT has accumulated a deficit of $264.5 million and no bank debt.
During 6M23, the company used $11.0 million in cash in its operating activities, primarily due to an increase in net loss and inventory. OPTT received $13.1 million from investing activities, primarily due to the redemption of marketable securities of $33.0 million and dividend income of $0.7 million, partially offset by the purchase of marketable securities of $20.1 million.

EARNINGS SNAPSHOT

HIGHLIGHTS

Total orders for 2Q23 were worth $2.3 million, compared with $0.1 million for 2Q22. OPTT targets $9.0 million in orders for FY23, out of which $2.9 million has been achieved.
OPTT has partnered with Task Force 59 of the US Navy on a new project in Bahrain to support the Digital Horizon exercise for using Unmanned Surface Vehicles (USVs), expected to be completed by December 2022.
OPTT continued the second round of field testing of a proprietary next-generation Maritime Domain Awareness (MDAS) solution planned for completion during 3Q23.
The company collected a $1.1 million payment in advance for the planned Phase II development and test of a modular and scalable Mass-on-Spring Wave Energy Converter (MOSWEC) PowerBuoy (PB), a next-generation wave energy converter. This project is expected to be completed over the next 18-24 months.
OPTT entered the final phase of integration of Marine Advanced Robotics (MAR), including the start of manufacturing WAM-Vs at its New Jersey facility.
In October 2022, OPTT signed with&nbsp;WildAid&nbsp;to further develop capabilities to combat illegal, unreported, and unregulated (IUU) fishing. This is the third consecutive year that MAR has been selected for this work.
In September 2022, OPTT secured a contract with a major US government services provider to showcase the capabilities of MDAS. The scope comprises the delivery of a PB3 outfitted with MDAS and a deepwater mooring system and technical assistance for the system's installation offshore. The technology will be deployed for a nine-month demo starting in 1Q24.
In September 2022, OPTT was part of a group awarded funding by the US DOE to develop advanced autonomous robotic technology for environmental monitoring of marine ecosystems at and below the waterline and offshore wind power sites on the West Coast of the United States.
In August 2022, OPTT received an NOAA Phase I SBIR Grant for research related to the dynamic swarming of USVs for hydrographic surveys in post-disaster recovery efforts.
Our prior content on OPTT can be accessed&nbsp;here.

OUR PREVIOUS RESEARCH CONTENT
Initiation of Coverage Report
11/28/22&nbsp;Riding the Wave of Renewable Energy-as-a-Service for Offshore Applications and Maritime Products and Services for Commercial and Military Markets
Ocean Power Technologies, Inc. (OPT) offers products and consulting services for ocean data collection and reporting, maritime power, offshore communications, and Maritime Domain Awareness (MDA).
Fireside Chat Invitation
12/13/22&nbsp;Fireside Chat: President and CEO Philipp Stratmann December 16, 2022, at 2:00 pm ET
Topics include a general overview of the company’s history and evolution, a primer on the company’s technology and product and service offerings, key target end-markets and emerging applications, building a reoccurring revenue model, and a review of milestones and strategic growth initiatives.
COMPANY OVERVIEW
Ocean Power Technologies, Inc. (OPT) offers products and consulting services for ocean data collection and reporting, maritime power, offshore communications, and Maritime Domain Awareness (MDA). Its PowerBuoys system generates clean electricity independent of the grid in offshore sites. OPT offers Wave Adaptive Modular Vessel (WAM-V) technology, which enables roaming capabilities for uncrewed maritime systems in waters. The company also provides subsea battery systems, strategic consulting services, software, controls, sensors, and marine installation services. From 1994 until 2015, OPT’s business focused on delivering grid-connected wave power. After that, the company shifted its emphasis to autonomous power that is not connected to the grid. The company asserts that its products emit no carbon during operation, pose no substantial danger to marine life, and produce no contaminants; as a result, its environmental impact is minimal.
OPT has delivered products and services to a wide array of customers, including those in government and military, offshore energy, oil &amp; gas, construction, wind power, and other industries in need of offshore power solutions. OPT indirectly contributes to the transition toward clean energy. As a result, the US Department of Energy chose the company to develop the next generation of wave energy conversion systems. The company was incorporated in 1984, began commercial operations in 1994, and is headquartered in Monroe Township, New Jersey.
Products and Services
Maritime Domain Awareness Solution (MDAS): OPT has designed a system to deliver precise localized marine domain knowledge that applies to various market applications. The basic components include a high-definition radar, a stabilized high-definition optical and thermal imaging camera, and a vessel automatic identification systems (AIS) detection module. These devices are installed on products such as PB3 or WAM-V, and then, using integrated command and control software, data is sent to the company and its clients over secure communication channels.
Autonomous Vehicles (WAM-V):&nbsp;OPT acquired&nbsp;Marine Advanced Robotics, Inc. (MAR), a developer of the Wave Adaptive Modular Vessel (WAM-V) technology, which allows global roaming capabilities for unmanned marine systems. These autonomous surface vehicles deliver robust, real-time data collection and reporting. WAM-Vs are now in use in eleven nations for commercial, military, and scientific purposes and are available in three sizes: 8, 16, and 22 feet.
PowerBuoy (PB3):&nbsp;The PB3 employs proprietary technologies that transform the kinetic energy from ocean waves’ movement into electricity. It features a unique onboard power take-off (PTO) system, which incorporates energy storage, management, and control systems. The PB3 generates a nominal capacity rating of up to 3 kilowatts of peak power. The PB3 is intended to produce electricity for use in offshore sites that are not connected to the power grid and are designed for longer-term deployment in maritime environments with moderate to high wave conditions.
Hybrid PowerBuoy: Announced in June 2020, the&nbsp;hybrid PowerBuoy&nbsp;(hybrid PB) is an alternate platform to the PB3 that can utilize solar and wind power. The company considers this product a supplement to the PB3 since it serves a larger range of client deployment requirements, including low-wave and nearshore situations, and has the opportunity for better product integration within each customer project. It is equipped with a 30kW-hour battery system and can carry up to 1.2MW-hours of energy when paired with the present onboard propane storage system.
Subsea Battery:&nbsp;Subsea battery is complementary to the PB3 and hybrid PB products and may be installed independently with PowerBuoys. Customers can deploy additional modular and extensible energy storage near existing or to-be-installed subsea equipment on the seafloor. Pressure-tested lithium-ion phosphate subsea batteries provide power for subsea equipment, sensors, communications, and the recharging of AUVs and eROVs.
Strategic Consulting Services:&nbsp;This division focuses on providing value to clients in maritime engineering, structural and dynamic analysis, Front End Engineering and Design (FEED) studies, and motion simulation. Consulting services include simulation engineering, software engineering, concept design, and motion analysis. The acquisition of&nbsp;3Dent Technology, LLC&nbsp;(3Dent) significantly boosted this division and increased the company’s staff of specialist consultants/designers with competence in structural engineering, hydrodynamics, and naval architecture.
DISCLOSURES
Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Shawn Severson, who is the writer of this report, covers the BioEconomy, Emerging Growth &amp; Special Situations, and ClimateTech &amp; Sustainable Investing sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

2Q23 Results: Revenue Up 22.7% Y/Y; Gross Margin Improves by 34.4%; Consulting Business Driving Top-Line Growth; Strong R&D Efforts Across Offerings