OPT's Q4 2025: Contradictions Emerge on Pipeline Composition, Recurring Revenue, and As-A-Service Strategy

Business Commentary:

• Revenue and Order Growth:
• Ocean Power Technologies reported revenue of $900,000 for Q2 '24, marking a significant increase compared to $300,000 in the same period last year. Orders year-to-date reached $2.9 million with a contracted backlog of $4.5 million at October 31, 2023.

• The growth is primarily attributed to the conversion of backlog from strong performance in WAM-V sales and revenue generated from DOE contracts, reflecting increased market demand and successful execution of strategic initiatives.

• Operational Efficiency and Cost Control:

• The company achieved a gross profit of $500,000 in Q2 '24, a substantial improvement from Q2 '23's under $100,000. Operating expenses were $8 million, with plans to decrease these expenses materially going forward.

• This improvement is due to the focus on commercial activities, reduction in headcount reallocation, divestiture of 3Dent, and material reduction in third-party expenditures, leading to a majority of employees now dedicated to customer delivery.

• Contract Wins and Pipeline Expansion:

• Notable contract wins include a multi-buoy contract with a $6.5 million ceiling and a multi-vessel WAM-V order valued at $1.6 million. The pipeline grew to approximately $93 million as of October 31, 2023, a $26 million increase year-to-date.
• These wins and pipeline expansion are a result of successful innovation, commitment to state-of-the-art solutions, and growth in the market demand for autonomous and resident assets.

• Cash and Debt Management:
• As of October 31, 2023, the company had $18.9 million in combined cash, cash equivalents, and short-term investments. It maintains a debt-free balance sheet with no bank debt.
• This strong cash position is due to careful financial management, tight control of operating expenses, and effective execution of operational strategies.
  

Contradiction Point 1

Pipeline Composition and Recurring Revenue Expectations

It involves the composition of the pipeline and expectations for recurring revenue, which are crucial for understanding the company's revenue streams and growth potential.

What portion of the $93 million pipeline is recurring revenue, and how would its conversion into backlog look? - Shawn Severson (Water Tower Research)

2024Q2: The pipeline mix has shifted from product sales to lease opportunities and data and robotics as a service. These include take-or-pay contracts, which provide recurring revenue. - Philipp Stratmann(CEO)

Can you break down the backlog by product type? - Peter Gastreich (Water Tower Research LLC)

2025Q4: Our backlog has a healthy split between buoys, vehicles, and associated services. We're seeing an uptick in service revenues related to training, adding value to our solutions. - Philipp Stratmann(CEO)

Contradiction Point 2

Conversion Rates and Pipeline Maturity

It addresses the conversion rates and pipeline maturity, which are key factors for understanding the company's sales forecasts and growth trajectory.

What triggers conversion in the pipeline? - Shawn Severson (Water Tower Research)

2024Q2: Conversions depend on the customer and their specific needs. Most customers are government-related, and conversions often hinge on the speed of contracting and project financing. The process has been streamlined, as vehicles and buoys are now seen as productized offerings, reducing the need for demonstrations. - Philipp Stratmann(CEO)

Can you explain the methodology for compiling your pipeline numbers and how mature some of these are? - Glenn Mattson (Ladenburg Thalmann & Co. Inc., Research Division)

2025Q4: We've strengthened the commercial team, increasing conversion rates. With key appointees in the present administration in place, we expect an increase in conversion rates. The world recognizes the importance of hybrid fleets and unmanned ocean operations, and we're well-positioned to participate in this growth. - Philipp Stratmann(CEO)

Contradiction Point 3

Recurring Revenue and As-A-Service Strategy

It involves a shift in business strategy and revenue projections, which are critical for understanding the company's financial trajectory and investor expectations.

How much recurring revenue can the $93 million pipeline generate, what is its composition, and is it heavily skewed toward recurring revenue? - Shawn Severson (Water Tower Research)

2024Q2: The pipeline mix has shifted from product sales to lease opportunities and data and robotics as a service. These include take-or-pay contracts, which provide recurring revenue. The shift reflects a move towards more predictable and stable revenue streams. - Philipp Stratmann(CEO)

How is recurring revenue and the as-a-service strategy progressing? - Shawn Severson (Water Tower Research)

2025Q2: We are definitely seeing an increase in leases as-a-service type models. This helps in terms of recurring revenues and our ability to project forward. - Philipp Stratmann(CEO)

Contradiction Point 4

Revenue Growth and Operational Efficiency

It highlights differing perspectives on the company's ability to maintain cost-effective growth and achieve profitability, which are essential for investor confidence.

What triggers conversion in that pipeline in general? - Shawn Severson (Water Tower Research)

2024Q2: We aim to maintain OpEx at its current cost-effective levels. We do not foresee any material expansion in OpEx that isn't directly related to revenues. We use our space efficiently and focus on cost-efficient growth. - Philipp Stratmann(CEO)

What are the major risks to reaching profitability in the next 12 months? - Jeff Grampp (Alliance Global Partners)

2025Q2: Continuing to scale and maintain a cost-effective growth pattern is a focus. We will scale our team as needed while maintaining cost efficiency. We are working hard to ensure our operational expenses are in line with revenue growth. - Philipp Stratmann(CEO)

Contradiction Point 5

Pipeline and Revenue Streams

It involves the shift in the company's revenue streams and pipeline composition, which impacts the predictability and stability of revenue, affecting investor expectations.

How much recurring revenue could the $93 million pipeline generate, and what proportion of its converted backlog would consist of recurring revenue? - Shawn Severson (Water Tower Research)

2024Q2: The pipeline mix has shifted from product sales to lease opportunities and data and robotics as a service. These include take-or-pay contracts, which provide recurring revenue. The shift reflects a move towards more predictable and stable revenue streams. - Philipp Stratmann(CEO)

Can you clarify the main drivers behind the continued increase? Has the sales team's evolution in size or approach over the past few quarters or year contributed to the pipeline growth? - Jeffrey Grampp (Alliance Global Partners)

2025Q1: There are several factors contributing to the pipeline growth, including geopolitical demand for autonomous ocean security and monitoring systems, increased funding from the government, and the commercial readiness of OPT's systems. The sales team has evolved to be specialized in U.S. government defense and security, overseas government, and the marine technology sector, enabling them to create solutions and convert pipeline into backlog effectively. - Philipp Stratmann(CEO)