Mind Technology Inc (MIND) 2024 Q3 法說會逐字稿

Greetings and welcome to the mine Technology Third Quarter Fiscal 2024 conference call. At this time, all participants are in a listen only mode, a brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And as a reminder, this conference is being recorded. I'll now turn the call over to your host, Ken Dennard. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and welcome to the MIND Technology Fiscal 2024 third quarter earnings conference call. We appreciate all of you joining us today. With me are Rob Capps, President and Chief Executive Officer, and Mark Cox, Vice President and Chief Financial Officer.

Before I turn the call over to Rob. I have a few housekeeping items to run through. If you'd like to listen to a replay of today's call, it will be available via webcast by going to the Investor Relations section of the Company's website at mind dash technology.com, or you can listen to a recorded instant replay until December 21st. Information on how to access these replay features was provided in yesterday's earnings release.

Information reported on this call speaks only as of today, Thursday, December 14th, 2023, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading Before we began, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control that may cause the Company's actual future results or performance to materially differ from any future results or performance expressed or implied by those statements.

And these risks and uncertainties include the risk factors disclosed by the Company from time to time in its filings with the SEC, including in its annual report on Form 10 K for the year ended January 31st, 2023.

Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in our press release issued yesterday, and please note that the contents of our conference call this morning are covered by these statements. With that now behind me, I'd like to turn the call over to Rod camps from a.

Thanks, Ken, and thank you all for joining us today. I'll start by addressing some key achievements during the quarter and highlights of our results. Mark will then provide a more detailed update on our financials, and I'll return to wrap things up with some remarks about our outlook first holiday address two very significant achievements for mine.

During the quarter, we took a meaningful step towards streamlining and focusing operations with the previously announced sale of client general oceans for cash consideration of $11.5 million. We utilized a portion of those proceeds to repay our term loan and eliminate our outstanding debt. This transaction, which resulted in a financial gain of almost 2.4 million has provided us with important liquidity and financial stability with which to exploit the remarkable growth we're seeing within our Sea map business.

Now this brings me to our second achievements. We ended the third quarter with a record backlog of 37.4 million, over double where it was just three months ago. I'll touch on this in greater detail shortly, but I believe this unprecedented backlog is indicative of our specialized capabilities and product lines.

So Additionally, subsequent to the end of the quarter, we entered into a supply agreement with a major international seismic contractor. We expect to receive initial orders under this agreement shortly. This means that we start the fourth quarter of this fiscal year move into next fiscal year with a record backlog and confidence in continued order flow.

Our Marine Technology Products revenue during the third quarter was approximately 5 million, and this was significantly lower than we had anticipated. We experienced delays in the delivery of certain components, which prevented us from getting these orders completed at the door and recognize that revenue before quarter end.

These orders, which totaled from 5 to 6 million are expected to be delivered in our fiscal fourth quarter. This situation clearly demonstrates that supply chain issues while much improved from a couple of years ago are still with us and can impact results in particular periods. The good news here is that the orders are not lost, merely delayed.

The magnitude of our backlog does give us better visibility and therefore better ability to manage our procurement process. However, increased level of activity also means increased capital requirements based on the orders that were delayed and a schedule of other orders in our backlog. We expect a significant increase in revenues in our fourth quarter. We continue to believe that mine is exceptionally well-positioned to capitalize on the favorable market dynamics to achieve sustainable top line improvement.

We think our record backlog is indicative of the growing demand for our differentiated C-MAC product lines, such as Gun Link source controllers, Buoy Link positioning systems and Sea Link streamer systems. We believe this continued positive backlog trend and the early benefits of our framework agreement reflect the strength in the underlying market demonstrate that we are the partner of choice for companies looking to acquire high quality and of all marine technology products. We continue to believe that the current market environment is advantageous.

Remind each of our three key markets, exploration, defense and survey remain loaded with opportunity. Having completed the sales climb in August, we now operate a more streamlined and focused switch products, and we are better positioned than ever to deploy our product lines into a variety of end markets. Additionally, our team continues to develop new and innovative ways to adapt and implement our technologies to meet the evolving needs of our customers.

In addition to traditional energy related opportunities, we are seeing new applications for our Sea map technologies. As an example, our backhaul it includes over 5 million related to one of our Sea Link ultra high-resolution 3D seismic streamer systems. The system is intended for use in surveys required for offshore wind farms, another green energy project. There's also a growing opportunity for mine to provide seismic streamer repair services, not only for sealing streamers, but also for products manufactured by others.

Within the Maritime, defense and security market. We continue to believe that receives certain passive array system, which is derived from the commercially developed Sea Link system is a significant and economical solution for various demanding applications within this space. We are also optimistic that through our collaboration agreement with General lotions, we will see increasing interest in our Spectel AI software suite and find further applications for this technology. And with that, let me say that Mark was through our third quarter financial results in a bit more detail.

Thanks, Rob, and good morning, everyone. At the outset, I would like to point out that with the sale of Klein. Those operations have been treated as discontinued operations and prior period results have been restated to reflect that. Accordingly, the results from continuing operations that we reported yesterday and are discussing here today, including prior period comparative data do not include amounts related decline.

They include only our ongoing business. As Rob mentioned earlier, revenues from continuing marine technology product sales totaled approximately $5 million in the quarter, which was up about 64% from approximately $3 million in the same period a year ago. While we experienced several delays during the third quarter that resulted in some revenue getting pushed into the fourth quarter. We believe the strength we are seeing in all our key markets and the growth in our backlog of orders positions us well for sustained higher level revenue in the coming quarters.

Gross profit during the third quarter was approximately $2.3 million, which was up meaningfully when compared to gross profit of approximately $862,000 in the prior year period. This represents a gross profit margin of 45% for the quarter we're pleased that we were able to deliver some higher margin orders during the quarter despite the overall lower sequential revenue levels.

Revenue in the quarter was largely driven by sales of spare parts as opposed to sales of full systems. These transactions, while smaller in size tend to generate higher gross margins.

Our general and administrative expenses were approximately $2.9 million for the third quarter, which was down slightly when compared to approximately $3.5 million from the second quarter and $3 million for the same period a year ago. The sales decline is allowing us to streamline our operations and thereby reduce some costs.

We've recently taken some actions in this regard, including selected headcount reductions, reducing the size of our Board of Directors and reducing the compensation for the remaining members of the Board. We also believe that the more streamlined operations will result in lower professional fees and travel costs.

We will begin to see the impact of these changes in the fourth quarter of this year but will not recognize the full benefit until next fiscal year. In the third quarter. The impact of cost reduction measures taken earlier this year was partially offset by severance costs and higher professional fees.

Research and development expense for the third quarter, which relates only to our continuing operations was approximately $508,000, up slightly from the comparable period a year ago. These costs are largely directed toward the development of our next-generation streamer system and continued development of our spectral AI software suite.

Operating loss for the third quarter was approximately $1.5 million, which was nearly a 50% improvement from a loss of $2.9 million in the third quarter of fiscal 2023. Our third quarter adjusted EBITDA from continuing operations was a loss of $1.1 million compared to a loss of $2.4 million in the third quarter last year. Overall, we reported net income of approximately $568,000 for the third quarter of this year, driven by a gain of approximately $2.4 million on the sale of clients.

As of October 31st, 2023, we had working capital of approximately $16.5 million and approximately $5.6 million of cash on hand. After factoring in net proceeds from the client sale completed in August. Our liquidity position is significantly improved. Additionally, as a reminder, upon the closing of the sale of Klein, we repaid and eliminated our high-cost debt, leaving mine debt-free today. I'll now pass it back over to Rob for some concluding comments.

Okay. Thanks, Mark. Our conviction about the future of mine technology has only been strengthened by recent achievements. We've taken the necessary steps to streamline our operations and focus on profitability. We believe that this company is better positioned now than ever. And marine technology products continue to penetrate a variety of industries and markets, which I believe is a direct correlation to the work that our team has done to develop and continually adapt our technology to meet the evolving needs of our customer.

We believe that the record backlog we have achieved is just the beginning as there are still significant opportunities for our Sea map unit and our other initiatives. Market conditions remain favorable and we generally feel that the robust customer interest and engagement that we've seen to date signifies that the market adoption of our product lines is gaining traction for confident the mine is headed in the right direction and we look forward to building on the strong foundations we construct.

As I mentioned earlier, the increase in business comes at price that being the capital needed to execute a growing business as you probably know, we did declare and pay a dividend on. First stock for the quarter ended October 31st, 2023, waiver through remains about $4.7 million as accumulated dividends from prior periods and the ongoing dividends accruing at a rate of about $3.8 million per year.

While our liquidity and financial position of much improved, we do not believe that our current operations can generate the capital needed to exploit and grow our business. And at the same time, pay ongoing or committed to dividends on the preferred stock. Therefore, while no decisions have been made and circumstances can change, we currently believe it's unlikely that we'll declare further dividends on our preferred stock for the foreseeable future.

As we experienced this quarter and have traditionally seen there will likely be revenue variation between quarters due to a variety of challenges and unforeseen circumstances as well as simple customer delivery requirements. But that said, we do believe the general trend is to be one of the increased revenue, favorable market trends, robust customer interest and substantial growth of our backlog continues to give us confidence that sustainable higher level revenue is achievable.

Looking forward, we anticipate meaningful financial improvements in the fourth quarter and in fiscal 2025 as we convert our record backlog to revenue. We're encouraged by the current macro environment and believe that our streamlined differentiated market-leading suite of maritime technology products is uniquely positioned to capitalize on favorable customer demand. We expect to continue adding new orders in the coming months and to utilize this momentum to drive meaningful shareholder value. And with them. Operator, we can now open the call up for some question.

(Operator Instructions)

Our first question comes from the line of Tyson Bauer with KC Capital. Please proceed with your question by.

Good morning, gentlemen. It actually trying to get a where we are today, kind of look at the Company and all of this is going to lead up to the eventual question of where we need to get to. But you ended the quarter at $37.4 million of backlog, five to $6 million of that is because we had deferred revenue that will fall into this quarter. So you have approximately $32 million of backlog.

That is a significant increase from $17 million at the end of July where you kind of today and where your backlog stands relative to also your recognized revenue in the quarter? Has that $5 million to $6 million been realized already along with your other of expected revenue, you thought you're going to have or that's a situation where the components delay really has pushed everything to the right of the calendar. So we don't necessarily have that catch up where all of a sudden we have a $12 million, $15 million quarter.

Yes. So Tyson, we are those delayed orders had partially been shipped. They're not all completed, but partially done. We do expect them all done by the end of the quarter and much by the end of the calendar year. So I think we will see a bit of a catch-up to use your term and in this quarter. So it's not it's not a ballet that's getting pushed out all the way just are certain components that was two months late coming to us from a supplier.

So it just didn't give us enough time to get everything built and out the door when we originally scheduled to and are these components or they're just drop-in for like with you at the automakers, they need a chip because they build the vehicle and then they can put the chip in and then ship it is that the situation here where it's a drop-in component that you can make the product and you're just waiting on that last component to completed or is this something at the beginning of the process that just kind of halts the whole system and filled.

But it's kind of halfway in between. That's when I'd describe it, it's certainly it is a drop in and we can complete much of the system, but we have to drop in this component for we can then complete everything else. So it's a little bit of both. So we certainly have been able to continue with production and have things ready.

We have components sitting on the bench right now, the word mill, we kept dropping and to use your term to finish this and the new horse in there, software to be burned and things of that nature in your part of the process that has to happen at the end. So we have been able to continue with the process tied to the fundamental of your question. Okay.

And just for the sake of clarity because I think you mentioned this in the last call, if the expectation you did $5 million, you thought you had five to six that was deferred. That implies that you thought you were going to be able to do $10 million to $11 million in the quarter.

I think in the last call you thought that the quarters would be somewhat similar, obviously, depending on some timing issues. Does that mean you're walking into this quarter with the expectation that you thought you were going to do, say roughly $10 million and the five to six as an add-on or you give us a little better clarity on our nonstandard should resign.

And the answer is yes, although I understand just the caveat things can happen and we could have something drop in unexpected. We do better or get something pushed to the left for the right, rather for whatever reasons. But fundamentally, your analysis is correct.

I guess when we look at where your accounts receivable were or was at the end of July compared to where it was. Obviously, you have the benefit client drops out of that. Obviously also you didn't have the sales that were realized in the quarter.

Does that anticipate if we go back to that July level and that level of business that you're expecting to do since you haven't made all the deliveries as of yet a CAD3 million working capital requirement, just on that alone, not looking at additional inventories and that which would leave you at the end of the fiscal year, roughly 2.5 million of cash left?

Well, there's a lot of calculus that goes into that ties. And so I'm not sure I'd draw that exact conclusion. I certainly would delay shipments being delayed cash flow coming in, but there will be some catch-up there as well. We have had to use working capital to buy components.

So there's some benefit there. There are some contracts that we have advanced payments on prepayments from customers. So there's lots of things that go into that calculus. But I think that the messages with increasing business, that means there is an increase in working capital requirement, the receivables be it inventory. And so that's the reason we're trying to take the position.

We are frac a well. That's why we're automating all these questions are going to come down to what operational level do you need do you think or believe you need to be at to reinitiate that dividend also meet your working capital needs, given the growth outlook.

And we've already seen, say on your revs or inventory adding 2 million increase, that was offset by the reduction in accounts receivable. So at 5.5 million where you ended the quarter, are you anticipating being able to maintain that level or is that level going to be further stressed at the end of the year? And what level is comfortable for you to reexamine, whether you have the operational results to reinitiate the dividend and meet your requirements growth for us?

And the answer there is we don't know for sure, because we need to understand how the businesses are going to and how the cash flow and how the working capital requirements are going to flow as this business, it flows through that through the production cycle.

So that's the reason we want to be conservative here and keep our powder dry, if you will. So that's the whole reason or this is a huge backlog improvement. I mean, this is unbelievably larger than anything we've seen in the past. So we think it only prudent to make sure that we first serve the business and can execute on the business before we make any decisions on the preferred stock.

So we just haven't decided yet and foresee foreseeable future if we get through and we play a little catch-up, as you just mentioned, and we start kind of getting a more stabilized flow of loans, component supply. Is there does that imply by the end of Q1 of the next fiscal year, you should be in a more comfortable position on where you're at to make that decision? I mean, is foreseeable future one or two quarters or is that don't expect anything for the next fiscal year?

I said I don't know at this point. That's what we're trying to understand.

So I can't give you more guidance in on, do we have here look at the pending contract structure? Obviously, you're not going to name who, and it probably doesn't make that big of a difference. Are those more for components whole systems that you are going to be supplying, which obviously is going to be far more lumpy as that imply that they're operating as kind of a middle man as opposed to the end user, which is typically your customer and they are for full systems.

They are the end user and there is a production schedule that we're working out with them over the next year, several quarters.

Okay. So when we see orders from them, these are going to be for whole system. So we're looking at the yes, all $1.5 the way up to $4 million type of systems that they would be purchasing at a time, maybe even some smaller systems as well.

But yes, the answer is yes.

But I mean, is this a multi-year agreement? It is, is there an accordion type feature to this where you've set the price and this is a function of that price will be good for what they need going forward now, no, but I want don't want to get into specifics for some competitive reasons, as you might imagine that, but we should see before the end of the year. Some more details and color come from this contract that will make it clear and obvious to the rest of us, the scope of it you should?

Well, I think very confident about them. Okay.

And sorry, I mean, for right now, I'm sure Ross is in queue. We'll let him take over but hit it looks like at least operationally you're where you want to be is what are we going to do on a decision on that accumulated deficit on the preferred? And was it going to take to actually catch up business wise to basically create that residual value for the common once we satisfy the preferred side. So hopefully, we'll know that in a quarter or two.

Okay. Thank you. Our next question comes from the line of Ross Taylor with ARS Investment Partners.

Please proceed with your question of cohesion of the for all of you and I don't have that unique data elements.

Yes.

Well, he knows it now on you and I've had a number of conversations about the imperative nature of paying this dividend because there is no way you can. I mean, the equity is a residual here. And for those of us who own equity for, we want and need you to get this preferred out of the way, so we can start to accumulate and the value that is going to grow in this company.

And it strikes me as a couple of questions. First, what was the arm inventory working capital, no working capital impact or drag last quarter from the deferred sales obviously were building stuff. You had costs that you incurred that didn't go out the door as fair as run sales and generate revenue.

So what kind of impact was that our inventories to last over the last six months are up about 3 million, roughly.

Okay. So as you sell that out, we should start to see that cash flow should come in.

Yes but understand we're going to continue bill at the FI and not add.

Yes. Yes. And as you build as you build backlogs and account to see you and I talked about the fact that if you can actually do other steps factor, accounts receivable, things of that nature that the cheapest debt you're really going to get is the preferred, but it also absorbs right now that preferred probably has about $46 million worth of value your equity has about $8 million worth of value.

It strikes me, as I said before, that if I want my equity to grow, you've got to solve the problem with the preferred and it's got to be imperative. And one of the things that you guys do as you keep promising as it's going to work as a company. And then just want to get back on the road, just like if you didn't think you could pay the fourth quarter dividend, why would you pay the third save the money and paid in the fourth.

So you can start a string of winning and starting to think you guys are managed by the same people and manage the Seattle Mariners of which just being from Seattle to complement ours. But I think that I mean, I'm wrestling with what your thinking is because I'm hearing you say we worry about this, but in fact, you have a lot of other alternatives to finance you quite honestly, if I were sitting on your Board, I would say if I vote against the dividend, the only other question is I know I hire a banker for a to sell.

If you shop, the Company would be to give it to Tyson to do an ATM and raise 5 million because by my calculations for if you could buy back five, it's a 500,000 shares for $5 million. You actually create $3.33 a share, an extra value for the common stock, which is a basically a better than 50% increase over what it went out at just strikes me as we really need to get focused on being a public company and developing the confidence of the street.

As I said every time it seems like you're about to turn that corner, you go into another dark place. How do we how do we keep from being there and entrance Tyson's question of you don't know. I understand you don't know, but you've got to have a plan and that plan has got to be using these that you and I talked about other ways of raising capital and using these other ways because I think that you want to actually be able to eventually use that preferred dividend of preferred as a way to raise capital to a better way than going into the general financing market, I would say.

Am I wrong, Ross?

I understand all your comments it. So there's nothing it's news to me on that side. Understand completely.

It's not news, but it's I mean, to be honest, Andy, I didn't you dropped the comment you haven't made a decision and you drop it with two weeks left in the years just Rob, we've talked I have known you for a long time and I've been a real loyal shareholder, but you know how frustrating it is to watch.

You basically come in and do something like this with two weeks left in the year because it just said it's such a back so much more than Europe, potential loss of one quarter's dividend and set you back to where you are all the Street trade you're building is going to have to restart. And I think the Board needs to recognize that you've got cash and you've got stuff coming on in your credibility as a public company.

And I'm just wondering if you're private or public. So you have a duty to your shareholders. And I think that duty I would rather see you issue equity dilute me a little bit on diluting on equity even heavily because getting rid of that preferred, particularly can get renovated $10 or $12 a share if you can buyback. That's a huge win for our shareholders. So good got to be feeling about the game plan.

Okay. I know that's I know this isn't a happy conversation, but I'm not happy with the way this is something together. So I feel like we're right back where we were a year or two ago, except for we thought we were so much better.

Okay.

Thank you.

I appreciate the comments, Ross, and now I give Tyson the call about the ATM.

If you don't pay the dividend, I think he'd love the business. Thank you. Ladies and gentlemen, that concludes our question and answer session.

I'll turn the floor back to management for any final comments or Thanks, everyone, for joining us today and look forward to talking to you at the end of our fourth quarter. Thanks very much.

Thank you. This concludes today's conference call, and you may disconnect your lines at this time. Thank you for your participation.