MIND Technology Q1 2024 Earnings Call Transcript

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June 14, 2023

There are 5 speakers on the call.

Operator

Welcome to the MIND Technology First Quarter 2024 Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr.

Operator

Ken Dennard. Mr. Dennard, you may begin.

Speaker 1

Thank you, operator. Good morning, and welcome to the Mine Technologies Fiscal 2024 1st 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 items to cover.

Speaker 1

If you'd like to listen to a replay of today's call, it will be available for 90 days via webcast by going to the Investor Relations section of the company's website at mind technology.com or you can listen via recorded instant replay by phone until June 21. Information on how to access the replay features was provided in yesterday's earnings release. Also, information reported on this call Only as of today, Wednesday, June 14, 2023, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Before we begin, let me remind you that certain statements made by management during this call Make 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 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 these statements.

Speaker 1

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 ks for the year So now without further ado, I'd like to turn the call over to Rob Capps. Rob? Okay. Thanks, Ken. As we did last quarter, we Prepared an updated presentation covering our discussion this morning and we posted it to our website.

Speaker 1

I invite you to refer to that at your leisure. Today, I'll begin by discussing our Q1 2024 results as well as our current view of market conditions. Mark will then provide a more detailed update on the financials. I'll then wrap things up, some remarks about our outlook. We're very pleased with the Q1 results and the start of our fiscal 2024, which we believe demonstrate our ability to capitalize on mine's favorable market position to continue delivering sustainable top line improvement.

Speaker 1

Our financial and operational performance remains strong in the quarter as expected, resulting in much improved financial metrics across the board when compared to the year ago period. Revenues were up 39% year over year. And despite our robust Q4 results, we also grew our revenue sequentially. Additionally, We achieved a much improved gross profit margin of 43% during the quarter. Most importantly, though, we produced positive operating income.

Speaker 1

And once again, we also produced positive adjusted EBITDA. The 4th quarter was the first time since we transformed the company that we achieved this, We're proud to continue that trend in the Q1. As anticipated, we executed on our backlog, which resulted in significant top line revenue of 12 point As of April 30, our backlog of firm orders stood at $22,600,000 compared to $13,400,000 at the same time a year ago and $20,700,000 at the end of last quarter. We believe this trend is indicative of the favorable market conditions and the differentiation of our product lines, and we're confident that this momentum will carry throughout the remainder of fiscal 2024. We're pursuing a number of other orders and are poised to be successful on many.

Speaker 1

We hope to be in a position to announce some of these in coming weeks. We remain encouraged by the favorable macroeconomic trends coupled with strong customer engagement and order activity. We believe that the current market environment is advantageous for Mynd. We continue to see substantial tailwinds in each of our 3 key markets: exploration, Defense and survey, and our team continues to find innovative ways to adapt our products to meet the evolving needs of our customers. Currently, we're seeing the biggest order growth in our CMAP segment, which is benefiting from the favorable fundamentals within the exploration and alternative energy markets.

Speaker 1

This growth is supported by the 19% sequential increase in CMAC revenue that we generated during the Q1. We expect to build on this momentum going forward. We intend to leverage sustained customer demand and interest that we're seeing in all of our key markets, drive further growth in our book of business in the coming quarters. As announced in early April, we elected to defer the payment of our preferred stock dividend for the Q1 of fiscal 2024. I know that our liquidity position has been a concern for many of you.

Speaker 1

Although we've seen improved liquidity has resulted in higher revenue levels Throughout the last couple of quarters, we believe it was prudent to retain the cash flow from these activities at this time to complete upcoming and other expected orders. While there are more stringent working capital demands that come with increases in business, I believe we've made progress with respect to liquidity. It remains an area of focus for us. We also are aware of the continued listing standards notice that was sent to us by NASDAQ. We're working through and analyzing options to regain our compliance.

Speaker 1

With that, now I'll let Mark

Speaker 2

Thanks, Rob, and good morning, everyone. As Rob mentioned earlier, revenues from continuing operations totaled approximately $12,600,000 in the quarter, a 39% increase when compared to the 9.1 and in the same period a year ago. Our Seamap segment delivered substantial revenue of approximately $10,600,000 during the quarter, which demonstrates the growth that we're seeing in the exploration and alternative energy markets. Gross profit During the Q1 was approximately $5,400,000 which was up approximately 65% when compared to the prior year period. As Rob also mentioned, this represents a gross profit margin of 43% for the quarter, a 700 basis point increase from the 36% we achieved during the same quarter a year ago.

Speaker 2

The higher revenue achieved in our Q1 resulted in greater overhead absorption, generating a much more favorable Gross profit margin. Our general and administrative expenses were approximately $3,900,000 for the Q1, which which were up slightly when compared to the $3,700,000 from the 4th quarter. However, as we've mentioned in the past, Our G and A expenses tend to be front end loaded as we incur higher payroll taxes, professional fees and travel related expenses in the 1st few months of the year. This recurring trend, although minimal, was evident in our Q1 results. Our research and development expense for the Q1 was $773,000 which was up Approximately 9% sequentially, but down 24% from the same quarter a year ago.

Speaker 2

Consistent with prior periods, these costs are largely directed toward our strategic initiatives, including synthetic aperture sonar and passives on our raise. Operating income for the Q1 was $289,000 as compared to a loss of approximately $2,500,000 in the Q1 of fiscal 2023. Our first quarter adjusted EBITDA was $913,000 compared to a loss of approximately $1,900,000 in the Q1 of last year. As of April 30, 2023, we had working capital of approximately 14,000,000 and cash of $815,000 As noted in Rob's opening comments, we continue to see improvement in our liquidity. I'll now pass it back over to Rob for some concluding comments.

Speaker 1

Thanks, Mark. We remain encouraged by our results for the Q1 and by the favorable outlook in each of our key markets. We are generating sustainably higher revenue, while maintaining and growing our backlog of business. Customer demand and engagement remains strong resulting in better than ever quarter flow. We're optimistic that Mynd is in a position to build on this momentum in the coming quarters.

Speaker 1

We look forward to sharing the fruits of our labor with you. As we look forward to our Q2 and the remainder of fiscal 2024, We're excited about the opportunities that lie ahead. Many of our technologies continue to gain traction with customers globally for a variety of end uses. And as I noted earlier, Our CMAT products are playing a significant role in paving the way for mine's continued growth. As we've traditionally seen, There will likely be revenue variation between quarters due to a variety of challenges that are often out of our control, such as supply chain issues, tighter vendor credit requirements, evolving delivery requirements, government contracting processes and technical and production challenges that can impact production and deliveries.

Speaker 1

However, the favorable market trends, robust customer interest and growth of our backlog continues to give us confidence Sustainable higher level revenue is achievable. We feel good about where the company sits today. We believe that our development programs will continue to There may be certain unforeseen circumstances that cause orders or deliveries to slide to the right, but we do believe that the general trend we want is increased revenue. As I mentioned earlier, there are challenges that come with our improving business. We're doing our best to manage these challenges and demands.

Speaker 1

In closing, we're excited about the future of VINE Technology. Our stable and growing backlog, robust order flow and increased revenue levels are indicative Our technology being in greater demand, intend to continue to capitalize on the favorable market conditions and macroeconomic environment and robust customer interest and engagement to achieve improved results going forward. We've worked hard to position MIND as a leading producer of differentiated marine technology products, we intend to build on this momentum to generate significant revenue, which we believe will drive meaningful shareholder value throughout the remainder of fiscal 2024 and beyond. And with that, that's our

Operator

And for participants choosing speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Tyson Bauer with KC Capital. Please

Speaker 3

proceed. Gentlemen.

Speaker 1

Hey, Tyson.

Speaker 4

You want to start with some operational questions or the elephant in the room on trying to climb out of the preferred dividend And what some of our remedy possibilities are?

Speaker 1

Up to you.

Speaker 4

All right. Let's start backwards and then we'll figure out if The operations will get us a resolution. On the preferred dividend, obviously, you can defer 1 more before we get to the 6 Deferred later this fall. Are remedies possible where you can roll those Dividends where you're paying maybe ones that are in arrears in essence, you do not have to make one cumulative payment To become whole, there are other options, correct?

Speaker 1

That is correct. You're exactly right. So We could pay 1 or 2 or 3 or any if so, you're right. We could pick and choose if you will. But they continue to accumulate, of course.

Speaker 1

I don't know why, but yes, you're right. We don't have to do it all at once.

Speaker 4

Okay. Which then also pushes to the right that whole 6 Deferred as long as you're not 6 or more deferred, we don't trigger some of those provisions that are within The preferred dividend, so we could actually roll forward to buy you some time, but also you're then returning capital to those holders, which then should benefit The common guys that there will be some residual value left for them also, correct?

Speaker 1

Yes. But let me correct, if I'm not mistaken, the provision is once we've deferred 6 dividends, not that we have 6 in arrears, I think that then triggers the rights of preferred to name 2 directors. And that's the only remedy that the preferreds have. I think there's 2 more before we trigger that. So it's not a catastrophic thing by any means.

Speaker 1

That's right. That does give us ability to catch up over time, if you will, and return some capital to the preferreds.

Speaker 4

And according to your proxy statement, the largest preferred holder still is Mitsubishi?

Speaker 1

That's correct.

Speaker 4

Okay. And as your intent we got 2 more that buys you some time. You're looking at a now we'll get into some operational questions that operations Could be there or to satisfy, give you more options as we go through the next 6 months or really the next 4 months?

Speaker 1

Yes, I think so. I mean, obviously, as you see, last two quarters, we produced essentially enough EBITDA to make that dividend. So if we can address the working capital needs and feel comfortable about where we stand there, then we operationally are approaching a point where we could address that.

Speaker 4

Okay. Margins, you're seeing some nice improvement. Typically, you have some decent margins on the CMAP with those large whole system sales That you get are we looking at the backlog bid margins even showing greater improvements and greater trend Improvements as we get some more economies of scale as that backlog grows, as that throughput grows and covering those fixed expenses?

Speaker 1

Yes. There's no doubt there's benefit. The biggest benefit, Tyson, is if we have some visibility Down the road as to production requirements, we can be much more efficient in buying, buy bigger lots, things like that. So it can be benchmark efficient and we can be more efficient in the factory as well. So that certainly has a benefit.

Speaker 1

Now to be fair, the counter to that is there is inflation out there. So I think we would expect Some improvement, but it is going to be mitigated to some extent by just general inflation and supply chain issues, lead times, things like that are still out there.

Speaker 4

You talked about the CMAP having a robust market. Sometimes those delivery schedules Get a little lumpy on those system sales. As you look at Q2 or in the next couple of quarters, Any ideas on those delivery schedules on whether they're concentrated in 1 quarter or next? Or do we have a fairly even flow?

Speaker 1

Yes. You sound like you've been in some of our operational meetings. We're trying to have a more even flow. So that's the way we schedule things. But as I said, you have some key components that you don't get delivered when they're Scheduled to be delivered and that can slow things a bit.

Speaker 1

So I'm reluctant to be too definitive with that just because You have a $3,000,000 order that you can't ship because of some component, then that has a big impact. But we are We do have better visibility, I think, this year than we have in the past. And not just to see that, but it declined as well. So I think we're better able to do some planning and be a bit more efficient. That's something we're really working hard to do.

Speaker 4

Okay. In the news recently, there have been a lot of discussions of the Saudi's major offshore expansions. I think their Oilfield offshore, they're trying to double or triple the size of that. Shumler J, energy analyst yesterday coming out a lot of Sure activities, which you should be a beneficiary of.

Speaker 3

Well, I

Speaker 1

think it's right. There's definitely seismic exploration Offshore that is and onshore for that matter, that is contemplated with those projects. And I think anytime there's Offshore, size of exploration, we benefit from that.

Speaker 4

And you really have a lot less competition if people remember from even a year or 2 years ago With one of your major competitors exiting.

Speaker 1

That's true. When it comes to digital source controllers, we really don't have a competition at this point.

Speaker 4

Capital requirements, obviously, we needed that infusion. We talked about that in the last conference call that 3 +1000000. You almost benefit if you do have a little delay just because you got a working capital benefit, Say in Q2 or whatever that helps out your operating cash flows. But in general, your working capital, are we to that stage where We can roll it, so there is no real deficit. We're just now into a systematic role on cash conversion.

Speaker 1

Yes, that's a complicated question. I think we certainly are approaching that point as the cash flow from last couple of quarters would indicate. But I think the wild card there is when you get into procurement of larger amounts For more systems, larger systems, then that can create some additional demands for advanced payments, prepayments, things of that You're going to do a larger purchase for to buy components for 4 systems, but it's not going to produce the last two until 2 quarters out. So it can work both ways. So it's something we have to balance on a practically daily basis.

Speaker 4

Okay. So we might see that accordion feature on those real estate secured financing being utilized Temporarily, just to get you through a quarter or 2, but overall, you're in good shape.

Speaker 1

I think that's fair to say.

Speaker 4

All right. Thanks a lot, gentlemen.

Speaker 1

You bet.

Operator

Our next question is from Russ Taylor with ARS Investment

Speaker 3

A couple of questions quickly. Since you just were talking about real estate and the loan against it, where do you stand with the idea of Selling that asset or sale or leaseback that asset to capture a more significant amount of capital from it?

Speaker 1

We frankly, Ross, we are investigating that as we speak for with 2 pieces of real estate, The Salem facility and also in here in Texas and Huntsville, so we are investigating that. Obviously, the banking situation, interest rates Kind of went in the wrong direction for us the last couple of 3 months, but I think there certainly are possibilities there. So that's something we're pursuing.

Speaker 3

Okay. 2nd, with the increasing focus by World Navies on underwater autonomous It would strike me then they need to do substantial increase in mapping in areas in which they intend to operate, Particularly in areas like the South China Sea, are you seeing or do you expect to see an increase in demand for your Capabilities, your products and technologies from people like the U. S. Navy, perhaps the Koreans and the Japanese who will need to be operating in areas that are Contested but expected to be home for a lot of these underwater systems.

Speaker 1

Without being specific, the answer is yes, most definitely. That is definitely driving activity for us.

Speaker 3

And do you think that would be a short or intermediate term time horizon?

Speaker 1

I think we've already benefited to some Yes. But I think we'll see that to continue on a significant basis. So that will continue. We'll see Current as well as intermediate and long term benefit from that.

Speaker 3

Okay. What's the total outstanding value of the deferred preferred dividends at this point?

Speaker 1

So $43,000,000 $44,000,000 something like that, Including the dividends, preferred dividends.

Speaker 3

What's the preferred what is what do you owe on the preferred dividend?

Speaker 1

$3,800,000 $3,900,000

Speaker 3

3.8, margins. Okay. I mean that's once again still a substantial portion of the outstanding or the value of the common stock. It does strike me as for those of us To own common stock that to get value out of that, we really need to keep that from happening. The end game of this company most likely is a sale of the business unless you can Meaningfully increase the top and bottom line.

Speaker 3

It's hard to at this stage, the market cap just doesn't justify being public, quite honestly. It It probably is worth a lot more to someone as a private business. And with the way it works, the preferred holders are going to take get first cut, Basically, first payout as well as the deferred dividends being paid out before anything trickles down to the equity holders. So The faster you guys can come up with a way to stop that and start to create wealth for the common holders, I think that as a long Sovereign common holder, I would appreciate those steps. It strikes me as we're kind of in a situation where This company is meaningfully undervalued, but the way to get it is likely going to be sales.

Speaker 3

We can come up with a pretty near term solution for turning this into something that people want to own.

Speaker 1

Understood completely.

Speaker 3

And lastly, the answer you had to Tyson's questions, the fact that you can come up with some alternative solutions to kind of stop the bleed, I would think that would make tremendous sense if you can find a way to stop the bleed. You got an 8 or 6 person board that would make 8. Honestly, if I were If I were on that Board, I would say the first thing we'd have to do is explore sales. So I would prefer to I think you'd probably prefer to keep them from getting their 2 directors who will have a disproportionate say because of the level of investment they have in the company.

Operator

Mr. Katz, there are no further questions at this time. I would like to turn the floor back over to you for closing comments.

Speaker 1

Okay. Thanks everyone for joining us this morning. We look forward to talking to you again at the end of our Q2. Thanks very much.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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Key Takeaways

  • Q1 2024 revenue rose 39% year-over-year to $12.6 million with sequential growth, while gross margin improved to 43%, producing positive operating income and adjusted EBITDA.
  • Firm orders backlog reached $22.6 million as of April 30, up from $13.4 million a year ago, reflecting strong demand across exploration, defense and survey markets.
  • The CMAP segment delivered a 19% sequential revenue increase, driven by favorable exploration and alternative-energy fundamentals and expected to fuel further growth.
  • Management deferred the Q1 preferred stock dividend to conserve cash amid rising working capital needs and is exploring real-estate sale-leaseback and other financing options to bolster liquidity and address Nasdaq compliance.
  • Market tailwinds—including major offshore energy expansions and increased naval demand for underwater mapping—are underpinning robust customer engagement and order activity.
AI Generated. May Contain Errors.
Earnings Conference Call
MIND Technology Q1 2024
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