MIND Technology Q2 2024 Earnings Call Transcript

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September 14, 2023

There are 5 speakers on the call.

Operator

Greetings, and welcome to the Mine Technologies Second Quarter Fiscal 20 24 Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Ken Dennard.

Operator

Thank you. You may begin.

Speaker 1

Thank you, operator. Good morning, and welcome to the Mine Technologies Fiscal 20 24 Second Quarter Earnings Conference Call. We appreciate 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 Information on how to access these replay features was provided in yesterday's earnings release. Information on this call speaks only as of today, Thursday, September 14, 2023, and therefore, you are advised that time sensitive information 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 these statements. These risks And uncertainties include the risk factors disclosed by the company from time to time in its SEC filings, including its annual report on Form 10 ks for the year ended January 31, 2023. Furthermore, as we start this call, please also refer To the statement regarding forward looking statements incorporated in our news release issued yesterday, and please note that the contents of our conference call this morning and are covered by these statements.

Speaker 1

And now with that behind me, I'd like to turn the call over to Rob Capps. Rob? Okay. Thanks, Ken. Now as I believe you all know, in August, we took a significant step with the sale of our client unit.

Speaker 1

Today, I'd like to begin by discussing that transaction and a rationale for it before discussing our Q2 2024 results as well as our current view of market conditions. Mark will then provide a more detailed update on our financials. I'll then wrap things up with some remarks about our outlook. With the strengthening outlook for our CMEP unit that we'll discuss further in a moment, we thought it was important to stream Mine's operations and address the financial requirements associated with our growing business. When the opportunity to sell Cline arose, We saw an opportunity to achieve both those objectives.

Speaker 1

Our Climate Business Unit was responsible for approximately $3,100,000 in revenue during the 1st 6 months of this fiscal year, but contributed an operating loss of about 911,000 On a pro form a basis, had the sale taken place at the beginning of the year, Mynd would have reported a positive pretax As opposed to the $1,200,000 loss we reported. This further demonstrates the basis for our decision to part ways with the client business unit And focus our attention on other operations. As we've previously disclosed, consideration from the sale was $11,500,000 in cash. We used a portion of these proceeds to repay the $3,750,000 term loan from earlier this year. After transaction cost and the loan repayment, The net proceeds available to us amounted to about $7,300,000 An added benefit from the sale It is a licensing arrangement and collaboration agreement with the buyer, General Oceans.

Speaker 1

This provides an important opportunity to realize value from our spectral AI software suite, which Mynd retains. Through this arrangement, we hope to realize recurring licensing revenue, while continuing to enhance spectral AI and Our 2nd quarter results came in roughly in line with our expectations. Revenues dropped off a bit sequentially due to the scheduling of deliveries, but that was largely anticipated. This activity is not unusual, and I'll remind you that revenues often fluctuate in our business from time to time for a variety of reasons that are often out of our control. We continue to believe that Myde is exceptionally well positioned to capitalize on the favorable market dynamics to achieve a sustainable top line improvement long term.

Speaker 1

As of July 31, our backlog of firm orders for SeaMapp stood at $17,000,000 Subsequent to quarter end, We received additional orders totaling approximately $5,400,000 And we also have confidence that in the coming weeks, we'll be in a position to announce additional sizable orders that we feel are imminent. These booked and pending orders involve a variety of products, including GunLink Source Controllers, LillyLink Positioning Systems and SeaLink Streamer Systems. We believe this continued positive backlog trend is indicative of the favorable market conditions and the differentiation of our CMAP product lines. We remain confident that this momentum will carry throughout the remainder of our fiscal 2024 and beyond. We believe the current market environment is advantageous for Mynd.

Speaker 1

Each of our 3 key markets exploration, defense and survey are loaded with opportunity. With our operations now streamlined and focused, we are better positioned than ever before to deploy our product lines into a variety of end markets, And our team continues to develop new and innovative ways to adapt and implement our technologies to meet the needs of our customers. In addition to traditional energy related opportunities, we're seeing new alternative applications for our CMET technologies, including offshore wind farms and other green energy projects. There's also growing opportunity for mine to provide seismic streamer repair services, We continue to believe that our Sea Serpent passive array system, which is derived from our commercially developed ceiling system, is a significant and economical solution for a variety of We intend to continue leveraging the favorable macroeconomic trends, The differentiation and versatility of our product lines and the sustained customer demand and interest that we're seeing to drive robust order activity Now, I know many of you are interested in our plans regarding dividends on our preferred stock. While our liquidity position is much improved, we are continuing to evaluate the working capital requirements associated with our growing backlog of business.

Speaker 1

Accordingly, at this point, we have not made a decision regarding accrued or ongoing dividends. We will, of course, update you once any decisions are made. As many of you are aware, we held our Annual Shareholder Meeting on August 30. Included on the agenda was a proposal for the approval of a reverse stock That would enable us to remain compliance with the NASDAQ listed standards. Our shareholders approved this proposal.

Speaker 1

This was an important and necessary first step, and MasTec has granted us until November 15 to regain compliance with the minimum bid price requirement. We're now going through the internal mechanics of implementing the reverse split and we'll provide an update on the specific framework as things evolve. Now, let me I'll let Mark walk you through our Q2 financial results in a bit more detail before I come back.

Speaker 2

Thanks, Rob, and good morning, everyone. As Rob mentioned earlier, revenues from continuing operations totaled approximately $8,800,000 in the quarter, which was roughly in line with the revenues of $8,700,000 in the same period a year ago. Our Seamap Segment delivered revenue of approximately $7,600,000 during the quarter, which we believe is largely indicative of the continued strength that we're seeing in the exploration and alternative energy markets. Gross profit during the Q2 was approximately $3,300,000 which was marginally down when compared to gross profit of $3,500,000 in the prior year period. This represents Gross profit margin of 37% for the quarter, a 3 30 basis point decrease when compared to the same period a year ago.

Speaker 2

Gross profit margins for the CMAT segment were up approximately 300 basis points year over year, while current period gross profit margins The Klein segment declined significantly from the prior year period. Decline in gross profit margins for the Klein segment Was due to sales of higher margin multi beam sonar systems in the prior year period, not recurring in the Q2 of fiscal 2024. Our general and administrative expenses were approximately $3,500,000 for the 2nd quarter, which were down slightly when compared to the $3,900,000 from the Q1 $3,800,000 for the same period a year ago. The improvement over the prior year period is mainly due to reductions in executive level headcount as well as other cost management initiatives that we've implemented. Our research and development expense for the Q2 was $842,000 which was up slightly both Sequentially and when compared to the year ago period.

Speaker 2

Consistent with prior periods, these costs are largely directed towards our strategic initiatives, including synthetic aperture sonar and passive sonar array. Operating loss for the Q2 was approximately $1,500,000 which was essentially in line with a loss of approximately $1,600,000 in the Q2 of 2023. Our 2nd quarter adjusted EBITDA was a loss of $687,000 compared to a loss of approximately $1,000,000 In the Q2 last year. As of July 31, 2023, we had working capital of approximately $13,000,000 And cash of $494,000 After factoring in net proceeds from the Klein sale in August, Our liquidity position is significantly improved. As Rob noted in his opening comments, upon the closing of the Klein sale, We also repaid and eliminated our high cost debt that we incurred earlier this year and Mynd is once again debt free.

Speaker 2

I'll now pass it back over to Rob for some concluding comments.

Speaker 1

Thanks, Mark. We're more excited than ever for the future of VINE Technology. We've taken the necessary steps to streamline our operations. And as we sit here today, we are a more focused and efficient company. We think the opportunities for our CMAP unit are significant.

Speaker 1

The coupling of favorable market conditions and our differentiated and purchasable product offerings It's a recipe for long term success. We're seeing greater customer interest and engagement and historical highs in order flow, which contributes to our high expectations for meaningful and sustained growth. We're confident the mine is headed in the right direction. We look forward to building on the solid foundation that we've constructed to date. Our Cement technologies continue to gain traction with customers globally for a variety of end uses.

Speaker 1

Our team has done a great job adapting our technologies to meet the evolving needs of our customers. As we look forward to the back half of the year and into fiscal 2025, We intend to capitalize on this positive momentum to drive improvements in our financials. We experienced this quarter and have traditionally seen, there With that said, we do believe that the general trend will be one of increased revenue. The favorable market trends, robust customer interest Growth of our backlog continues to give us confidence that sustainable higher level revenue is achievable. We've worked hard and taken the necessary steps to position MIND As a leading producer of differentiated marine technology products, we're excited about what the future holds.

Speaker 1

As of today, we're debt free. We have a much improved balance sheet and liquidity position. We intend to continue to capitalize on the favorable market conditions, strong customer interest and engagement and robust order flow to achieve improved results, which we believe will generate meaningful shareholder value going forward. And with that, operator, we can now open the call for questions.

Operator

Thank you. We will now be conducting a question and answer Our first question comes from the line of Tyson Bauer with Casey Capital. Please proceed with your question.

Speaker 1

Good morning, gentlemen. Hi, Tyson.

Speaker 3

Do you happen to have just a bookkeeping question right off the bat, kind of the cash balance where you were as of This morning or last night?

Speaker 1

I mean, yes, we do. I'm not sure why we're talking about that specifically. But Again, if you look at where we were at the end of the quarter, dollars 500,000 or so, we've added $7,000,000 or so From the sale, so that's going to give you a sense of magnitude.

Speaker 3

Okay. And then have you had cash conversion? Obviously, you had some significant Accounts receivable with the lower revenue. So I'm guessing just that timetable of converting those receivables to cash?

Speaker 1

Yes, I mean that we'll certainly continue to do that. But also remember, we have a large backlog that we are starting to build. So there's ongoing needs there as well. So it's a combination of things. Okay.

Speaker 1

Well, if

Speaker 3

we look at the 1st 6 months in Sea MAP approximately $18,000,000 you're talking about some kind of revenue growth as we go forward. I'm guessing you're basing that off That $18,000,000 for SeaMap, that would imply at least a $36,000,000 for the year. If you have any kind of growth between $36,000,000 $40,000,000 Depending on shipment timings and some other things that can throw a monkey wrench into that. But as of right now, is that kind of the view That you have is between $36,000,000 $40,000,000 of revenue? Yes.

Speaker 1

Excuse me. Again, not wanting to get too specific, but I think again as far as I think the interesting thing is we have that history for the first six But I think more importantly, if you look at our backlog activity, it gives us visibility for the balance of the year and into next year as well, which is Very important for lots of reasons. But you mentioned that the thing that we have to keep in mind is Lots of things can happen that cause a particular shipment or 2 to slide from one way or another. And so these some of these are sizable orders, a few $1,000,000 so it only takes 1 or 2 of those to have an impact. So just everyone needs to keep that in mind.

Speaker 1

But The general trend is not different from what you described.

Speaker 3

Okay. And the margins typically on TMAP at least historically have been closer to on the growth side, what, 50% plus or 50% depending on What kind of capacity utilization or what kind of how many you're actually being able to produce and deliver?

Speaker 1

Yes, maybe not quite that, I'd say in the high 40s is kind of where we've seen things historically. We have a reasonable In flow or throughput to the operation, since we do have visibility going forward, that gives us some opportunities we think To be a bit more aggressive in some of our procurement activities as well as in some of our production operations, we're hopeful to be able to improve that somewhat, but it's really been in the high 40s.

Speaker 3

And you have been already Previously talking about $1,000,000 reduction in your corporate expenses and your G and A expenses even before you did decline, Would anticipate some additional savings out of that as we go forward and whatever was allocated to Klein on those corporate. What are you anticipating now kind of as a go forward on this G and A expenses? And in a follow-up, your R and D, was that Primarily related to Klein or what portion of that?

Speaker 1

Yes, not entirely. I'd say I'm going I will defer a little bit here. When we file our 10 Q later today, we're including some pro form a financials In that 10 Q, which I think will give you some good visibility as to what the impact would have been. We alluded to it in our comments Today, but I think that will give you some sense. Essentially, the client R and D goes away, which was a significant portion of our R and D.

Speaker 1

The direct client G and A goes away. And we also think there's some ongoing things We can do to continue to streamline the operation. I haven't quite quantified those yet. That's something we're looking to do to just make things a bit more efficient. But again, look at the pro formas in the 10 Q and I probably give you some good information.

Speaker 3

And your interest expense goes away also.

Speaker 1

Yes, absolutely. Yes.

Speaker 3

And I guess what I'm leading you to is and just doing the back of the napkin type numbers is, Should your directors choose to pay forward Preferred dividends, the financial wherewithal is there. It may be tight initially, but Obviously, you'll have the cash balance. You will have the financial wherewithal on ongoing financial operations To pay that if you decide to do so.

Speaker 1

Yes. Again, we're just analyzing the Overall situation and trying to understand how we can stabilize the ongoing overhead cost, But also what are the working capital requirements going to be to make sure we don't find ourselves in a position like we were a year ago and for a few months And having to really get by on a shoestring. And that's not what we want to do. That hurts the operation. So Certain things are much improved.

Speaker 1

Again, you're going to see from the pro formas what the numbers look like. So you can draw your own conclusions that We're just going to take all that into consideration when we make our decisions.

Speaker 3

Okay. And that decision likely we'll know as early October, which is the time that you have to decide whether to defer Or to at least make that October payment on the preferred?

Speaker 1

Yes, that's correct. That's right.

Speaker 3

Okay. And really off the table right Now is the accrued amount because we're not in that position to address that at the time being. So the decision is really whether or not we want to pay What is going forward and being current on the forward and then at some point in the future make a decision on what the accrued Whether or not you can back pay?

Speaker 1

Again, I don't want to comment on that, Tyson. It's all on the table right now. We're just looking at going to look at the overall situation.

Speaker 3

Okay. In your 10 ks on regarding the reverse split, it appears that even though it is till November 15, You will make a decision or a split if it were to occur, would occur on the end of October, Which the implication is if you have to have 10 days above a dollar that would have to occur within the next 4 weeks.

Speaker 1

You're right about that.

Speaker 4

The

Speaker 3

scenario is that we have a reverse split, 1 for 10, just throwing that out there because that was in the proxy, Will occur or would likely occur at the end of October.

Speaker 1

That is not an unreasonable assumption.

Speaker 3

Okay. Oil, dollars 90 heating oil, it's up 40% since July. A lot of tailwinds are building that would be favorable for SeaMapp. And just to give the listeners a little sense, when your major Competitor left the market a year ago. A lot of these decisions on whether or not you get a contract or not is whether the Ultimate customer just wants to go ahead and place that order.

Speaker 3

It's not really a competitive situation where You're going against somebody else as we've seen in years past.

Speaker 1

Yes. As it relates to source controllers, that is definitely The case, we are pretty much the only game in town. We do have some competition for the positioning systems, Boolink. We do have some competition for the streamer systems, but we are focused more on the High resolution three-dimensional applications used for survey purposes more than deepwater exploration. So we don't go head to head with the Deepwater Streamer Systems.

Speaker 1

So we do have some competition there, but it's pretty thin. It's fair to say.

Speaker 3

Okay. And yourself and Mark are not on the Board, correct?

Speaker 1

I'm on the Board. Mark is not.

Speaker 3

Yes, you're on the Board. The Board is going to ask for your recommendation being the CEO and the CFO's recommendation on outlook and financials. Are you willing to share what that what you would recommend even though that is only one Cog in the decision that the Board will make ultimately in regards to the preferred and going forward?

Speaker 1

No, I don't think we're going to comment on that. The Board as a whole will make that decision. So it wouldn't be appropriate for me to comment on that. Okay. Thank you, gentlemen.

Speaker 1

You bet.

Operator

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

Speaker 4

Always hard to follow Tyson since he asks all the good fundamental questions. So Rob, I'm just going to voice Some thoughts here. First, the preferred is actually pretty damn good paper. In fact, it's really good paper for you guys. And there's no way you can go into the marketplace.

Speaker 4

You paid off a term loan that was what 12.9 I think it was. This preferred is almost 400 bps under that. The fact that you guys and the Board might choose not to pay that off, Every time you do that, I mean, as an equity holder, I've sat here forever waiting for you guys to get it right and you're close to getting it right and I have this feeling you're about to snatch Defeat from victory, because what if I'm a preferred holder and I get 2 directors, the first thing I'm telling my directors to do, Hire a banker and there's no way even with your plans and your confidence, there's that hesitancy and you hear it in your comments That makes it impossible for this Board to say no to any deal that, that banker found that would make the preferred holders Whole and the equity holders walk away with next to nothing. And so it's important, let's get that paper Off the back of the common holders, it's just it's straightforward. It's you can't borrow a 9%.

Speaker 4

And in fact, you should get it going and that paper is better than going to the bank. I mean, eventually you'll be able to go to the bank and probably borrow in the High single digits and at this point in this environment and it frustrates me and I just I sense that The common holders just going to be asked to hold the bag and you're going to do a reverse split, get the stock above a buck. But in reality, That $8,000,000 $9,000,000 in value that's attached to the common right now is basically there on the hope that you guys Get this thing worked out with the preferred holders. So you are on the Board and I've known you for a long time and I know you're a good person and a smart person And I can't believe that you and this Board are going to let this situation go where you deferred the payment again because as I said, I'm Tyson is a smart guy and I'm sure some of those preferred holders talk to Tyson and I'm sure they're pretty confident that this company is worth Somewhere between $26,000,000 $50,000,000 or more. And if they sell it at $50,000,000 the preferred holders walk away with everything.

Speaker 4

And you can't let that happen, can you? Okay.

Speaker 1

Ross, I hear your comments and Take those into consideration. So I hear you.

Speaker 4

Yes. Don't I mean, I'll be honest, I don't want to come back to a call having supported you guys And have you guys basically have for want of $1,000,000 paid to the preferred holders, Basically, Nate told the equity holders that they don't have an asset. I've waited too long. This has not been a successful investment for me, But we can still snatch victory from the jaws of Ignominity. So let's do it.

Speaker 1

Okay. I appreciate it, Ross. Thanks. I really appreciate your comments.

Speaker 4

Thank you,

Speaker 1

sir. You bet.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Capps for any final comments.

Speaker 1

Okay. Thank you, Melissa. Thanks everyone for joining us today. I look forward to talking to you at the end of our next

Operator

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

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MIND Technology Q2 2024
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