Q2 2021 Mind Technology Inc Earnings Call
Greetings and welcome to the Mind technology fiscal 2021 second-quarter conference call at this time. All participants are in a listen-only mode on a brief question-and-answer session will follow the formal presentation. If anyone's you require operator assistance during the conference, please press star zero on your telephone keypad, as a reminder. This month is being recorded. It is now my pleasure to introduce your host Mister Kenton Art. Thank you mister Jenner, you may begin.
Operator good morning, and welcome to the Mind technology fiscal 2021 second-quarter conference call. We appreciate all of you joining us today your hosts off caps code chief executive officer and Chief Financial Officer and Guy Mauldin code chief executive officer and Executive Vice President of marine systems before I turn the call over to management. I have the normal housekeeping details to run through if you'd like to listen to a replay of today's call it'll be available for 90 days via webcast by going to the investor relations section of our website at mind technology, or you can listen via recorded instant replay until September 22nd and information on how to access the replay features were provided in yesterday's earnings rules.
Information reported on this call speaks only as of today Tuesday September 15th 2020. 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 begin. Let me remind you that certain statements made by management during this call May constitute forward-looking statements within the meaning of the bank 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 performance or results to materially differ from any future results or performance expressed or implied by those statements these risks and uncertainties include the risk factors disclosed by the company from time to time. It is filings with the SEC.
reading this and report and
Report on form 10-K for the year ended January 31st 2020 furthermore as we start this call, please also refer to the statement regarding forward-looking statements incorporating a press release issued yesterday. Please note that the contents of this call are covered by these statements now, I'd like to turn the call over to guy Mall. Thanks, Ken and good morning everyone else. We would like to thank you for joining us today for our fiscal 2021 second-quarter conference call.
Though the shadow of the covid-19 pandemic still looms large over industry activity and our own business the implementation of our rebranding strategy and our move away from traditional land seismic leasing business is enabling us to more fully realize our strategic vision and strengthen the company's prospects in the Global Marine industry and I'll come back and address important milestone in a moment. But first, let me start by making some general comments about the second quarter as Rob will more fully explained with our decision to exit the Land leasing a business those leasing operations are now reflected as discontinued operations in our financial statements.
The results from continuing operations reflect those of our ongoing business Marine technology products.
As we anticipated there was a reduced level of activity as well as widespread General market uncertainty due to the covid-19 pandemic. However, often technology product segment posted higher sequential revenues, despite lingering covid-19 restrictions. Sequentially, our second-quarter results were up from home with Consolidated revenues from a marine technology businesses Rising by roughly 60% on a year-over-year basis revenues from these continuing operations were down about 25%
All Things Considered we are pleased with the performance of our marine technology business in these adverse conditions. However, there are still restrictions in place which have constrained our operation and frustrated our efforts to reach some of our pre pandemic goals
As we touched on last quarter, all of our facilities are operational though with certain restrictions and new procedures do to code.
Regulations can vary significantly from location to location and tend to change rapidly which presents a challenge to daily operations the resulting uncertainty and travel restrictions particularly internationally We Believe have had a significant impact on the ability and willingness of customers to make firm commitments.
On the other hand covered concerns don't appear to have greatly impacted inquiry and bid activity in the Marine industry has both have actually remained quite robust with a high degree of customer interest with agent despite all the uncertainty.
Hello.
It's strong interest has not been accompanied by a similar level of orders as covered with actions are causing travel-related limitations when attempting to conduct some product testing and demonstrations off as a result. And as I just said customer seemed reluctant to make commitments with that said, let me now return to the subject of our strategic rebranding and our move away from the south business.
As you know, after receiving shareholder approval, we completed our reincorporation and rebranding last month formalizing changes to both our domicile and name this change represents a major step in establishing a fresh and revitalized new identity for the company that more fully underscores are tremendous technological capabilities in the Marine industry.
It also represents a departure from our traditional seismic leasing business, which we have decided to exit entirely.
We believe it also provides additional financing flexibility to enable us to navigate these uncertain times and pursue our growth objectives over all the completion of this process marks an important time in the development and evolution of Mind technology, and we have capitalized on this by rolling out a new corporate website that fully reflects reflects our new identity.
It goes without saying that we are excited and enthusiastic about the prospects of the company as we work to expand the presence of Armory products and services worldwide.
I mean, I'll turn the call over to Rob we will discuss our financial results in more detail. I will come back to add some closing comments before turning the call over for Q&A. Okay. Thanks Guy. I'll start a more detailed review of the financial results. But before I proceed I'd like to highlight an important item that guy touched on briefly.
Given the decision by management and the board to exit tool and seismic leasing business. The equipment leasing segment is now reflected as discontinued operations in our financial statements there. Segments results will be recorded separately that attacks after continuing operations in addition the segments assets and liabilities are now classified as held-for-sale off a group separately on the balance sheet. You'll notice it all prior periods have been restated to reflect these three classifications. So I'm the first review the financial results of our continuing operations, which consists of our marine technology products business for the second-quarter revenues from from continuing operations total 5.1 million.
Down about 25% from 6.8 million in the second quarter a year ago, but almost 60% from 3.2 million in the first quarter of fiscal 2021.
Team app revenues for down year-over-year to 4.1 million in the quarter from five million a year ago quarter, but were up 84% sequentially second-quarter revenues from club for 1 million a decrease for 1.8 million a year ago down about 19% sequentially. And then the quarter we did deliver a ceiling streamer system for installation on a vessel wage Japanese coastguard however as stated earlier, we believe that it's directions and uncertainty introduced by The Cove has been Debbie and other events have caused many customers to delay spending decisions and off and have been reduced logistical challenges that impacted our results. Let me give you an example of that.
in the second quarter
We completed a sealant related order for the value of about one point seven million dollars. However, due to travel and shipping restrictions. The customer was unable to arrange shipping to take delivery of the system wage. And we we were unable to recognize that sale in the quarter, but we do expect to do so in the third quarter.
Second quarter gross profit from continuing operations was $2, which is down from 2.8 million a year ago, but up from a half a million dollars and see one of this year.
This represents a gross profit margin of 40% which compares favorably to the 41% We achieved in last year second quarter and well above the 50% achieved in the prior quarter of this year wage increase our margins was the result of improved absorption of manufacturing overhead through the higher revenues.
Ongoing Cost Containment efforts continue to yield savings to our cost structure as a general and administrative expenses related to our continuing operations or three million dollars for the second quarter of fiscal 2021, which is 12% lower year-over-year essentially flat sequentially.
Research and development expense was 755000 which was up 52% from a year ago and 84% from the first quarter of this year. But this is reflective on going technology and product development activities.
Overall operating loss for the second quarter of this year was two point four million dollars as compared to an operating loss of one point seven million posted in a year ago quarter and a 6 1 million loss in the core. She wanted this year.
Our second quarter adjusted ebitda from continuing operations was a loss of one point five million compared to a loss of about $700,000 and last year second quarter and a loss of two point five million one of this year.
The mines capital structure is debt-free and acquitted remains solid at the end of the quarter. We had over 22 million dollars of working capital that included cash and cash equivalents of about 2.6 dollars as we touched on before our Capital cost structures are well suited to handle the continuing uncertainty of this environment with no debt. We're free of the strictures of financial obligations are restrictive covenants, which gives us significant more flexibility and hanse's the viability of the business should challenging conditions persist for an extended period of time.
With our near-term plans to monetize or leasing business as well as flexible cost structure. We are well-positioned to navigate this environment position ourselves for the eventual recovery.
So the shroud of a market in certain remains, we do see a solid base line of inquiries and requests for quotes as guy said customer interest has been robust off just hasn't yet manifested in order activity due to both of our cautionary environment and the many restrictions and regulations present in the markets that we serve as a result our firm order backlog at 7.6 million at the end of the second quarter was down from the first quarter backlog of 10.2 million.
No.
For that. Let me turn things back over to guy for a few minutes before we take your questions.
Thanks, Rob based on our own visibility the continuation of challenging economic fundamentals and restrictive travel and activity regulations. We currently believe that the third quarter Revenue levels of Technology product business will be comparable to the second.
We do remain confident in the long-term prospects for the business, but timing of orders and near-term activity remained uncertain we will continue adapting to market conditions and focusing on operational execution and the advancement of our technology.
As an example. I'd like to highlight our latest effort to serve our customers and develop better and more cost-efficient solutions to address Market needs that being the recently-announced agreement with a major European Defense Contractor to jointly bring to market the next generation of synthetic aperture sonar systems or SAS for both Commercial and Military markets and this contractor has a record of expertise in Marine acoustic technology. And the alliance will employ Technologies previously developed by both parties. We believe that by combining the strength of our respective products. This will be new and innovative solutions that better address the needs of the Marine market for higher resolution. Imaging
Fast is an emerging technology that can help achieve these aims and vastly improve on the quality of an image produced by traditional side-scan sonar.
By leveraging our respective strengths. We believe we can bring products to Market more quickly and increase the addressable market for our clients on our products as well.
Our efforts to further the reach of our marine products don't end there either.
Despite lingering covid-19 and activity reductions. We have nonetheless been able to demonstrate the effectiveness of our technology for customers. For instance. There has been a good deal of activity with demonstrations of our Max and Micromax sonar technology to various groups in the US Navy.
Furthermore we are also seeing more developments in the Marine exploration Market as many customers are requiring enhanced technical capabilities such as dual hydrophone capable Source controllers wage We Believe are gonna lie products are unique in their ability to provide this and other important capabilities and these are all favorable signs for our future order flow and they also demonstrate how new product of elements are opening doors to expanded opportunities for us.
We plan to aggressively pursue the furtherance of our technology and products whether through in terms of development acquisition or alliances. We also plan to expand the markets for our existing line of faith and to focus on providing more value Edition and higher return on investment.
In conclusion, we see challenges in the market, but we see opportunities as well with our strong financial position of no debt liquidity and access to additional Capital. We have the solid foundation needed to overcome the challenges and capitalize on the opportunities.
with that
You know now open up the call for questions.
Thank you. We will now be conducting a question-and-answer session. You would like to ask a question, please. Press star one on your telephone keypad. The confirmation to indicate your line is in a question Q. You may press star to if you would like to remove your question from the Q4 participants using speaker equipment and maybe necessary to pick up your handset before pressing the star key. One moment, please while we pull for your questions.
Thank you. Our first questions come from the line of Tysons Tower with Casey Capitol. Please proceed with your questions. Good morning gentlemen.
The discontinued Ops was that something that was always in the original plans to crew to label that as a business that would then be viewed as a single entity. Thus why we went with the discontinued Ops as opposed to just an asset sale and dwindling down that business activity June the land lease side where then we once we got the assets old, which I see is six point six million dollars that that would just work its way off the income statement and balance sheet.
It's really an accounting rules issue and we were at announced that we were exiting that business. And since that is a segment that we've disclosed the accounting office really dictated that we treat that as discontinued Ops so we don't get a choice even though you sing on Marine just because you treat it as land suck. That's why it got segmented out.
That's exactly right. There are some specific rules as to what constitutes a discontinued operation and actually in a a segment of your business as defined in the accounting rules is one of those criteria. Okay, and what appear that cumulative currency effects and appreciate everything just kind of gets thrown into this quarter month and more or less decided to clean up situation.
That's one way to look at it. It's the CTA the too many translation laws, you know estimated disposal cost, you know things of that nature. So that's exactly right. Okay, and when do you anticipate realizing that 6.6 million of assets turning into Cash?
Well, yeah the 616 it's got a carrying value that doesn't necessarily reflect what we expect to realize on it. But you know as we said when we made the announcement and we expect to do within 12 months could be shorter than that, but you know something we're working on now.
Okay.
The one point six million PPP loan that you received. Do you expect that to be forgiven or will you hold that and incur the 1% interest rate?
We think that we will be able to have a great part of that forgiving the you know process for make the application is a bit cumbersome and took the process on that. We actually can't you know treat it as forgiving until it actually is Forgiven but we do think a significant part will be forgiven. Okay, give me of a lot of things throughout this quarter and your and gave us a little bit of an outlook for next quarter. What are you looking at is kind of a cash burn rate over the next couple of quarters.
I think with all things considered we think we can kind of hold around. I don't want to be specific as to you know projection that I think we can feel we can hold our own somewhat with all the activity with the leasing business as well as they had operations. Okay announced some completed test for the u.s. Navy as that gets pushed to hopefully on the timeline and the money has been issuing contracts or helping keeping their suppliers going. Hey, do you qualify for that program since you're kind of a small player and this and to what kind of timeline are you now looking at as far as procurement now that the testing is complete.
The difficult thing to answer, you know, there are a variety of entities that we're dealing with their variety of programs. So it's really difficult. So I'm really reluctant to make any any any any forecasts. They're the good news is that it's multiple entities Tyson. We started out with one month and now it's it's it's growing into multiple. So we're trying to hit it from as many angles as we possibly can.
Is it possible to win something that allows you to continue in prototypes and that just to keep funds coming into your company?
Yes. Yep. Sure. Absolutely in the original announcement of the European partner. It was alluded to some time during the fall which was a Meg time. But we should see further announcements on Impossible products introduction of those things. Is that timeline still in place. And if so, can you give us any further color on what we should expect to see on a partnership?
Well, I think the guy said I'm not sure what to say much more. I think the time frame is holding up. We're pretty much on schedule with that. So I think in the coming weeks and months, you'll see more and more come out on that wage. And what should we expect to see it from that side the European side those announcements or from yourselves?
I think from herself from the side like last one you talked about the bid opportunities growing that hasn't gone away for your shareholders should give us a sense of what is that pool of possibilities that a pipeline size. I mean, we talking five to ten million ten to twenty million larger depending on the the programs of their multi-year accordion features, give us a sense of what we're talking about that led to changing the name changing to Delaware discontinuing, you know, give us a sense of why shareholders to remain patient.
So again without trying to be too specific and you know, give a specific time frame we're looking at, you know tens of millions of opportunities. We feel we think that there's significant up see where we are. So they these are potentially large programs, you know, not only within the domestic Arena but internationally as well there multiple products offerings that were talking about here and you know, even on the more traditional seismic side, you know, there is not taking activity there in inquiries and activities took my equipment and those are supposed to be system sales. Yeah. So we think there's there's a big upside and that's the reason the time to do it.
So even with that one point eight million sale that should be recognized in Q3. You're still anticipating 3 to be similar to Q2 even with that additional system sale in their name. Is that correct?
Yes in that ballpark again. You have to understand the uncertainty in the market place right now, you know, it's not going to wait, but that's that's how we see it today. Okay. Thank you.
Thank you. Our next question is coming from the line of Ross Taylor Investment Partners. Please proceed with your questions. Okay, well off of the questions I have were already entered the problem with following Tyson. Can you describe how the revenue split is going to go with this new partnership with the European partnership? Is it going to depend on what specifically is sold? Do you get more if certain Products that come from your technology or sold or are you guys going to split it in some preset percentage?
Again being too specific on the on that just yet. It's more of a specific Arrangement specific split if you will order specific economics as to you know, what they see and what we see so who sells it doesn't have that much of an effect.
Okay, that's good and the the set up there for is it also going to involved with the development process where you and they are going to work together to develop additional uses for your Technologies?
Yes, absolutely. Yeah.
And it's part of the purpose of this the European from the European side to give them better access into the US market.
I think that is one aspect of it. Yes as well. As you know entrance into the commercial Market, not military Market. Okay good. So basically what it is looks like there are you do bring a lot to the table though. You were much smaller player. You're going to bring a lot to the table from this and you're an important part of this process for them.
Because that's what we think for sure. Yeah, they they they had they had choices. Okay. And yeah, and how does this impact any current initial she might have with the US government?
Why I think this is a positive in that it shows a clear roadmap to SAS capability for existing products in the future products. So I can open slots of doors for us potential. That's the important but we were missing the polio and this gives us this fills out the portfolio with with the SAS offer. Okay, but an exam on Sundays are the projects you've been working on and we've been waiting for they are outside the purview of this JV.
Yes, yes. Yes.
Okay, and when you talked about multiple entities just in answer to Tysons question is that mean you're working with agencies away from the US Navy for other uses other governmental use of such as Homeland Security or things of that nature or is that different parts of the US Navy?
We're referring to okay, and does that set it would be for multiple purchase orders from different parts of the Navy?
Oh for sure.
Okay, great. So basically what you're seeing is you're seeing an expanded interest across the Navy in your technology.
I think that's certified. Okay, and if some of this do you believe tied into the fact that with the increasing use of autonomous underwater Vehicles the you know, the Navy is going to need to talk to a much more extensive mapping effort. I think a lot of people in this country forget that GPS exist. So that are launched in Sea launch cruise missiles could hit their targets not so you could find the department store or the grocery store and it would seem that that need is probably even greater for autonomous underwater Vehicles because you can't use traditional sense because of the way water transmits energy and so they're going to have to map
any hot spot pretty
Significantly and also pretty regularly just to make sure that if they need to deploy underwater vehicle and then underwater Vehicles they can do so safely. Is that part of what you see the Negro here and it's why this is going to be such a great long-term opportunity.
It's definitely related to the fact that there's a there's a big focus on vehicles both surface and and underwater the technology again. We're talking about Max and micromanage begin with that. We've been working on and we have developed fits very well in that in that arena with with that with that technology. So I think the answer is yeah. It's it's driven by Vehicles both surface and underwater.
It it's it's exciting. Although I do feel like there's times. I've walked into a waiting for the Airing of waiting for Godot, but my hope is it. Does that show up pretty damn quickly?
And you know, we feel that way sometimes doing the environment that we're in hasn't helped install forgot about that. But I understand but I do feel that you with this environment you feel that the the importance of what you're providing is should I mean you would think the Navy these are issues the Navy doesn't have a huge work around time on I mean if they failed to do these types of programs they're going to they're not able to move ahead with other programs that are pretty important to them. It would seem so one would hope the Navy starts to find ways to get things done.
Thank you gentlemen, once back one, The ocean has only had been explored 6% of the ocean has been explored has been ma'am. So there's a lot of there's a tremendous amount of unmapped areas out there. So not just the US Navy but you know sort of translate that around the world and there's there's going to be a lot of activity ocean-related a club. Well it it definitely does. I mean as you said point out that the all these initiatives, you know, are your ability to do under seen mapping at a much higher efficiency rate than any competitive technology for example would strike me as giving you a huge competitive Advantage because it should reduce the cost and increase speed and increase the capabilities, so
Right now it doesn't appear to be anything out there, you know.
You know as well as I am.
Yeah, well as I said, it sounds very exciting. We just need to to get there. I know we thought we were going to be there six nine months ago, but hopefully we'll get there in the next three.
Okay. Thanks. Thanks Ross. Appreciate it. Our next question is from the line up with Casey Capitol. Please proceed with your question. I promise to make this quick sg&a. You didn't have a whole lot of there without the discontinued are there some unique things that were included in that and what should we expect your ongoing sg&a and operating expenses to go to to help out your leverage there?
It really nothing much unusual there. If you look as we recast it with just the continuing operations. It's been fairly constant this year, you know roughly constant, so I wouldn't see it a dramatic change in the dirt in the near-term at least.
Because it looks like giving your current margins and you really are looking at you need to do what approximately ten million a 1/4 just to break even or to get up on that side of it. Is that correct? Is that what you're focusing on trying to hit 10 million a quarter ton of the ballpark. That's right. Yep, and the math on the ass or SATs offering sorry about that the battery usually you guys on your technology that you've doing with Cline, you're trying to offer a off-the-shelf technology that you can be integrated with existing vehicles that are out there. In other companies. Will this new offering be that same mindset where you're trying to make a more affordable option than what's available in the market now today with that better technology, you know, which wage
You going the the better technology route that you think you'll get paid for or creating something? That's far more affordable and more off-the-shelf that's easily to be used by other month, you know vehicle manufacturers.
It's it's a bit of both siphon. What we're trying to do is offer a much more affordable solution than the you know, multi-billion-dollar that you see from the big guys yet much higher quality of a product from resolution standpoint. So I'm trying to meet in the middle of the kind of happy medium there like and the technology package.
It's really from the European Partners standpoint. Can you give us a little detail on how much how many years they've spent on trying to develop this and the money they've spent putting into this.
many and many years and many millions
Okay, and then you will be the manufacturer, correct?
That's correct. Okay. All right. Thank you.
Thanks.
We have reached the end of the question answer session. I will now turn the call back over to management for any closing remarks.
Okay. Thank you very much. We appreciate everyone joining us today, and we look forward to seeing you after our third quarter. Thank you.
This does conclude today's conference. Thank you for your participation. Have a great day.