Q1 2022 Mind Technology Inc Earnings Call

Greetings and welcome to the main technologies first quarter fiscal 2022 conference call.

At this time all participants are in a listen only mode.

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.

During this conference is being recorded.

It is now my pleasure to introduce your host Ken Dennard. Thank you can you may now begin.

Thank you operator, good morning, everyone and welcome to the main technology fiscal 'twenty 'twenty 2 first quarter conference call. We appreciate all of you joining us today. Your hosts are Rob Capps co Chief Executive Officer, and Chief Financial Officer, and Guy Malden, Co Chief Executive Officer, and Executive Vice.

Marine systems.

Before I turn the call over to management and the normal housekeeping details to run through if.

If you'd like to listen to the replay of today's call it'll be available for 90 days via web pet webcast by going to the Investor Relations section of the Companys Web website method in mind.

Cash technology dot com or there'll be a recorded instant replay feature until June 10th.

Information on how to access the replay features was provided in yesterday's earnings release.

Also information reported on this call speaks only as of today Thursday June 3rd 2021, 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 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 incur.

Include the risk factors disclosed by the company from time to time in its filings with the SEC Inc.

<unk> annual report on form 10-K for the year ended January 31.2021.

Furthermore, as we start this call. Please refer to the statement regarding forward looking statements incorporated in the press release issued yesterday and please note that the contents of our conference call. This morning are covered by these statements now I'd like to turn the call over to Guy Malden Guy.

Thanks, Ken and good morning, everyone.

We'd like to thank you for joining us today for our fiscal 2022 first quarter conference call.

I'll begin by making some general comments about the first quarter net we'll hand, the call over to Rob to discuss our financial results and address our general market outlook.

The first quarter of fiscal 2022 was mark by some turbulence as both we and our customers began to experience supply chain disruptions.

Despite the rapidly improving improving COVID-19 situation in the United States.

Some parts of the World, particularly Asia continued to experience associated disruptions and difficulties.

While the recovery in global economy is clearly supportive of our long term goals for the company. We can expect some bumps along the road.

For instance, the global supply chain challenges I, just mentioned can and have had an effect on our customer spending plans.

We all have experienced increasing lead times and shipping times for some components and sub systems, which have in turn caused some delays in orders and deliveries.

When we were planning our production schedule for the current year, we were able to get the pipeline flowing for certain key items, such as Pcbs and various other components.

However, with so much activity getting underway simultaneously around the world, we are seeing some disruption to our supply chain.

We think these situations are temporary but they're doing certain element of risk to our business, particularly with regard to the specific timing of activity.

Yeah.

Another macro factor that has continued to weigh on our business as the lingering impact of Covid overseas spin.

Specifically some countries, particularly in the Asia Pacific region are still dealing with restrictions on business activity and excess to outsiders.

This has had an impact on our operations in Singapore and Malaysia.

I'd like to go global supply chain disruption. We believe this issue will also mitigate over time as vaccinations increase worldwide, but it does present, a near term challenge for us.

Nonetheless, we saw some activity shift to the right during the quarter due to these issues in a variety of other reasons.

Looking at our first quarter results.

Revenues were up on a year over year basis with consolidated revenues up by nearly 32 per cent.

On a sequential basis.

Consolidated revenues were down 35 per cent.

Our backlog remains strong at $11.1 million, although down from the record $14.2 million, we had at the end of Q4.

Now that said as mentioned in our press release, we are expecting to add a couple of fairly significant orders in the coming weeks.

But overall the supply chain and component shortages combined with some orders being delayed to later this year.

Have temporarily hampered our visibility into near term conditions.

Despite challenging conditions, our long term objectives remain intact.

That is we will capitalize on the explosive growth of the U S. P. In AAV markets by offering comprehensive sensor payloads for these applications.

We will address the growing market demand for higher resolution underwater images using synthetic aperture sonar.

And we will meet the need for cost effective anti submarine warfare and maritime security solutions.

By successfully addressing these needs. We believe we will attain our long term goal of achieving annual revenues of $140 million in the next 5 years with an EBITDA margin in excess of 20%.

With that let me now turn the call over to Robert Okay. Thanks Guy.

Begin by giving you a detailed review of the first quarter financial results before I make a few summarizing comments.

Now keep in mind that our continuing operations are composed entirely of our marine technology products that are legacy leasing operations are classified as discontinued operations.

As Guy mentioned, the first quarter was impacted by the effects of customer orders being pushed to the right as well as supply chain disruptions. So some of which are related to the lingering COVID-19 impacts.

Accordingly, our results were a bit less than we had planned.

Revenues from continuing operations totaled $4.2 million in the quarter, which was down 35% sequentially versus $6.4 million in the fourth quarter of fiscal 2021.

First quarter gross profit from continuing operations was 543000 down from $2.5 million in Q4.

This represents a gross profit margin of 13%, which was down from the 40% we achieved in the prior quarters.

Decrease reflects the effects of unabsorbed production overhead due to the lower activity level.

Our general and administrative expenses of $3.8 million from the first quarter of fiscal 2022, which was roughly flat sequentially.

Research and development expense was $1 million book.

It was up 9% from the fourth quarter of last year.

The increase was large largely due to higher levels of activity targeting the pursuit of our strategic initiatives such as synthetic aperture sonar passive sonar arrays and sensor systems for unmanned platforms.

Our loss from continuing operations for the first quarter of this year was $3.7 million as compared to $3.3 million in the fourth quarter of last year.

Our first quarter adjusted EBITDA from continuing operations was a loss of $3 million compared to a loss of $1.8 million in Q4 of last year.

We are continuing to progress on the disposal of the land leasing business.

These assets are carried on our balance sheet at approximately $4 million as of April 30 of 2021.

We continue to pursue a number of different avenues to monetize these assets.

Mine's capital structure and liquidity remained solid.

End of the quarter, we had about $15 million of working capital that included cash and cash equivalents of over $2 million.

As of today, we have no funded debt and have a lean and flexible cost structure.

And with the incremental proceeds from the continuing sales of our land leasing assets. We believe we have the resources necessary to overcome any challenges that the current environment may bring.

We also fully take the opportunities as they become available.

So October and supply chain issues, we continued to see a healthy level of inquiries and request for quotes.

Although some orders had been delight revised or revised it remains a city demand from marine technology, particularly for our source controllers and related upgrades.

As Guy mentioned, our backlog amounted to $11.1 million, which is down from the all time high of $14.2 million set last quarter.

We did have 1 order for approximately $2.1 million canceled during the quarter and therefore removed from our backlog.

The requirements from this customer changed necessity, necessitating the cancellation of this particular order.

However, we do expect to receive other words from this customer asset requirements become better defined.

As Guy mentioned, we also expect to relatively significant orders in the coming weeks totaling more than $5 billion.

The supply chain issues in Covid overhang, we've discussed introduced an element of risk and uncertainty to our near term outlook.

The shortfall we experienced in the first quarter may be difficult to make out during the balance of the year. However, the run rates. We anticipated later in the year still look to be quite attainable.

The long run.

He hasnt remains unchanged and we remain fully committed to our long term objectives.

Our past performance during times of adversity has shown that we can manage the downside index by focusing on execution and cost containment.

As we've emphasized before we stand ready to make further adjustments to both our operations and cost structure in the event of continued volatility.

With no debt and the pending sales of our remaining lease pool equipment, we have the necessary breathing room needed to overcome the near term challenges and if needed to access capital markets in the future.

So in closing, although the first quarter turned out to be a bit more difficult than we had anticipated. We remain excited about the future of <unk> technology and are firmly committed to executing our growth plan.

And that concludes our formal comments at this time, we will open the lineup for questions.

Thank you well now be conducting a question and answer session.

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Okay.

Thank you once again that is star 1 to ask a question.

Our first question is from the line of Tyson Bauer with KC capital. Please proceed with your question good morning, gentlemen.

Hey, good morning Tyson.

The comments regarding the Q1 wouldn't be able to be made up.

Through the remainder of the year, but you still expect to be at the same run rate that you discussed on the prior conference call.

What is the what assumptions are in that to make that statement given the supply chain disruptions COVID-19 easing in any other things that you've mentioned and the cancellation of that 2.1 are you still anticipating that that was a 1 off situation.

We still are on track with other orders within the backlog and orders do you expect to get with deliveries.

Just give us a little color between those comments you made.

Sure sure Mark.

So the canceled order, we do expect those to be replaced effectively with other orders from that same customer again, they had to change that circumstance. So they just eat something different and they're trying to figure out what that different is so that's kind of that situation.

Far as making up the shortfall I think the point, we're trying to make is there is a bit of a shift here I know you didn't want to give the impression net okay. There's force 1 order we have moved to the next quarter. So that's kind of the next focus from you that much bigger just because of that there is some assumption that there will be some continuing impact.

The supply chain situation, which we think will mitigate later in the year. So that's the reason we made the comment about not making up the shortfall, but still feel good about the bed the run rates in the balance of the year based on the backlog the scheduled deliveries.

And then just the order flow in general So I think we feel pretty good about all of that.

What were your deliveries in the quarter and what do you expect in the second quarter.

Okay.

Net revenues were $4.2 million.

We expect something more than that in the fourth quarter in the second quarter.

I don't want give specific guidance on that.

Okay. I was just wondering if there was a system that are because of the third party.

Add ons that you mentioned in the press release that now gets delivered in Q2. So all of a sudden we're picking up an extra 1.2 million there.

But overall, we're still cautious on the timeline.

Yeah, I think theres there definitely is some.

The amount of order that got pushed from Q1 to Q2, but again you have to assume there's going to be something in Q2 to get to Q3.

Supply chain issues part of it is.

A lot of our systems are integrated with other pieces of equipment.

So if a customer can't receive delivery that other equipment.

Need arched up until a later day. So that's part of the Sichuan is what I'm, saying.

Is that Mark what we've seen in the news a lot chip related or other factor.

Factors that we should keep an eye on.

I think it's general supply share thing I mean, you see chips into.

And this news a lot and I think we.

Kipp, our arms around that pretty well from our particular situation.

But you're just seeing general lead times be pushed out in delivery times per shelf shipping issues.

Part of the issue, yes, its not just supply is supply chain, but finished the shipping related to that supply chain.

It's sort of unprecedented from our perspective.

The lengthening of shipping times.

You also commented no capital needs. So I've got 4 million assets for sale that are on the balance sheet that hopefully finding a prospective buyer there.

Yeah.

Does that imply then as we get into a more hopefully a routine or more normalized.

Orders are building deliveries.

That you can handle everything internally with those source of funds in that cash management, we shouldn't expect any other preferred or common ATM usage or any other extraordinary capital needs.

I think we feel like we can handle things internally as to whether or not we utilize the capital markets rolling depends on some of the opportunities we see for <unk>.

Accelerating development activities or maybe some M&A activity.

I don't want to say it will.

We wont address the capital markets, but I think it would be more for for expansion, Okay and last question.

With your European partner, just discuss where you are in that time line with product.

Rollout marketing naming.

Just a little flavor on where you stand with your European partner.

We're in the middle of the project right now is progressing on schedule the schedule very much on schedule again, we expect first delivery later this year.

Has that been any trade shows or anything in the where that's been not yet.

Not yet.

The public out coming out party.

Later later this year, yes, starting late August.

Later this year.

Alright, Thank you gentlemen.

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

Thank you, it's always difficult to follow Tyson because and pearsall.

Uh huh.

But you mentioned something about a $5 million order coming later this year.

You know actually later this quarter, we think there's actually a couple of orders that total net over that that we think are imminent.

Can you give us a little bit more color about those orders and even though what.

Yours are are they industrial.

Corporate orders are they complement depends Gordon.

From a color about them.

These.

But they are both excellent once governmental and once commercial.

And I really can't say much more about that since it's still dandy.

Okay.

Okay, well I think obviously, that's pretty exciting how are you seeing the bid environment going on I'm talking to people.

You know who deal with things like Washington, or finding you know Washington seems to be really behind the curve on paperwork and things of that day here how are you finding it.

Domestic bid environment.

Never mind as well as oversee and.

And generally the corporate environment.

Yeah, I think from the governmental side, we don't see things much different.

From normal if you will.

Louise cumbersome.

And that Hasnt changed, but I don't think we've seen a slowdown I think what we have seen.

During the past year, a lot of government offices were closed and you Couldnt go see people and Thats starting to change. So we actually have some face to face meetings scheduled in the near term, which is that's a big change for us.

I think on the commercial side Youre definitely seeing things pick up a bit yes, no doubt about that.

I think Asia is lagging a bit for the reasons Guy.

I talked about.

We're definitely seeing things pick up a bit.

So if you were to take away the supply shortages in the choke point.

How do you think what do you think you're a backlog business would be building do you think that's right now we're seeing a major.

Right on the building of this backlog I didn't hear it because of the fact that people can get components.

And people are a little up and yeah.

You know I don't know if I'd say that I don't understand Raul Sinha, our backlog can go up and down a couple of big orders have a big impact on the backlog.

So that could be a.

A bit dangerous to do.

Draw too many conclusions from that there is an impact, but I wouldn't say, we're seeing a major impact.

Jack.

People say, okay, I'm not going to take delivery until.

Next mark so I don't need to worry about placing the order maybe there's some of that but to counter that they recognize.

<unk> time issue so the sooner they get an order on with us.

The sooner we can get it into the production plan. So that's actually kind of countering some of the some of the offset.

Okay.

Good day, it's great to hear that you think particularly if you can get the for sale asset sold but you will not need to be revisiting the book it on a regular basis.

Good day.

The state Board.

Going forward are you guys achieving.

The goals that you've laid out.

Okay.

Okay. Thanks Ross.

Thank you Sir.

Thank you at this time I'll turn the floor back to management for closing remarks.

Okay. Thanks, everyone for joining us today I appreciate your time.

We look forward to talking to.

A few weeks few months after our second quarter call. Thanks very much.

Thank you ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect. Your lines at this time and have a wonderful day.