Q4 2022 Mind Technology Inc Earnings Call
<unk> annual report on Form 10-K for the year ended January 31, 2022. Furthermore, as we start this call. Please also refer to the statement regarding forward looking statements incorporated in our press release issued yesterday and please note that the contents of our conference call. This morning are covered by these statements now I'd like to turn the call over to Rob Kay.
Robert.
Okay. Thanks Zack.
So I'd like to begin by making first making some observations on the market environment before Mark discusses the financials in detail.
I'll, then wrap things up with some final remarks.
Consistent with past several quarters, we continue to see increased levels of customer interest across nearly all of our markets.
There are a couple of factors driving this.
First the drag of the global pandemic is abating.
Able to travel see customers and hand tradeshows as.
As of earlier this month for the first time in two years, we can travel by land between our Singapore and Malaysia facilities. These are important developments.
Secondly, the general trends within our primary markets are positive.
With oil prices above $100 per barrel the pricing environment within the energy industry is creating optimism and demand from our customers in that space.
Events in Europe , and the general global geopolitical situation highlight the need for Maritime security technology and are driving demand for certain of our products.
The move towards renewable energy sources, particularly offshore wind farms is driving activity for our customers and the Marine survey space.
Our announcement of new orders last week, which we'll talk more about in a bit is good evidence of these trends and increased activity.
Now looking at our full year results consolidated revenues were up approximately $1 $9 million year over year. However, our fourth quarter revenue was not what we expected.
We had orders of both CMS and a client that had been completed the due to logistical challenges our customers could ox had delivery.
We have certain other orders that we expected to complete and deliver in the quarter.
Unable to do so due to supply chain issues.
As disappointing as these results are I think is important to note that each of these issues are once a timing not lost opportunities.
To be sure there will be other challenges in the future.
We see the general level of activity increasing.
Our backlog of orders as of January 31, 2022 was $13 $1 million a.
Subsequent to our fiscal year end, we received firm orders of approximately $5 8 million and have responded to request for quotes or RF queues that specify our products of approximately $4 5 million.
Therefore, our firm and highly confident orders today, a total of approximately $23 5 million.
This is the highest book of business since our transformation away from the legacy equipment leasing business and that's not the end of it.
We are pursuing other opportunities and are confident we will be successful on many.
We are encouraged by the level of interest we are receiving from our customers and the engagement across our commercial and military market gives us optimism that we can translate to further orders.
Our strategy to develop innovative technology and to find new applications for existing technology remains intact.
We recently introduced our spectral AI automated automatic target recognition, our itr technology.
This development has in our opinion been very well received by our customers and can differentiate our sonar products.
Our synthetic aperture sonar SaaS development project is progressing.
While the initial deliveries have been delayed from our original expectations due in large part to component supply issues. We continue to believe this will be an important contributor in the future.
Applications for unmanned platforms is another area of focus for us.
Granted integrated sonar system for unmanned underwater vehicles that we call Mako is an example of that.
Also I'll say, our passive sonar arrays as an ideal application for unmanned surface vehicles.
Now despite these visions for the future we entered fiscal 2023 with a focus on near term results.
We are concentrating our efforts in areas, where we see immediate demand such as our multi beam sonar systems higher capability single beam systems and seismic exploration systems.
That being said, we continue looking to control cost in this challenging environment.
Now ill, let Mark walk you through our fourth quarter and full year financial results since more detail of our outlook a few summarizing comments mark. Thanks.
Thanks, Rob and good morning, everyone.
As Rob mentioned earlier revenues from continuing operations totaled $3 8 million in the quarter, resulting in a decrease of about 41% versus the $6 4 million reported in the same period a year ago.
This decrease is largely attributable to the supply chain.
Bottlenecks and delivery delays that Rob alluded to.
Full year revenue amounted to $23 1 million, which was up 9% versus fiscal year 2021.
Full year gross profit from continuing operations was approximately $6 million down.
Down 17, 6% when compared to the same period a year ago.
This represents a gross profit margin of 26, 1% for the year, which was down from the 34, 5% we achieved during fiscal year 2021.
The reduced margin is due mainly to revenue mix, but also reflects inefficiencies, resulting from the supply chain disruptions and delivery delays noted in rob's opening comments.
Our general and administrative expenses were $3 7 million for the fourth quarter of physical 2022, which was down from $3 9 million in the third quarter.
We do expect further reductions in our general and administrative expenses following Guy Malden retirement, and the departure of Dennis Morris, our chief operating.
Operating officer.
We do not intend to replace those positions.
Our research and development expense was about $1 million for the fourth quarter, which was roughly flat with the same period a year ago.
These costs are largely directed toward our strategic initiatives such as automatic target recognition synthetic aperture sonar passive sonar arrays in sensor systems for unmanned platforms as well as enhancements and upgrades to our others on our systems.
Our loss from continuing operations for the fourth quarter of this year was $5 1 million as compared to $2 1 million loss in the third quarter of physical 2022.
Our fourth quarter adjusted EBITDA from continuing operations was a loss of $4 5 million compared to a loss of $1 3 million in Q3.
For our legacy land leasing business.
Which is classified as discontinued operations, we completed approximately $2 5 million of asset sales in Q4.
As of January 31.
We have some miscellaneous equipment remaining which will likely be monetize.
In the current fiscal year.
<unk> capital structure and liquidity remained solid.
As of January 31, 2022, we had about $18 9 million of net working capital.
We continue to have no funded debt for our outstanding obligations aside from our normal operating commitments.
Also our cost structure remains lean and flexible associated market conditions take a turn for the worse.
We believe are largely variable cost structure gives us some leeway to reduce our expenses commensurate with any declines in our business.
I'll now pass it back over to Rob for some concluding comments.
Okay. Thanks Mark.
While it is evident that supply chain challenges and inflationary pressures remain a factor we are encouraged by what we're seeing in terms of orders across our business.
There will always be some level of microeconomic uncertainty, we feel that with robust with the robust interest customer optimism on quote requests. We have received to date that we're positioned to meaningfully grow revenue in fiscal 2023.
Given the possibility of supply chain disruptions the timing of orders may be pushed but it's important to note. These orders are not disappearing.
We have a strong backlog and we are seeing increased customer engagement.
After taking all of this into consideration we are confident in fiscal 2023 will be much improved over fiscal 2022.
We will always remain vigilant when it comes to our cost management, and we'll navigate any supply chain and logistical challenges to the best of our ability if they should arise.
We are optimistic about the upcoming opportunities for mind throughout the year, and we look forward to achieving our long term goals and generating meaningful shareholder value.
With that operator, let's open the call up for some questions.
Thank you we will now be conducting a question and answer session.
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You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Once again that is star one to register a question at this time.
First question today is coming from Tyson Bauer of KC capital. Please go ahead.
Yes, good morning, gentlemen.
Thank you Tyson.
And it appears with your current bookings and backlog that we're starting the year with 2000 your fiscal 2022 already in hand.
Primarily calendar 'twenty, one so any incremental orders or bookings.
<unk> going to accentuate that growth year over year.
The current end markets, probably as strong as tailwind as you have seen in the past.
10 years, maybe in the past decade, as far as both defense and with oil being as high as it is.
With that scenario on the demand side being therefore, you it becomes a story of conversion.
Getting the orders getting revenue recognition getting the cash flow.
Leads us to the big question with that kind of size or growth potential your cash management funding and working capital requirements.
What is the plan there to be able to smoothly transition without necessarily having to tap the capital markets Ryan.
Brian .
So.
The capital raise we did last year was really in anticipation of this.
So a lot of that.
Working capital build if you will has occurred.
As we've gone out and been more aggressive.
Our cigarette inventory things of that nature.
So as we see things today, we think that we'll be able to self fund to.
The continued growth in the few weeks using the capital we raised last year.
If things go dramatically different maybe that changes that.
As we see it today, we think we are.
Positioned to fund the growth that we're seeing.
And the growth that we have in hand, as you point out.
I agree with you I think.
So positioning started years without a doubt stronger then.
Anytime in the last few years since we made the change like from our leasing business.
So it's definitely a.
Change in the overall market sentiment as a change in our position so.
It makes us feel pretty good about things obviously, the downside of that is are the supply chain issues.
Which are difficult to manage and they are there.
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There'll be things that we don't expect will happen.
Just the way the world is that we're working really hard to manage those and again that was one of the reasons.
Use of capital last year.
Okay and given your anticipation of these orders coming in and building your working capital.
And.
The expectation of that growth that 23, five is that obviously stuff that you anticipate getting delivered converting this year with incremental as we go through the year.
On that side of it.
Given that you had some things push out of Q4 into this quarter.
To date shipments and getting that converted into revenue and then of course into cash.
Should we expect any kind of bump to start the year.
Just because of those lag.
Certainly we've getting getting some benefit from things that pushed out all didn't happen in the in the first quarter necessarily I think the full 2025, we do expect to happen in this fiscal year, that's fair to say plus other things.
So I do expect of course, a big bump from Q4, that's not much of a comparison actually.
But I would expect some improvement from Q1 last year as well.
Okay.
Do you anticipate their first SaaS delivery or further developments that the market will it'll be apparent to the to the market.
Excuse me I think.
Later in the summer.
The market will see some things.
Okay, and last one Chris Ross or somebody else is on the call.
There has been more chatter about unmanned coastal defense, especially in light of the Ukraine situation and providing funding in Europe , providing funding.
I am sure your partners probably involved with that also.
Are you seeing greater interest in your technology for that application directly or indirectly that youre able to talk about.
I can say that we definitely are seeing.
Increased interest in the technology and some of the.
Increase in order activity is directly related to that and really can't say much more beyond that.
Thank you gentlemen.
Okay.
Thank you once again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad at this time.
The next question is coming from Ross Taylor of Ari's investment partners. Please go ahead.
Thank you <unk>.
Couple of quick questions about the business cash flow and operating margins would you looking at the book of business. You have would you anticipate then operating margin should revert back to the mid <unk> This year.
Oh definitely see improvement Ross one of the big factors driving the margin down is just unabsorbed overhead costs. So just as revenues increase.
We actually see an increase in margin as we absorb more of that.
I also think just given the makeup of the.
The orders that we're seeing I think we're able to be a little more aggressive from a pricing standpoint, so I would expect significant improvement in going back to a more historical margins.
And.
So therefore looking at this year fiscal 'twenty.
Fiscal 'twenty three do you anticipate that by the end of the year looking at your order book and the like you should be operating.
<unk> cash flow free cash flow.
Yes, we think by the end of the year.
We think by the end of the year will be at that point.
So we've been waiting for a long time.
It kind of feels sometimes like someone could be to a chair and keep my eyes open that made me want to waiting for a good deal on a continuous loop is this year and by the end of this year.
We're going to start to see that.
Breakthrough you've been talking about that's going to push the revenue line from.
345, $6 million, a quarter range to something meaningfully higher than that.
Ross that's what we're seeing right now I think thats, what the order book tells US right now obviously there are uncertainties in the marketplace.
It could affect that and we will we will see some quarter to quarter variations. There is no doubt we.
There will be some unexpected events.
But there's no doubt in my mind at least that we are in a much much stronger position going into this year.
Much better positioned to deliver that in.
I feel your pain believe me.
Watching the St. Luke as you are.
Yes, it's time does it end.
It wasn't a particularly good film the first time around.
Okay.
Okay looking looking at this going forward and when you look at your book of business right now.
Book of potential business.
Is.
The defense side of the business.
The hottest area are you seeing the most growth or is it other areas I mean, obviously with.
The search for things like lithium and rare Earths then.
There are some sundry heavy metals and the like.
Additionally, in the past there was a lot of talking about undersea exploration.
Under the ocean being a place we're going to find that solution.
What segment of your business is really what's driving this this is kind of this move.
We're going to finally achieve our breakdown.
Yes.
It's really a bit of across the board.
The defense or maritime security market is the largest potential.
And has been the smallest for us historically, so probably from a percentage growth standpoint, that's going to be more meaningful for us I think.
But.
The exploration market.
Has really picked up some strength with the pricing environment.
For oil, but also.
As you as you mentioned for other types of exploration activity.
I think our most recent order we announced.
The Institute in Korea is really geared towards that storm activity that sort of research. So it's really across the board I think.
Okay, and then I think this company is strategically worth a lot more than its trading at but you and I and I think everyone on the call understands that you've got to execute to demonstrate that.
If you are not able to do that I think there is a point in time, where you have to recognize that.
As as honorable is your intention to hire to get fair value for the shareholder to building I think disappointed to hear what are you kind of look at it.
The best way to get that value is defined the strategic buyer I'm sure. There are plenty of them who would be interested in what you bring to the table.
Be willing to reward shareholders and play.
Alright.
I hear you.
Okay. Thank you. Thank you Okay Ross.
Thank you. This concludes the Q&A portion of the call I would like to hand, the call back over to Rob Katz for final comments.
Just like to thank everyone for joining us today.
Look forward to talking to you again here just in a few weeks actually when we report our first quarter for the current fiscal year. Thanks very much.
Ladies and gentlemen, thank you for your participation and interest in mind technology. You may disconnect. Your lines at this time or log off the webcast and enjoy the rest of your day.
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Yes.
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