Q1 2023 Mind Technology Inc Earnings Call
Greetings and welcome to the main technology fiscal 2023 first quarter conference call.
At this time all participants are in a listen only mode.
A brief question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
As a reminder, San Francis is being recorded.
It is now my pleasure to introduce your host Ken Dennard. Thank you.
You may now begin.
Thank you operator, and good morning, everyone and welcome to the main technology fiscal 2023 first quarter Conference call. We appreciate all of you joining us today with me are Rob.
Rob Katz, 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 normal housekeeping details to run through if.
If you'd like to listen to a replay of today's call it'll be available for 90 days via webcast go into the company's Investor Relations section and Thats mind Dash technology Dot com.
Or via Telephonic recorded instant replay until June 16th.
Information on how to access the replay was provided in yesterday's earnings release.
Information reported on this call speaks only as of today Thursday June nine 2022, 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 those statements.
These risks and uncertainties include the risk factors disclosed by the company from time to time in its filings with the SEC, including its 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 with that behind me I'd like to turn the call over to Rob Katz Rob.
Hey, Thanks, Ken So I'd like to begin by first making some observations on the market environment and our progress to date before Mark discusses the financials in detail I will then wrap things up with some final remarks.
As we've noted on recent calls we've been pleased with the improvement that we're seeing in the underlying market conditions that surround our business.
We think this uptick in customer interest is largely indicative of the general economic and geopolitical trends serve as a stimulant for much of our business.
We believe that the sustained higher global energy prices are a positive development for our marine seismic contractors.
On the other side of that coin the higher energy prices have caused others to pursue investments in renewable energy, particularly offshore wind farms and this is a positive development for our Marine survey business.
But maybe more importantly, the global geopolitical and security situation and not only in Europe , but also the rest of the world has highlighted the need for maritime Securities and technology.
Some of our recent and pending orders are a direct result of this.
These macroeconomic trends and increasing levels of activity are evidence that the effects of the global pandemic are abating. This.
This increases our optimism that we are well positioned to grow in the coming periods.
A significant increase in revenue we saw this quarter is we believe a strong indication of the benefit of these trends.
Now looking at our first quarter results.
Its holiday did revenues were over $9 million up approximately $5 3 million or 142% quarter over quarter.
As I just said, we think this increases important milestone and an indication of things to come.
As we discussed on our last call approximately $2 million worth of orders were pushed from the fourth quarter and were delivered in this quarter.
As Youll recall these orders had been completed due to logistical challenges our customers could not accept delivery and we could not recognize revenue.
While the first quarter benefited from these items, we had a similar situation this quarter with orders totaling approximately the same $2 million differ from the quarter due to customer delivery restraints.
It remains important to note that issues such as these are issues of timing not lost opportunities. While it's not ideal. It's just the nature of the Beast. These won't be the last challenges we encountered.
Our backlog as of April 32022, whereas approximately $13 4 million.
If you consider our backlog and other highly confident orders, which includes anticipated orders received after the end of the quarter and orange from RF choose that specify our products.
Our book of business totaled approximately $23 million and we expect to deliver all of these orders as well as others that we're pursuing in this fiscal year.
Although we're pleased with this book of business and the traction that our product lines continued to achieve whereby no means content, we're continuing to pursue other opportunities and are confident we'll be successful on many.
We're optimistic that this will be reflected by improving results in the coming periods.
Our strategy to develop innovative technology and to find new applications for existing technology remains important.
These activities include passive sonar arrays automated target recognition synthetic aperture sonar suite and systems for unmanned platforms.
Our programs to bring these technologies and related products to market continue to progress.
Our focus continues to be on operational excellence and on executing our business strategy to maximize our near term results.
As also mentioned in our last call, we've taken certain steps to control cost.
Although we've not yet seen the impact of these actions.
It will be seen in coming periods.
We will concentrate our efforts in areas, where we are seeing immediate demand and as a global backdrop continues its recovery, we will look to expand our capabilities to meet the growing needs of customers.
And with that let me turn things over to Mark and let him walk you through our first quarter results before I make a few summarizing comments mark.
Thanks, Rob and good morning, everyone.
As Rob mentioned earlier revenues from continuing operations totaled $9 1 million in the quarter.
Hundred 17% increase when compared to the $4 2 million in the same period a year ago.
Gross profit from continuing operations in the first quarter was $3 3 million up over 500% when compared to the same period a year ago.
This represents a gross profit margin of 36% for the quarter, which is up from the 13% we achieved during the prior year quarter.
The increased revenue for the quarter resulted in higher absorption of fixed cost and improved gross profit margin.
Our general and administrative expenses were $4 3 million for the first quarter physical 2023.
Which was up from $3 7 million in the fourth quarter.
Our G&A expenses are typically higher in the first quarter of the year as a result of employment related taxes, which are front end loaded.
And higher professional fees associated with year end reporting activities in.
In addition, we incurred higher travel and promotional costs, primarily related to trade shows as pandemic related restrictions have eased and we reengage with customers.
Additionally, we incurred approximately 300000 nonrecurring costs this quarter related to the cost reduction activities that Rob referred to.
As we've previously mentioned, we do expect further reductions in our general and administrative expenses in the coming quarter.
Our research and development expense was about $1 million for the first quarter, which was roughly flat sequentially.
Consistent with prior period. These costs are largely directed towards our strategic initiatives such as automatic target recognition synthetic aperture sonar passive sonar arrays in sooner and sensor systems for unmanned platforms and our other strategic product initiatives.
Our loss from continuing operations for the first quarter of this year was $2 1 million as compared to $5 1 million loss in the first quarter of physical 2022.
Our first quarter adjusted EBITDA from continuing operations was a loss of $1 9 million compared to a loss of $3 million in the same period a year ago.
For our legacy land leasing business, which is classified as discontinued operations.
We realized approximately 300000 in Q1 asset sales.
We expect to complete the sale of all remaining assets related to discontinuing operations in the coming months.
Yeah.
Mine's capital structure and liquidity remain good.
As of April 30th 2022 we had working capital of approximately $16 7 million in cash of approximately 817000.
We collected approximately $4 million of accounts receivable in may so our cash situation has improved significantly.
And we have good visibility on additional receivables that are imminent.
We continue to have no funded debt our outstanding obligations.
Also our cost structure remains lean and flexible.
So should 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 to Rob for some concluding comments.
Okay. Thanks Mark.
We're encouraged by the margin improvement that we're seeing and the indications of recovery that are becoming more evident throughout our business.
We're pleased with the improvement in results and the orders that we secured to date as well as with robust interest and customer optimism reflected by our quotes and inquiries. As a result, we are confident that we are well positioned to meaningfully increase revenue in the coming periods, despite inflationary pressures supply chain challenges and macroeconomic uncertainty that.
Persist.
Our goal will always be to grow our book of business and to position the company for long term success and profitability.
We feel that we've taken important steps towards achieving this goal in the first quarter and we intend to carry this momentum throughout the remainder of the year.
Supply chain and logistical challenges continued to surround our business, but we're confident in our ability to navigate these circumstances.
We feel that we're very well positioned to capitalize on the opportunities that we're seeing in the market.
Our ability to leverage our unique technologies to generate orders demonstrates these capabilities.
Positive that our record of operational excellence, along with our exceptional team of employees will enable us to drive meaningful shareholder value in the near term.
And with that operator, we can now open the call up for some questions.
Thank you.
Well now be conducting a question and answer session.
You'd like to ask a question today. Please press star one from your telephone keypad, a confirmation tone will indicate your line is in the question queue.
You May press Star two if you like to remove your question from the queue.
Completions using speaker equipment may be necessary to pick up your handset before pressing the star keys.
One of them please poll for questions.
Yes.
Okay.
Yeah.
Thank you.
Our first question is from the line of Tyson Bauer with KC capital. Please proceed with your question.
Good morning, gentlemen, and a great quarter to start the year.
Alright, Thanks Tyson.
I guess, the best way to frame that so it looks like we're having some building tailwind finally for the business, especially on the top line.
Breakdown kind of the defense versus the marine the exploration.
Exploration side of it.
A lot more activity as far as marine versus land spend.
Especially with oil the way it is and some of these developments that are going on whether it be south America or otherwise.
Just kind of give us a little sense of what you're seeing in that marketplace and why we are seeing the demand in the marine side.
First is the land that's really just kind of been stuck.
Yeah, you're right about that we are.
We arent seeing much activity on the land side of course, that's not as important to us anymore.
<unk> definitely seen an uptick in activity and attitude optimism on the marine side actually are.
European.
Geophysical conference is going on in Madrid, actually just wrapping up as we speak.
And the tone there that's been reported to me is pretty positive and there's a couple of <unk>.
<unk> from some of our customers as far as new work new contracts. So I think they're seeing.
A lot more optimism talking about bringing out additional vessels.
In coming months, which is encouraging now of course as you know to us and we're coming from.
From a lower level of activity versus 10 years ago of course.
But certainly I think the reason I think that marine.
Is offsetting the land side, there are some environmental issues that impact that.
Just the size of the projects and therefore, the return on the marine side.
<unk> is a factor of that.
But there's no doubt things youre, winning the right direction and we're seeing a lot more activity.
And that's frankly, the the increase in revenues you've seen to date is it was probably more directly related to the marine exploration side, but I'd say the order side.
The defense starts to pick up and make it a little bit more equitable between the two of them.
Do you have a breakdown between.
Exploration in defense in the backlog now youre willing to share.
I prefer not to share that because there are some specific projects would rather than I prefer to so I'd, rather not do that.
Okay.
Let's talk about the defense a lot of chatter going on with the Ukraine defense spending part clearing for grain shipments.
Free floating and mine off the shore of Turkey, and the Black Sea.
What direct impacts are you seeing from that and what indirect impacts are you seeing that may accelerate some of these naval unmanned programs that.
That you're doing here in the U S and also with your European partner.
Yes. So there is as I said in our comments, we have definitely seen specific orders.
That are related to this activities these activities given or the products are going and what the and these are primarily.
Sonar products used for mine countermeasures and looking for other stuff under the water.
So there are specific orders that we're seeing that are related to that on a more general side.
Alluded to we're seeing.
Significant increases in defense budgets throughout Europe .
The U K, Finland and Sweden.
Germany.
So that is driving I think longer term activity and.
It's something that I think is a as you say a real good tailwind.
Another important thing to point out here is your.
Even if the.
Conflict in Ukraine were resolved tomorrow.
I think this really highlights the security issues that exists not only in Europe , but also in Asia for that matter. So.
So I think this definitely has been a bit of a sea change if you pardon the pun.
Sure.
Good for us and unfortunately, or Fortunately ESPN on your on your viewpoint.
Okay.
So between.
January 31, my math is correct, you've done about $19 million to $20 million of new orders that you feel are secured about you did 9 million in the first quarter recognize revenue another 23.
You expect to recognize when you add in what you typically get on parts and services per quarter.
Starting to push that 40 million Mark.
Whether we get there or not but thats, how the math works out.
That something that you're also seeing internally, obviously, we've got supply issues delivery all of those things.
Throw a monkey wrench in that but the way the numbers are working out were trending toward that 40 number for this year.
Well I mean, you guys say you do the math, we did 9 million and.
In the first quarter, we're sitting on 20 book of business the business of $23 million. So that's 32 right there and as you say there is other stuff that's going to come in.
That's not part of our <unk> book of business kind of recurring book and build stuff. So I mean, yeah. I think we are approaching that now.
You point out there are supply chain issues or delivery issues, so who knows what might happen, but it's definitely training in the right direction.
Okay.
It would appear from your commentary that Q2 should look similar to Q1 or within that ballpark, there, but with better profitability metrics as we start to see some of those cost savings some of the non reoccurring gets taken out of there and some of the improvements on your <unk>.
Capacity utilization is that the right way to kind of view it as Q2 very similar to Q1, but just better.
<unk> metrics on the margin side.
I'd say, it's certainly agree we'd see better metrics from a cost standpoint.
From a top side standpoint, I, just would caution that there's always the issues of timing of deliveries and things like that but again the general trend is.
As you as you are.
Pointing out.
Okay, and the last one obviously to recognize.
If we get those top line if we can manage these new orders.
But are you now.
Already surpassing what we had last year.
As far as what you did on total revenue.
Your cash flow situation.
Very light you mentioned, you got 4 million into an accounts receivable as you are going to accelerate your growth or that's the plan.
Where do we get to the point, where we're not behind the eight ball and we can actually be in front of it.
To give us a little cushion where do you see that happening sure I mean thats great question Tyson, obviously capital is always an issue for US liquidity is something we have to watch carefully given the environment that we're in.
I don't see a need as I sit here today for additional capital right now absent some opportunity on your things changing in a dramatic way.
So I think we will start to.
He's out of the the <unk>.
Improve that situation gradually as we're able to start delivering more and more of this stuff and frankly liquidate some of the receivables that some of the working capital that we've been sitting on because remember we.
<unk> invested in working capital at the end of last year early this year due to the supply chain issue. So if we can kind of maintain that same level. Then I think we'll see some of that benefit come back to us from a liquidity standpoint things get tougher.
We have to get more aggressive than that could change things.
Right. Thank you gentlemen.
You bet.
Our next question is from the line of Ross Taylor with Arris. Please proceed with your question.
Thank you.
Once again, great quarter, gentlemen, on the revenue side.
It sounds like you answered to Tyson that you expect to be able to build on this going forward.
And you guys would do with Tyson you were talking about.
And where you sit on the income statement balance sheet side more specifically when and what level of revenues you think right now it's going to take for us to get EBITDA positive free cash flow positive in earnings per share positive sure.
Sure I mean, so Ross if you kind of do the math you know the contribution margins. If you just compare the last couple of quarters are around 60%, maybe a little bit better than that so.
So incremental revenue.
<unk> brings marginal revenue marginal EBITDA of in that range.
You do that math, you get to a 11 and $12 million.
<unk> actually we're getting to that point.
Okay. So then.
Do you think you can get to that kind of quarterly run rate by the end of this fiscal or is it going to take into next fiscal year to get there.
I think we can get through this year.
Okay, that's great.
Historically, NATO undermine warfare to the Dutch I believe.
In the U S has been largely kind of.
I'm interested in it.
Pick up what you're saying is that you're starting to see not just in Europe , but also the United States. The greater realization that these nations need to have these capabilities.
With greatly expand the market I would think what it had been previously is that something that you're actually seeing.
Yeah.
So I'm not sure I agree 100% with your comment about it has been left to the Dutch I think it's been an important thing for other NATO countries and for the U S. Although the Dutch to have some some capabilities there.
I think what we're seeing is.
It's the way we're trying to we.
The World is trying to address these issues again using the unmanned vessels.
To a large degree I think.
Still trying to.
Deploy those sort of solution. So I think that's what we see as increasing the market.
Rather than trying to do the soft manned platforms are trying to do it off unmanned or.
Minimally manned platforms. So I think that definitely increases the market for us, but frankly more importantly, I think just the.
The.
Threat from this sort of thing is increasing.
In the forefront with people.
So is the navy is focusing down on it.
Unmanned platform to you know they've been they've talked a couple of side that they were an early development stage is that do you see that as a positive and pushing them forward faster.
Well I think so yeah I sure do.
And.
In the past in the U S largely used helicopters to sleep for mines, it sounds like they've been going through a significant shift.
And how they approach mine warfare that worked strongly to your advantage.
I mean is it literally we're entering kind of a new age of this and I'm not sure.
Im not sure I'd say, it et cetera, I think theres still they have a variety of platforms a variety of.
Techniques that are used so.
So I don't think they are abandoning any of the historical ones necessarily.
I think it certainly is expanding the opportunities for things that we have.
And away from that towards the industrial side.
Okay.
And I'm just the are you seeing any interest or is there just for exploring undue undersea or a.
A lot of these.
E beam related in Green.
Green related minerals that seem to be immaterial, so it seem to be in such short supply.
On land.
Absolutely and so a lot of the research activity we're seeing.
Some of the research institutes that are buying our equipment are doing just that sort of thing.
Okay, I mean, it sounds like you've got so you've in the past talked about the ability to do to be 100 million dollar business.
It looks like this year you could end the year your fiscal year with a run rate.
In the neighborhood of.
$44 million to $48 million or more.
How long do you think it's going to take us to get to that.
Wonderful $100 million run rate, where the math tells us we'd be pretty positive on an EBITDA basis, and I think we can.
Yeah, it could be a real positive at that point.
Ross that's a tough question, obviously lots of factors involved.
As to how we get there I think.
The last two years have been a challenge for obvious reasons and so we didn't make as much progress as we all had hoped.
But I don't think that changes, where we see the overall opportunity and so we've talked about a five year plan before.
Yeah, I think that's very doable.
Okay. So five year plan from when you initially indicated you would get there.
Yeah, but I think as I say.
The last couple of years have been we didn't achieve as much as we wanted to for obvious reasons for the pandemic reasons. So I think we're farther down the road when we were when we started.
Maybe it's not five years from two years ago, maybe it's something will be shorter than that but the point is the opportunities there Ross and whether it's <unk>.
Two years three years or five years I think it's still there.
Yeah, well I think it's great.
And if you can get there.
The breakeven level by the on the run rate by the end of this year I think that would be viewed as that would start to show the business being viable without the worry about needing to raise outside capital.
Exceptionally added that perhaps in the way of an acquisition.
Understood.
Okay. Thanks Ross.
You take that.
The next question is a follow up from the line of Tyson Bauer with KC capital. Please proceed with your questions.
Couple of quick follow ups, you talked about.
Was it auto recognition and are targeting.
Is that sort of something unique that you guys are capable of doing four countermine or Intel.
Intelligence.
Yeah, I Havent heard you mentioned that a whole lot in the past is that something new.
Yes, its something we actually announced earlier this year so.
Our automatic Targa recognition is not unique to us there are other ATR solutions out there. What is unique we think is that our ATR solution has been optimized for our products. Our some of our products specifically and so that is very unique so we think we.
Have a.
A tool there.
Which makes us.
Very competitive much more competitive with others in the marketplace and bring some capabilities to the market that no. One else can again, because they are optimized to our system, specifically, which is a really important part.
And has that been a determinant as far as winning some of these new orders or some of the activity you're seeing in the defense side.
I think it's I can't say to any of the orders we have in hand relates specifically to that but I can tell you for certain that the activity and the interest we're seeing is being <unk>.
Spurred by that capability.
With your European JV partner do you have product that is currently in use that is out of the trial phase.
And are you receiving funds from that partner for the development and production of <unk>.
Roto types or the product commercially use.
So.
It is not commercially deployed at this point.
And I'd, rather not talk about the specifics of it.
Of the commercial arrangement that I can say there is it's not material at this point.
But you anticipate by for the end of the year it will be.
Well, yes, we think will be revenue streams by J D.
And Thats part of your anticipation of getting towards that $12 million a quarter.
Situation and why you have that confidence.
Correct.
Okay.
In Asia.
Are you specifically, suggesting that this is targeted more towards Taiwan around Korea, those areas or is it more general than that or are you seeing specific interests and aware of the placement of your product is going.
Well I guess in this context, it's more general, but I mean, you read the paper.
Pretty obvious for the tensions in Asia are coming from and that's true in the U S.
China, Taiwan, and China, Australia, Philippines, So there's definitely interest around that part of the world for the sort of things.
Is that also where they're trying to find more of these rare earth metals and that is more around the Asian continent.
It's not limited to that.
Okay.
Alright, Thank you keep it up you bet.
Thank you.
That concludes our question and answer session and place to turn the floor back to Rob Capps for closing comments.
Okay. Thanks, everyone for joining us. This morning, we look forward to talking to you again at the end of our second quarter. So thanks very much.
Thank you ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time and have a wonderful day.