Q1 2024 MIND Technology Inc. Earnings Call
Greetings. Welcome to the MIND Technology first quarter 2024 conference call. At this time all participants are in a listen-only mode. A 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.
As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ken Dennard. Mr. Dennard, you may begin. Thank you, operator. Good morning and welcome to the MIND Technology Fiscal 2024 First Quarter Earnings Conference call.
We appreciate all of you joining us today.
With me are Rob Capps, President and Chief Executive Officer, and Mark Cox, Vice President and Chief Financial Officer.
Before I turn the call over to Rob, I have a few items to cover. 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 the company's website at mind-technology.com.
or you can listen via recorded instant replay by phone until June 21st. 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, Wednesday, June 14, 2023, and therefore you're advised that time-sensitive information may no longer be accurate as of the time of any replaylistening 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 include the risk factors disclosed by the company from time to time in its filings with the SEC, including in its annual report on Form 10K for the year ended January 31, 2023. Furthermore, as we start this call, please refer to the...
statement regarding forward-looking statements incorporated in the press release issue yesterday.
And please note that the contents of our conference call this morning are covered by these statements.
So now, without further ado, I'd like to turn the call over to Rob Capps. Rob. Okay, thanks, Kim. As we did last quarter, we've prepared an updated presentation covering our discussion this morning, and we posted it to our website.
Without further ado, I'd like to turn the call over to Rob Capps. Rob. Okay, thanks, Ken. As we did last quarter, we prepared an updated presentation covering our discussion this morning, and we posted it to our website. I invite you to refer to that at your leisure.
Today, I'll begin by discussing our first quarter 2024 results, as well as our current view of market conditions.
Mark will then provide a more detailed update on the financials.
I'll then wrap things up, some remarks about our outlook.
We were very pleased with our first quarter results and the start of our fiscal 2024, which we believe demonstrate our ability to capitalize on mine's favorable market position to continue delivering sustainable, top-line improvement. Our financial and operational performance remains strong in the quarter, as expected, resulting in much improved financial metrics across the board when compared to the year ago period.
Revenues were up 39% year over year. And despite our robust fourth quarter results, we also grew our revenue sequentially.
Additionally, we achieved a much improved gross profit margin of 43% during the quarter.
Most importantly, though, we produce positive operating income.
Most importantly, though, we produce positive operating income. Once again, we also produce positive adjusted DPDA.
The fourth quarter was the first time since we transformed the company that we achieved this, and we're proud to continue that trend in the first quarter.
As anticipated, we executed our backlog, which resulted in significant top-lying revenue of $12.6 million.
Although we generated substantial revenue in the quarter, we maintained and even grew our backlog.
As of April 30, our backlog of firm orders stood at 22.6 million, compared to 13.4 million at the same time a year ago, and 20.7 million at the end of last quarter.
We believe this trend is indicative of the favorable market conditions and the differentiation of our product lines. And we're confident that this momentum will carry throughout the remainder of fiscal 2024.
We're pursuing a number of other orders and are poised to be successful on many.
We hope to be in a position to announce some of these in coming weeks.
We remain encouraged by the favorable macroeconomic trends coupled with strong customer engagement and order activity.
We believe that the current market environment is advantageous for mine.
We continue to see substantial tailwinds in each of our three key markets, exploration, defense, and survey, and our team continues to find innovative ways to adapt our products to meet the evolving needs of our customers.
Currently, we're seeing the biggest order growth in our CMAP segment, which is benefiting from the favorable fundamentals within the exploration and alternative energy markets.
This growth is supported by the 19% sequential increase in CMAP revenue that we generated during the first quarter. We expect to build on this momentum going forward.
We intend to leverage sustained customer demand and interest that we're seeing in all of our key markets, drive further growth in our Book of Business in the coming quarters.
As announced in early April , we elected to defer the payment of our preferred stock dividend for the first quarter of fiscal 2024.
I know that our liquidity position has been a concern for many of you.
Although we've seen improved liquidity, it's resulted in higher rivner levels throughout the last couple of quarters.
We believe it was prudent to retain the cash flow from these activities, this time to complete upcoming and other expected orders.
While there are more stringent working capital demands that come with increases in business, I believe we've made progress with respect to liquidity, and it remains an area of focus for us.
We also are aware of the continued listing standards notice that was sent to us by NASDAQ. We are working through and analyzing options to regain our compliance.
With that, now I'll let Mark walk you through our first quarter financial results in a bit more detail.
Thanks, Rob, and good morning, everyone.
As Rob mentioned earlier, revenues from continuing operations totaled approximately $12.6 million in the quarter, a 39% increase when compared to the $9.1 million in the same period a year ago.
Our CMAP segment delivered substantial revenue of approximately $10.6 million during the quarter, which demonstrates the growth that we're seeing in the exploration and alternative energy markets.
Gross profit during the 1st quarter was approximately 5.4M.
which was up approximately 65% when compared to the prior year period.
As Rob also mentioned, this represents a gross profit margin of 43% for the quarter, a 700 basis point increase from the 36% we achieved during the same quarter a year ago. The higher revenue achieved in our first quarter resulted in greater overhead absorption, generating a much more favorable gross profit margin.
Our general and administrative expenses were approximately $3.9 million for the first quarter, which were up slightly when compared to the $3.7 million from the fourth quarter.
The mineral and administrative expenses were approximately $3.9 million for the first quarter, which were up slightly when compared to the $3.7 million from the fourth quarter. However, as we've mentioned in the past, the mineral and administrative expenses were up slightly when compared to the $3.7 million from the fourth quarter.
Our G&A expenses tend to be front-end loaded as we incur higher payroll taxes, professional fees, and travel related expenses in the first few months of the year.
This recurring trend, although minimal, was evident in our first quarter results.
Our research and development expense for the first quarter was $773,000.
which was up approximately 9%. Sequentially,
but down 24% from the same quarter a year ago.
Consistent with prior periods, these costs are largely directed toward our strategic initiatives, including synthetic aperture sonar and passive sonar rays.
Operating income for the first quarter was $289,000 as compared to a loss of approximately $2.5 million in the first quarter of physical 2023.
Our first quarter adjusted EBITDA was $913,000 compared to a loss of approximately $1.9 million in the first quarter of last year.
As of April 30, 2023, we had working capital of approximately $14 million in cash of $815,000.
As noted in Rob's opening comments, we continue to see improvement in our liquidity.
I'll now pass it back over to Rob for some concluding comments.
Thanks, Mark. We remain encouraged by our results for the first quarter and by the favorable outlook in each of our key markets.
We are generating sustainably higher revenue while maintaining and growing our backlog of business. Custer demand and engagement remain strong resulting in better than ever quarter flow.
We're optimistic that mine is in a position to build on this momentum in the coming quarters, and we look forward to sharing the fruits of our labor with you.
As we look forward to our second quarter and the remainder of fiscal 2024, we're excited about the opportunities that lie ahead.
Many of our technologies continue to gain traction with customers globally for a variety of end uses. As I noted earlier, our CMAAT products are playing a significant role in paving the way for mine's continued growth.
As we've traditionally seen, there will likely be riveted variation between quarters due to a variety of challenges that are often out of our control.
such as supply chain issues, vendor credit requirements, evolving delivery requirements, government contracting processes, and technical and production challenges that can impact production and deliveries.
However, the favorable market trends, robust customer interest, and growth of our backlog continues to give us confidence that sustainable higher level revenue is achievable.
We feel good about where the company sits today. We believe that our development programs will continue to positively contribute.
There may be certain unforeseen circumstances that cause orders or deliveries to slide to the right, but we do believe that the general trend will be one of increased revenue.
As I mentioned earlier, there are challenges that come with our improving business. We're doing our best to manage these challenges and demands.
In closing, we're excited about the future of mine technology. Our stable and growing backlog, robust order flow, and increased revenue levels are indicative of our technology being in greater demand.
We intend to continue capitalizing on the favorable market conditions and macroeconomic environment and robust customer interest and engagement to achieve improved results going forward. We have worked hard to position mine as a leading producer of differentiated marine technology products. We intend to build on this momentum to generate significant revenue.
which we believe will drive meaningful shareholder value throughout the remainder of fiscal 2024 and beyond.
And with that, that's our remarks. Operator, we can now open the call up for questions.
If you would like to ask a question, please press star 1 on telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question is from Tyson Bauer with KC Capital. Please proceed.
question is from Tyson Bauer with KC Capital. Please proceed. Gentlemen.
Hey Tyson.
You want to start with some operational questions or the elephant in the room on trying to climb out of the preferred dividend hole and what some of our remedy possibilities are?
Up to you. All right. Let's start backwards, and then we'll figure out if the operations will get us a resolution.
On the preferred dividend, obviously you can defer one more before we get to the six deferreds later this fall.
Are remedies possible where you can roll those dividends, where you're paying maybe ones that are in arrears? In essence, you do not have to make one cumulative payment to become whole.
There are other options, correct? That is correct. You're exactly right. So we could pay one or two or three or any... So you're right. We could pick and choose, if you will. They continue to, you know, team-like, of course.
They don't go away, but yes, you're right. We don't have to do it all at once. OK. Which then also pushes to the right that whole six deferred. As long as you're not six or more deferred, we don't trigger some of those provisions that are within the preferred dividends. So we could actually roll forward to buy you some time, but also you're then returning capital to those holders.
which then should benefit the common guys.
that there will be some residual value left for them also, correct?
Yeah, but let me correct. Actually, if I'm not mistaken, the provision is once we've deferred six dividends, not that we have six interweres, I think that then triggers the rights of referred to named two directors. That's the only remedy that the preferreds have.
I think there's two more before we trigger that.
I think there's two more before we trigger that. So I guess it's not a catastrophic thing by any means.
That does give us ability to. You know, catch up over time if you will and return from capital to the referred.
And according to your proxy statement the largest preferred holder still is Mitsubishi.
according to your proxy statement, the largest preferred holder still is Mitsubishi. That's correct.
Okay and as your intent we got two more that buys you some time.
you're looking at a, now we'll get into some operational questions, that operations could be there or to satisfy, give you more options as we go through the next six months, or really the next four months? Yeah, I think so. I mean, obviously, as you see, the last two quarters, we produced...
essentially enough EBITDA to make that dividend. So if we can address the working capital needs and feel comfortable about where we stand there, then we operationally are approaching a point where we could address that. Okay. Margins, you're seeing some nice improvement. Typically you have some decent margins on the C-MAP with those large whole system sales.
that you get.
Are we looking at the backlog bid margins even showing greater improvements and greater trend improvements as we get some more economies of scale as that backlog grows, as that throughput grows and covering those fixed expenses?
Yeah, there's no doubt there's benefit. The biggest benefit to ISON is if we have some visibility down the road as to production requirements, we can be much more efficient in buying, buy bigger lots, things like that. So we can be much more efficient and we can...
be more efficient in the factory as well. So that certainly is a benefit. Now, to be fair, the counter to that is there is inflation out there. So I think we would expect some improvement, but it is going to be mitigated to some extent by just general inflation and supply chain issues, lead times, things like that are still out there. We talked about C-MAP having a robust market.
Yeah, you sound like you've been in some of our operational meetings. We're trying to have a more even flow. So that's the way we schedule things. But as I said, you have some key components that you don't get delivered when they're scheduled to be delivered and that can slip things a bit.
So, I'm reluctant to be too definitive with that just because you have a $300 order that you can't ship because of some component, then that has a big impact. We do have better visibility, I think, this year than we have in the past. And not just at C-MAP, but at CLIN as well.
So, we're better able to do some planning and be a bit more efficient. That's something we're really working hard to do.
Okay, in the news recently, there have been a lot of discussions of the Saudis' major offshore expansions. I think their oil field offshore, they're trying to double or triple the size of that. Some energy analysts yesterday come out with a lot of offshore activities.
Anytime there's offshore seismic exploration, we benefit from that.
And you really have a lot less competition that people remember from even a year or two years ago with one of your major competitors exiting.
That's true. When it comes to digital source controllers, we really don't have a competition at this point.
Capital requirements, obviously we needed that. The infusion, we talked about that in the last conference call, that 3 plus million.
You almost benefit if you do have a little delay just because you get a working capital benefit, say in Q2 or whatever, that helps out your operating cash flows. But in general, your working capital, are we to that stage where we can roll it so there is no real deficit? We're just now into
card there is, when you get into procurement of larger amounts for more systems, larger systems, then that can create some additional demands for advanced payments, prepayments, things of that nature. You're going to do a...
larger approaches to buy components for four systems, but you're not gonna produce the last two until two quarters out. So it can work both ways. So it's something we have to balance on a practical, daily basis.
Okay, so we might see that accordion feature on those real estate secured financing being utilized temporarily just to get you through a quarter or two, but overall you're in good shape.
I think that's fair to say.
I think that's fair to say. Alright, thanks a lot gentlemen.
All right, thanks a lot gentlemen.
Our next question is from Russ Taylor with ARS Investment Partners. Please proceed. Thank you. A couple of questions quickly. Since you were just talking about real estate and the loan against it, where do you stand with the idea of selling that asset or sale of lease back that asset to capture a more significant amount of capital?
rates kind of went in the wrong direction for us the last couple, three months, but I think there certainly are possibilities there. So that's something we're pursuing.
Okay, second, with the increasing focus by world navies on underwater autonomous systems,
It would strike me then you would they need to do substantial increase in mapping in areas in which they intend to operate, particularly in areas like the South China Sea. Are you seeing or do you expect an increase in demand for your capabilities, your products and technologies from people like the U.S. Navy?
perhaps the Koreans and the Japanese who will need to be operating in areas that are contested but are expected to be homes for a lot of these underwater systems.
Without being specific, the answer is yes, most definitely. That is definitely driving activity for us.
And do you think that would be a short or intermediate term time horizon?
Oh, I think we've already benefited to some extent, but I think we'll see that to continue.
on a significant basis. So that will continue. We'll see current as well as intermediate and long-term benefit from that.
What is the total outstanding value of the preferred dividend at this point? The total outstanding value of the preferred dividend at this point is the total outstanding value of the preferred dividend at this point.
Okay, what's the total outstanding value of the deferred preferred dividend at this point? So 40.
$344 million, something like that, including the dividends, deferred dividends.
What do you owe on the preferred dividend?
Oh, I'm pressing 4 million. 3.8, 3.9 million.
3.8. Okay, I mean that's once again still a substantial portion of the outstanding or the value of the common stock. It does strike me as for those of us who own common stock that to get value out of that we really need to keep that from happening. The end game of this company most likely is a sale of the business unless you can.
meaningfully increase the top and bottom line. It's hard to, you know, at this stage, the market cap just doesn't justify being public. Quite honestly, it probably is worth a lot more to someone as a private business. And with the way it works, the, you know, the preferred holders are gonna take, you know, get first cut, basically first payout, as well as...
that the per dividends being paid out for anything trickles down to the equity holders. So the faster you guys can come up with a way to stop that and start to create wealth for the common holders. I think that as a long suffering common holder I would appreciate those steps.
It strikes me as we're kind of in a situation where this company is meaningfully undervalued, but the way to get it is likely going to be failed. We can't come up with a pretty near-term solution for turning this into something that people want to own. Understood. Understood it completely.
And, you know, lastly, the comment, you know, the answer you had to Tyson's question, the fact that you can come up with some alternative solutions to stop the bleed, I would think that would make tremendous sense if you can find a way to stop the bleed.
You got an eight six person board that would make eight honestly if I would put on that if I were on that board I would say the first thing we'd have to do is explore sale, so I would Prefer to I think you probably prefer to keep them from getting their two directors
who will have a disproportionate say because of the level of investment they have in the company. I understood. Thank you. Okay. Appreciate it, Ross.
There are no further questions at this time. I would like to turn the floor back over to you 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. Thanks very much.
This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
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