Q1 2025 MIND Technology Inc Earnings Call

Speaker Change: Greetings and welcome to the main technology first quarter of fiscal 2025 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Operator: 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, Ken Dennard. Thank you, sir. You may begin.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce.

Speaker Change: Introduce your host Ken Dennard. Thank you Sir you may begin.

Ken Dennard: Thank you, Operator. Good morning, and welcome to the MIND Technology Fiscal 2025 First Quarter Earnings Conference Call. We appreciate everyone joining us today.

Ken Dennard: Thank you operator, good morning, and welcome to the main technology fiscal 'twenty to 'twenty five first quarter earnings Conference call. We appreciate everyone joining us today.

Ken Dennard: 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 things to cover. If you'd like to listen to a replay of today's call, it will be available for 90 days via webcast by going to the Investor Relations section of the company's website, which is mind-technology.com, or via telephonic instant replay recorded until June 18th.

Ken Dennard: With me are Rob Capps, President and Chief Executive Officer, and Mark Cox, Vice President and Chief Financial Officer.

Ken Dennard: 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 webcast by going to the Investor Relations section of the company's website.

Speaker Change: It's mind Dash technology Dot com.

Speaker Change: Or the Oh.

Speaker Change: Telephonic instant replay recorded until June 18th information on how to access. These replace features was provided in yesterday's earnings release.

Ken Dennard: Information on how to access these replay features was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Tuesday, June 11, 2024, and therefore, you're advised that time-sensitive information may no longer be accurate as of the time of any replay listing. And 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.

Speaker Change: Information reported on this call speaks only as of today Tuesday General oven 'twenty 'twenty four and therefore, you're advised that time sensitive information a long no longer be accurate as of the time of any replay listening or transcript reading.

Ken Dennard: 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 and in its filings with the SEC, including its annual report on Form 10-K for the year ended January 31st, 2024.

Speaker Change: And 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 <unk>.

Speaker Change: 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.

Speaker Change: It may cause the company's actual or future results or performance to materially differ from any future results or performance expressed or implied by these statements.

Speaker Change: These risks 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 2024.

Ken Dennard: 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 Capps.

Speaker Change: 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 Capps Ross Okay. Thanks, Ken.

Robert P. Capps: Rob. Okay, thanks Ken, and thank you all for joining us today. Now I'll start by discussing some highlights from the quarter. Mark will then provide a more detailed update on the financials, and I'll wrap things up with some remarks at our retail outlet. Now, it's only been six weeks since our fourth quarter and year-end call, so you can expect that many things haven't changed much since then. We're pleased to again report positive results, and will continue to operate efficiently while converting our backlog into sustainably higher-level revenue.

Speaker Change: You all for joining us today.

Speaker Change: I'll start by discussing some highlights from the quarter Mark will then provide a more detailed update on the financials and I'll wrap things up with some remarks on our outlook.

Mark Alan Cox: Only been six weeks since our fourth quarter and yearend call. So you can expect that many things haven't changed much since then.

Speaker Change: We're pleased to again report positive results.

Mark Alan Cox: We continue to operate efficiently, while converting our backlog into sustainably higher level revenue.

Robert P. Capps: We've been able to build on the momentum that we generated last year, and this resulted in another quarter of positive adjusted EBITDA and overall profitability for the mine. We remain well-positioned to achieve positive adjusted EBITDA and favorable results in future periods. We maintain our belief that MIND is strategically positioned for growth.

Mark Alan Cox: We've been able to build on the momentum that we Germany generated last year. This resulted in another quarter of positive adjusted EBITDA.

Speaker Change: We're all profitability for mine.

Speaker Change: We remain well positioned to achieve positive adjusted EBITDA and favorable results in future periods. When we maintain our belief that mine is strategically positioned for growth.

Robert P. Capps: Our Gunlink source controllers, BuoyLink positioning systems, and C-Link streamer systems are all contributing to our strong backlog, and we're optimistic that we'll generate additional orders for these products as the year progresses. A favorable macro environment, a narrowed focus, strong customer relationships, ever-increasing capabilities, and invaluable partnerships have boosted our order flow in recent quarters. I remain confident that we are the partner of choice for companies looking to acquire high-quality and versatile marine technology products. We enter the second quarter with a strong backlog of approximately $31 million. Our backhaul gets down a bit sequentially.

Speaker Change: Organic source controllers, boiling positioning systems and ceiling streamer systems for all contributing to our strong backlog and we're optimistic it will generate additional orders for these products as year progresses.

Speaker Change: The favorable macro environment, our narrowed focus strong customer relationships ever increasing capabilities and valuable partnerships that boosted our overflow in recent quarters.

Main confidence where the partner of choice for companies looking to acquire high quality and personal marine technology products.

Speaker Change: We entered the second quarter with a strong backlog of approximately $31 million.

Speaker Change: Backlog is down a bit sequentially. This is to be expected at times as we execute and make deliveries and new orders don't necessarily arrive at a constant rate throughout the year.

Robert P. Capps: This is to be expected at times as we execute and make deliveries. However, new orders don't necessarily arrive at a constant rate throughout the year. We still maintain a meaningful book of business that is significantly above where it stood a year ago. In fact, the backlog at the end of the quarter was over 70% higher than at the end of last year's first quarter. We believe this robust backlog and the many other opportunities that we are pursuing bode well for favorable future financial results.

We still maintain a meaningful book of business that is significantly above four stood a year ago. In fact, the backlog at the end of the quarter was over 70% higher at the end of last year's first quarter.

Speaker Change: We believe this robust backlog and the many other opportunities that we're seeing bode well for favorable future financial results.

Robert P. Capps: As always the case, the timing of certain orders is subject to variability due to any number of challenges, unforeseen circumstances, or customer delivery requirements. I continue to believe that this order flow is indicative of our specialized capabilities and differentiated product lines, and I'm encouraged by the implications of this for future results. Our marine technology product revenues for the first quarter of fiscal 2025 were $9.7 million.

Speaker Change: As always the case the timing of certain orders is subject to variability due to any number of challenges unforeseen circumstances or customer delivery requirements.

Speaker Change: I continue to believe that this order flow is indicative of our specialized capabilities and differentiated product lines now I'm encouraged by the implications of this for future results.

Speaker Change: Our marine technology product revenues for the first quarter of fiscal 2025 for $9 $7 million.

Our ability to sustain higher revenue levels. Despite the challenges of shifting order and delivery schedules is a direct representation of the strength of customer engagement macro tailwind, resulting order flow that we're experiencing.

Robert P. Capps: Our ability to sustain higher revenue levels despite the challenges of shifting order and delivery schedules is a direct representation of the strength of customer engagement, macro tailwinds, and resulting order flow that we're experiencing. We've also taken necessary steps to improve our cost structure, which has enhanced our profitability in recent quarters. While supply chain issues are much improved, they are still with us to varying degrees and can impact results during a particular period.

Speaker Change: We've also taken necessary steps to improve our cost structure, which has enhanced our profitability in recent quarters.

Speaker Change: While supply chain issues are metro proved they are still with us to varying degrees and can impact results with particular periods.

Robert P. Capps: These challenges are simply a component of doing business, and we will almost certainly encounter them again in the future. The magnitude of our backlog and expected orders does give us better visibility and, therefore, a better ability to manage our procurement process and improve margins. However, as evidenced this quarter, the increased level of activity also means increased capital requirements. As you'll note, in this quarter, we did utilize liquidity to fund working capital requirements consisting of an increase in cash receivable and inventory.

Speaker Change: These challenges are simply a component of doing business and we will almost certainly encountered them again in the future.

Speaker Change: The magnitude of our backlog and expected orders does give us better visibility and therefore, a better ability to manage our procurement process and improve margins.

Speaker Change: However, as evidenced this quarter the increased level of activity also means increased capital requirements as Youll note in this quarter, we did utilized liquidity to fund working capital requirements consistent increased accounts receivable and inventories.

Robert P. Capps: We continue to believe that the current market environment is advantageous for mine. Each of our key markets remains loaded with opportunity. In addition to now operating a more streamlined and focused suite of products, our team continues to develop new and innovative ways to adapt and implement our technologies to meet the evolving needs of our customers. We're confident that we have the best-in-class technology to differentiate MIND from its competitors and address the growing demand surrounding recent developments within the marine technology industry.

Speaker Change: We continue to believe that the current market environment, So advantageous remind.

Speaker Change: Each of our key markets remained loaded with opportunity.

Speaker Change: In addition to now operating a more streamlined and focused suite of products. Our team continues to develop new and innovative ways to adapt and implement our technologies to meet the evolving needs of our customers.

Speaker Change: We're confident that we have the best in class technology to differentiate mind premise competitors and address the growing demand surrounding recent developments then the marine technology industry.

Robert P. Capps: Included in our backlog are orders for ultra-high resolution survey systems, some of which we expect to deliver in the second quarter. These systems are often used to detect subsea boulders and other geohazards to assist in de-risking offshore installations such as wind farms and carbon capture facilities. These are new markets for you, and are ones that we continue to think bring great promise as we're pursuing other opportunities for these systems. There is also a growing opportunity for MIND to provide seismic streamer repair services, not only for C-Link streamers but also for products manufactured by others.

Speaker Change: Included in our backlog of orders for Ultra High resolution survey systems, some of which we expect to deliver in the second quarter.

Speaker Change: These systems are often used to detect subsea boulders and other geo hazards to assist in derisking offshore installations, such as wind farms and carbon capture facilities.

Speaker Change: These are new markets for us and ones that we continue to think bring great promise as we're pursuing other opportunities for these systems.

Speaker Change: It also has a growing opportunity for mind to provide seismic streamer repair services not only for ceilings streamers, but also for products manufactured by others.

Robert P. Capps: We continue to see traction for our Spectral AI software suite through our collaboration agreement with General Ocean. This software is now being used by two NATO navies with several other promising prospects. While the contribution has been minimal to date, we are optimistic about its prospects and hope to find further applications for this technology. Now I'll let Mark walk you through our first quarter financials and results in a bit more detail.

Okay.

Speaker Change: We continue to see traction for our spectrum AI software suite through our collaboration agreement with general oceans.

Speaker Change: This software is now being used by two NATO Navy's with several other promising prospects.

While the contribution has been minimal to date, we are optimistic about its prospects hope to find further applications for this technology.

Speaker Change: Now I'll, let Mark walk you through our first quarter financials, and our results in a bit more detail.

Mark Alan Cox: Thanks, Rob, and good morning, everyone. Consistent with the past several calls, I would like to remind everyone that with the sale of Klein, those operations have been treated as discontinued operations, and prior period results have been restated to reflect that. Accordingly, the results from continuing operations that we reported yesterday and are discussing here today, including prior period comparative data, do not include amounts related to climb.

Mark Alan Cox: Thanks, Rob and good morning, everyone.

Klein: Consistent with the past several calls I would like to remind everyone that with the sale of Klein.

Those operations have been treated as discontinued operations.

Mark Alan Cox: Period results have been restated to reflect that.

Mark Alan Cox: Accordingly, the results from continuing operations that we reported yesterday and are discussing here today, including prior period comparative data.

Speaker Change: Not include amounts related decline.

Mark Alan Cox: These include only our ongoing business. As Rob mentioned earlier, revenues from marine technology product sales totaled approximately $9.7 million in the quarter, which was down about 9% from approximately $10.2 million in the same period a year ago. The shifting of deliveries and the impact of that on quarterly revenues is just a fact of life for our business. However, we continue to believe the underlying strengths we're seeing in all our key markets and the significant customer demand driving our robust backlog position us well for sustained high-level revenue in the coming quarters.

Speaker Change: They include only our ongoing business.

Speaker Change: As Rob mentioned earlier revenues for our Marine technology product sales totaled approximately $9 7 million in the quarter.

Robert P. Capps: Which was down about 9% from approximately $10 6 million in the same period a year ago.

Speaker Change: The shifting of deliveries and the impact of that on quarterly revenues is just a fact of life for our business.

Speaker Change: We continue to believe the underlying strength, we're seeing in all our key markets and the significant customer demand driving our robust backlog positions us well for sustained high level revenue in the coming quarters.

Mark Alan Cox: First quarter gross profit was approximately $4.2 million, which was down approximately 7% when compared to the first quarter of last year. However, gross profit margin was approximately 44% for the quarter, which was an increase from the same period a year ago. The gross profit margin improved despite lower revenues in the quarter as a result of price increases implemented in fiscal 2024 and increased production efficiency. Our general and administrative expenses were approximately $2.8 million for the first quarter of fiscal 2025, which was down sequentially from $3 million and, more notably, down 17% from 3.3 million in the first quarter of last year.

Speaker Change: First quarter gross profit was approximately $4 2 million, which was down approximately 7% when compared to the first quarter of last year.

Speaker Change: However, gross profit margin was approximately 44% for the quarter, which is an increase from the same period a year ago.

Speaker Change: Our gross profit margin improved despite lower revenues in the quarter as a result of price increases implemented in fiscal 2024 and.

Speaker Change: And increased production efficiencies.

Speaker Change: Our general and administrative expenses were approximately $2 8 million for the first quarter of fiscal 2025.

Speaker Change: Which was down sequentially from $3 million and more notably down 17% from $3 3 million in the first quarter of last year.

Mark Alan Cox: As we mentioned on our last call, the sale of Klein is allowing us to streamline our operations and thereby reduce some costs. In addition to the client-related savings in the fourth quarter that were masked by typically higher year-end G&A spending, we realized further cost savings in the first quarter associated with reduced corporate expenses attributable to clients. Our research and development expense for the first quarter was $462,000. This was down both sequentially and compared to the prior year period. These costs are largely directed toward the development of our next-generation streamer system and the continued development of our Spectral AI software suite.

Klein: As we mentioned on our last call the sale of Klein is allowing us to streamline our operations and thereby reduce some cost.

Speaker Change: In addition to decline related savings in the fourth quarter that were masked by typically higher year end G&A spending we realized further cost savings in the first quarter associated with reduced corporate expenses attributable to climb.

Speaker Change: Our research and development expense for the first quarter was 462000.

Speaker Change: This was down both sequentially and compared to the prior year period.

Speaker Change: These costs are largely directed toward the development of our next generation Streamer system and continued development of our spectral AI software suite.

Mark Alan Cox: Operating income for the first quarter was $730,000 compared to operating income of $419,000 in the first quarter of fiscal 2024. Our first quarter adjusted EBITDA was $1.5 million compared to $874,000 in the first quarter a year ago. That income for the first quarter was $954,000, which was an improvement of approximately $1.1 million from the net loss of $124,000 in the first quarter of fiscal 2024. Net income in the quarter was positively impacted by the sale of approximately 469,000 of lease pool equipment.

Speaker Change: Operating income for the first quarter was 730000 compared to operating income of 419000 in the first quarter fiscal 2024.

Speaker Change: Our first quarter adjusted EBITDA was $1 5 million compared to 874000 in the first quarter a year ago.

Speaker Change: Net income for the first quarter was 954000, which was an improvement of approximately $1 1 million from the net loss of 124000 in the first quarter of fiscal 2024.

Speaker Change: Net income in the quarter was positively impacted by the sale of approximately 469000 of lease pool equipment.

Mark Alan Cox: As Rob mentioned, we're pleased to have achieved another quarter of profitability, and we hope to continue building on this momentum in future periods. As of April 30th, 2024, we had working capital of approximately $19.3 million and $924,000 of cash on hand. As expected, liquidity was impacted during the quarter due to the mine's operational requirements related to acquiring inventory and executing on our backlog of orders. However, the balance sheet remained strong following the sale of Klein last August, which enabled the company to eliminate its outstanding debt. And as of today, mine remains debt-free. I'll now pass it back over to Rob for some concluding comments.

Speaker Change: As Rob mentioned, we're pleased to have achieved another quarter of profitability and we hope to continue building on this momentum in future periods.

Speaker Change: As of April 32024.

Speaker Change: We had working capital of approximately $19 3 million and 924000 of cash on hand.

Speaker Change: As expected liquidity was impacted during the quarter due to minds operational requirements related to acquiring inventory and executing on our backlog of orders.

Klein: Our balance sheet remains strong following the sale of Klein last August which enabled the company to eliminate its outstanding debt.

Speaker Change: And as of today mine remains debt free.

Speaker Change: I'll now pass it back over to Rob for some concluding comments.

Robert P. Capps: Hey, Thanks Mark.

Robert P. Capps: The mine continues to benefit from the strategic transformation we embarked on several years ago. Most recently, we were able to refocus our attention on a settled client last year. We believe the company is in a better position today than at any time in its history. Our focused approach and streamlined operations have given us a lean operating structure and improved our ability to control costs.

Robert P. Capps: Mine continues to benefit from the strategic transformation, we embarked on several years ago.

Robert P. Capps: Recently, we've been able to refocus our attention for the sale decline last year.

Robert P. Capps: We believe the company is better positioned today than at any other time in its history.

Robert P. Capps: Our focused approach and streamlined operations have given us a lean operating structure and improved our ability to control cost as a result.

Robert P. Capps: As a result... The first quarter built on our positive momentum from recent periods to deliver favorable results that were in line with our expectations. Our goal of maintaining a positive adjusted EBITDA and profitability throughout fiscal 2025 is well within our sights. The market conditions remain favorable, and we believe there are still notable opportunities for our CNAP unit and for our other initiatives. We've developed valuable partnerships and customer relationships that have enabled us to build a strong backlog, and our marine technology products continue to penetrate a variety of industries and markets.

Speaker Change: First quarter built on our positive momentum from recent periods to deliver favorable results that were in line with our expectations.

Speaker Change: Our goal of maintaining positive adjusted EBITDA and profitability throughout fiscal 'twenty to 'twenty five is well within our sights.

Speaker Change: The market conditions remain favorable and we believe there is still notable opportunities for our <unk> unit.

Speaker Change: For our other initiatives.

Speaker Change: We have developed valuable partnerships customer relationships have enabled us to build a strong backlog.

Speaker Change: In our marine technology products continue to penetrate a variety of industries and markets.

Robert P. Capps: I believe this is a direct correlation to the work that our team has done to develop and continually adapt our technology to meet the evolving needs of our customers. We believe our significant customer engagement and the orders received to date are indications of the market adoption of our product line.

Speaker Change: I believe this is a direct correlation to the work that <unk> done to develop and continually adapt our technology to meet the evolving needs of our customers.

Speaker Change: We believe our significant customer engagement and the orders received to date are indications of the market adoption of our product lines.

Robert P. Capps: While we're pleased with the results for the first quarter, we believe MIND is poised to capitalize on additional opportunities and deliver improved results in the coming quarter. Despite these positive results and our favorable outlook, as expected, during the quarter, we utilized liquidity to acquire inventory and execute on our backlog. This is a prime example of what we've discussed in recent quarters about our need to retain capital from operations, execute our book of business, and deliver orders.

Speaker Change: While we're pleased with our results for the first quarter. We believe mind is poised to capitalize on additional opportunities and deliver improved results in the coming quarters.

Speaker Change: Despite these positive results in a favorable favorable outlook as expected during the quarter, we utilized liquidity to acquire inventory and execute on our backlog.

Speaker Change: This is a prime example of how we've discussed in recent quarters about our need to retain capital from operations execute our book of business and deliver orders.

Robert P. Capps: This further supports our rationale behind the continued deferral of dividends on our preferred stock, as well as our decision not to repay the deferred dividends and arrears. Although our operations are much improved, they do not support the required growth in working capital and the payment of preferred dividends. As a result, and to serve as a final reminder, we have scheduled a virtual special meeting of preferred stockholders for June 13th to approve an amendment that would allow for the conversion of each share of preferred stock into 3.9 shares of common stock.

Speaker Change: This further supports our rationale behind the continued deferral of dividends on our preferred stock as well as our decision not to repay the deferred dividends in arrears.

Speaker Change: Although our operations are much improved they do not support the required growth in working capital and the payment of preferred dividends.

Speaker Change: As a result and serve as a final reminder, we have scheduled virtual special meeting preferred stockholders for June 13th to approve an amendment that allow would allow for the conversion of each share of preferred stock and the $3 nine shares of common stock.

Robert P. Capps: However, in order to comply with the proxy rules, we will not make further comments regarding this beyond those contained in the press releases issued on May 8th and May 29th. Additionally, we will not entertain any questions regarding this in the Q&A session.

Speaker Change: However in order to comply with the proxy rules.

Speaker Change: We will not make further comments regarding these this beyond those contained press releases issued on May eight and May 29.

Additionally, we will not entertain any questions regarding this in the Q&A session.

Operator: As usual, I'd like to remind everyone that you should expect some fluctuations in our revenue from quarter to quarter, as we saw this quarter. As we've seen many times in recent years, there will likely be quarterly revenue variations due to a variety of challenges and unforeseen circumstances or simple customer delivery requirements. We continue to maintain our belief that the gel trend would want a sustainably higher level of revenue in fiscal 2025 and beyond.

Speaker Change: As usual like to remind everyone that you should expect some fluctuations in our revenue from quarter to quarter as we saw this quarter.

Speaker Change: We've seen many times in recent years that will likely be quarterly revenue variation due to a variety of challenges and unforeseen circumstances or simple customer delivery requirements.

We continue to maintain our belief that the general trend we've won a sustainably higher level revenue in fiscal 2025 and beyond.

Operator: Looking forward, we are cautiously optimistic that, barring any unexpected challenges or unforeseen circumstances, we should be able to deliver additional improvements to our results in the upcoming quarter. Our current visibility, healthy customer engagement, strong backlog, and favorable macro tailwinds give us confidence that we will see revenue growth and continued positive adjusted EBITDA in the coming quarters, which we anticipate culminating in another profitable year for the mine. We have a differentiated and market-leading suite of products, and we look forward to capitalizing on customer demand to deliver increased shareholder value in the future. And with that, operator, I think we can open the call up for some questions.

Speaker Change: Going forward.

Speaker Change: We're cautiously optimistic that barring any unexpected challenges or unforeseen circumstances, we should be able to deliver additional improvements to our results.

Coming quarters.

Speaker Change: Our current visibility healthy customer engagement strong backlog and favorable macro tailwind gives us confidence that we will see revenue growth continued positive adjusted EBITDA in the coming quarters, which we anticipate culminating in another profitable year for mind.

Speaker Change: We have differentiated and market leading suite of products and we look forward to capitalize on customer demand to deliver increased shareholder value in future periods.

Speaker Change: And with that operator, I think we can open the call up for some questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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 key.

Speaker Change: Yeah.

Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

Speaker Change: <unk> Your line is in the question queue.

Speaker Change: Press Star two if you'd 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.

Operator: Thank you. Our first question comes from the line of Tyson Bauer with Casey Capital. Please proceed with your question. Good morning.

Speaker Change: Thank you. Our first question comes from the line of Tyson Bauer with KC capital. Please proceed with your question.

Tyson Lee Bauer: Good morning, gentlemen. Hey, Tyson.

Tyson Lee Bauer: Good morning, gentlemen.

Tyson Lee Bauer: Hi, Tyson.

Tyson Lee Bauer: You mentioned a couple of times and repeated it that you are looking to build off Q1 results as you go forward given your backlog, your cost containment, all that starts to play through as we go forward. Is that to imply that Q1 is kind of the foundation then for the next three quarters? And if that is the case... If there were to be 8 million shares outstanding on a pro forma basis, and you did about 12 cents in the quarter, should we look at that as the... baseline, then that will work our way forward.

Tyson Lee Bauer: You mentioned a couple of times on repeated it that you are looking to build off Q1 results as you go forward given your backlog your.

Tyson Lee Bauer: Cost containment so all that starts to play through as we go forward.

Speaker Change: Is that to imply that Q1 is kind of the.

Speaker Change: Foundation then.

Speaker Change: For the next three quarters and if that isn't that is the case.

Speaker Change: If there were to be 8 million shares outstanding on a pro forma basis and you did about 12 cents in the quarter.

Speaker Change: Should we look at that as the.

Speaker Change: The baseline then that we'll work our way forward.

Robert P. Capps: Well, let me touch on one at a time. So as far as the revenue level is concerned, we do think we'll see improvements later in the year. You know, obviously, based on the backlog, we have good visibility as to what we have to deliver, and it's just a function of, you know, when people want it, when we can get it built, you know, when key components come in, things like that impact actual delivery schedules.

Speaker Change: Well, let me take those one at a time so as far as the revenue level. We do think we will see improvements later in the year, obviously based on the backlog we have good visibility as to.

Speaker Change: What we have to deliver.

Speaker Change: A function of.

Speaker Change: When people want it when we can get it built when key components and things like that impact actual delivery schedules. So that's where you'll see ups and downs. So I would expect.

Robert P. Capps: So that's the reason we'll see ups and downs. So I would expect that the revenue for the year would be at a higher level than if you were to annualize the first quarter. If that, I think, answers your question.

Speaker Change: Net revenue for the year would be at a higher level than a.

Speaker Change: If you were to annualize the first quarter.

Speaker Change: I think answers your question right, where you might have variability, but overall, we're going to average higher quarterly levels.

Robert P. Capps: We might have variability, but overall, you're going to average higher quarterly levels. I think that's fair to say, but again, there could be variability. Again, you have a, you know, a $4 million order, and if it slips by a month or so, it has an impact, but, generally speaking, I would agree with that. As far as you know, EPS, I'm not sure I want to get into the game of trying to project earnings per share.

Speaker Change: I think thats fair to say it but again there can be variability again, you have that $4 million order in.

Speaker Change: It slips a month or so it has an impact but generally speaking I would agree with that.

Speaker Change: As far as.

Speaker Change: EPS I'm not sure I want to get in the game of trying to project the earnings per share.

Robert P. Capps: But I think it kind of gives you a base for where we think revenues are. I think our cost structure, you know, has been demonstrated to come in line. I think as we see higher revenues, just naturally, we'll see some improvement in margin, not dramatically, but some additional absorption of overhead, but not a dramatic impact there.

Speaker Change: That kind of gives you a base for where we think revenues are I think our cost structure.

Speaker Change: Been demonstrated to come in line I think as we see higher revenues just naturally we will see some improvement in margin.

Speaker Change: Not dramatically.

Speaker Change: Some additional absorption of overhead.

Speaker Change: But not dramatic impact there.

Robert P. Capps: So does that get at what you were asking, Tyson? Yeah, I didn't think you were going to comment at all on EPS, given your previous... I just wanted to throw out for everybody.

Speaker Change: So does that does that get at what you.

Speaker Change: Asking.

Speaker Change: I think youre going to comment at all on EPS given your.

Speaker Change: I just wanted to throw out for everybody Thats 8 million shares outstanding if this focus through in this quarter would have been 12.

Speaker Change: Matt.

Speaker Change: Working capital relief you have the increase in.

Matt: Inventory and accounts receivable.

Speaker Change: Give us a little flavor of that cash cycle trying to tighten that up because.

Speaker Change #100: Keep your accounts payable pretty tight and you have done so through the previous periods should we start to see some relief or are these going to be kind of those balances as we go forward.

Tyson Lee Bauer: that we won't have a negative impact; we just will see levels kind of in the range that they were at the end of this quarter.

Speaker Change #101: We won't have a negative impact, we just well see levels kind of in the range that they were at the end of this quarter.

Robert P. Capps: So I think we'll see some relief. We'll start to generate some operating cash out of this as we go through it. Obviously, we've done some things ahead of time, knowing we have the backlog, having to acquire product, make some prepayments in some cases, things like that. But, you know, if we continue to grow as we think we will, that is going to continue to absorb some of that working capital. So I think we'll see some relief, some turnaround, but I wouldn't think it's going to be dramatic at this point, at least not in the near term.

Speaker Change #101: Yeah.

Speaker Change #102: So I think we will see some relief will start to generate some.

Speaker Change #103: Operating cash out of this as we go through obviously, we've done some things ahead of times no. One we have the backlog having to acquire product make some prepayments and some cases things like that.

Speaker Change #102: Yes.

Speaker Change #102: But.

Speaker Change #104: If we continue to grow as we think we will.

Speaker Change #105: It's going to continue to absorb.

Speaker Change #106: Some of that working capital. So I think we will see some relief some turnaround, but I wouldn't think it's going to be dramatic at this point at least not in the near term, okay, but self sustaining where youre not going to be requiring capital going forward. What you have now for what you know.

Tyson Lee Bauer: Okay, but self-sustaining where you're not going to be requiring capital going forward, what you have now for what you know. Please see the complete disclaimer at https://sites.google.com or at www.google.com.

Is sufficient to.

Speaker Change #106: Maintain your needs internally.

Robert P. Capps: Yeah, absent, you know, some growth spurt. I'd say that's right.

Speaker Change #106: Yes.

Some grossberg right, so thats right yes.

Tyson Lee Bauer: You talked a lot about order flow. You're very optimistic going forward.

Speaker Change #106: Okay.

Speaker Change #107: You talked a lot about order flow youre very.

Speaker Change #108: Optimistic going forward give us some characteristics on are these mainly repeat customers are the sizes of these <unk>.

Speaker Change #109: Larger than what you've experienced before and the lead times are you kidding.

Speaker Change #110: In order for something that maybe a year out.

Robert P. Capps: Give us some characteristics: are these mainly repeat customers? Are the sizes of these POs larger than what you've experienced before? And the lead times: are you getting an order for something that may be a year out?

Speaker Change #111: Yeah, So <unk>.

Speaker Change #112: Some repeat customers some new customers, so a little bit about <unk>.

Speaker Change #113: So as we kind of expand our streamer.

Robert P. Capps: Yeah, so some repeat customers and some new customers. So a little bit of both.

Speaker Change #113: Offerings, the <unk>, we're seeing some new customers there.

Robert P. Capps: So as we, you know, kind of expand our streamer offerings, like the 3D Hi-Rez, we're seeing some new customers there, order size, you know, some bigger, some smaller. I mean, you know, we see from, you know, a couple hundred thousand dollars to, you know, several million dollars. So it just depends, Tyson, and it's really all over the place.

Speaker Change #113: Order size some bigger some smaller I mean, we will.

Speaker Change #114: We see from a couple of hundred thousand dollars to several million dollars. So it just depends ties in and its really all over the place.

Robert P. Capps: I'd say as far as orders in hand go, once we get a PO, it's not going to go out for a year. Typically, something that's out six months or more is not unusual at all, but we do have good visibility, I think, on other potential things that are going out in that one-year period. I'm not saying we have the POs in hand yet, but again, we have discussions going on. We know the customers have some plans, but they actually haven't placed the order yet.

Speaker Change #114: I'd say as far as orders in hand, once we get a po.

Speaker Change #114: Not going to go out a year.

Speaker Change #114: Typically.

Speaker Change #114: Something thats out six months or more it's not unusual at all.

Speaker Change #115: But we do have good visibility I think on.

As a potential things that are going out.

Speaker Change #116: The one year period, not saying we have the Pos in hand that again, we have discussions going on we know that customers have some plans, but they actually have in place the order yet.

Tyson Lee Bauer: Okay, are you willing to, if not in actual absolute numbers, just kind of give us a sense of halfway through this quarter? How are the P.O.'s, the backlog, the kind of cash situation, are you feeling more optimistic today than you were 45 days ago?

Speaker Change #117: Okay are you.

Speaker Change #118: Willing to if not in the actual absolute numbers, just kind of give us a sense for halfway through this quarter.

Speaker Change #118: Hello.

Speaker Change #119: The backlog kind of cash situation are you feeling more optimistic today than you were 45 days ago.

Robert P. Capps: Well, I don't want to get specific for sure, but, you know, I think things are growing in as we anticipated. So, I'm happy with where things are going right now.

Speaker Change #120: Well I don't want to give specifics for sure, but I think things growing as we anticipated.

Speaker Change #120: So.

Speaker Change #121: I'm happy with where things are going right now.

Tyson Lee Bauer: Okay, and the last one for me before others get on. You have a significant amount of tax-loss carry forwards that are U.S. domiciled that you're really not able to use depending on where the deliveries take place, and you had a 20% tax rate this time. Are there avenues, or have you been advised on how to try to monetize those loss carry forwards in the U.S. to take advantage of those?

Speaker Change #122: Okay, and then last one for me before others get on.

Speaker Change #123: You have a significant amount of tax loss carryforwards that are U S. Domiciled that youre really not able to use depending on where the deliveries take place and you had a 20% tax rate this time.

Speaker Change #124: Are there avenues or have you been advised on how to try to monetize.

Speaker Change #124: Those loss carryforwards in the U S to take advantage of those.

Robert P. Capps: So we are looking at things to do there. I'll tell you that monetizing NOLs is a difficult chore. Having tried to do that in the past, it's hard to do. The IRS, on purpose, has limited your ability to do that. But we are trying to explore ways to be a bit more tax-efficient. Because, as you know, we are paying taxes in foreign jurisdictions right now.

Speaker Change #125: Yes. So we are looking at things to do there I will tell you that monetizing Nols is a difficult chore having.

Speaker Change #125: <unk> tried to do that in the past it's hard to do.

Speaker Change #126: The IRS on purpose is limited to your ability to do that but we are trying to explore ways to be more a bit more tax efficient.

Speaker Change #126: Because as you know we are we are paying taxes.

Speaker Change #127: Restrictions right now.

Tyson Lee Bauer: Okay, and most of your cash is held overseas, correct?

Speaker Change #128: Okay and most of your cash is held overseas correct.

Robert P. Capps: Well, it's generated overseas, and it's either there or we'll bring it back from time to time. It's U.S. dollars, though. Okay. Thank you, gentlemen.

Speaker Change #129: Well it is generated overseas and see today are back from time to time.

Speaker Change #130: It's U S dollar so.

Tyson Lee Bauer: Okay, thank you, gentlemen.

Speaker Change #131: Okay. Thank you gentlemen.

Speaker Change #131: Yeah.

Operator: Thank you. Our next question comes from the line of Ross Taylor with ARS Investment Partners. Please proceed with your question.

Speaker Change #131: Thank you. Our next question comes from the line of Ross Taylor with Ari's investment partners. Please proceed with your question.

Ross Taylor: Thank you. Can you kind of walk through a couple of things for me? One is the cost structure, which has come down. The SG&A structure has come down some, but I would think it has more room to come down given the shift in the business. So could you walk through the ability to bring that cost structure down?

Ross Taylor: Thank you.

Ross Taylor: Yeah.

Speaker Change #133: Can you kind of walk through a couple of things I mean, one is the cost structure, which has come down to SG&A steps just come down some but I would think it has more room to come down given the shift in the business. So could you walk through the ability to bring that cost structure down.

Robert P. Capps: Yeah, so I think you're right, Ross. Sorry.

Speaker Change #134: Yeah, So I think Youre right Cross Ross sorry, there is some ability to do more.

Robert P. Capps: There is some ability to do more. You know, obviously as we got rid of Klein, that's allowed us to be a little more lean at the corporate structure and at the corporate level. And I think there are some more things we can do there, be a little still, be more focused. And I think there's still some benefits that haven't been. Robert Capps, Tyson Bauer, Mark Cox, Ken Dennard, Zach Vaughan, Mitcham Industries Inc., a point where you just can't go below.

Speaker Change #135: Obviously as we got rid of climb that's allowed us to.

Speaker Change #136: The more lean at the corporate structure at the corporate level.

Speaker Change #136: And I think there are some more things we can do there still will be more focused.

Speaker Change #137: And I think theres still some benefits to heaven.

Speaker Change #138: Work their way through the income statement yet.

Speaker Change #138: So I think we will see some continued improvement there.

Speaker Change #139: But we are a public company, even though we're small.

Speaker Change #139: Create some challenges there.

Speaker Change #139: A point, where you just can't go below at some point.

Ross Taylor: What are your public company costs, do you think? Would it be safe to say that they are in the million dollar annual range? Well, I'd say they're more than that. A lot more than that. So going back to Tyson's 8 million share math, we're talking about public company costs of, you know, probably more than 12 cents a share annually at this stage, which would go away if you were to end up merging with another business.

Speaker Change #140: What are your public company cost you think.

Speaker Change #140: Would it be safe to assume.

Speaker Change #141: The million dollar annual range.

Speaker Change #142: I'd say more than that more than that.

Speaker Change #143: Yes, so going back to Tysons 8 million share math, we're talking about public company costs are.

Speaker Change #144: Probably more than 12 cents a share annually at this stage, which would go away at some if you were to end up merging with another business.

Ross Taylor: That's the math.

Speaker Change #144: Yes.

Speaker Change #144: Yes.

Speaker Change #144: So that's the math.

Ross Taylor: Let's talk about the amount of time it takes to convert inventories to cash. You've been carrying some pretty high levels of inventory. In some cases, it's because, from prior comments you've made, it appears that you want to make sure you have key components so that when you get orders, you can build them out. But generally, what should we expect that inventory conversion time horizon to be?

Speaker Change #144: Yes.

Speaker Change #145: Okay, let's talk about the amount of time it takes to convert inventory to cash you've been carrying some pretty high levels of inventory in some cases, it's because some prior comments you've made it appears that you are you want to make sure you have key components. So that when you get orders you can build them out.

Speaker Change #146: But generally what should we expect that inventory conversion time horizon to be.

Robert P. Capps: Yeah, that's complicated now for those reasons you just mentioned, because lead times have become an issue for many components or many things that we utilize. As my item said, we might have historically had a 90-day lead time; we might see now a 180-day lead time. So that means we have to be more aggressive in buying inventory, and that's driven part of the increase that you've seen. So it's really hard to give you specifics at this point as to how quick we turn that.

Yes, that's complicated and App for those reasons you just mentioned.

Speaker Change #147: Because lead times have become an issue for many components are many things that we utilize.

Speaker Change #147: Yes.

Speaker Change #148: But typically we might have historically had a 90 day lead time, we might see 180 day lead time, so that means we have to be more aggressive.

Speaker Change #148: Bye.

Speaker Change #148: Inventory.

Speaker Change #148: And Thats driven part of the increase that you've seen.

Speaker Change #149: So it's really hard to give you specifics at this point as to how quickly turn that I think we are at a point, where we don't anticipate having to increase that level.

Robert P. Capps: I think we are at a point where we don't anticipate having to increase that level beyond where we are now, again, unless we see a growth spurt. So we would expect to start to see that come down somewhat, but that's a tough one to predict right now. That's something we have to manage on a daily basis almost.

Speaker Change #150: And where we are now again, unless we see a growth spurt.

Speaker Change #150: So we would expect to start to see that come down somewhat.

Speaker Change #151: But that's a tough one to predict right now that's something we have to manage on a daily basis almost.

Ross Taylor: When you price new business, how do you protect yourself against those components, the cost of those components that might be choke points?

Speaker Change #152: When you price new business, how do you protect yourself against those component the cost of those components that might be choke points.

Robert P. Capps: Yeah, so from a pricing standpoint, you know, buying in advance is one way you do that. So you know what you can buy, or at least commit to buy. So that's one thing. We obviously try to adjust pricing on an annual basis to our customers, which we've been successful in doing. So it's just.

Speaker Change #153: Yes, so from a pricing standpoint, you're buying in advance is one way you do that.

Speaker Change #154: So you know what you can buy or.

Speaker Change #154: Or at least commit to buy so thats one thing.

Speaker Change #155: We obviously try to adjust pricing on an annual basis.

Speaker Change #155: To our customers.

Speaker Change #156: Which we've been successful in doing.

Speaker Change #156: So it's a combination of things.

Ross Taylor: Okay, so can you talk? You mentioned the fact that you have some NATO business, but really not adding a great deal at this stage. Can you talk about the market opportunity there and your role or how you get compensated in that business? Is it a royalty set up?

Speaker Change #158: Okay. So can you talk you mentioned the fact that you have some NATO business really not adding a great deal at this stage can you talk about the market opportunity there and what your role or how do you get compensated and that business is it of royalties go.

Robert P. Capps: So yeah, that's our Spectral AI software suite, which right now is being marketed through General Ocean. One where the software is developed, there is some maintenance of the software, but the costs are relatively minor in comparison. So that's one where I think we have an opportunity to build that. Is that going to be a $20 million a year business for us? No. But could it be a few million dollars?

Jeff: Go ahead, Jeff.

So yes, that's our spectral AI software suite, which right now is being marketed through general oceans decline.

And so we have a license arrangement so it's a recurring license fee.

Jeff: Annualized since fee.

Jeff: So it builds on itself.

Jeff: So that's.

Speaker Change #159: One where there is the <unk>.

Speaker Change #162: Software is developed there is some maintenance of the software, but the cost are relatively minor.

Speaker Change #159: In comparison.

Speaker Change #160: So that's one where I think we have opportunity to build that and is that going to be.

Speaker Change #161: The $20 million a year business for us now.

Speaker Change #163: Could it be a few million dollars yes.

Ross Taylor: Yeah, and that's a nice recurring business. And frankly, we think we could take that same basic technology and apply it to other areas, other sensor systems, and therefore expand that. But right now, we're trying to move slowly and get it established, get a revenue stream coming in, so it'll kind of pay for itself. And should we expect, as Zach wrote, that it generates kind of traditional software margins, operating margins? Oh, yeah, I think, yeah, yeah, yeah.

Speaker Change #164: And Thats, a nice recurring business.

Speaker Change #165: Frankly, we think also we could take that same basic technology and apply it to other areas other sensor systems, and therefore expand that Brian.

Speaker Change #166: Right now, we're trying to move slowly and.

Speaker Change #167: Get it established you get a revenue stream coming in to help kind of pay for itself.

Speaker Change #168: And should we expect as that grows that it generates kind of traditional software margins operating I think yes, yes, yes, and Thats one reason I like it so much both from a margin standpoint from a valuation standpoint, obviously, okay are you seeing any sectors meaningfully outperforming our expectations here are meaningfully under.

Ross Taylor: And that's the reason I like it so much, both from a margin standpoint and from an evaluation standpoint, obviously. Okay. Are you seeing any sectors meaningfully outperform your expectations here or meaningfully underperform them? And if so, what do you think is driving the out or underperformance?

Speaker Change #168: Perform them and if so what do you think but I think the out our underperformance.

Robert P. Capps: Well, certainly, we're seeing our traditional markets, you know, perform very well, energy-related things are performing very well right now. We're starting to see the alternative energy markets, survey applications for those alternative energy markets, start to perform very well. So I really don't see anything underperforming at this point.

Speaker Change #169: Well certainly were seeing our traditional markets.

Speaker Change #169: Performed very well.

Speaker Change #170: Energy related is performing very well right now.

Speaker Change #171: We're starting to see the alternative energy markets.

Speaker Change #172: Survey applications for those alternative energy markets start to perform very well.

Speaker Change #172: So I really don't see anything underperforming at this point.

Speaker Change #172: Okay great.

Ross Taylor: Real quick, we got a vote coming up on Wednesday, but I know you won't comment on it.

Speaker Change #172: Real quick so we got a vote coming up on Wednesday, I know you won't comment on it what I will say is that we.

Ross Taylor: What I will say is that we appreciate the fact that you reached out and listened to your shareholders, your preferred shareholders this time. And we, for one, I can't comment on anyone else, but we are supportive of this transaction at this stage, at this ratio. So, thank you very much. I appreciate that, Ross.

Speaker Change #173: I appreciate the fact that you reached out and listen to you shareholders. You preferred shareholders. This time in week for one I can't comment on anyone else, but we are supportive of this transaction at this stage at this ratio. So thank you very much I.

Robert P. Capps: I appreciate that, Ross.

Ross Taylor: I appreciate that Ross.

Ross Taylor: Yeah.

Ross Taylor: Yeah.

Ross Taylor: Okay.

Ross Taylor: Thank you.

Operator: Ladies and gentlemen, this concludes our question and answer session. I would now like to turn the call back to Mr. Capps for closing comments.

Robert P. Capps: Ladies and gentlemen, this concludes our question and answer session I would now like to turn the call back to Mr caps for closing comments.

Robert P. Capps: I'd just like to thank everyone for joining us this morning and look forward to talking to you again in a few months about our second quarter results. Thanks.

Robert P. Capps: Just like to thank everyone for joining us this morning, and look forward to talking to you again in a few months for our second quarter results.

Operator: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change #174: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.