Yahoo Finance MIND Technology, Inc. (NASDAQ:MIND) Q3 2024 Earnings Call Transcript
MIND Technology, Inc. (NASDAQ:MIND) Q3 2024 Earnings Call Transcript December 14, 2023
Operator: Greetings, and welcome to the MIND Technology Third Quarter Fiscal 2024 Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'll now turn the call over to your host, Ken Dennard. Please go ahead, sir.
Ken Dennard: Thank you, operator. Good morning, everyone, and welcome to the MIND Technology fiscal 2024 third 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 housekeeping items to run through. If you'd like to listen to a replay of today's call, it will be available via webcast by going to the Investor Relations section of the company's website at mind-technology.com or you can listen to a recorded instant replay until December 21. 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, Thursday, December 14, 2023, and therefore, you are 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 in its annual report on Form 10-K for the year ended January 31, 2023.
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. With that now behind me, I'd like to turn the call over to Rob Capps. Rob?
Rob Capps: Okay. Thanks, Ken, and thank you all for joining us today. I'll start by addressing some key achievements during the quarter and highlights of our results. Mark will then provide a more detailed update on our financials, and I'll return to wrap things up with some remarks about our outlook. First, I want to address two very significant achievements for MIND. During the quarter, we took a meaningful step towards streamlining and focusing our operations with the previously announced sale of Klein to General Oceans for cash consideration of $11.5 million. We utilized a portion of those proceeds to repay our term loan, eliminate our outstanding debt. This transaction, which resulted in a financial gain of almost $2.4 million, has provided us with important liquidity and financial stability with which to exploit the remarkable growth we're seeing within our Seamap business.
Now, this brings me to our second achievement. We ended the third quarter with a record backlog of $37.4 million, over double where it was just three months ago. I'll touch on this in greater detail shortly, but I believe this unprecedent backlog is indicative of our specialized capabilities and product lines. Additionally, subsequent to the end of the quarter, we entered into a supply agreement with a major international seismic contractor. We expect to receive initial orders under this agreement shortly. This means that we start the fourth quarter of this fiscal year move into next fiscal year with a record backlog and confidence in continued order flow. Our Marine Technology Products revenue during the third quarter was approximately $5 million, and this was significantly lower than we had anticipated.
We experienced delays in the delivery of certain components, which prevented us from getting these orders completed, out the door and recognize as revenue before quarter-end. These orders, which total from $5 million to $6 million, are expected to be delivered in our fiscal fourth quarter. This situation clearly demonstrates that supply chain issues, while much improved from a couple of years ago, are still with us and can impact results in particular periods. The good news here is that the orders are not lost, merely delayed. The magnitude of our backlog does give us better visibility and therefore better ability to manage our procurement process. However, increased level of activity also means increased capital requirements. Based on the orders that were delayed and the schedule of other orders in our backlog, we expect a significant increase in revenues in our fourth quarter.
We continue to believe that MIND is exceptionally well positioned to capitalize on the favorable market dynamics to achieve sustainable top-line improvement. We think our record backlog is indicative of the growing demand for our differentiated Seamap product lines such as GunLink source controllers, BuoyLink positioning systems and SeaLink streamer systems. We believe this continued positive backlog trend and the early benefits of our framework agreement to reflect the strength in the underlying market and demonstrate that we are the partner of choice for companies looking to acquire high-quality and versatile marine technology products. We continue to believe that the current market environment is advantageous for MIND. Each of our three key markets, exploration, defense and survey, remain loaded with opportunity.
Having completed the sale of Klein in August, we now operate a more streamlined and focused suite of products, and we're better positioned than ever to deploy our product lines into a variety of end markets. Additionally, our team continues to develop new and innovative ways to adapt and implement our technologies to meet the evolving needs of our customers. In addition to traditional energy-related opportunities, we are seeing new applications for our Seamap technologies. As an example, our backlog includes over $5 million related to one of our SeaLink ultra-high resolution 3-D seismic streamer systems. This system is intended for use in surveys required for offshore wind farms and other green energy projects. There's also a growing opportunity for MIND to provide seismic streamer repair services, not only for SeaLink streamers but also for products manufactured by others.
Within the maritime defense and security market, we continue to believe that our Sea Serpent passive array system, which is derived from the commercially developed SeaLink system, is a significant and economical solution for various demanding applications within this space. We are also optimistic that through our collaboration agreement with General Oceans, we will see increasing interest in our Spectral Ai Software Suite and find further applications for this technology. And with that, let me let Mark walk you through our third quarter financial results in a bit more detail.
Mark Cox: Thanks, Rob, and good morning, everyone. At the outset, I would like to point out 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 our discussing here today, including prior period comparative data, do not include amounts related to Klein. They include only our ongoing business. As Rob mentioned earlier, revenues from continuing Marine Technology Products sales totaled approximately $5 million in the quarter, which was up about 64% from approximately $3 million in the same period a year ago. While we experienced several delays during the third quarter that resulted in some revenue getting pushed into the fourth quarter, we believe the strength we are seeing in all our key markets and the growth in our backlog of orders positions us well for sustained higher level revenue in the coming quarters.
Gross profit during the third quarter was approximately $2.3 million, which was up meaningfully when compared to gross profit of approximately $862,000 in the prior-year period. This represents a gross profit margin of 45% for the quarter. We're pleased that we were able to deliver some higher margin orders during the quarter despite the overall lower sequential revenue levels. Revenue in the quarter was largely driven by sales of spare parts as opposed to sales of full systems. These transactions, while smaller in size, tend to generate higher gross margins. Our general and administrative expenses were approximately $2.9 million for the third quarter, which was down slightly when compared to approximately $3.5 million from the second quarter and $3 million for the same period a year ago.
The sale of Klein is allowing us to streamline our operations and thereby reduce some costs. We've recently taken some actions in this regard, including selected headcount reductions, reducing the size of our Board of Directors, and reducing the compensation for the remaining members of the Board. We also believe that the more streamlined operations will result in lower professional fees and travel costs. We will begin to see the impact of these changes in the fourth quarter of this year, but will not recognize the full benefit until next fiscal year. In the third quarter, the impact of cost reduction measures taken earlier this year was partially offset by severance cost and higher professional fees. Our research and development expense for the third quarter, which relates only to our continuing operations, was approximately $508,000, up slightly from the comparable period a year ago.
These costs are largely directed toward the development of our next-generation streamer system and continued development of our Spectral Ai Software Suite. Operating loss for the third quarter was approximately $1.5 million, which was nearly a 50% improvement from the loss of $2.9 million in the third quarter of fiscal 2023. Our third quarter adjusted EBITDA from continuing operations was a loss of $1.1 million compared to a loss of $2.4 million in the third quarter last year. Overall, we reported net income of approximately $568,000 for the third quarter of this year, driven by a gain of approximately $2.4 million on the sale of Klein. As of October 31, 2023, we had working capital of approximately $16.5 million and approximately $5.6 million of cash on hand.
After factoring in net proceeds from the Klein sale completed in August, our liquidity position is significantly improved. Additionally, as a reminder, upon the closing of the sale of Klein, we repaid and eliminated our high cost debt, leaving MIND debt free today. I'll now pass it back over to Rob for some concluding comments.
Rob Capps: Okay, thanks, Mark. Our conviction about the future of MIND Technology has only been strengthened by recent achievements. We've taken the necessary steps to streamline our operations and focus on profitability. We believe that this company is better positioned now than ever. Our Marine Technology Products continue to penetrate a variety of industries and markets, which I believe 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 that the record backlog that we have achieved is just the beginning, as there are still significant opportunities for our Seamap unit and our other initiatives. Market conditions remain favorable, and we genuinely feel that the robust customer interest and engagement that we've seen to date signifies that the market adoption of our product lines is gaining traction.
We're confident that MIND is headed in the right direction. We look forward to building on the strong foundation that we've constructed. As I mentioned earlier, the increase in business comes at price, that being the capital needed to execute the growing business. As you probably know, we did declare and pay a dividend on preferred stock for the quarter ended October 31, 2023. However, it remains about $4.7 million as accumulated dividends from prior periods and the ongoing dividends accrued at a rate of about $3.8 million per year, while our liquidity and financial position have much improved, we do not believe that our current operations can generate the capital needed to exploit and grow our business and, at the same time, pay ongoing or accumulated dividends on the preferred stock.
Therefore, while no decisions have been made and circumstances can change, we currently believe it unlikely that we will declare further dividends on our preferred stock for the foreseeable future. As we experienced this quarter, and have traditionally seen, there will likely be revenue variation between quarters due to a variety of challenges and unforeseen circumstances, as well as simple customer delivery requirements. With that said, we do believe the general trend will be one of increased revenue. The favorable market trends, robust customer interest, and substantial growth of our backlog continues to give us confidence that sustainable, higher-level revenue is achievable. Looking forward, we anticipate meaningful financial improvements in the fourth quarter and in fiscal 2025 as we convert our record backlog to revenue.
We're encouraged by the current macro environment and believe that our streamlined, differentiated, and market-leading suite of Maritime Technology Products is uniquely positioned to capitalize on favorable customer demand. We expect to continue adding new orders in the coming months and to then utilize this momentum to drive meaningful shareholder value. And with that, operator, we can now open the call up for some questions.
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