Q4 2024 Mind Technology Inc Earnings Call

Participants

Zach Vaughan; IR; Dennard Lascar Associates, LLC

Robert Capps; President, Chief Executive Officer, Director; Mind Technology Inc

Mark Cox; Chief Financial Officer, Vice President; Mind Technology Inc

Tyson Bauer; Analyst; Kansas City Capital Associates

Sam Schwarz; Analyst; Caliber Management

Presentation

Operator

Ladies and gentlemen, good morning, and welcome to the mining Technology Fiscal 2024 Fourth Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Zach Vaughan. Please go ahead, sir.

Zach Vaughan

Thank you, operator. Good morning, and welcome to the MIND Technology Fiscal 2024 Fourth 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 would 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 at mind dash technology.com or via recorded instant replay until May seventh information on how to access the replay was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Tuesday, April 30, 2024, 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, and 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. It may cause the Company's actual future results or performance to materially or materially differ from any future results or performance expressed or implied by those statements. These risks and uncertainties include the risk factors disclosed by the company from time to time in its filings with the SEC, including its annual report on Form 10-K for the year ended January 31, 2024.
For 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 those statements.
Now I would like to turn the call over to mind CEO, Rob Capps.

Robert Capps

Thanks, Zack, and thanks all of you for joining us today. I'll start by discussing the highlights from the quarter and the full year. Mark will then provide a more detailed update on our financials, and I'll return to wrap things up some remarks about our outlook. Our fiscal fourth quarter capped off a year of immense progress from my side, and it was evident in our results.
We achieved positive adjusted EBITDA in the fourth quarter at our continuing operations were profitable for both the fourth quarter and on full year basis. This was the first profitable year for MIND since 2014. So needless to say, this is a significant milestone for the company and a reflection of the efforts we've made to strategically position the Company for future growth.
Further in our transformation this year was our sale of client general oceans in the third quarter. This was a meaningful and necessary step towards streamlining our business and focusing our operations on the areas with large potential for growth and profitability. Our Seamap product lines continue to gain traction, drive significant customer demand. The favorable macro environment, our narrowed focus, strong customer relationships, ever increasing capabilities and valuable partnerships have boosted our order flow. The framework agreement we entered into this past year, which resulted in the largest single largest order in Seamap history is evidence of this.
We enter fiscal 2025 with a backlog that exceeds $38 million. This represents another sequential increase over the end of the third quarter and of 145% of our backlog related to CMP stood at the beginning of two fiscal 2024. This robust dark backlog means that we're entering fiscal 2025 with a substantial book of business that bodes well for continued favorable financial results. However, as is always the case, the timing of certain orders is subject to variability due to any number of challenges unforeseen circumstances for customer delivery requirements. I believe this unprecedented backlog is indicative of our specialized capabilities and differentiated product lines, and I'm encouraged by the implications for future results.
Marine Technology Products revenues for the fiscal fourth quarter and full year 2024 for $13.4 million and $36.5 million, respectively. This annual revenue was the highest ever achieved by our Seamap business. Both periods were up significantly over the prior quarter and prior fiscal year, respectively. Our results for the full year are a direct representation of the strong customer engagement, macro tailwinds, the resulting order flow that we're experiencing. While supply chain issues are much improved from a couple of years ago.
They're still with us and can impact results in a particular period. We experienced this time to fiscal 2024, and we anticipate that it may occur at times again in the future. As always, these orders are almost never lost, but merely delayed magnitude of our backlog does give us better visibility and therefore a better ability to manage our procurement process.
However, an increased level of activity also means increased capital required. We believe that growing demand for our Seamap product lines such as GunLink source controllers, BuoyLink positioning systems and SeaLink streamer systems is driving our robust robust backlog benefits from our key customer partnerships and strength in the underlying market has contributed meaningfully to our positive order momentum. I remain confident that we're a partner of choice for companies looking to acquire high quality and versatile, bringing technology products we continue to believe that the current market environment is advantageous.
Remind each of our three key markets, exploration, defense and survey remain loaded with opportunities. In addition to now operating in a more streamlined and focused suite of products. Our team continues to develop new innovative ways to adapt, implement our technologies to meet the evolving needs of our customers. Included in our backlog are orders for ultra high resolution survey systems that are often used to detect subsea boulders and other geo hazards.
These surveys assistant derisking offshore installations such as wind farms and carbon capture facilities, which are new markets for us and ones that we think bring great promise. There's also a growing opportunity for mine to provide seismic streamer repair services, not only for sealing streamers, but also for products manufactured by others within the Maritime, defense and security markets. We continue to believe that our sea surface passive array system, which is derived from our commercial commercially developed sealing system is a significant economical solution for various demanding applications.
The current geopolitical tensions around the world are great reminder, the ever-present demand for security related technology we are beginning to see some traction for our spectrum, a software suite through our collaboration agreement with General oceans. 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 our prospects and hope to find further applications for this technology.
With that, let me hand things over to Mark for a while who wanted the fourth quarter and full year financial results a bit more detail. Mark?

Mark Cox

Thanks, Rob, and good morning, everyone. I'd like to remind everyone that with the sale of Klein, those operations have been treated as discontinued operations. 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 clients. They include only our ongoing business.
As Rob mentioned earlier, revenues from marine technology product sales totaled approximately $13.4 million in the quarter, which was up about 51% from approximately $8.9 million in the same period a year ago, full year revenue amounted to $36.5 million, which was up approximately 46% over the previous year and represents the highest annual revenue ever reported by our Seamap business.
Our fourth quarter results benefited from a little over $5 million of orders that were delayed from the third quarter, but there were other orders pushed from the fourth quarter into fiscal 2025. The shifting of deliveries and the impact of that on quarterly revenues is just a fact of life for our business. We continue to believe the strength we are seeing in all our key markets and the growth in our backlog of orders positions us well for sustained high level of revenue in the coming quarters.
Full year. Gross profit from continuing operations was approximately $16 million, which was up approximately 61% when compared to the prior year. This represents a gross profit margin of approximately 44% for the year. This is an improvement from the 40% gross profit margin achieved in fiscal 2023. Incremental year-over-year revenue resulted in greater operating efficiency and overhead absorption and a much improved gross profit margin.
Our general and administrative expenses were approximately $3 million for the fourth quarter, which was roughly in line with the $2.9 million from the third quarter. As we mentioned on our last call, sales decline is allowing us to streamline our operations and thereby reduce some costs. Important to note that we typically experience higher G&A spending levels in the fourth quarter associated with year-end activities, we believe masked a bit of decline related savings achieved during the quarter. We do and we do anticipate realizing additional cost savings benefits in fiscal 2025.
Our research and development expense for the fourth quarter, which relates only to our continuing operations, was $654,000 that was up both sequentially and compared to the prior year period. These costs are largely directed toward the development of our next-generation streamer system and continued development of our spectral AI software suite.
Operating income for the fourth quarter was $2.3 million compared to an operating loss of approximately $1.5 million in the third quarter and operating income of $595,000 in the fourth quarter of fiscal 2023. Our fourth quarter adjusted EBITDA from continuing operations was $2.6 million compared to $1.5 million in the fourth quarter a year ago.
Adjusted EBITDA from continuing operations for fiscal 2024 was approximately $2.3 million compared to a loss of $3.4 million in fiscal 2023. Net income for the fourth quarter was approximately $1.4 million, which was over 100% improvement from the [$666,000] reported in the fourth quarter of fiscal 2023. Total net income for fiscal 2024 was $274,000 compared to a loss of $8.8 million in fiscal 2023. As Rob mentioned, we're pleased to have achieved profitability in fiscal 2024, something that hasn't been done in many years, and we hope to continue building on this momentum in future periods.
As of January 31st, 2024, we had working capital of approximately $18.1 million and approximately $5.3 million of cash on hand. Mine's liquidity position is significantly improved and the balance sheet remains strong. Following the sale of Klein in August, which enabled the Company to eliminate the outstanding high cost debt. As of today mind is debt-free. I'll now pass it back over to Rob for some concluding comments.

Robert Capps

Thanks, Mark. Mize results for fiscal 2024 demonstrates the early benefits of our strategic transformation to streamline and streamline our business and focus on our Seamap operations we've developed valuable partnerships and customer relationships that enabled us to build a record backlog that continues to replenish itself as we execute and deliver orders. Our deliberate emphasis on growth and improving our bottom line throughout the year resulted in mine achieving full year profitability for the first time in about 10 years, and we're confident that the Company is now built to sustain this cost momentum in future periods.
Our marine technology products continue to penetrate in a variety of industries and markets, which I believe is a direct correlation to the work that our team has done to develop it continually adapt our technology to meet the evolving needs of our customers. The market conditions remain favorable. We believe there are still notable opportunities for our Seamap unit and our other initiatives. We believe our significant customer engagement and order flow are indications for the market adoption of our product lines for encouraged by results in fiscal 2024 and the noteworthy improvements we've made to the business.
However, our eyes remain fixed in the fee on the future. We believe mine is exceptionally well-positioned with a strong foundation to capitalize on future opportunities. Despite these positive results and our optimism for the future, we continue to feel it prudent to use our increased liquidity and capital from operations to fund future growth and execute on our record backlog rather than declare dividends on our preferred stock and paid the deferred dividends in arrears. Although our operations are much improved, they do not support the required growth in working capital and the payment of the preferred dividends.
As you probably know, we did not declare a dividend on our preferred stock for both the fourth quarter of fiscal 2024 and the first quarter of fiscal 2025 and as of to date remains about $6.6 million of accumulated dividends from prior periods. As a result, the recent events we proposed an amendment to the terms of our preferred stock will convert the preferred stock into common stock. As you also probably know a special meeting of first stockholders had been scheduled for April 25, that has been postponed. We will provide more information on this very soon.
However, in order to comply with proxy rules. We will not make any further comments regarding this beyond those contained in the press release we issued last Wednesday afternoon. Additionally, we will not entertain any questions regarding this in the Q&A session, it's always important to remind everyone that you should expect some fluctuations in our revenue from quarter to quarter, as you saw at times in fiscal 2024 and in other periods. In recent years, there will likely be quarterly revenue variation due to a variety of challenges and unforeseen circumstances for simple customer delivery requirements. However, as we illustrated in fiscal 2024 these orders may shift to the right, but are not lost. We'll continue to maintain our belief that the general trend was one to sustainably higher level revenue in fiscal 2025 and beyond.
Looking forward, our current visibility, healthy customer engagement, strong backlog and favorable macro tailwinds give us confidence that we'll see revenue growth and positive adjusted EBITDA in fiscal 2025, and we anticipate another profitable year for mine, and we believe our differentiated and market-leading suite of products is uniquely positioned to capitalize on customer demand in future periods, and we intend to build on the positive momentum from last year to drive increased shareholder value in fiscal 2025.
With that, operator, I think we can open the call up for questions.

Question and Answer Session

Operator

(Operator Instructions) Tyson Bauer, Kansas City.

Tyson Bauer

Good morning, gentlemen. And I'm glad you threw in the second part because I wasn't going to touch it with a 10 foot fall to begin with. So little stick to the business questions that at least on my part.

Robert Capps

Okay,

Tyson Bauer

we have [$5 million] rollover from Q3 to Q4. We had some orders rollover from Q4 to Q1. It seems like were to a stage that the rolling 12 months or the run rate is basically set where we're going to always have those timing issues. But we've really elevated the Company to a new range of operating results as these things roll forward, especially with maintaining the backlog that you have, if that is how you are seeing this, what kind of working capital needs are you anticipating for this fiscal year?
If we've reached that level of just rolling forward, and we should see similar results to what we just had as we go through the quarters with some obvious variations.

Robert Capps

Sure. I mean that's a tough question because working capital is dictated by exact timing of shipments or collection activities in terms of what our requirements are from vendors. As far as payments, sometimes advanced payments, what do we need to buy materials, advance others, it's a complex, complicated calculus. I will say, no, we do believe that we can fund that from our existing operations, the create the working capital we need, which I think you need to be careful. If you look at the cash on the balance sheet at it, January at [$5 million] and assume that excess cash is around.
That's not necessarily the case that that's going to help fund those working capital requirements as we go through the year and handle those ups and downs. So that's reason we think it's very prudent and would be imprudent not to maintain that flexibility such We such a we do have the ability to, but those requirements as they arise and sometimes they are unforeseen. So I don't have a number for you, but certainly new things we think things will improve. But if the business continues to expand, that's going to expand the working capital requirements.

Tyson Bauer

So you are anticipating growth off of the Q4 run rate, then?

Robert Capps

I wouldn't say that I think that's a bit aggressive. You've given where the orders flowing in from the third quarter.

Tyson Bauer

You threw me a softball. I thought it might kind of hit it out of the park for you guys in Australia.
Obviously, the end of the quarter is today, are you willing or able to give us any kind of insight on how we progress to where backlog should end up or where you're kind of standing cash wise at the end of April.

Robert Capps

It does. I don't want to get into that. That's really dangerous to try to project financial results on the last day of the quarter before it closed to the extent that's really dangerous. I'll just say they were we're pleased about the way the business is progressing. And I think for us consistent with what we talked about here today and just leave it that.

Tyson Bauer

Okay. But you are pleased with your backlog and how that's progressed thus far?

Robert Capps

Sure, sure. No, backlogs motion is open down now that there will be a period on share in the future where our backlog was down a bit and then it will go back up.
It's just we have large orders that tend to come in in batches. So Now beyond that.

Tyson Bauer

When you have systems, obviously that can skew timing of revenue recognition receipt and accounts receivable.
Howard, could you give us a little sense of the composition of the backlog as far as how many are like whole systems that are ex millions of dollars as opposed to partials, that may be a little more in the under $1 million or $1 million versus, say, a $4 million or $5 million system.

Robert Capps

And I'm doing some internal math here. The majority of is going to be systems because obviously just because they're bigger, they are going to dominate.
So there are a a handful of full systems in the backlog, the balance being spare parts and things of that nature.

Tyson Bauer

Okay. And the delivery time line of that backlog that you disclose should all be recognized in fiscal '25?

Robert Capps

Most, and I can't not you all of it to some of my slide into next year, but there will be other orders are coming in as well.

Tyson Bauer

Okay. And the backlog does not include what you anticipate in servicing and parts, which is typically any given year about 10% of what you generate in top line?

Robert Capps

Yeah. I mean, there may be some spare orders we've already received, but those can happen throughout the year.
So a little bit more of those sort of things.

Tyson Bauer

You talked about AI used by a couple of Navy's global Navy. So with your partnership or what exactly is being utilized with that a I assume in your part in that relationship?

Robert Capps

So Spectel, AI is a data handling and automatic target recognition enabling system.
There's different aspects to it.
So simply put when used with in this case, sites can ours, but could the other sensor systems, it facilitates the the handling and annotation of the data and therefore then the application of the automatic target recognition algorithm to it. So it takes to take some of that labor out of the process, primarily being used in a survey application right now are survey applications right now. I mean, these 90s, maybe some you'll have their own survey, the operations.
So we're encouraged by that and we're getting good feedback. We think as far as the the efficacy of the program and making a few tweaks to it, and our arrangement is we still own that IP. We have licensed it to general oceans. And then as they sell it or license it to their customers, we retain a sublicense fee and this relates to sides can sonars. So what we would hope to do in the future is then take this same technology towards other sensor systems and do it directly, but that's that center for the future.

Tyson Bauer

Okay. So currently, it's primarily utilized with your own hardware and software that you provide, but you're trying to make it. So it's universal that will work with a variety of different systems, even those not manufactured by yourself and the licensing fee you get is pretty much just pure profit?

Robert Capps

Yes. And just just clarify an issue with Klein sonar assumption on our part at this point is not our equipment it's supplying equipment. So generalizations equipment, yeah.
So we've retained a license fee and we would do we'd hope to do that other sensor systems in the future.

Tyson Bauer

Last question and I'll let the others get out of they are others there.
Are we anticipating a strong start then? Or is this more of a backfill situ or back half-weighted fiscal '25 as we go through and obviously timing, we know those disclaimers that you have, but you have a general sense that we started out this quarter with a very strong backlog number, very reminiscent of what we had at the end of Q3 and what you're able to produce and you kind of have a sense of what timing of that backlog is as far as system deliveries throughout the year?

Robert Capps

It's a nice drive towards.
I'll just say the we think it's going to be a solid start and leave it from there.
Again, I don't want you to specific.

Tyson Bauer

Thank you, gentlemen.

Operator

(Operator Instructions) [Sam Schwarz, Caliber Management].

Sam Schwarz

Yes, hi, good morning. Congratulations on a significant change in quarter and performance.
My question is regarding the is there an application military application for your AI software as far as targeting is concerned?

Robert Capps

Yes, that's a yes, but it's not something that we would provide. And let me see let me expand on that the best way I can be used again in the data handling data handling aspects of it, but typically any military application, the military or the Navy's are going to apply their own ATR. model to it. They have all well, but we have an ATR model that can be provided typically the navies of the world want to provide their own model. So we kind of provide the front end and they fit into the backend, if you will.

Mark Cox

And there's a regulatory reason of that to if we were provide, the model itself becomes much more export controls, mix, more mature, export control, and therefore, it's something we'd prefer to stay away from it had it.

Sam Schwarz

Thank you.

Operator

Ladies and gentlemen, this concludes our question and answer session. I would now hand the conference over to Rob Capps for any closing comments.

Robert Capps

Okay, thank you, everyone, for joining us today, and I look forward to talking to you in a very few weeks after our first quarter. Thanks very much.

Operator

The contents of mine technology has now concluded. Thank you for your participation. You may now disconnect your lines.