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spk04: sale, decline, we repaid and eliminated our high-cost debt, leaving mine debt-free today. I'll now pass it back over to Rob for some concluding comments. Okay, thanks, Mark. Our conviction about the future of mine technology has only been strengthened by our recent achievements. We've taken the necessary steps to streamline our operations and focus our profitability. We believe that this company is in a better position now than ever. 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 CMAP 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 the mind is headed in the right direction, and we look forward to building on the strong foundation that we've constructed. As I mentioned earlier, the increase in business comes at a 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 31st, 2023. However, there remains about $4.7 million of accumulated dividends from prior periods, and the ongoing dividends accrue at a rate of about $3.8 million per year. While our liquidity and financial position are 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't change we currently believe it unlikely that we will declare further dividends on our preferred stock for the foreseeable future. As we experience this quarter, and if 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. 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 intended to utilize this momentum to drive meaningful shareholder value. And with that, operator, we can now open the call up for some questions.
spk00: Thank you. We will now be conducting a question and answer session. If you'd 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 keys. Our first question comes from the line of Tyson Bauer with KC Capital. Please proceed with your question.
spk03: Good morning, gentlemen. Hi, Tyson. Trying to get a where we are today kind of look at the company, and all this is going to lead up to the eventual question of where we need to get to. You enter the quarter at 37.4 million of backlog. Five to six million of that is because we had deferred revenue that will fall into this quarter. So you have approximately 32 million backlog that is a significant increase from 17 million at the end of July. Where you kind of today and where your backlog stands relative to also your recognized revenue in the quarter, Has that $5 to $6 million been realized already along with your other expected revenue you thought you were going to have? Or is this a situation where the component's delay really has pushed everything to the right of the calendar so we don't necessarily have that catch-up where all of a sudden we have a $12, $15 million quarter? Yeah, so Tyson, we –
spk04: Those delayed orders have partially been shipped. They're not all completed. They've been partially done. We do expect them all done by the end of the quarter, much by the end of the calendar year. So I think we will see a bit of a catch-up, to use your term, in this quarter. So it's not a valley that's getting pushed out all the way. There's a certain component that was two months late coming to us from a supplier. So it just didn't give us enough time to get everything, you know, built and out the door when we had originally scheduled to.
spk03: And are these components that are just drop-in for, you know, like we see with the automakers, they need a chip, they build the vehicle, and then they can put the chip in and then ship it. Is that the situation here where it's a drop-in component that you can make the product and you're just waiting on that last component to complete it? Or is this something at the beginning of the process that just kind of halts the whole system in the field?
spk04: It's kind of halfway in between that's the way I'd describe it. It certainly is a drop-in and we can complete much of the system. But we have to drop in this component before we can then complete everything else. So it's a little bit of both. So we certainly have been able to continue with production and have things ready. We have sitting on the bench right now that we're, you know, again, dropping in to use your term to finish this. And then, of course, then there's, you know, software to be burned in, things of that nature, you know, part of the process that has to happen at the end. But we have been able to continue with the process, Tyke, the fundamental of your question.
spk03: Okay. And just for the sake of clarity, because I think you mentioned this in the last call, if the expectation you did $5 million, you thought you had $5 to $6 that was deferred, That implies that you thought you were going to be able to do 10 to 11 million in the quarter. I think in the last call you thought that the quarters would be somewhat similar, obviously, depending on some timing issues. Does that mean you're walking into this quarter with the expectation that you thought you were going to do, say, roughly 10 million and the five to six is an add-on, or... Give us a little better clarity on that.
spk04: No, I understand where you're going. And the answer is yes, although I understand just the caveat. Things can happen, and we can have something drop in unexpected. We do better. We get something pushed to the right for whatever reason. But fundamentally, your analysis is correct.
spk03: Okay. When we look at where your accounts receivable was at the end of July compared to where it was Obviously, you have the benefit client drops out of that, obviously. Also, you didn't have the sales that were realized in the quarter. Does that anticipate, if we go back to that July level and that level of business that you're expecting to do, since you haven't made all the deliveries as of yet, a $3 million working capital requirement? Just on that alone, not looking at additional inventories and that? which would leave you at the end of the fiscal year roughly $2.5 million of cash left?
spk04: Oh, there's a lot of calculus that goes into that, Tyson, so I'm not sure I'd draw that exact conclusion. Certainly, delayed shipments mean delayed cash flow coming in, but there will be some catch-up there as well. We have had to use working capital to buy components, So, there's some benefit there. There are some contracts that we have advanced payments on, prepayments from customers. So, there's lots of things that go into that calculus. But I think the message is, you know, with increasing business, that means there is an increase in work capital requirement, be it receivables, be it inventory. And so, that's the reason we're trying to take the position we are.
spk03: Okay. Well, that's what we're – ultimately, all these questions are going to come down to What operational level do you think or believe you need to be at to reinitiate that dividend, also meet your working capital needs given the growth outlook? And we've already seen, say, on your inventory, an $2 million increase that was offset by the reduction in accounts receivable. So at $5.5 million where you ended the quarter, are you anticipating being able to maintain that level or is that level going to be further stressed at the end of the year, and what level is comfortable for you to reexamine whether you have the operational results to reinitiate the dividend and meet your requirements for growth?
spk04: Tyson, the answer there is we don't know for sure because we need to understand how the business is going to, how the cash flow and how the working capital requirements are going to flow as this business flows through the production cycle. So that's the reason we want to be conservative here and keep our powder dry, if you will. So that's the whole reason why this is a huge backlog improvement. I mean, this is unbelievably larger than anything we've seen in the past. So we think it only prudent to make sure that we first serve the business and can execute on the business before we make any decisions on the preferred stock. So we just haven't decided yet.
spk03: In foreseeable future, if we get through and we play a little catch up, as you just mentioned, and we start kind of getting a more stabilized flow, as long as component supply is there, does that imply by the end of Q1 of the next fiscal year, you should be in a more comfortable position on where you're at to make that decision? I mean, is foreseeable future one, two quarters, or is it don't expect anything for the next fiscal year?
spk04: I said, I don't know at this point. That's what we're trying to understand. So I can't give you more guidance than we have here.
spk03: Okay. The pending contract structure, obviously you're not going to name who, and it probably doesn't make that big of a difference. Are those more for components, whole systems that you are going to be supplying, which obviously is going to be far more lumpy? And does that imply that they're operating as kind of a middleman as opposed to the end user, which is typically your customer?
spk04: They are for full systems. They are the end user. And there is a production schedule that we're working out with them over the next, you know, several quarters.
spk03: Okay. So when we see orders from them, these are going to be for whole systems. So we're looking at the, you know, one and a half all the way up to four million type systems that they would be purchasing at a time.
spk04: Correct. And maybe even some smaller systems as well. But yes, the answer is yes.
spk03: Okay. And is this a multi-year agreement?
spk04: It is.
spk03: Is there an accordion-type feature to this where you've set the price and it's just a function of that price will be good for what they need going forward?
spk04: No, no, no. No, but I don't want to get into specifics for some competitive reasons, as you might imagine.
spk03: Okay. But we should see before the end of the year some more details in color come from this contract that will make it, clear and obvious to the rest of us the scope of it?
spk04: Yes, you will.
spk01: I'm very confident about that. Okay. All right. I mean, for right now, I'm sure Ross is in queue.
spk03: We'll let him take over. But it looks like, at least operationally, you're where you want to be. It's just what are we going to do on the decision on that accumulated deficit on the preferred and was it going to take to actually catch up business-wise to basically create that residual value for the common once we satisfy the preferred side. So hopefully we'll know that in a quarter or two.
spk01: Okay.
spk00: Thank you. Our next question comes in line of Ross Taylor with ARS Investment Partners. Please proceed with your question.
spk02: Well, Tyson was right.
spk04: Don't tell him that.
spk02: Yeah, well, he knows it now. You and I have had a number of conversations about the imperative nature of paying this dividend because there is no way you can, I mean, the equity is a residual here. And for those of us who own equity, We want and need you to get this preferred out of the way so we can start to accumulate the value that is going to grow in this company. And it strikes me as a couple questions first. What was the inventory working capital impact or drag last quarter from the deferred sales? Obviously, we're building stuff. You had costs that you incurred. that didn't go out the door as sales to generate revenue. So what kind of impact was that?
spk04: Our inventories over the last six months are up about $3 million, roughly.
spk02: Okay. So as you sell that out, we should start to see that cash flow should come in.
spk04: Yes, but understand we're going to continue building.
spk02: Yes, I understand. Okay. As you build backlogs and accounts receivable, you and I talked about the fact that you can actually do other steps, factor accounts receivable, things of that nature, that the cheapest debt you're really going to get is the preferred, but it also absorbs. Right now, that preferred probably has about $46 million worth of value. Your equity has about $8 million worth of value. It strikes me, as I said before, that if I want my equity to grow, you've got to solve the problem with the preferred, and it's got to be imperative. And one of the things that you guys do is you keep promising us it's going to work as a company, and then just when you get back on the road, it's like if you didn't think you could pay the fourth quarter dividend, why would you pay the third? Save the money and pay it in the fourth so you can start a string of winning. I'm starting to think you guys are managed by the same people who manage the Seattle Mariners. But just being from Seattle, not a compliment. But I think that, I mean, I'm wrestling with what you're thinking is because I'm hearing you say we worry about this, but in fact, you have a lot of other alternatives to finance. You, quite honestly, if I were sitting on your board, I would say if I vote against the dividend, the only other question is, you know, I hire a banker for a year. to shop the company or B, to give it to Tyson to do an ATM and raise $5 million because by my calculations, if you could buy back 500,000 shares for $5 million, you actually create $3.33 a share in extra value for the common stock, which is basically a better than 50% increase over what it went out at. It just strikes me as we really need to get focused on being a public company and developing the confidence of the street. You know, as I said, every time it seems like you're about to turn that corner, you go into another dark place. How do we keep from being there? And, you know, answering Tyson's question of you don't know, I understand you don't know, but you've got to have a plan, and that plan's got to be, you know, You and I talked about other ways of raising capital and using these other ways because I think that you want to actually be able to eventually use that preferred dividend or preferred as a way to raise capital. It's a better way than going into the general financing market, I would think. Am I wrong?
spk04: Ross, I understand all your comments. Believe me. Nothing's new to me on this. I understand completely.
spk02: It's not news, but it's, I mean, to be honest, and the idea that you drop the comment, you haven't made a decision and you drop it with two weeks left in the year is just, you know, Rob, we've talked and I've known you for a long time and I've, you know, been a real loyal shareholder, but you know how frustrating it is to watch, you know, you basically come in and do something like this with two weeks left in the year because it just sets, it sets you back so much more than, you know, potential loss of one quarter's dividend. It sets you back to where you're all the street cred you're building is going to have to restart. And I think the board needs to recognize that, you know, you've got cash and you've got stuff coming on and your credibility as a public company. I mean, it's one thing if you're private, but you're public. So you have a duty to, you know, your shareholders. And I think that duty, I'd rather see you issue equity, dilute me a little bit on that, you know, You can get rid of it at $10 or $12 a share if you can buy back. That's a huge win for us shareholders. So we've got to be thinking about the game plan, okay? I know this isn't a happy conversation, but I'm not happy with the way this is falling together. So I feel like we're right back where we were a year or two ago, except for we thought we were so much better.
spk04: Okay. Thank you. All right. I appreciate the comments, Ross.
spk02: And give Tyson a call about the ATM if you don't pay the dividend.
spk01: I think he'd love the business.
spk00: Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to management for any final comments.
spk04: All right. Thanks, everyone, for joining us today. I look forward to talking to you at the end of our fourth quarter. Thanks very much.
spk00: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
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