MIND Technology, Inc.

All participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Wan. Please go ahead, sir.

thank you operator good morning and welcome to the mine technology fiscal 2024 fourth quarter earnings conference call we appreciate all of you joining us today with me are rob caps 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 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-technology.com or via a recorded instant replay until May 7th. 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 30th, 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. 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 31st, 2024. 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's CEO, Rob Capps.

Okay, thanks, Zach. And thanks, all of you, for joining us today. I'll start by discussing some 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 for MIDE, and it was evident in our results. We achieved positive adjusted EBITDA in the fourth quarter, and our continuing operations were profitable for both the fourth quarter and on a full year basis. This was the first profitable year for mine 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. Furthering our transformation this year was our sale of Klein to 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 the largest potential for growth and profitability. Our CMAP product lines continue to gain traction and 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 single largest order in CMAP's 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 at 145% above where our backlog related to CMF stood at the beginning of fiscal 2024. This robust backlog means that we're entering fiscal 2025 with a substantial book of business, and 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, or 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 our future results. Marine Technology products revenues for the fiscal fourth quarter and full year 2024 were $13.4 million and $36.5 million, respectively. This annual revenue was the highest ever achieved by our CMAT 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, 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 at times in 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. The magnitude of our backlog does give us better visibility and therefore a better ability to manage our procurement process. However, the increased level of activity also means increased capital requirements. We believe that the growing demand for our CMAP product lines, such as gun link source controllers, buoy link positioning systems, and ceiling streamer systems is driving our robust backlog. The benefits from our key customer partnerships and strength in the underlying market have 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 marine technology products. We continue to believe that the current market environment is advantageous for MOLIT. Each of our three key markets, exploration, defense, and survey, remain 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. Included in our backlog are orders for ultra-high resolution survey systems. They're often used to detect subsea boulders and other geo-hazards. These surveys assist in de-risking offshore installations such as wind farms and carbon capture facilities. These 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 seedling 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 our commercially developed seedling system, is a significant and economical solution for various demanding applications. The current geopolitical tensions around the world are a great reminder of the ever-present demand for security-related technologies. We are beginning to see some traction for our Spectral AI 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 its prospects and hope to find further applications for this technology. Now, with that, let me hand things over to Mark for a while. He'll walk you through the fourth quarter and full year financial results in a bit more detail.

Mark? 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 decline. 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 CMAP 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 revenue in the coming quarters. Full-year gross profit from continuing operations was approximately $16 million, which was up approximately 61 percent when compared to the prior year. This represents a gross profit margin of approximately 44 percent for the year. This is an improvement from the 40 percent 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 in our last call, the sale of Klein 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 mask a bit of the client-related savings achieved during the quarter. 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.

Okay, thanks, Mark. MIND's results for fiscal 2024 demonstrate the early benefits of our strategic transformation to streamline our business and focus on our CMAP 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 positive momentum in future periods. 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. The market conditions remain favorable. We believe there are still notable opportunities for our CMAP unit and our other initiatives. We believe our significant customer engagement and order flow are indications of the market adoption of our product lines. We're encouraged by results in fiscal 2024 and the noteworthy improvements we've made to the business. However, our eyes remain fixed on the future. We believe MIND is exceptionally well positioned with a strong foundation to capitalize on future opportunities. Now, despite these positive results and our optimism for the future, we continue to feel 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 pay 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 deferred 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 today, it remains about $6.6 million of accumulated dividends from prior periods. As a result, in recent months, we proposed an amendment to the terms of our preferred stock that would convert the preferred stock into common stock. As you also probably know, a special meeting of the preferred 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 we 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 or simple customer delivery requirements. However, as we illustrated in fiscal 2024, these orders may shift to the right, but they're not lost. We continue to maintain our belief that the general trend would want a 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 MIND. 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 now open the call for questions.

Thank you.

Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would 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. Ladies and gentlemen, we will wait for a moment while we poll for questions. Our first question is from the line of Tyson Bauer with KC Capital. Please go ahead. Good morning, gentlemen.

Hey, Tyson.

I'm glad you threw in the second part because I wasn't going to touch it with the 10-foot pole to begin with. Well, we'll stick to the business questions, at least on my part. We had 5 million rollover from third quarter to fourth quarter. We had some orders roll low from fourth quarter to first quarter. It seems like we're 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?

Sure. That's a tough question because working capital is dictated by exact timing of shipments, collection activities, terms, what our requirements are from vendors as far as payments, sometimes advance payments. Do we need to buy materials in advance? It's a complicated calculus. I will say, you know, we do believe that we can fund that from our existing operations to create the working capital we need. But I think you need to be careful. If you look at the cash on the balance sheet at January, you know, $5-something million, and you assume that's, you know, excess cash sitting around, well, that's not necessarily the case. You know, that's going to help fund those working capital requirements as we go through the year and handle those, you know, ups and downs. Well, that's the reason we think it's very prudent and would be imprudent not to, you know, maintain that flexibility such that we do have the ability to fund those requirements as they arise, and sometimes they're unforeseen. So, again, I don't have a number for you, but certainly, you know, things, we think things will improve, but if the business continues to expand, that's going to expand the working capital requirements.

So you are anticipating growth off of the fourth quarter run rate then?

I wouldn't say that. I think that's a bit aggressive, given we had the orders flow in from the third quarter.

Well, you threw me a softball. I thought I might try to hit it out of the park for you.

Nice try.

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?

You know, Dyson, 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 we close the books. That's really dangerous. I'll just say that, you know, we're We're pleased about the way the business is progressing. I think we're consistent with what we've talked about here today. I'll just leave it at that.

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

Sure. Sure. Now, backlog is always going to go up and down. There'll be a period, I'm sure, in the future where backlog goes down a bit, and then it'll go back up. It's just we have large orders that tend to come in batches.

And when you have systems, obviously, that can skew timing of revenue recognition, receipt, and accounts receivable. Absolutely. How would you give us a little sense of the composition of the backlog as far as how many are like whole systems that are X millions of dollars as opposed to partials that may be a little more, you know, under a million or a million dollars? versus, say, a $4 or $5 million system?

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

Okay, and the delivery timeline of that backlog that you disclose should all be recognized in fiscal 25?

Most of it. I can't say all of it. Some of them might slide into next year, but there will be other orders that come in as well.

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 top line?

Yeah, I mean, there may be some spare orders that we already receive, but those, again, happen throughout the year, so there'll be more of those sort of things.

Okay. You talked about AI use by a couple of navies, global navies, with your partnership. What exactly is being utilized with that AI system and your part in that relationship?

So, Spectral 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, side scan sonars, but could be other sensor systems, it facilitates the handling and annotation of the data and therefore then the application of the automatic target recognition algorithm to it. So it takes some of the labor out of the process. It's primarily being used in a survey application right now, or survey applications right now. These navies have their own survey operations. So we're encouraged by that. We're getting good feedback, we think, as far as the efficacy of the program and making a few tweaks to it. 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 sub-license fee. And this relates to side scan 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 something for the future.

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 it'll 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?

Yeah, so let's clarify, it's with Klein Sonars, so it's not our At this point, it's not our equipment. It's the client equipment, so General Oceans equipment. Yeah, so we've retained that license fee, and we do hope to move that to other sensor systems in the future.

Okay. Last question, and I'll let the others get on if there are others there. Are we anticipating a strong start then, or is this more of a back half-weighted fiscal 2015? 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 were 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.

Nice try. I mean, can I just say that we think it's going to be a solid start. and just leave it from there. Again, I don't want to get too specific.

Okay. All right. Thank you, gentlemen.

Thank you.

Ladies and gentlemen, a reminder, if you wish to ask a question, please press star and 1. Our next question comes from the line of Sam Schwartz with Caliber Management. Please go ahead.

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

Yes, but it's not something that we would provide. Let me expand on that. The special AI can be used, again, in the data handling aspects of it. But typically, any military application, the military or the navies are going to apply their own ATR or model to it. They have all, well, 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 put in the back end, if you will. And there's a regulatory reason for that too. If we were to provide the model itself, then it becomes much more export controlled and therefore it's something we'd prefer to stay away from. Thank you.

Is that it? Yep. Yep.

Thank you.

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

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

Thank you. The Conference of Mind Technology has now concluded. Thank you for your participation. You may now disconnect your lines.