MIND Technology - Earnings Call - Q1 2022

Transcript

Speaker 0

Greetings, and welcome to the MIND Technologies First Quarter Fiscal twenty twenty two Conference Call. At this time, all participants will be in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard.

Thank you, Ken. You may now begin.

Speaker 1

Thank you, operator. Good morning, everyone, and welcome to the MIND Technology fiscal twenty twenty two first quarter conference call. We appreciate all of you joining us today. Your hosts are Rob Capps, Co Chief Executive Officer and Chief Financial Officer and Guy Mauldin, Co Chief Executive Officer and Executive Vice President of Marine Systems. Before I turn the call over to management, have the normal housekeeping details to run through.

If you'd like to listen to the replay of today's call, it will be available for ninety days via webcast by going to the Investor Relations section of the company's website and that's at minetechnology.com. Or there'll be a recorded instant replay feature until June 10. Information on how to access the replay features was provided in yesterday's earnings release. Also, information reported on this call speaks only as of today, Thursday, 06/03/2021, and therefore you're 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 these 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 ks for the year ended 01/31/2021. Furthermore, as we start this call, please refer to the statement regarding forward looking statements incorporated in the press release issued yesterday. And please note that the contents of our conference call this morning are covered by these statements. Now I'd like to turn the call over to Guy Mauldin.

Guy?

Speaker 2

Thanks, Ken, and good morning, everyone. We would like to thank you for joining us today for our fiscal twenty twenty two first quarter conference call. I'll begin by making some general comments about the first quarter. Then I will hand the call over to Rob to discuss our financial results and address our general market outlook. The 2022 was marked by some turbulence as both we and our customers began to experience some supply chain disruptions.

Despite the rapidly improving COVID-nineteen situation in The United States, some parts of the world, particularly Asia, continue to experience associated disruptions and difficulties. While the recovering global economy is clearly supportive of our long term goals for the company, we can expect some bumps along the road. For instance, the global supply chain challenges I just mentioned can and have had an effect on our customer spending plans. We all have experienced increasing lead times and shipping times for some components and subsystems, which have, in turn, caused some delays in orders and deliveries. When we were planning our production schedule for the current year, we were able to get the pipeline flowing for certain key items such as PCBs and various other components.

However, with so much activity getting underway simultaneously around the world, we are seeing some disruption to our supply chain. We think these situations are temporary, but they do insert an element of risk to our business, particularly with regard to the specific timing of activity. Another macro factor that has continued to weigh on our business is the lingering impact of COVID overseas. Specifically, some countries, particularly in the Asia Pacific Region, are still dealing with restrictions on business activity and access to outsiders. This has had an impact on our operations in Singapore and Malaysia.

Like the global supply chain disruption, we believe this issue will also mitigate over time as vaccinations increase worldwide, but it does present a near term challenge for us. Nonetheless, we saw some activity shift to the right during the quarter due to these issues and a variety of other reasons. Now looking at our first quarter results, revenues were up on a year over year basis, with consolidated revenues up by nearly 32. On a sequential basis, consolidated revenues were down 35%. Our backlog remains strong at $11,100,000 although down from the record $14,200,000 we had at the end of Q4.

That said, as mentioned in our press release, we are expecting to add a couple of fairly significant orders in the coming weeks. But overall, the supply chain and component shortages, combined with some orders being delayed to later this year, have temporarily hampered our visibility into near term conditions. And despite challenging conditions, our long term objectives remain intact. That is, we will capitalize on the explosive growth of the USB and AUV markets by offering comprehensive sensor payloads for these applications. We will address the growing market demand for higher resolution underwater images using synthetic aperture sonar, and we will meet the need for cost effective anti submarine warfare and maritime security solutions.

By successfully addressing these needs, we believe we will attain our long term goal of achieving annual revenues of $140,000,000 in the next five years with an EBITDA margin in excess of 20%. With that, let me now turn the call over to Rob.

Speaker 3

Okay. Thanks, Guy. I'll begin by giving you a detailed review of the first quarter financial results before I make a few summarizing comments. Now keep in mind that our continuing operations are composed entirely of our marine technology products and that our legacy leasing operations are classified as discontinued operations. As Guy mentioned, the first quarter was impacted by the effects of customer orders being pushed to the right as well as supply chain disruptions, some of which are related to the lingering COVID impacts.

Accordingly, our results were a bit less than we had planned. Revenues from continuing operations totaled $4,200,000 in the quarter, which was down 35% sequentially versus $6,400,000 in the 2021. First quarter gross profit from continuing operations $543,000 down from $2,500,000 in Q4. This represents a gross profit margin of 13%, which was down from the 40% we achieved in the prior quarter. Decrease reflects effect of unabsorbed production overhead due to the lower activity level.

Our general and administrative expenses were $3,800,000 for the 2022, which is roughly flat sequentially. Research and development expense was $1,000,000 which was up 9% from the fourth quarter of last year. The increase was largely due to higher levels of activity targeting the pursuit of our strategic initiatives, such as synthetic aperture sonar, passive sonar arrays and sensor systems for unmanned platforms. Our loss from continuing operations for the first quarter of this year was $3,700,000 as compared to $3,300,000 in the fourth quarter of last year. Our first quarter adjusted EBITDA from continuing operations was a loss of $3,000,000 compared to a loss of $1,800,000 in Q4 of last year.

We are continuing to progress on the disposal of the land leasing business. These assets were carried on our balance sheet at approximately $4,000,000 as of April 3021. We continue to pursue a number of different avenues to monetize these assets. Mines' capital structure and liquidity remained solid. At the end of the quarter, we had about $15,000,000 of working capital that included cash and cash equivalents of over $2,000,000 As of today, we have no funded debt and have a lean and flexible cost structure.

Combined with the incremental proceeds from the continuing sale of our land leasing assets, we believe we have the resources necessary to overcome any challenges that the current environment may bring and to also fully take the opportunities as they become available. Despite COVID and supply chain issues, we continue to see a healthy level of inquiries and requests for quotes. Although some orders have been delayed or revised, there remains a steady demand for marine technology, particularly for our source controllers and related upgrades. As Guy mentioned, our backlog amounted to $11,100,000 which is down from the all time high of $14,200,000 set last quarter. We did have one order for approximately 2,100,000 canceled during the quarter and therefore removed from our backlog.

The requirements for this customer changed, necessitating the cancellation of this particular order. However, we do expect to receive other orders from this customer as the requirements become better defined. As Guy mentioned, we also expect two relatively significant orders in the coming weeks, totaling more than $5,000,000 The supply chain issues and COVID overhang we've discussed introduced an element of risk and uncertainty to our near term outlook. The shortfall we experienced in the first quarter may be difficult to make up during the balance of the year. However, the run rates we anticipated later in the year still look to be quite attainable.

In the long run, our enthusiasm remains unchanged and remain fully committed to our long term objectives. Our past performance during times of adversity has shown that we can manage the downside impacts by focusing on execution and cost containment. As we've emphasized before, we stand ready to make further adjustments structure in the event of continued volatility. With no debt and the pending sales of our remaining lease school equipment, we have the necessary breathing room needed to overcome the near term challenges and if needed to access capital markets in the future. So in closing, although the first quarter turned out to be a bit more difficult than we had anticipated, we remain excited about the future of Bind Technology and are firmly committed to executing our growth plan.

That concludes our formal comments. At this time, we'll open the line up for questions.

Speaker 0

Thank you. We'll now be conducting a question and answer session. Thank you. Our first question is from the line of Tyson Bauer with KC Capital. Please proceed with your questions.

Speaker 4

Good morning,

Speaker 3

morning, Tyson.

Speaker 4

Comments regarding the Q1 won't be able to be made up through the remainder of the year, but you still expect to be at the same run rate that you discussed in the prior conference call.

Speaker 3

What assumptions

Speaker 4

are in that to make that statement given the supply chain disruptions, COVID easing in Asia, other things that you've mentioned and the cancellation of that 2.1. Are you still anticipating that that was a one off situation and we still are on track with other orders within the backlog and orders you expect to get with deliveries. Just give us a little color between those comments you made.

Speaker 3

Sure. Tyson. So the canceled order, we do expect those that to be replaced effectively with other orders from that same customer. Again, they had a change in circumstance, so they just need something different. They're trying to figure out what that different is.

So that's kind of that situation. As far as making up the shortfall, think the point we're trying to make is there is a bit of a shift here. Didn't wanna give the impression that, okay, there one order moved to the next quarter, so it's gonna be next quarter's gonna be that much bigger just because of that. There is some assumption that there will be some continuing impact from the supply chain situation, which we think will mitigate later in the year. So that's the reason we made the comment about not making up the shortfall, but still feel good about the run rates in the balance of the year based on the backlog, the scheduled deliveries and just the order flow in general.

So I think we feel pretty good about all of that.

Speaker 4

What were your deliveries in the quarter and what do you expect in the second quarter?

Speaker 3

I mean, we did revenues were $4,200,000 We expect something more than that in the fourth quarter and the second quarter. I don't want to give specific guidance on that.

Speaker 4

Okay. I was just wondering if there was a system that, because of third party add ons that you mentioned in the press release, that now gets delivered in Q2. So all of sudden we're picking up an extra $12,000,000 there. But overall, we're still cautious on the timeline.

Speaker 3

Yes, think there definitely is some amount of order that got pushed from q one to q two, but again, you have to assume there's gonna be something in q two that gets pushed to q three just because of the supply chain issues. Part of it is a lot of our systems are integrated with other pieces of equipment. So if a customer can't receive delivery of that other equipment, you know, they don't need our stuff until, you know, a later date. So that's part of the situation we've seen.

Speaker 4

Is that more what we've seen in the news a lot, chip related or other factors that we should keep an eye on?

Speaker 3

I think just it's a general supply chain thing. I mean, you see chips in the in the in the news a lot, and I think we kept our arms around that pretty well from our particular situation. But you're just seeing general lead times be pushed out and delivery times pushed out. You know, shipping issues Yes. Are part part of the issue.

Speaker 2

Yeah. It's not just supply. It is supply chain, but then it's the shipping related to that supply chain. It's sort of unprecedented from our perspective, the lengthening of shipping times.

Speaker 4

Okay. You also commented no capital needs. Still got 4,000,000 assets for sale that are on the balance sheet that hopefully finding a prospective buyer there. Does that imply then as we get into a more hopefully a routine or more normalized orders, building deliveries that you can handle everything internally with those source of funds and that cash management. We shouldn't expect any other preferred or common ATM usage or any other extraordinary capital needs?

Speaker 3

I think we feel like we can handle things internally as to whether or we utilize the capital markets. It really depends on some of the opportunities we see for accelerating development activities or maybe some M and A activity. So I don't want to say we won't address the capital markets, but I think it will be more for expansion.

Speaker 4

Okay. And last question, with your European partner, just discuss where you are in that timeline with product rollout, marketing, naming, just a little flavor on where you stand with your European partner.

Speaker 3

We're in the middle of the project right now. It's progressing on schedule. On schedule. Very much on schedule. Again, we expect first delivery later this year.

Has that

Speaker 4

been in any trade shows or anything in the where that's been?

Speaker 3

Not yet. Not yet. Not yet.

Speaker 5

How do you

Speaker 4

expect the public out you know, coming out party?

Speaker 3

Later this year.

Speaker 2

Yes. Starting late August, but later this year.

Speaker 0

Next question comes from the line of

Speaker 5

Ross Taylor with ARS.

Speaker 0

Please proceed with your question.

Speaker 5

Thank you. It's always difficult to follow Tyson because he tends to ask all the questions that one needs to ask. First time you mentioned something about a $5,000,000 order coming later this year?

Speaker 3

Actually later this quarter we think. There's actually a couple of orders that total a bit over that that we think are imminent.

Speaker 5

Can you give us a little bit more color about those orders and even like what sectors or are they industrial, corporate orders or are they government defense orders? A little bit more color about them.

Speaker 3

These but they're both actually. One's governmental and one's commercial. And I really can't say much more about that since they're still pending.

Speaker 5

Okay. Okay. Well I think obviously that's pretty exciting. How are you seeing the bid environment going on? I'm talking to people, you know, who deal with things like Washington are finding, you know, Washington seems to be really behind the curve on paper and things of that nature.

How are you finding the domestic bid environment, that's from the government as well as overseas and just generally the corporate environment?

Speaker 3

Yeah, I think from the governmental side, we don't see things much different than from normal if you will. I mean it's always cumbersome and that hasn't changed. But don't think we've seen it slow down. I think what we have seen is during the past year a lot of government offices were closed and you couldn't go see people and that's starting to change. So we actually have some face to face meetings scheduled in the near term which is that's a big change for us.

I think on the commercial side you're definitely seeing things pick up a bit. Yes. No doubt about that. No doubt. I think Asia is a lagging event for the reasons Guy talked about.

But we're definitely seeing things pick up a bit.

Speaker 5

If you were to take away the supply shortages and the choke point, how do you think, what would you think your backlog business would be building? Do you think that's right now we're seeing a major drag on the building of this backlog right in here because of the fact that people can't get components and the like and I people are a little up in the

Speaker 3

don't know if I'd say that. Understand Ross, our backlog can go up and down. A couple of big orders have a big impact on the backlog. So that could be a bit dangerous to draw too many conclusions from that. There's an impact that I wouldn't say we're seeing a major impact.

The people say okay, I'm not gonna take delivery until next March, I don't need to worry about placing the order. Maybe there's some of that. But to counter that, they recognize the lead time issues so the sooner they get an order on with us, the sooner we can get it in the production plan. So that's actually kind of countering some of the offset.

Speaker 5

Okay. Well that's good. That's great to hear that you think particularly if you can get the for sale assets sold that you will not need to be revisiting the market on a regular basis. I think that will be a major plus and set the stage for going forward and you guys achieving the goals that you've laid out.

Speaker 3

Okay, thanks Ross.

Speaker 5

Thank you sir, take care.

Speaker 0

Thank you. At this time, I'll turn the floor back to management for closing remarks.

Speaker 3

Okay, thanks everyone for joining us today. I appreciate your time. We look forward to talking to you in a few weeks, few months after our second quarter call. Thanks very much.

Speaker 0

Thank you. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines at this time and have a wonderful day.