MIND TECHNOLOGY, INC Q2 FY2025 earnings call

• Conversion of preferred stock: Issued approximately 6.6 million shares of common stock, retiring all outstanding preferred stock and associated dividends. Now has about 8 million shares outstanding.
• Financial results: Marine technology revenues $10M (+32% y-o-y), gross profit $4.8M (+62% y-o-y), gross margin 48% (+22% y-o-y). G&A expenses $2.8M, flat sequentially and down from prior year. R&D expenses $328,000, down sequentially and y-o-y. Operating income $1.4M, net income $798,000. Positive cash flow from operations, working capital $20.3M, cash on hand $1.9M.
• Backlog: End of quarter backlog ~$26M, down sequentially but >50% higher than last year. Pipeline of pending orders and prospects well above backlog.
• Strategic position: Well-positioned for growth, strong backlog, favorable market environment, partnerships, and customer relationships.

The marine technology product segment generated revenues of $10 million in the second quarter of fiscal 2025, which was a 32% increase from approximately $7.6 million in the same period last year. Gross profit for the quarter was approximately $4.8 million, a 62% increase compared to the second quarter of the prior year. The gross profit margin was approximately 48%, up approximately 22% from the same quarter last year. Revenue contribution from the marine technology segment was 100% of the total reported revenue for the quarter.

• Expect positive adjusted EBITDA and profitability throughout fiscal 2025.
• Second half of fiscal 2025 expected to be somewhat improved compared to first half.
• Continued focus on managing costs, improving margins, and working down inventory.

• Supply chain issues, though improved, could still impact results.
• Timing of orders subject to uncertainties like unforeseen circumstances or customer delivery requirements.
• Public company costs, which can be significant (well over $1M, approaching $2M).

Q: Congratulations, gentlemen. A lot less stressful for all involved now that cap structure. Obviously, backlog will be somewhat of a focus, but I think your comments on the outlook kind of soften that. We go from 38 to [31.26] (ph) add another six, so you’re about 32. So, you’re maintaining your backlog. You mentioned sustained revenue as we go forth in the next couple of quarters with an improvement in second half results. Do you look at that as kind of now we’ve hit that benchmark level where other than maybe some unique timing issues, we should be at that $10 million plus going forward?

A: Okay. I’m always hesitant, excuse me, to be specific about that. But I think normally you’re correct. Just understanding that when a particular order falls, from one week to the next could have an impact on given quarter. So, if we’re waking up one day and have a $8 million quarter, I would not be panicking. This is no, don’t be shocked if there’s a $12 million quarter.

Q: Couple of questions. What were inventory levels at quarter end?

A: About $20 million.

Q: Second is, you talked about pulling down the G&A as you’re rightsizing the business. What kind of run rate G&A should we expect to see going forward either annually or on a quarter basis?

A: So, we’re at $2.8 million this quarter. I would like to see that down a little bit, 100,000 or so, not drastically, but then we’re just at a point where we’re starting to tweak things a bit, just headcounts in some places. So, it’s kind of like that level, analyze the $2.8 million and take maybe a $0.5 million off of that maybe makes some sense, but those are rough numbers obviously.

Q: What were your public company costs?

A: Yes, that’s a great question. So, I think it’s well in excess of the $1 million like your audit costs are more, you got public reporting cost, you’ve got shareholder cost. So, I think well in excess of $1 million and probably approaching $2 million is not hard to get to.

Q: I wonder if you could give us a little color on MIND Technologies involvement in artificial intelligence and your Spectral software?

A: Sure. That’s something we developed in connection with our client operation initially. Of course, we’ve sold that, but we retained that IP in the transaction, but then had sublicense that back to Klein and General Oceans, the buyer, as it relates to certain applications, specifically side scan sonar. So right now, we are promoting that in connection with our agreement, our collaboration agreement with General Oceans. It’s early days. The revenue from it has been de minimis. I mean, just a few tens of thousands of dollars so far. But I think it’s something that’s pretty interesting and that companies who have looked at it, and it’s in the hands of a couple of significant customers around the world right now. The feedback is very positive that there are some unique things about this Software Suite. There’s lots of APR automatic target recognition software out there, lots of AI models out there. But there’s some things about this as it relates to data handling and ability to develop new models, which we think is unique. So, we think there’s an interesting opportunity there, but it is very early days, and we’re still exploring the best way to exploit that. It’s not going to be a $50 million a year business, but it doesn’t need to be. If it can be, something much smaller than that, I think it could add some pretty meaningful value to it. So, it’s one of those things that, we can’t bet the bank on it right now, but I think it’s some interesting upside for us that we’re trying to pursue.