MIND Technology, Inc. Q1 FY2026 earnings call

• First quarter results were down sequentially after a record fourth quarter, with approximately $5.5 million of orders delayed due to late component delivery or shipping issues, expected to be delivered in the second quarter.
• Cash flow from operations grew to about $4.1 million during the quarter, indicating improved liquidity.
• Backlog of firm orders as of April 30, 2025, was $21 million, with an active pipeline of pending and confident orders.
• Three main product lines contribute to the backlog and future financial improvements.
• Aftermarket activity was 71% of revenues in the first quarter due to system sales deferral; expansion of the Huntsville, Texas facility for repair and manufacturing services is in progress.
• The company has worked to optimize the supply chain and draw down inventory balances over the past 6 months.

Marine technology product revenues for the first quarter of fiscal 2026 were $7.9 million. Historically, approximately 40% of revenue comes from aftermarket activity, but in the first quarter, aftermarket activity represented approximately 71% of revenues due to deferral of some system sales. The backlog of firm orders as of April 30, 2025, was approximately $21 million. The company's three main product lines - GunLink source controllers, BuoyLink positioning systems, and SeaLink streamer systems - are meaningful contributors to the backlog and drive financial results.

• Expect a much improved second quarter, with anticipation of achieving positive adjusted EBITDA and returning to profitability in the second quarter.
• Believe there will be a meaningful increase in revenue in the current quarter and improved financial results for the balance of fiscal 2026 and beyond.

• Global economic environment uncertainty causing customers to delay purchasing commitments.
• Moderate level of uncertainty in the market related to tariffs and other trade restrictions, with limited direct impact on the business currently due to most revenue and production outside the United States.

Q: On the 5.5 delayed delivery, have those been delivered as of yet? And are they mainly comprised of 1 or 2 systems?

A: Partially delivered. There was a large -- one large system and then a few other orders. So it's a little bit of both. So partially delivered, but not completely yet. So those -- it will be soon, though.

Q: On the tax loss carryforwards, after you did your analysis, what did you determine as the amount that you reasonably have that could be used in the future?

A: It's about USD 80 million of NOL carryforward roughly.

Q: Now the problem with that is you have to generate in the U.S. You just commented 95% is out of Singapore. So how do you, as a management team, unlock that value? And either that comes from U.S.-generated business or partnering with somebody who has U.S. business that can utilize your tax carryforward. And isn't typically in that kind of activity, a business combination that value on a stand-alone about 25% of what the listed value is.

A: You hear all sorts of numbers about that. It really depends on the circumstances, Tyson. I mean you have to be careful about subsequent ownership changes, which we can limit that. But there certainly are ways to take advantage of that and try to shift more income into the U.S. There are -- you understand that under the U.S. tax laws now, we're taxed on worldwide income with offsets for what you pay overseas. So there is some benefit there. So there are ways to utilize that. So I think there is value there to us. Is it 25% of face value? I'm not going to speculate on that, but there is certainly value there we think.

Q: First, congratulations on the real improvement on the balance sheet and picking up on Tyson's line of reasoning 20%, 25% value of the tax losses add to your cash, you really have a company selling at $3 or less a share in the marketplace with a lot of earnings power seems at the market still hasn't quite picked up on that, but eventually, they will. But you guys have done a great job. So can you give us an idea of what's going on with -- on the $5.5 million, what impact did that have on your unrecovered costs? Obviously, at this point, you've built out -- it sounds like you built out a lot of that, had much of it ready to go, weren't able to ship it out. How did that impact earnings in the quarter?

A: Well, it would have been another $5.5 million of revenue at least at the margin that we demonstrated. So there's another about $2 million of operating profit or gross profit. So...

Q: Yes, it would have been on the gross profit level, something like $0.25 a share or something of that nature.

A: That sounds about right.

Q: Yes, which once again goes to the power. And as I said, congratulations on that. And you announced an order yesterday. Can you give us an idea how has the backlog moved since the end of the quarter you're reporting today?

A: Gosh, I want to be careful what I say there is because we add and subtract things every day. So there's things going in and out all the time. That certainly is an add to the backlog. What's interesting about that, Ross, is that's a prospect that frankly, if we're having this discussion 2 months ago, that wasn't on our radar. So that's really interesting to me that that's a new opportunity that's arisen recently. And there's been some others that we've now have visibility on. I don't have the order yet, but we have visibility of prospects that we didn't have 2, 3 months ago, which that's really encouraging me. Now some of that is a next fiscal year activity for sure, but that's still good news, I think.

Q: So when you say it's a new customer, is this a situation where they are -- is it a new use? Or is it someone in one of your areas that you're currently operating that you had not been doing business with that is now doing business with you?

A: It's -- I wouldn't say it's a new customer, someone we've done business with in the past. And so they were an existing customer, but it's a new need for them.

Q: Okay. Interesting. Interesting. We were talking about, obviously, with your tax losses, you talked about you've been building up your Texas repair refurbishment capability. A couple of things. One is how much money have you put into that facility? And how does that coming to being brought online impact your income statement and the cash flows?

A: So we've spent roughly, call it, $0.5 million to expand that. That's in rough terms over the past 9 months or so, something like that. Just about done with that. We think the activities there will then start to ramp up. We won't turn it on completely, but we think this can be several million dollars a year of additional revenue for us. Again, starting here soon and then kind of ramping up through the balance of this year and into next year. And to your point, that's a nice piece of business for us and that it's more recurring, more predictable and also it's U.S.-based. So it helps us utilize those tax losses.

Q: That's just where I was going with that, the fact that it's actually going to start to help build that up and therefore, that income will have a significant -- will be tax advantaged here in the U.S. for you.

A: Correct. That's right.

Q: Okay. So in looking at this whole situation also, I noticed it was brought to my, you guys have an arrangement or announced an arrangement or you guys actually didn't necessarily with -- I think it's a German company, [ GWL ]. Could you give any background? What is that tied into?

A: So again, we'll have more to say about that later. But that is a company that has a new product concept they're working on, and we're looking to partner with them to bring that to market and kind of jointly promote that. But we'll have more to say about that in the near future.

Q: Okay. I mean我 just -- it is interesting because you've been talking and Tyson asked你 about this. Your comments even on your release talked about new opportunities. And it sounds like new opportunities is both new customers, but also new business lines. Is that correct?

A: Absolutely. I mean one of our objectives is to expand our offerings. So we have more kit to offer our existing customers and new customers. So yes, most definitely, that's part of the strategy, most definitely.

Q: I wanted to ask you about the sale of Klein Marine Systems. I think it went for like 2x revenue, roughly, something like that. And I was wondering if in terms of metrics for what the value of your company is now, would that fall into that area?

A: Wow, Gregg, that's a tough one. I mean I guess you could make that assumption, but there's kind of different markets, kind of a different situation, different buyers. So I think that's not necessarily a metric that would apply, but it is one data point for sure.

Q: Okay. And the -- just in terms of the sale, did you have an investment bank or line up strategic buyers and financial buyers and bid that out? Or was that sold in some other way? And did your need for cash at the time affect the price?

A: We did have a banker assist in the process. But I would say it's more we identify potential buyers and approach potential buyers. They're all industry partners, we knew. So it wasn't like an auction, the typical investment banker process. We certainly were in a different financial position then. And so we had a need, we think, to make that transaction. So I think that certainly did have some impact on our motivation. So did it impact the ultimate price? Who knows? But certainly, we were motivated to sell.

Q: Okay. And just another thing, basically, is offshore drilling more environmentally friendly than fracking onshore?

A: Gosh, I'm not sure how to answer that. That's a huge question. I mean I think there are opinions on both sides of those arguments for both things. So I'm not sure you can kind of compare the two. I think there are issues for both to be addressed or to be aware of, but I think they both are overall very safe and very effective. And so我 think the concerns are, in my opinion, at least are over talked about.

Q: Okay. And just another kind of macro thing. I think 37% of world oil production comes from offshore. How is that trending over time? Or where do you see that going?

A: Well, I think that trend continues probably to increase. I think what we're seeing is the general attitude or general trend in offshore exploration is positive from a long-term standpoint. And there are short-term disruptions and the price of oil today, really, in my opinion, doesn't impact what people are doing from an exploration standpoint because it's much longer-term horizon. So我 think the general trend is one of being pretty bullish about offshore exploration and offshore production.

Q: Okay. And those companies that have databases of mapping and sell out the databases, do you have any like valuable data that you sell?

A: No. We -- all we're doing, Gregg, is providing equipment that people use to gather data. We don't gather the data. We don't have the data at all. That's not what we do.

Q: Then what's that software business that you have to -- I didn't quite get. What does that do? Like don't you have like a software suite?

A: It was something we actually retained from the Klein sale with our Spectral AI. That's really limited to side-scan sonar, and we actually are promoting that through the company that bought Klein, General Oceans. So that has not produced significant revenue at all to us. It's been de minimis so far. So我 wouldn't put a lot of value on that on a go-forward basis. I think it's something that's interesting that might be able to generate some things in the future, but it's not really our focus right now.

Q: Okay. And then finally, could you say something on the human resource side of the company, what you're doing to develop people? And also whether you have really like superstar engineers that can come up with patentable stuff?

A: So we're a company of 150 people or so roughly around the world. We have really smart engineers of all sorts that help develop new things. We've got really smart production people. We've got really smart admin people. So we try to give these guys the tools they need to do those jobs give them a good career path. Most of our employees are outside the U.S., as you might imagine. So a little different environment in some cases. But我 wouldn't say there's 1 or 2 superstars that we keep locked in the closet to kind of develop new things. I think we have a broad bench of really good people that do those sort of things for us.