Greetings. Welcome to the MIND Technology fiscal 2023 first quarter conference call. At this time, 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 zero from your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. Ken, you may now begin.
Thank you, operator. Good morning, everyone, and welcome to the MIND Technology Fiscal 2023 first quarter conference call. We appreciate all of you joining us today. With me are Rob Capps, 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 normal housekeeping details to run through. If you'd like to listen to a replay of today's call, it'll be available for 90 days via webcast going to the company's investor relations section, and that's mind-technology.com, or via telephonic recorded instant replay till June sixteenth. Information on how to access the replay was provided in yesterday's earnings release.
Information reported on this call speaks only as of today, Thursday, June 9, 2022, 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 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 its annual report on Form 10-K for the year ended January 31st, 2022. 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 these statements. Now with that behind me, I'd like to turn the call over to Rob Capps. Rob?
Okay. Thanks, Ken. I'd like to begin by first making some observations on the market environment and our progress to date before Mark discusses the financials in detail. I'll then wrap things up with some final remarks. As we've noted on recent calls, we've been pleased with the improvement that we're seeing in the underlying market conditions that surround our business. We think this uptick in customer interest is largely indicative of the general economic and geopolitical trends that serve as a stimulant for much of our business. We believe that the sustained higher global energy prices are a positive development for our marine seismic contractors. On the other side of that coin, the higher energy prices have caused others to pursue investments in renewable energy, particularly offshore wind farms, and this is a positive development for our marine survey business.
Maybe more importantly, the global geopolitical and security situation, and not only in Europe, but also the rest of the world, has highlighted the need for maritime security and technology. Some of our recent and pending orders are a direct result of this. These macroeconomic trends and increasing levels of activity are evidence that the effects of the global pandemic are abating. This increases our optimism that we are well positioned to grow in the coming periods. Significant increase in revenue we saw this quarter is, we believe, a strong indication of the benefit of these trends. Now looking at our first quarter results, consolidated revenues were over $9 million, up approximately $5.3 million or 142% quarter-over-quarter. As I just said, we think this increase is an important milestone and an indication of things to come.
As we discussed on our last call, approximately $2 million worth of orders were pushed from the fourth quarter and were delivered in this quarter. As you'll recall, these orders had been completed, but due to logistical challenges, our customers could not accept delivery, and we could not recognize revenue. While the first quarter benefited from these items, we had a similar situation this quarter, with orders totaling approximately the same $2 million deferred from the quarter due to customer delivery constraints. It remains important to note that issues such as these are issues of timing, not lost opportunities. While it's not ideal, it's just the nature of the beast. These won't be the last challenges that we encounter. Our backlog as of April 30, 2022 was approximately $13.4 million.
If you consider our backlog and other highly confident orders, which includes anticipated orders received after the end of the quarter and orders from RFQs that specify our products, our book of business totals are approximately $23 million. We expect to deliver all of these orders, as well as others that we're pursuing, in this fiscal year. Although we're pleased with this book of business and the traction that our product lines continue to achieve, we're by no means content. We're continuing to pursue other opportunities and are confident we'll be successful on many. We're optimistic that this will be reflected by improving results in the coming periods. Our strategy to develop innovative technology and to find new applications for existing technology remains important. These activities include Passive Sonar Arrays, Automated Target Recognition, Synthetic Aperture Sonar, and systems for unmanned platforms.
Our programs to bring these technologies and related products to market continue to progress. Our focus continues to be on operational excellence and on executing our business strategy to maximize our near-term results. As also mentioned in our last call, we've taken certain steps to control cost. Although we have not yet seen the impact of these actions, we think they will be seen in coming periods. We will concentrate our efforts in areas where we are seeing immediate demand, and as the global backdrop continues its recovery, we will look to expand our capabilities to meet the growing needs of customers. Now, with that, let me turn things over to Mark and let him walk you through our first quarter results before I make a few summarizing comments. Mark?
Thanks, Rob, and good morning, everyone. As Rob mentioned earlier, revenues from continuing operations totaled $9.1 million in the quarter, 117% increase when compared to the $4.2 million in the same period a year ago. Gross profit from continuing operations in the first quarter was $3.3 million, up over 500% when compared to the same period a year ago. This represents a gross profit margin of 36% for the quarter, which is up from the 13% we achieved during the prior year quarter. The increased revenue for the quarter resulted in higher absorption of fixed cost and improved gross profit margin. Our general and administrative expenses were $4.3 million for the first quarter fiscal 2023, which was up from $3.7 million in the fourth quarter.
Our G&A expenses are typically higher in the first quarter of the year as a result of employment-related taxes, which are front-end loaded, and higher professional fees associated with year-end reporting activities. In addition, we incurred higher travel and promotional costs, primarily related to trade shows as pandemic-related restrictions have eased and we reengage with customers. Additionally, we incurred approximately $300 thousand in non-recurring costs this quarter related to the cost reduction activities that Rob referred to. As we've previously mentioned, we do expect further reductions in our general and administrative expenses in the coming quarters. Our research and development expense was about $1 million for the first quarter, which was roughly flat sequentially.
Consistent with prior periods, these costs are largely directed towards our strategic initiatives such as Automatic Target Recognition, Synthetic Aperture Sonar, Passive Sonar Arrays and sonar and sensor systems for unmanned platforms, and our other strategic product initiatives. Our loss from continuing operations for the first quarter this year was $2.1 million as compared to a $5.1 million loss in the first quarter of fiscal 2022. Our first quarter adjusted EBITDA from continuing operations was a loss of $1.9 million compared to a loss of $3 million in the same period a year ago. For our legacy land leasing business, which is classified as discontinued operations, we realized approximately $300,000 in Q1 asset sales. We expect to complete the sale of all remaining assets related to discontinued operations in the coming months. MIND's capital structure and liquidity remain good.
As of April 30, 2022, we had working capital of approximately $16.7 million and cash of approximately $817, 000 thousand. We collected approximately $4 million of accounts receivable in May, so our cash situation has improved significantly, and we have good visibility on additional receivables that are imminent. We continue to have no funded debt or outstanding obligations. Also, our cost structure remains lean and flexible. Should market conditions take a turn for the worse, we believe our largely variable cost structure gives us some leeway to reduce our expenses commensurate with any declines in our business. I'll now pass it back to Rob for some concluding comments.
Okay. Thanks, Mark. We're encouraged by the market improvement that we're seeing and the indications of recovery that are becoming more evident throughout our business. We're pleased with the improvement in results and the orders that we secure to date, as well as with the robust interest and customer optimism that are reflected by our quotes and inquiries. As a result, we're confident that we are well positioned to meaningfully increase revenue in the coming periods despite the inflationary pressures, supply chain challenges, and macroeconomic uncertainty that persists. Our goal will always be to grow our book of business and to position the company for long-term success and profitability. We feel that we have taken important steps towards achieving this goal in the first quarter, and we intend to carry this momentum throughout the remainder of the year.
Supply chain and logistical challenges continue to surround our business, though we're confident in our ability to navigate these circumstances. We feel that we are very well positioned to capitalize on the opportunities that we're seeing in the market. Our ability to leverage our unique technologies to generate orders demonstrates these capabilities. I'm positive that our record of operational excellence, along with our exceptional team of employees, will enable us to drive meaningful shareholder value in the near term. With that, operator, we can now open the call up for some questions.
Thank you. Now we're conducting a question and answer session. If you'd like to ask a question today, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. If you're using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question is from the line of Tyson Bauer with KC Capital. Please proceed with your questions.
Good morning, gentlemen, and great quarter to start the year.
Thanks, Tyson.
I guess the best way to frame this, it looks like we're having some building tailwinds finally for the business, especially on the top line. Let's break down kind of the defense versus the marine exploration side of it. Seeing a lot more activity as far as marine versus land, especially with oil the way it is and some of these developments that are going on, whether it be South America or otherwise. Just kinda give us a little sense of what you're seeing in that marketplace and why we are seeing the demand in the marine side versus the land that's really just kind of been stuck.
Yeah, you're right about that. We aren't seeing much activity on the land side. Of course, that's not as important to us anymore. Definitely seen an uptick in activity and attitude, optimism on the marine side. Actually, the EAGE Annual Conference & Exhibition is going on in Madrid, actually just wrapping up as we speak. The tone there, it's been reported to me, is pretty positive. There's a couple of, you know, announcements from some of our customers as far as new work, new contracts. I think they're seeing, you know, a lot more optimism. They're talking about bringing out additional vessels in coming months, which is encouraging.
Now, of course, as you know, Tyson, we're coming from a lower level of activity versus, you know, 10 years ago, of course. Certainly I think the reason I think the marine is offsetting the land side. There's some environmental issues that impact that. Just the size of the projects, and therefore the return on the marine side is a factor of that. There's no doubt things are going in the right direction. We're seeing a lot more activity, and that's frankly the increase in revenues we've seen to date is probably more directly related to the marine exploration side. I'd say the order side, the defense starts to pick up and make it a little bit more equitable between the two of them.
Do you have a breakdown between exploration and defense in the backlog that you're willing to share?
I'd prefer not to share that 'cause there's some specific projects would rather not refer to, so I'd rather not do that.
Okay. Let's talk about the defense. A lot of chatter going on with the Ukraine defense spending, port clearing for grain shipments, free floating mines off the shore of Turkey in the Black Sea. What direct impacts are you seeing from that, and what indirect impacts are you seeing that may accelerate some of these naval unmanned programs that you're doing here in the U.S. and also with your European partner?
Yeah. As I said in our comments, we have definitely seen specific orders that are related to these activities, you know, given where the products are going and these are primarily sonar products used for Mine Countermeasures and looking for other stuff under the water. There are specific orders that we're seeing that are related to that. On a more general side, you know, as you alluded to, we're seeing significant increases in defense budgets throughout Europe. You know, the U.K., Finland, Sweden, you know, Germany. That is driving, I think, longer term activity and, you know, is something that I think is, as you say, a real good tailwind.
I think another important thing to point out here is even if the conflict in Ukraine were resolved tomorrow, you know, I think this really highlights the security issues that exist not only in Europe, but also in Asia, for that matter. I think this definitely has been a bit of a sea change, if you'll pardon the pun. I think it's good for us, unfortunately, or fortunately, I guess, depending on your viewpoint.
Okay. Since January 31st, if my math is correct, you've done about $19 million-$20 million in new orders that you feel secured about. You did $9 million in the first quarter, recognized revenue, another $23 that you expect to recognize. We add in what you typically get in parts and services per quarter. You're starting to push that $40 million mark, whether we get there or not, but that's how the math works out. Is that something that you're also seeing internally? Obviously, we've got supply issues, delivery, all those things that can throw a monkey wrench in that. The way the numbers are working out, we're trending toward that $40 million number for this year.
Well, I mean, as you say, you do the math. We did $9 million in the first quarter. We're sitting on a book of business of $23 million, so that's $32 million right there. You know, as you say, there is other stuff that's gonna come in, that's not part of what we call our book of business, you know, kind of recurring book-to-bill stuff. I mean, yeah, I think we are approaching that now. As you point out, you know, there are supply chain issues, there are delivery issues, so who knows what might happen, but it's definitely trending in the right direction.
Okay. It would appear from your commentary that Q2 should look similar to Q1 or within that ballpark there, but with better profitability metrics as we start to see some of those cost savings, some of the non-recurring gets taken out of there and some of the improvements on your capacity utilization, is that the right way to kind of view it as Q2, very similar to Q1, but just better metrics on the margin side?
Well, I'd say it's certainly we would see better metrics from a cost standpoint. You know, from a top side standpoint, I just would caution that, you know, there's always the issues of timing of delivery and things like that. Again, the general trend is, as you point out.
Okay. The last one, obviously, to recognize if we get those top line, if we can manage these new orders, that are, you know, already surpassing what we had last year as far as what you did in total revenue. Your cash flow situation, very light. You mentioned you got $4 million in accounts receivable. As you are going to accelerate your growth, or that's the plan, where do we get to the point where we're not behind the eight ball and we can actually be in front of it to give us a little cushion? Where do you see that happening?
Sure. I mean, that's a great question, Tyson. Obviously, you know, capital is always an issue for us. Liquidity is something we have to watch carefully given the environment that we're in. I don't see a need, as I sit here today, for additional capital right now, absent, you know, some opportunity or things changing in a dramatic way. I think we'll start to, you know, ease out of the or improve that situation gradually as we're able to start delivering more and more of this stuff. Frankly, you know, liquidate some of the receivables and some of the working capital that we've been sitting on. Because remember, you know, we invested in working capital, you know, at the end of last year, early this year, due to the supply chain issues.
If we can kind of maintain that same level, then I think we'll see some of that benefit come back to us from a liquidity standpoint. Yeah. Things get tougher, we have to get more aggressive, then that could change things.
All right. Thank you, gentlemen.
You bet.
Our next question is from the line of Ross Taylor with ARS. Please proceed with your question.
Thank you. Once again, great quarter, Jim, on the revenue side. It sounds like from what you answered to Tyson, that you expect to be able to build on this going forward. You guys were with Tyson, you were talking about and where you sit on the income statement balance sheet side. More specifically, when and what level of revenues do you think right now it's gonna take for us to get EBITDA positive, free cash flow positive, and earnings per share positive?
Sure. I mean, so Ross, if you kind of do the math, you know, the contribution margins, if you just compare the last couple of quarters, are around 60%, maybe a little bit better than that. Incremental revenue, you know, brings marginal, you know, revenue or marginal EBITDA in that range. If you do that math, you know, you can get to $11 million-$12 million a quarter, I think you're getting to that point.
Okay. Do you think you can get to that kind of quarterly run rate by the end of this fiscal, or is it gonna take into next fiscal year to get there?
I think we can get there this year.
Okay, that's great. Historically, NATO's left countermine warfare to the Dutch, I believe. The U.S. has been largely kind of uninterested in it. I pick up from what you're saying is that you're starting to see not just in Europe, but also the United States, the greater realization that these nations need to have these capabilities themselves, which greatly expands the market, I would think, from what it had been previously. Is that something that you're actually seeing?
I'm not sure I agree 100% with your comment about it has been left to the Dutch. I think it's been an important thing for other NATO countries, and for the U.S., although the Dutch do have some capabilities there. I think what we're seeing is it's the way the world is trying to address these issues, you know, again, using unmanned vessels to a large degree. I think, you know, still trying to deploy those sort of solutions. I think that's what we see is increasing the market, you know, rather than trying to do this off manned platforms or trying to do it off unmanned or minimally manned platforms. I think that definitely increases the market for us.
Frankly, Ross, I think more importantly, I think just the threat from this sort of thing is increasing and it's more in the forefront of people.
Is the Navy's focusing down on its unmanned platform to, you know, they've tossed a couple aside that they were in early development stage? Do you see that as a positive in pushing them forward faster?
Well, I think so. Yeah, I sure do.
In the past, the U.S. largely used helicopters to sweep for mines. It sounds like they're going through a significant shift in how they approach mine warfare that works strongly to your advantage. I mean, is this literally we're entering kind of a new age of this and that you guys are-
Yeah. I'm not sure I'd say it's that dramatic. I think they have a variety of platforms, a variety of techniques that are used. I don't think they're abandoning any of the historical ones necessarily. I think it certainly is expanding the opportunities for things that we have.
Away from that, towards the industrial side and undersea, are you seeing any interest or is there interest for exploring undersea for, you know, a lot of these EV related and, you know, green related minerals that seem to be and materials that seem to be in such short supply on land?
Absolutely. A lot of the research activity we're seeing, some of the research institutes that are buying our equipment are doing just that sort of thing.
Okay. I mean, it sounds like. You've in the past talked about the ability to do, to be a $100 million business. It looks like this year you could end the year, your fiscal year with a run rate in the neighborhood of, you know, $44 million-$48 million or more. How long do you think it's gonna take us to get to that, you know, wonderful $100 million run rate where the math tells us we'd be pretty positive on an EBITDA basis in-
I think we'd be real positive at that point. You know, Ross, that's a tough question. Obviously, you know, lots of factors involved, as to how we get there. I think, you know, with the last two years have been a challenge for obvious reasons, and so we didn't make as much progress as we all had hoped. I don't think that changes where we see the overall opportunity. You know, we talked about a five-year plan before. You know, I think that's very doable.
Okay. Five-year plan from when you initially indicated you would get there?
Yeah. I think, as I say, you know, the last couple of years have been, you know, we didn't achieve as much as we wanted to, for obvious reasons, for the pandemic reasons. I think, you know, we're farther down the road than we were when we started. You know, maybe it's not five years from two years ago. Maybe it's, you know, something a little bit shorter than that. You know, the point is, the opportunity is there, Ross. You know, whether it's, you know, two years, five years or five years, I think it's still there.
Yeah. Well, I think it's great. As I said, good luck getting. If you can get the, you know, these break even levels on a run rate by the end of this year, I think that would be huge because that would start to show the business being viable without the worry about needing to raise outside capital, unless it was for something exceptionally additive, perhaps in the way of an acquisition or something. So.
Yep. Understood.
Good job. Keep it up.
Okay. Thanks, Ross.
Thank you. Take care.
Next question is a follow-up from the line of Tyson Bauer with KC Capital. Please proceed with your questions.
Just a couple quick follow-ups. You talked about, was it auto recognition or targeting?
Yes.
Is that sort of something unique that you guys are capable of doing for counter mine tech or intelligence? I haven't heard you mention that a whole lot in the past. Is that something new?
Yeah, it's something we actually announced earlier this year. ATR, Automatic Target Recognition, is not unique to us. There are other ATR solutions out there. What is unique, we think, is that our ATR solution has been optimized for our products or some of our products specifically, and so that is very unique. We think we have a tool there, which makes us, you know, very competitive, much more competitive with others in the marketplace and brings some capabilities to the market that no one else can. Again, because they're optimized to our systems specifically, which is a really important part.
Has that been a determinant as far as winning some of these new orders or some of the activity you're seeing in the defense side?
I think I can't say any of the orders we have in hand relate specifically to that. I can tell you for certain that the activity and the interest we're seeing is being spurred by that capability.
Okay. With your European JV partner, do you have product that is currently in use that is out of the trial phase? Are you receiving funds from that partner for development and production of prototypes or the product commercially used?
It is not commercially deployed at this point. I'd rather not talk about the specifics of the commercial arrangement. I can say it's not material at this point.
You anticipate by, for the end of the year, it will be?
Yes, we think we'll be revenue streams by then.
Okay. That's part of your anticipation of getting toward that $12 million a quarter situation and why you have that confidence?
Correct.
Okay. You mentioned Asia. Are you specifically suggesting that this is targeted more toward Taiwan, around Korea, those areas? Or is it more general than that? Or are you seeing specific interest in where the placement of your product is going?
Well, I guess in this context it's more general, but I mean, read the paper. It's pretty obvious where the tensions in Asia are coming from, and not just between the U.S., China, or Taiwan and China, but, you know, Australia, Philippines. So there's definitely interest around that part of the world for these sort of things.
Is that also where they're trying to find more of these rare earth metals and that is more around the Asian continent?
It's not limited to that.
Okay. All right. Thank you. Keep it up.
You bet.
Thank you. That concludes our question and answer session. I'd like to turn the floor back to Rob Capps for closing comments.
Okay. Thanks, everyone, for joining us this morning. We look forward to talking to you again at the end of our second quarter. Thanks very much.
Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Have a wonderful day.