Greetings, welcome to the MIND Technology fiscal Q4 2021 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 on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Ken Dennard. Please go ahead.
Thank you, operator. Good morning, welcome to the MIND Technology fiscal 2021 Q4 and year-end 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 Malden, Co-Chief Executive Officer and Executive Vice President of Marine Systems. Before I turn the call over to management, I have a few of the 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 by going to the investor relations section of the company's website at mind-technology.com, or via recorded telephonic instant replay until April 20th. 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 13th, 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, please 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-K for the year ended January 31st, 2021. 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 the conference call are also covered by these statements. Now, without further ado, I'd like to turn the call over to Guy Malden. Guy?
Thanks, Ken, and good morning, everyone. We would like to thank you for joining us today for our fiscal 2021 Q4 and year-end conference call. As you all will appreciate, the last 13 months have presented an unprecedented challenge. Now, those challenges notwithstanding, we accomplished a great deal this past year and believe we are well-positioned for an improving business environment. Now, let me highlight a few of those accomplishments. Last summer, after receiving shareholder approval, we initiated our rebranding by reincorporating from Texas to Delaware and renaming the company MIND Technology. This action coincided with our decision to exit the land leasing business, and we think reflects an inflection point in the company's transformation. Now, one of the actions that has helped expedite this transformation is expansion of our human capital. We believe the additions we have made, when combined with our existing personnel, create a powerful team.
Last July, we consummated an alliance that reflects one of our principal strategic initiatives. That is the pursuit of non-organic growth, either through strategic partnerships or acquisitions. In this case, we entered an agreement with a major European defense contractor to jointly upgrade existing technology to create the next generation of synthetic aperture sonar systems, or SAS, for both the commercial and military markets. This technology is designed to meet the growing need for higher resolution sonar systems used in very demanding and critical functions such as mine countermeasures and higher-end commercial surveys. Also last summer, we successfully demonstrated new sonar technology and systems tailored specifically for unmanned vehicle applications. With the growth in the use of unmanned or uncrewed vehicles, we think this is a very exciting market opportunity that holds great promise.
From late fall through the winter, we began to see signs that demand in our marine exploration market was improving as inquiry and bid activity increased. Subsequently, we have received a number of orders related to our line of energy source controllers and related products. Last month, we entered into a master service agreement with PGS for the provision of source controllers and related services. This new framework expands our longstanding relationship with PGS and will enable us to efficiently service and supply advanced source controller technology to their fleet over the coming years. Overall, these orders suggest that the marine markets may be poised for greater levels of activity through the year.
The sizable jump in our backlog to over $14 million as of the end of the year versus $8.2 million at the end of the Q3 and about $8.9 million at the beginning of the year seems to corroborate this and we think is an indicator of an improving outlook. Let me now turn the call over to Rob, who will discuss our Q4 financial results in more detail and add some closing comments before turning the call over for Q&A.
Thanks, Guy. I'll begin by giving you a detailed review of the Q4 financial results before making a few summarizing comments.
Now keep in mind that I'll be discussing our continuing operations, which are composed entirely of marine technology products. Our legacy leasing operations are classified as discontinued operations. As Guy Malden mentioned, our past fiscal year was full of unprecedented challenges, not only for us, but also for our customers. We believe the disruptions and uncertainties arising from the COVID-19 pandemic had a significant impact on our results. Revenues from continuing operations totaled $6.4 million in the quarter, which is roughly flat sequentially versus $6.5 million in the Q3 of fiscal 2021. Q4 gross profit from continuing operations was $2.5 million, up from $2.3 million in Q3. This represents a gross profit margin of 40%, which was up from the 35% in the prior quarter. The increase reflects changes in product mix between the periods.
However, gross margins remain somewhat depressed due to lower activity and the resulting unabsorbed manufacturing cost. Our general and administrative expenses were $3.7 million for the Q4 of fiscal 2021, which was up 26% sequentially, due primarily to legal and accounting fees, as well as some increased insurance costs. Our research and development expense was $926,000, which was roughly flat with the Q3 of this year. Now due to increasing activity on the strategic initiatives we are pursuing, we've seen these costs rise this year. Our full year 2021 R&D expense was up more than 60% from fiscal 2020. Our loss from continuing operations for the Q4 of this year was $3.3 million, as compared to an operating loss of $1.5 million in the sequential quarter of this year.
Our Q4 adjusted EBITDA from continuing operations was a loss of $1.8 million, compared to a loss of $1.5 million in Q3 of this year. Now we continue to make progress on the disposal of the land leasing business. Despite the unsettled economic conditions, we sold assets totaling roughly $800,000 during the Q4, and about $1.5 million since the decision in July to exit this business. We continue to pursue a number of opportunities to monetize these assets. MIND's capital structure and liquidity remain solid. At the end of the quarter, we had about $19 million of working capital that included cash and cash equivalents of over $4.6 million. As of today, we have no funded debt as our governmental assistance or PPP loans have been forgiven.
Thus, with a lean and flexible cost structure, as well as proceeds from the continuing sale of our land leasing assets, we believe we are well-positioned to handle the challenges of the current environment and to exploit the opportunities before us. Despite the continued COVID overhang, we're nonetheless seeing increasing levels of customer interest in our product offerings. As Guy touched on, starting in the latter half of our 2021 fiscal year, we saw an uptick in inquiries and requests for quotes. This resulted in a pronounced influx of orders for our GunLink source controllers and upgrades. As of the beginning of this new fiscal year, our backlog amounted to $14.2 million. This is the highest our backlog has ever been and is up more than 70% from the $8.2 million backlog at the end of the Q3.
While this certainly bodes well for our business, keep in mind that the future order flow can be sporadic due to a host of factors. Given our beginning backlog and the perceived increase in general activity, we do expect performance to improve in fiscal 2022. However, due to varying order sizes and delivery schedules, the improvements may not be spread evenly across all quarters. As I've said before, even if the recovery is delayed, we remain ready to make further adjustments to our operations and cost structure. Our clean balance sheet also allows us the necessary flexibility to raise additional capital to help fund our growth should the need arise. We remain committed to the transformation of the company and are convinced that we're on the right path.
As we've said publicly before, our goal is to reach annual revenues of $140 million over the next five years with an EBITDA margin in excess of 20%. We envision attaining this in the following three ways. First, our existing products and markets, such as GunLink, BuoyLink, SeaLink, and MA-X. Second, new products and markets arising from our strategic initiatives, such as sensor systems tailored for unmanned marine vehicles, SAS products with our partner, and application of our tow streamer and hydrophone technology to maritime security applications. Finally, acquisition of new technology and products, either through outright purchase or other partnering arrangements. In closing, we remain very excited about the future of MIND Technology, and we'd like to end by thanking our stakeholders for their continuing support and our employees for their dedication and valuable contributions through a very tumultuous and challenging time.
That concludes the formal comments. The operator will take some questions now.
Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd 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 key. Thank you. Our first question comes from the line of Tyson Bauer with KC Capital. Please proceed with your question.
Good morning, gentlemen.
Morning, Tyson.
Can you give a little more color on, one, the timeline of the current backlog and how that correlates with the cash management needs going forward, whether that's on your working capital needs, the ability or the need to raise capital from various sources? Viewing the backlog and how that's going to roll through also with that cash management.
Sure. Sure, Tyson. We expect essentially all the backlog to be delivered this fiscal year, if not all of it. We have a build plan in place in order to meet those schedules throughout the balance of the year. That's really factored into our working capital needs. Our comment about thinking we have the liquidity to execute on that, with things in hand, I think we've contemplated the build plan and the working capital necessary for that. Luckily, we entered the year with a bit of inventory on hand, which will help serve those orders. We don't have to go out and spend cash for all of that going forward. I think, the capital needs, as far as additional capital, I think will be more towards growth opportunities that we see out there.
Okay. Do you see any requirement for utilizing the ATM, and do you have availability on that still?
We certainly have availability. It's just a matter of what the market looks like and what our other needs might arise is whether or not we access that. The nice thing about the ATM is it's there, so we can access it quickly if need be.
Given the interest and orders and the time it takes to get an actual physical PO and then turn around to build that and deliver with payment, where do you think you need to be, given what you know now, in terms of backlog and what you've already recognized as revenue, say, by the middle of this year?
I'm not quite sure how to answer that. Understand that backlog's important, and backlog's good. It doesn't tell the whole story. We're able to take orders and deliver within the fiscal year. If you look historically, these are rough numbers, but our beginning backlog is represented anywhere from Well, our annual revenues, I should say, have been anywhere from 200%- 300%- 500% of our beginning backlogs. Backlog is an indicator, but it doesn't tell the whole story. I don't think there is a number that we have in mind that we have to have backlog at a certain point in order to say we're on the right path.
Okay. You've given your financial target with the five-year timeline. Are we able to pinpoint an exact year on that? We don't maintain a financial target, but what tends to happen, an ambiguous five-year plan where five years takes seven years?
Again, I guess I'd say we're going into year one of that plan. If that partly answers your question. I think as far as, is that a steady growth? Is it there's one year which we have this huge year that's the big jump. I think we see it more as a steady growth. Not saying there aren't some opportunities that could be a home run or two out there, but I think we see this more as a steady growth over that time period. There's not one year out there, three years out, we've got to have something great happen. That's not necessarily the case.
The loss of a competitor and the benefit from that, was the PGS, is that a new contract or is that taking over their existing contract?
It's a new contract.
Have you seen a lot of increased activity since their departure from the industry?
There's been some, yes. There's definitely been some.
They didn't completely exit. They're certainly less competitive, and they're not supporting the direct system that competes with us. Yeah, we're seeing certainly an uptick in activity because of that. Remember, we had an agreement with PGS a number of years ago that we fulfilled, went into a competitive situation to retender. We were chosen based on technical capability, and we've successfully signed that agreement.
Okay. Last one for me. Try not to monopolize. European developments with the partners, kind of the timeline on that. Naming of product, when a product would be commercially available. That along with your testing protocols as hopefully COVID allows more U.S. testing, more in the water on-site capabilities. Just some of the benchmarks there and some of the developments we should keep an eye on.
I guess I can say that we believe we're on target. We're on schedule.
Yeah, we're on schedule.
for that project. I think later this year, we'll start to have some deliveries of.
Right
aspects of that.
Yeah. Prototype system, but we're really looking at next year.
Right.
Okay. Thank you, gentlemen.
Okay. Thanks, Tyson.
Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star 1 on your telephone keypad. Our next question comes from the line of Ross Taylor with ARS Investment Partners. Please proceed with your question.
Thank you. Just a couple quick questions. One, what has backlog done in the Q1 versus end of the year?
It's roughly the same. We've delivered a bit against it so far. That's roughly the same.
Okay.
The quarter's not over yet. Understand that.
That is true, and things come in late. Second, with regard to G&A, can you give us an idea of what kind of run rate G&A should be this year without all the one-time expenses?
Yeah. I think it'd be a bit less than we're seeing in the Q4. Again, the Q4 tends to be the higher because of audits and things like that, as well as we have some legal fees fall in there from some of our activities during the year. I see it backing off that a bit. I don't want to give a specific target at this point, but I don't see it being at the same run rate that we're seeing right now.
Okay. Yeah, it'd be helpful going forward if you gave us, or at least if you can give us an idea, perhaps after the Q1, of what the run rate would be. You're talking about shooting for $140 million in revenues at a 20% EBITDA margin inside of five years. Looking at that, and you comment that you're well-positioned right now, how long do those two factors take to get us to where we actually start to generate free cash flow and positive earnings per share?
Not that far. We'll be at that point well before we get to those target levels. If you do the math, and you go back to the FY 2019 as more kind of wherever it started from, if you will, because I see this past year as a bit of anomaly due to COVID. Starting from about $30 million of top-line revenue. You don't have to be too far from that in order to be at a cash flow positive and frankly, an operating income positive point.
Okay. Okay, good. Well, the faster you can get there, I think you'll take a lot of pressure off both your stock and your investors' minds. Thank you guys very much. Keep up the good work.
I understand that for sure, Ross. You bet.
Take care.
Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn the floor back to management for any final comments.
Okay, thanks everyone for joining us today. Appreciate your time and look forward to talking to you after our Q1 results here in just a few weeks. Thanks very much.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect your lines.