Welcome to the MIND Technology first quarter 2024 conference call. At this time, all participants are in a listen-only mode. A 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 is now my pleasure to introduce your host, Mr. Ken Dennard. Mr. Dennard, you may begin.
Thank you, operator. Good morning, and welcome to the MIND Technology Fiscal 2024 first quarter earnings 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 few items to cover. 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 you can listen via recorded instant replay by phone until June 21st. 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, Wednesday, June 14, 2023, 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 in its annual report on Form 10-K for the year ended January 31st, 2023. As we start this call, please refer to the statement regarding forward-looking statements incorporated in the press release issued yesterday. Please note that the contents of our conference call this morning are covered by these statements. Now, without further ado, I'd like to turn the call over to Rob Capps. Rob?
Okay, thanks, Ken. As we did last quarter, we've prepared an updated presentation covering our discussion this morning, and we posted it to our website. I invite you to refer to that at your leisure. Today, I'll begin by discussing our first quarter 2024 results, as well as our current view of market conditions. Mark will then provide a more detailed update on the financials. I'll then wrap things up with some remarks about our outlook. We were very pleased with the first quarter results and the start of our fiscal 2024, which we believe demonstrate our ability to capitalize on Mind's favorable market position to continue delivering sustainable top-line improvement. Our financial and operational performance remained strong in the quarter, as expected, resulting in much improved financial metrics across the board when compared to the year ago period.
Revenues were up 39% year over year, and despite our robust fourth quarter results, we also grew our revenue sequentially. Additionally, we achieved a much improved gross profit margin of 43% during the quarter. Most importantly, though, we produced positive operating income. Once again, we also produced positive adjusted EBITDA. The fourth quarter was the first time since we transformed the company that we achieved this, and we're proud to continue that trend in the first quarter. As anticipated, we executed on our backlog, which resulted in significant top-line revenue of $12.6 million. Although we generated substantial revenue in the quarter, we maintained and even grew our backlog.
As of April 30, our backlog of firm orders stood at $22.6 million, compared to $13.4 million at the same time a year ago, and $20.7 million at the end of last quarter. We believe this trend is indicative of the favorable market conditions and the differentiation of our product lines. We're confident that this momentum will carry throughout the remainder of fiscal 2024. We're pursuing a number of other orders and are poised to be successful on many. We hope to be in a position to announce some of these in coming weeks. We remain encouraged by the favorable macroeconomic trends, coupled with strong customer engagement and order activity. We believe that the current market environment is advantageous for MIND. We continue to see substantial tailwinds in each of our three key markets: exploration, defense, and survey.
Our team continues to find innovative ways to adapt our products to meet the evolving needs of our customers. Currently, we're seeing the biggest order growth in our CMAP segment, which is benefiting from the favorable fundamentals within the exploration and alternative energy markets. This growth is supported by the 19% sequential increase in CMAP revenue that we generated during the first quarter. We expect to build on this momentum going forward. We intend to leverage the sustained customer demand and interest that we're seeing in all of our key markets to drive further growth in our book of business in the coming quarters. As announced in early April, we elected to defer the payment of our preferred stock dividend for the first quarter of fiscal 2024. I know that our liquidity position has been a concern for many of you.
Although we've seen improved liquidity as a result of the higher revenue levels throughout the last couple of quarters, we believe it was prudent to retain the cash flow from these activities at this time to complete upcoming and other expected orders. While there are more stringent working capital demands that come with increases in business, I believe we've made progress with respect to liquidity, but it remains an area of focus for us. We also are aware of the continued listing standards notice that was sent to us by NASDAQ. We're working through and analyzing options to regain our compliance. With that, now I'll let Mark walk you through our first quarter financial results in a bit more detail.
Thanks, Rob. Good morning, everyone. As Rob mentioned earlier, revenues from continuing operations totaled approximately $12.6 million in the quarter, a 39% increase when compared to the $9.1 million in the same period a year ago. Our CMAP segment delivered substantial revenue of approximately $10.6 million during the quarter, which demonstrates the growth that we're seeing in the exploration and alternative energy markets. Gross profit during the first quarter was approximately $5.4 million, which was up approximately 65% when compared to the prior year period. As Rob also mentioned, this represents a gross profit margin of 43% for the quarter, a 700 basis point increase from the 36% we achieved during the same quarter a year ago.
The higher revenue achieved in our first quarter resulted in greater overhead absorption, generating a much more favorable gross profit margin. Our general and administrative expenses were approximately $3.9 million for the first quarter, which were up slightly when compared to the $3.7 million from the fourth quarter. As we've mentioned in the past, our G&A expenses tend to be front-end loaded as we incur higher payroll taxes, professional fees, and travel-related expenses in the first few months of the year. This recurring trend, although minimal, was evident in our first quarter results. Our research and development expense for the first quarter was $773,000, which was up approximately 9% sequentially, but down 24% from the same quarter a year ago.
Consistent with prior periods, these costs are largely directed toward our strategic initiatives, including synthetic aperture sonar and passive sonar arrays. Operating income for the first quarter was $289,000, as compared to a loss of approximately $2.5 million in the first quarter of fiscal 2023. Our first quarter adjusted EBITDA was $913,000, compared to a loss of approximately $1.9 million in the first quarter of last year. As of April 30, 2023, we had working capital of approximately $14 million and cash of $815,000. As noted in Rob's opening comments, we continue to see improvement in our liquidity. I'll now pass it back over to Rob for some concluding comments.
Thanks, Mark. We remain encouraged by our results for the first quarter and by the favorable outlook in each of our key markets. We are generating sustainably higher revenue while maintaining and growing our backlog of business. Customer demand and engagement remains strong, resulting in better-than-ever quarter flow. We're optimistic that MIND is in a position to build on this momentum in the coming quarters. We look forward to sharing the fruits of our labor with you. As we look forward to our second quarter and the remainder of fiscal 2024, we are excited about the opportunities that lie ahead. Many of our technologies continue to gain traction with customers globally for a variety of end uses. As I noted earlier, our CMAP products are playing a significant role in paving the way for MIND's continued growth.
We've traditionally seen there will likely be revenue variation between quarters due to a variety of challenges that are often out of our control, such as supply chain issues, tighter vendor credit requirements, evolving delivery requirements, government contracting processes, and technical and production challenges that can impact production and deliveries. The favorable market trends, robust customer interest, and growth of our backlog continues to give us confidence that sustainable, higher-level revenue is achievable. We feel good about where the company sits today. We believe that our development programs will continue to positively contribute. There may be certain unforeseen circumstances that cause orders or deliveries to slide to the right, but we do believe that the general trend will be one of increased revenue. As I mentioned earlier, there are challenges that come with our improving business. We're doing our best to manage these challenges and demands.
In closing, we're excited about the future of MIND Technology. Our stable and growing backlog, robust order flow, and increased revenue levels are indicative of our technology being in greater demand. We intend to continue capitalizing on the favorable market conditions and macroeconomic environment and robust customer interest and engagement to achieve improved results going forward. We've worked hard to position MIND as a leading producer of differentiated marine technology products, and we intend to build on this momentum to generate significant revenue, which we believe will drive meaningful shareholder value throughout the remainder of fiscal 2024 and beyond. With that's my remarks. Operator, we can now open the call up for questions.
Thank you. If you would like to ask a question, please press star 1 on telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 keys. Our first question is from Tyson Bauer with KC Capital. Please proceed.
Gentlemen.
Hey, Tyson.
You want to start with some operational questions, or the elephant in the room on trying to climb out of the preferred dividend hole and what some of our remedy possibilities are?
Up to you.
All right. Let's start backwards, and then we'll figure out if the operations will get us a resolution. On the preferred dividend, obviously, you can defer 1 more before we get to the 6 deferreds later this fall. Are remedies possible where you can roll those dividends, where you're paying maybe ones that are in arrears? In essence, you do not have to make 1 cum-cumulative payment to become whole. There are other options, correct?
That is correct. You're exactly right. We could pay one or two or three or any... You're right, we could pick and choose, if you will. They continue to, you know, accumulate, of course.
Right.
They don't go away. Yes, you're right, we don't have to do it all at once.
Okay. Which also pushes to the right, that whole 6 deferred. As long as you're not 6 or more deferred, we don't trigger some of those provisions that are within the preferred dividend. We could actually roll forward to buy you some time, but also you're then returning capital to those holders, which then should benefit the common guys, that there will be some residual value left for them also, correct?
Let me correct. actually, if I'm not mistaken, the provision is, once we've deferred six dividends, not that we have six in arrears, I think that then triggers the rights of preferred to name two directors. That's the only remedy that the preferreds have.
Got it.
I think there's two more before we trigger that. You know, it's not a catastrophic thing by any means.
All right.
To clarify, but that does give us, you know, ability to, you know, catch up over time, if you will, and return some capital to the preferreds.
According to your proxy statement, the largest preferred holder still is Mitsubishi?
That's correct.
Okay. Is your intent, we got two more, that buys you some time. You're looking at some operational questions, that operations could be there or to satisfy, give you more options as we go through the next six months or really, the next four months?
Yeah, I think so. I mean, obviously, as you see, you know, last two quarters, you know, we produced essentially enough EBITDA to make that dividend. If we can address, you know, the working capital needs and feel comfortable about where we stand there, then, you know, we operationally are approaching a point where we could address that.
Okay. Margins, you're seeing some nice improvement. Typically, you have some decent margins on the Seamap with those large, whole system sales that you get. Are we looking at the backlog bid margins even showing greater improvements and greater trend improvements as we get some more economies of scale, as that backlog grows, as that throughput grows and covering those fixed expenses?
Yeah, there's no doubt there's benefit. The biggest benefit, Tyson, is if we have some visibility down the road as to, you know, production requirements, we can be much more efficient in buying. We can buy bigger lots, things like that, so we can be much more efficient and we can be more efficient in the factory as well. That certainly is a benefit. Now, to be fair, the counter to that is, you know, there is inflation out there. I think we would expect some improvement, but it is going to be mitigated to some extent by just general inflation and, you know, supply chain issues, lead times, things like that are still out there.
You talked about, Seamap having a robust market. Sometimes those delivery schedules can get a little lumpy on those system sales. As you look at Q2 or in the next couple quarters, any ideas on those delivery schedules, on whether they're concentrated in one quarter or the next, or do we have a fairly even flow?
Well, it sound like you've been in some of our operational meetings. We're trying to have a more even flow. That's the way we schedule things. As I said, you know, you have some key components that you don't get delivered when they're scheduled to be delivered, and that can slip things a bit. I'm reluctant to be too definitive with that just because, you know, you have a $3 million order that you can't ship because of some component, that has a big impact. We do have better visibility, I think, this year than we have in the past. Not just at Seamap, but at klein as well. I think we're better able to do some planning, and be a bit more efficient.
That's something we're really working hard to do.
Okay. In the news, recently, there've been a lot of discussions of the Saudis' major offshore expansions. I think their oil field offshore, they're trying to double or triple the size of that. Some large energy analyst yesterday coming out, a lot of offshore activities, which you should be a beneficiary of.
Well, I think that's right. There's definitely seismic exploration, offshore, that is, and onshore, for that matter, that is contemplated with those projects. I think, you know, anytime there's offshore seismic exploration, we benefit from that.
You really have a lot less competition than people remember from even a year or two years ago, with one of your major competitors exiting.
That's true. When it comes to digital source controllers, you know, we really don't have a competition at this point.
Capital requirements, obviously, we needed that, the infusion, and we talked about that in the last conference call, that $3+ million. You almost benefit if you do have a little delay just because you get a working capital benefit, say, in Q2 or whatever, that helps out your operating cash flows. In general, your working capital, are we to that stage where we can roll it, so there is no real deficit? We're just now into a systematic roll on cash conversion?
Yeah, that's a complicated question. I think we certainly are approaching that point, as, you know, the cash flow from the last couple of quarters would indicate. I think the wild card there is, you know, when you get into procurement of, you know, larger amounts for more systems, larger systems, then that can create some additional demands for, you know, advanced payments, prepayments, you know, things of that nature. You know, you're gonna do a larger purchase to buy components for, you know, 4 systems, but you're not gonna produce the last 2 until, you know, 2 quarters out. It can work both ways. It's something we have to, you know, balance on a, frankly, a daily basis.
Okay, we might see that accordion feature on those real estate secured financing being utilized temporarily just to get you through a quarter or two, but overall, you're in good shape?
I think that's fair to say.
All right. Thanks a lot, gentlemen.
Yep.
Our next question is from Ross Taylor with ARS Investment Partners. Please proceed.
Yeah, thank you. A couple questions quickly. Since you just were talking about real estate and the loan against it, where do you stand with the idea of selling that asset or sale or lease back that asset to capture a more significant amount of capital from it?
We frankly, Ross, we are investigating that, as we speak, for, you know, with 2 pieces of real estate, you know, the Salem facility and also in here in Texas, in Huntsville. We are investigating that. Obviously, the banking situation, interest rates, kind of went in the wrong direction for us the last couple, 3 months, but I think there certainly are possibilities there. That's something we're pursuing.
Okay. Second, with the increasing focus by world navies on underwater autonomous systems, it would strike me then, they need to do substantial increase in mapping in areas in which they intend to operate, particularly in areas like the South China Sea. Are you seeing or do you expect to see a significant increase in demand for your capabilities, your products and technologies from people like the US Navy, perhaps the Koreans and the Japanese, who will need to be operating in areas that are contested, but, you know, expected to be home for a lot of these underwater systems?
Yeah, without being specific, the answer is yes, most definitely.
Okay.
That is definitely driving that capability.
Do you think that would be a short or intermediate-term time horizon?
I think we've already benefited to some extent, but I think we'll see that to continue, on a significant basis. That will continue. We'll see, current as well as intermediate and long-term benefit from that.
Okay. What's the total outstanding value of the deferred preferred dividend at this point?
$43 million-$44 million, something like that, including the dividends, preferred dividends.
I'm just looking at what's the preferred. What do you owe on the preferred dividend?
Approximately $4 million. $3.8 million, $3.9 million.
$3.8 million.
Sorry.
Okay. I mean, that's, once again, still a substantial portion of the outstanding or the value of the common stock. It does strike me as for those of us who own common stock, that to get value out of that, we really need to keep that from happening. The end game of this company, most likely, is a sale of the business, unless you can meaningfully increase the top and bottom line. It's hard to, you know, at this stage, the market cap just doesn't justify being public, quite honestly. It probably is worth a lot more to someone as a private business. With the way it works, the, you know, the preferred holders are gonna take, you know, get first cut, basically, first payout, as well as the deferred dividends being paid out before anything trickles down to the equity holders.
The faster you guys can come up with a way to stop that and start to create wealth for the common holders, I think that as a long-suffering common holder, I would appreciate those steps. It strikes me as we're kind of in a situation where, you know, this company is meaningfully undervalued, but, you know, the way to get it is likely gonna be sale. We can't come up with a pretty near-term solution for turning this into something that, you know, people wanna own.
Understood. Understood completely.
You know, lastly, you know, the answer you had to Tyson Bauer's questions, the fact that you can come up with some alternative solution to kind of stop the bleed, I would think that would make tremendous sense if you can find a way to stop the bleed. You got a 6-person board that would make 8. Honestly, if I were on that board, I would say the first thing we'd have to do is explore sale. I think you'd probably prefer to keep them from getting their 2 directors, who will have a disproportionate say because of the level of investment they have in the company.
Understood.
Thank you.
Okay. Appreciate it, Ross.
Okay, thank you. Bye.
Rob Capps, there are no further questions at this time. I would like to turn the floor back over to you 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. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.