by MIND Technology, Inc. (NASDAQ: MIND ) Q1 2026 Earnings Call Transcript June 11, 2025
Operator: Greetings. Welcome to MIND Technology First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you, sir. You may begin.
Zach Vaughan: Thank you, operator. Good morning, and welcome to the MIND Technology Fiscal 2026 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 will 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 a recorded instant replay until June 18. Information on how to access the replay was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Wednesday, June 11, 2025, 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 in its annual report on Form 10-K for the year ended January 31, 2025.
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 I'd like to turn the call over to Rob Capps.
Robert P. Capps: Okay. Thanks, Zach, and thank all of you for joining us today. Today, I will discuss some highlights from the quarter. Mark will then provide a more detailed update on our financials, and then I'll return to wrap things up with some remarks about our outlook. As expected, MIND's results for the first quarter were down sequentially after a record fourth quarter. However, the decline was greater than initially anticipated after several customers were unable to take delivery of approximately $5.5 million of orders prior to quarter end. These delays are due either to late delivery of certain third-party components or difficulty in arranging shipping. But these are timing issues, not lost business. As I reminded you repeatedly, a slippage of a few weeks or days for a large order can have a significant impact on a particular period.
We expect to deliver these orders in the second quarter. Despite these delays, cash flow from operations again grew during the quarter to about $4.1 million, which is an indication of our improved liquidity. We remain bullish on the balance of this fiscal year despite the shortfall in the first quarter and expect a much improved second quarter. MIND has established a more resilient business with greater order visibility, a strong demand environment and a much improved balance sheet and capital structure. We will almost certainly encounter other timing issues at some point in the future. But to the extent possible, we are working to mitigate the potential impacts on our financial results. We are doing everything in our power to control what we can control.
We're focused on optimizing our supply chain to manage lead times on components to meet the delivery requirements of our customers. Our inventory levels over the past 6 months have been a great evidence of this as we're now using our improved visibility to draw down our inventory balances. As a result, we believe MIND remains strategically positioned for growth, improved financial results and profitability in coming periods. Our backlog of firm orders as of April 30, 2025, was approximately $21 million compared to $16.2 million as of January 31, 2025, and approximately $31 million as of April 30, 2024. Beyond this backlog, we have an active pipeline of pending and highly confident orders and prospects that are well in excess of our current backlog of received orders.
The order for our GunLink 4000 system that we announced yesterday morning, which is not included in the above amounts, is a great example of these prospects. The combination of our existing backlog and this active pipeline bode well for strong financial performance as we progress through fiscal 2026 and beyond. Now as we approach the summer months, I want to remind you that orders -- new orders don't always arrive at a constant rate throughout the year and order flow is often sporadic. The variance between in order flow is commonplace and not cause for concern. We also believe that recent uncertainty in the global economic environment has caused some delays in purchase commitments. Despite this, in recent weeks, we have identified new opportunities.
We think this bodes well for the balance of this fiscal year and beyond. We continue to benefit from 3 main product lines: our GunLink source controllers, BuoyLink positioning systems and SeaLink streamer systems. All 3 of these are meaningful contributors to our backlog and will continue to drive improvements in financial results going forward. As a whole, our Seamap business enjoys a strong market position with each of its products, even a dominant position in some cases. Our backlog and pipeline of orders are almost entirely comprised of these products, and I'm confident that the favorable market dynamics will enable us to generate many new orders in the future. We're also seeing a number of new promising opportunities related to our products that I hope to be able to update you on later this year.
Another component that has meaningfully contributed to the sustainability of our improved financial results is our aftermarket business. Historically, approximately 40% of our revenue comes from this aftermarket activity. However, in the first quarter of this year, the aftermarket activity represented approximately 71% of our revenues. Now this was expected due to the deferral of some system sales, as I discussed a moment ago. As our installed base of Seamap products continues to expand, with it comes the chance for aftermarket opportunities such as spare parts, repairs and support services. As a reminder, our products are deployed in a very harsh environment and damage is common and often inevitable. We are in the final stages of an expansion of our facility in Huntsville, Texas, which will enable us to provide additional repair and manufacturing services from that location.
During the expansion, which has been in progress for the last couple of quarters, our revenue-producing activities have been impaired. However, with the completion of these modifications, we expect the contribution from this location to build during the balance of this year and beyond. We anticipate this becoming a meaningful part of our revenue stream. Now turning to our results. Marine technology product revenues for the first quarter of fiscal 2026 were $7.9 million. As I mentioned, we expected a natural sequential contraction in revenue after an exceptional fourth quarter. However, we saw approximately $5.5 million of orders slide to the right. We will continue to capitalize on macro tailwinds and customer engagement to stimulate order flow and generate improved results.
We have deliberately worked to improve our execution, efficiency and cost structure. We expect these efforts to deliver favorable results in future periods. Despite broad-based macro uncertainties in recent months, general market conditions within the marine technology space continue to be strong. We see a number of opportunities and continue to field inquiries and respond to requests for quotations. As a result, we are making additional investments to further develop and advance our next generation of marine technology products to meet the evolving needs of our customers. I'm confident that our differentiated approach and best-in-class suite of products will continue to give us the competitive advantage to address the demand we see within the marine technology industry.
Now I'll let Mark walk you through our first quarter financial results in a bit more detail.
Mark Alan Cox: Thanks, Rob, and good morning, everyone. As Rob mentioned earlier, revenues from marine technology product sales totaled $7.9 million for the quarter, which was down approximately 18% from the same period a year ago. Revenue was impacted by the timing of $5.5 million of orders that were unable to be delivered prior to quarter end. We expect these orders to be delivered in the second quarter. We're continuing to see strength in all our key markets and the favorable customer demand environment gives us confidence for improved results over the balance of fiscal 2026 and beyond. First quarter gross profit was $3.3 million. This represents a gross profit margin of 42% for the quarter. Both of these metrics were impacted by lower revenue during the quarter, stemming from the delivery delays addressed in Rob's opening comments.
The lower revenue resulted in less cost absorption and drove the year-over-year decline. Revenue increases in the second quarter and our cost structure continues to benefit from greater production efficiencies, we expect these metrics to improve. Our general and administrative expenses were approximately $3.4 million for the first quarter of fiscal 2026. This was up both sequentially and compared to the same quarter a year ago. The sequential increase is partially expected due to normal seasonality of certain costs. However, our first quarter expense included nonrecurring costs related to a restructuring of our U.K. operation and tax analysis surrounding the preferred stock conversion last year. I think it's worth noting that the tax analysis confirmed our understanding that the preferred stock conversion did not limit or impair our U.S. tax attributes, primarily tax loss carryforwards.
Our research and development expense for the first quarter was $380,000, which was down compared to the same quarter a year ago. Consistent with prior periods, these costs were largely directed towards the development of our next-generation streamer system. Operating loss for the first quarter was approximately $658,000 compared to operating income of $730,000 in the same quarter a year ago. First quarter adjusted EBITDA was a loss of approximately $179,000 compared to adjusted EBITDA of $1.5 million in the first quarter a year ago. As I mentioned earlier, the first quarter was impacted by approximately $250,000 of nonrecurring expenses related to restructuring and tax-related professional fees that would have otherwise resulted in positive adjusted EBITDA for the quarter.
Net loss for the first quarter was approximately $970,000 compared to net income of $954,000 in the same quarter a year ago. As of April 30, 2025, we had working capital of approximately $22.8 million, including $9.2 million of cash on hand. Liquidity continues to be impacted by our operational requirements such as acquiring inventory and executing on our backlog of orders. However, we did generate approximately $4.1 million of cash flow from operations in the first quarter. This was an improvement of approximately 98% sequentially. The company continues to maintain a clean, debt-free balance sheet with a simplified capital structure following the conversion of the preferred stock to common stock in the third quarter of fiscal 2025. We believe our solid footing and flexibility will further enhance stockholder value in future periods.
I'll now pass it back over to Rob for some concluding comments.
Robert P. Capps: Thanks, Mark. Our efforts to transform the company in recent years have positioned MIND for long-term success. The strength of our balance sheet has made MIND more resilient, financially flexible and has opened the door for us to pursue value-enhancing strategic opportunities as we strive for growth. We also continue to benefit from significant customer interest and engagement related to our Seamap product lines. Our current visibility, strong backlog and robust pipeline also give us optimism for favorable financial performance for the balance of this year. Additionally, we are continuously exploring innovative ways to expand and repurpose our existing technology for new applications. I'm excited for us to actively chase these new initiatives and opportunities in the coming periods.
Now given we spoke with you only a little over a month ago, not much has meaningfully changed in the political and economic landscape. There is still a moderate level of uncertainty present in the market related to tariffs and other trade restrictions. I'll remind everyone that the vast majority of our revenues are generated from our Singapore subsidiary and a similar proportion of our production activity takes place either in our Singapore or Malaysia facilities. Furthermore, in fiscal 2025, almost 95% of our revenue was derived from customers outside the United States. Accordingly, our import and export activity through the United States is quite limited. Due to this, we do not currently anticipate a material direct impact on our business from the imposition of additional tariffs -- trade tariffs by the United States or other countries.
As noted earlier, uncertainty in the global economic environment can cause our customers to delay purchasing decisions. Of course, this is a fluid situation, and we continue to monitor the evolving dynamics. As we touched on last quarter, we recognize no matter how compelling our recent momentum has been, MIND is still a small company. And with that comes inherent challenges. We've taken necessary steps to strategically position ourselves to realize our full potential and enhance shareholder value. We intend to evaluate all opportunities that present themselves with a focus on adding scale, expanding our offerings and growing existing product lines. This approach should enable us to strengthen MIND and improve its standing within the market for the benefit of all shareholders.
The macro environment remains advantageous for MIND, which gives us optimism for the future. Our marine technology products continue to penetrate a variety of industries and markets. We believe our backlog of firm orders and pipeline of pending orders and other prospects are reflective of the significant demand and market adoption of our product lines. As a result, we expect a meaningful increase in revenue in the current quarter. This will enable us to achieve positive adjusted EBITDA and return to profitability in the second quarter. Barring any unforeseen circumstances, this is a standard we expect to meet for the remainder of the year. Looking forward, we will continue to control what we can control. Customer delivery requirements and other factors may impact future periods.
However, we expect the general trend will be one of improved results in fiscal 2026 and beyond. We have a solid backlog and significant pipeline of pending and highly confident orders. Both are supported by the robust customer interest and engagement that we are seeing within our key markets. We are also pursuing several new opportunities within our existing and future markets, which I'm confident will bear fruit in the near future. We have a differentiated and market-leading suite of products, a favorable market environment and a clean capital structure. I'm confident we will deliver another great year in fiscal 2026 as we strive to enhance stockholder value. And with that, operator, we can now open the call for some questions.
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