MIND Technology, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the quarter and six months ended July 31, 2021, the second quarter of fiscal 2022. MIND operates primarily in one segment, Marine Technology Products, through its Seamap and Klein businesses, which design and sell seismic, hydrographic, sonar, telemetry and maritime-security products. The former Equipment Leasing business is classified as discontinued operations and held for sale.
Financial condition and performance
| Metric | Three months ended July 31, 2021 | Three months ended July 31, 2020 | Six months ended July 31, 2021 | Six months ended July 31, 2020 |
|---|---|---|---|---|
| Continuing-operations revenue | $6.8 million | $5.1 million | $11.0 million | $8.3 million |
| Gross profit | $2.2 million | $2.0 million | $2.8 million | $2.5 million |
| Gross margin | 33% | 40% | 25% | 30% |
| Operating loss | $2.6 million | $2.4 million | $7.4 million | $8.6 million |
| Net loss | $2.7 million | $6.6 million | $6.6 million | $13.2 million |
| Net loss attributable to common stockholders | $3.3 million | $7.2 million | $7.9 million | $14.4 million |
| Loss per common share | $0.24 | $0.59 | $0.57 | $1.18 |
- Six-month continuing-operations EBITDA was negative $5.2 million, compared with negative $7.0 million in the prior-year period. Adjusted EBITDA was negative $4.8 million versus negative $4.0 million.
- Net cash used in operating activities was $7.2 million for the six months, compared with $2.6 million in the prior-year period. Investing activities provided $1.2 million and financing activities provided $3.4 million.
- Cash and cash equivalents were $2.1 million at July 31, 2021, down from $4.6 million at January 31, 2021. Working capital was approximately $16.1 million, versus $19.0 million at January 31, 2021.
- The company had no funded debt at July 31, 2021. PPP loans totaling approximately $1.6 million were forgiven, with the remaining approximately $850,000 forgiven during the current fiscal year.
- Total liabilities were $8.7 million and stockholders’ equity was $27.3 million at July 31, 2021. Operating lease liabilities totaled $1.6 million.
- Preferred stock outstanding totaled approximately 1.223 million shares, with an aggregate liquidation preference of approximately $30.6 million. The quarterly preferred dividend was $0.5625 per share.
Material changes versus the prior comparable period
- Second-quarter revenue increased approximately 34%, and six-month revenue increased approximately 33%, primarily as pandemic-related restrictions eased and previously received orders were delivered.
- Gross margin declined to 33% from 40% in the quarter and to 25% from 30% for the six months, principally due to product mix and lower Klein margins.
- The six-month operating loss improved by approximately $1.2 million, largely because the prior-year period included a $2.5 million goodwill impairment charge. The current quarter operating loss remained broadly comparable with the prior year.
- Selling, general and administrative expense increased to $3.4 million from $3.0 million in the quarter and to $7.2 million from $5.9 million for the six months. Research and development expense increased to $1.7 million from $1.2 million for the six months, reflecting investment in synthetic-aperture sonar, passive sonar arrays and unmanned-system products.
- Discontinued-operations revenue declined to $0.8 million from $5.4 million for the six months. Discontinued operations generated a $0.2 million loss versus a $4.9 million loss in the prior-year period.
- The company raised approximately $4.5 million net from Series A preferred stock sales and approximately $43,000 from common stock sales through its at-the-market program during the six months.
Guidance, outlook, risks and unusual items
- Backlog of firm Marine Technology Products orders was approximately $11.7 million at July 31, 2021, compared with $14.1 million at January 31, 2021 and $7.6 million at July 31, 2020. Management expects essentially all backlog to be completed in fiscal 2022 and expects fiscal 2022 continuing-operations revenue to exceed fiscal 2021 revenue.
- Management reported increased inquiries, bids and activity in marine exploration, sonar and defense markets, but noted that customer purchase commitments remain delayed and that order timing is difficult to predict.
- Supply-chain disruptions are increasing component lead times, material and freight costs, and may adversely affect production and margins. Pandemic restrictions, foreign operations, currency exposure, customer delays, energy-industry spending and government procurement cycles remain material risks.
- Subsequent to July 31, 2021, the company agreed to sell remaining lease-pool equipment for approximately $4.5 million, with approximately $2.5 million payable at closing and $2.0 million expected before the end of fiscal 2022.
- Management states that the company has a history of operating losses and negative operating cash flow, but expects to meet obligations over the next twelve months based on its cash, backlog, planned cost reductions, potential asset-sale proceeds and access to additional equity financing.
- No material legal proceedings were reported, no off-balance-sheet arrangements existed, and management concluded that disclosure controls were effective as of July 31, 2021.
Investor verification points
- Verify the timing and collectability of the approximately $4.5 million lease-pool asset sale proceeds.
- Assess whether the $11.7 million backlog converts to revenue as expected and whether customer delays or cancellations increase.
- Monitor cash burn, including $7.2 million of six-month operating cash use, and the company’s reliance on preferred-stock issuance and asset sales.
- Evaluate the effect of supply-chain inflation, freight costs and component availability on gross margins.
- Review the continuing obligation to pay preferred-stock dividends and the potential dilution or capital-structure effects of future equity offerings.