MIND Technology, Inc. — Form 10-Q Summary
Business context and reporting period
Filed December 10, 2021, for the quarter and nine months ended October 31, 2021, with comparative periods ended October 31, 2020. MIND operates primarily through Seamap and Klein in one continuing segment, Marine Technology Products, designing and selling seismic, hydrographic, sonar, offshore, defense and maritime-security technologies. The former Equipment Leasing business is classified as discontinued operations and is being liquidated or sold.
Financial performance and liquidity
| Metric | Three months ended October 31 | Nine months ended October 31 |
|---|---|---|
| Revenue | $8.3 million vs. $6.5 million | $19.3 million vs. $14.8 million |
| Gross profit | $3.2 million vs. $2.3 million | $5.9 million vs. $4.8 million |
| Gross margin | 38% vs. 35% | 31% vs. 32% |
| Operating loss | $2.1 million vs. $2.3 million | $9.4 million vs. $10.8 million |
| Net loss | $2.6 million vs. $3.6 million | $9.2 million vs. $16.8 million |
| Loss attributable to common stockholders | $3.3 million vs. $4.1 million | $11.2 million vs. $18.5 million |
| Basic loss per share | $0.24 vs. $0.34 | $0.81 vs. $1.51 |
Continuing-operations revenue increased 27% for the quarter and 31% year to date, primarily reflecting easing pandemic-related restrictions and execution of previously received orders. Seamap generated $7.0 million of quarterly revenue and approximately 44% gross margin; Klein generated $1.3 million of revenue and approximately $71,000 of gross profit.
Operating expenses were $5.2 million for the quarter and $15.4 million year to date. Selling, general and administrative expense increased to $3.9 million for the quarter and $11.1 million year to date, while research and development was $826,000 for the quarter and $2.6 million year to date. The prior-year nine-month period included a $2.5 million goodwill impairment charge; no impairment charge was recorded in the current period.
Net cash used in operating activities was $11.2 million for the first nine months, compared with $4.8 million in the prior-year period. The principal working-capital use was a $4.4 million increase in accounts receivable. Investing activities provided $3.8 million, including $3.2 million from asset sales. Financing activities provided $3.3 million, including $5.1 million of preferred-stock proceeds, partly offset by $1.8 million of preferred dividends. Cash and cash equivalents declined to $622,000 from $4.6 million at January 31, 2021.
At October 31, 2021, working capital was approximately $14.2 million, total liabilities were $10.4 million, and the Company had no funded debt or financial-covenant obligations. Operating lease liabilities totaled $1.4 million. Preferred-stock liquidation preference was approximately $31.2 million, and quarterly preferred dividends were declared at $0.5625 per share.
Material changes versus the prior comparable period
- Marine Technology Products revenue increased, led by Seamap; quarterly gross margin improved, while year-to-date margin declined modestly.
- Operating and net losses narrowed, principally because the prior-year period included a $2.5 million goodwill impairment charge and substantial discontinued-operation losses.
- Cash generation deteriorated substantially because of operating losses and higher accounts receivable, despite proceeds from asset and equity sales.
- Discontinued-operation revenue fell to $53,000 for the quarter and $840,000 year to date, compared with $313,000 and $5.7 million, respectively, in the prior-year periods.
- Firm-order backlog was approximately $10.0 million at October 31, 2021, down from $14.2 million at January 31, 2021 but up from $8.2 million at October 31, 2020.
- Accounts receivable increased to $9.5 million from $4.7 million at January 31, 2021, while assets held for sale declined to $588,000 from $4.3 million.
Guidance, outlook, risks and unusual items
Management expects improving activity in marine exploration, sonar and defense applications and cited increased inquiries, bid activity and a supply agreement with a major international marine seismic contractor. Management expects further order activity and improvement during the remainder of fiscal 2022, but provided no quantified revenue or earnings guidance.
Management expects to meet obligations over the next twelve months, relying on cost reductions, backlog, asset sales, additional equity capacity and the November 12, 2021 preferred-stock offering. That offering issued 432,000 shares and generated approximately $9.5 million of net proceeds after costs. The Company also negotiated an asset sale for approximately $4.5 million, of which $2.5 million had been received by October 31, 2021.
Principal risks include continued COVID-19 disruption, the Omicron variant, supply-chain shortages and higher component and freight costs, inventory obsolescence, customer delays or defaults, energy-sector volatility, foreign-currency and international operating risks, long sales cycles for government programs, and potential impairment or reduced recovery value of assets held for sale. The Company has generated negative operating cash flow in each of the last four quarters.
An Inova Geophysical dispute involves a claim for up to approximately $1.0 million of proceeds from equipment sales and an asserted security interest. MIND disputes the claims and filed a declaratory-judgment action in Texas. Management does not expect existing legal matters to materially affect results, financial position or cash flows. The Company also accrued approximately $244,000 for anticipated liquidation costs related to Mitcham Europe.
Most important facts for investors to verify
- Whether the November 2021 preferred-stock proceeds and planned asset sales are sufficient to offset continuing negative operating cash flow.
- Collection timing and credit quality of the $9.5 million accounts receivable balance.
- Conversion of the approximately $10.0 million backlog into revenue, given supply-chain constraints and customer delays.
- Future preferred-dividend requirements and potential additional equity issuance or dilution.
- Progress and proceeds from completing the Equipment Leasing business exit by January 31, 2022.
- Resolution and potential exposure related to the Inova litigation.
- Whether pandemic, supply-chain, inventory and energy-market risks affect margins, deliveries and liquidity.