MIND Technology, Inc. Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended January 31, 2021, with comparative fiscal 2020 information. MIND Technology, formerly Mitcham Industries, designs and sells marine technology for oceanographic, hydrographic, seismic, defense and maritime-security markets through Seamap and Klein. In July 2020, the Company decided to exit its land-based seismic equipment leasing business; those operations are classified as discontinued operations and held for sale. The Company also reincorporated in Delaware and changed its name in August 2020.
Financial performance and key metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Continuing-operations revenue | $21.2 million | $29.9 million | Down 29% |
| Gross profit | $7.3 million | $13.0 million | Down 44% |
| Gross margin | 34% | 43% | Down 9 percentage points |
| Operating loss | $(14.3) million | $(6.3) million | Worsened |
| Net loss | $(20.3) million | $(11.3) million | Worsened |
| Net loss attributable to common stockholders | $(22.6) million | $(13.3) million | Worsened |
| Loss per diluted common share | $(1.80) | $(1.10) | Worsened |
| Adjusted EBITDA from continuing operations | $(7.3) million | $(1.7) million | Worsened |
| Net cash used in operating activities | $(6.4) million | $(5.8) million | Higher use |
Discontinued operations generated $5.7 million of revenue and a $6.3 million net loss in FY2021, compared with $12.8 million of revenue and a $4.7 million net loss in FY2020. The discontinued-operations loss included a $1.9 million loss on disposal, including $2.7 million of cumulative translation loss.
At January 31, 2021, cash and cash equivalents were $4.6 million, working capital was approximately $19.0 million, and total liabilities were $9.3 million. The Company reported no funded debt other than approximately $1.6 million of PPP loans; the Company’s loan was forgiven in January 2021 and Klein’s $850,000 loan was forgiven in February 2021. Operating lease liabilities totaled $1.5 million. Series A preferred stock totaled 1.038 million shares and carries a 9% cumulative dividend, or approximately $577,000 per quarter.
Material changes versus the prior comparable period
- Marine Technology Products revenue declined $8.7 million, with Seamap revenue down to $17.1 million from $22.4 million and Klein revenue down to $4.4 million from $7.5 million.
- Gross margin fell primarily because lower manufacturing activity reduced fixed-overhead absorption. Seamap margin declined to 40% from 49%; Klein margin declined to 9% from 26%.
- Selling, general and administrative expense decreased to $12.6 million from $14.1 million due to cost controls and lower travel-related spending, but research and development expense increased to $3.0 million from $1.9 million.
- FY2021 included a $2.5 million goodwill impairment charge, compared with a $760,000 intangible-asset impairment charge in FY2020.
- The Company recorded $659,000 of doubtful-account expense in continuing operations and $470,000 in discontinued operations. Gross customer receivables were approximately $5.7 million, including approximately $1.1 million more than 180 days past due.
- Backlog increased to approximately $14.2 million from $8.9 million, an increase of about 60%. Management expected essentially all backlog to be fulfilled in FY2022.
- Cash increased by approximately $1.4 million during FY2021, supported by $3.2 million of investing cash flow and $4.5 million of financing cash flow, including approximately $3.6 million from common-stock issuance and $1.0 million from preferred-stock issuance. This was offset by $6.4 million of operating cash use and $1.7 million of preferred dividends.
Guidance, outlook, commentary, risks and unusual items
Management expects FY2022 continuing-operations revenue to exceed FY2021 levels, supported by the higher backlog and improving orders and inquiries. Subsequent to year-end, the Company entered an indefinite-quantity, indefinite-delivery agreement with a major international marine seismic contractor, although no firm orders had been received under that agreement at the filing date.
Management reported increased fourth-quarter orders and inquiries, particularly for GunLink source controllers, while noting that many customers continued to delay commitments because of economic uncertainty. Strategic initiatives include MA-X and Micro Max sonar products for autonomous vehicles, synthetic-aperture sonar developed with a major European defense contractor, and SeaLink-based passive sonar arrays for maritime-security applications. The SAS agreement creates potential milestone payments of approximately $1.6 million, of which approximately $300,000 had been paid by January 31, 2021.
COVID-19 caused temporary shutdowns at Malaysian and Singaporean facilities, customer delays, travel restrictions and reduced operating efficiency. Oil-price volatility and weakness in energy markets also affected customer demand and the value of the discontinued leasing assets. Management believed the negative effects were subsiding but stated that duration and magnitude remained uncertain.
The Company has a history of operating losses and negative operating cash flow and relies on asset sales and equity financing. Management concluded that the Company should meet obligations over the next 12 months through cost reductions, backlog conversion, asset sales and additional financing if needed. The independent auditor identified liquidity and going-concern assessment as a critical audit matter because of the dependence on revenue growth, margin assumptions, cost reductions, equity-market access, lease-pool sales and receivable collections.
Other significant risks include customer concentration, foreign operations and currency exposure, dependence on certain suppliers and sole-source components, cybersecurity, export controls, environmental regulation, competition, technology development, delayed or canceled projects, and potential dilution from future equity issuance. Three customers exceeded 10% of consolidated accounts receivable at year-end, and the largest customer represented approximately 15% of FY2021 consolidated revenue. The Company does not pay dividends on common stock.
Management stated that the material weakness in internal control over financial reporting identified for FY2020 was remediated during FY2021 and that controls were effective as of January 31, 2021. Legal proceedings were described as ordinary course and not expected to materially affect financial condition or results.
Most important facts for investors to verify
- Whether the $14.2 million backlog converts into FY2022 revenue on the expected schedule and at sustainable margins.
- Whether marine-product demand recovers sufficiently to offset continuing operating losses and negative operating cash flow.
- The Company’s remaining liquidity, including cash burn, preferred dividends, equity issuance capacity and access to the second at-the-market program.
- Proceeds and timing from the sale of the remaining leasing-business assets, and whether further disposal losses occur.
- Collectability of overdue receivables and the adequacy of the $1.8 million combined allowance for doubtful accounts at year-end.
- Execution, cost and commercial prospects of MA-X, Micro Max, SAS and SeaLink passive-sonar initiatives.
- Potential dilution from the outstanding preferred stock and additional common or preferred shares issued under the ATM program.
- Whether the remediated internal controls remain effective and whether further goodwill, intangible-asset or inventory impairments are required.