MIND Technology, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Quarterly period ended April 30, 2022, representing the first quarter of fiscal 2023. MIND Technology designs and sells marine technology products through Seamap and Klein for seismic, hydrographic, offshore, defense and maritime-security markets. The former Equipment Leasing business remains classified as discontinued operations and held for sale.
The filing reports one continuing operating segment: Marine Technology Products. The financial statements are unaudited and presented in thousands, except per-share data.
Financial Results and Position
| Metric | Three Months Ended April 30, 2022 | Three Months Ended April 30, 2021 |
|---|---|---|
| Revenue | $9.087 million | $4.194 million |
| Gross profit | $3.289 million | $0.543 million |
| Gross margin | 36% | 13% |
| Operating loss | $(2.476) million | $(4.793) million |
| Net loss from continuing operations | $(2.805) million | $(3.701) million |
| Net loss | $(2.419) million | $(3.984) million |
| Net loss attributable to common stockholders | $(3.366) million | $(4.568) million |
| Basic and diluted loss per share | $(0.24) | $(0.33) |
| Adjusted EBITDA loss from continuing operations | $(1.879) million | $(3.001) million |
| Net cash used in operating activities | $(3.522) million | $(2.807) million |
Seamap revenue increased to $8.079 million from $3.044 million, while Klein revenue was $1.122 million versus $1.156 million. Seamap generated approximately $3.0 million of gross profit at a 37% margin, compared with $0.447 million at a 15% margin in the prior-year quarter. Klein gross profit increased to $0.267 million from $0.096 million.
Operating expenses were $5.765 million, compared with $5.336 million. Selling, general and administrative expense increased to $4.272 million, primarily due to severance, higher travel and convention activity, and costs retained in continuing operations. Research and development expense increased to $1.014 million from $0.853 million. Depreciation and amortization declined to $0.479 million from $0.666 million.
Discontinued operations generated $0.386 million of net income, compared with a $0.283 million net loss in the prior-year period, primarily reflecting other income associated with the disposal of lease-pool assets. Discontinued operations had no revenue in the current quarter.
At April 30, 2022, cash and cash equivalents were $0.817 million, compared with $5.114 million at January 31, 2022. Working capital was approximately $16.4 million, versus $18.5 million at January 31, 2022. Total assets were $37.782 million and total liabilities were $10.653 million. Stockholders’ equity was $27.129 million.
The Company had no funded debt and no maintenance-type financial covenants. Operating lease liabilities totaled $1.531 million. Financing cash outflows were $0.948 million, consisting primarily of $0.947 million of preferred-stock dividends. Capital expenditures were $0.107 million.
Material Changes Versus the Prior Comparable Period
- Revenue increased 117% to $9.087 million, largely reflecting reduced pandemic-related restrictions, improved market activity and timing of large Seamap orders.
- Gross margin expanded to 36% from 13%, primarily due to product and service mix.
- Operating loss narrowed by $2.317 million, although the Company remained unprofitable.
- Cash used in operations increased by $0.715 million, and cash declined by $4.297 million during the quarter.
- SG&A and research and development expenses increased, while depreciation and amortization declined.
- Preferred-stock dividends increased to $0.947 million from $0.584 million.
- The Company sold no common or preferred shares through its ATM program during the quarter.
- The Company corrected an immaterial prior-period error that had improperly included preferred dividends in comprehensive loss.
Guidance, Outlook, Risks and Unusual Items
Management expects fiscal 2023 continuing-operations revenue to exceed fiscal 2022 revenue. Backlog was approximately $13.4 million at April 30, 2022, compared with $13.1 million at January 31, 2022 and $11.0 million at April 30, 2021. Subsequent to quarter-end, the Company received approximately $2.2 million of firm orders and submitted approximately $7.3 million of specified RFQs that management believes will convert to orders. Management characterized the combined backlog, firm orders and expected RFQ awards as approximately $22.9 million, with expected completion during fiscal 2023.
The Company increased prices on most products by approximately 5% to 20% in response to inflation, component shortages, higher energy costs and supply-chain pressures. Management believes higher energy prices, renewable-energy activity and geopolitical demand for defense and maritime-security products are favorable trends, but order timing and government-related sales cycles remain difficult to predict.
Substantial doubt exists regarding the Company’s ability to meet obligations over the next twelve months. Management cites its absence of funded debt, approximately $16.4 million of working capital, potential cost reductions, backlog, possible proceeds from remaining lease-pool equipment, the ability to suspend preferred dividends and potential future equity or other financing as mitigating factors. There is no assurance these measures will provide sufficient liquidity or that securities can be issued on acceptable terms.
Key risks include continuing operating losses and negative operating cash flow, low cash balances, supply-chain disruptions, inflation, component availability and costs, pandemic effects, volatility in energy markets, customer concentration and defaults, foreign-currency and geopolitical exposure, competition, technology obsolescence, cybersecurity threats and uncertainty regarding government and defense spending. No material legal proceedings were reported.
Disclosure controls and procedures were not effective as of April 30, 2022 because of a material weakness in internal control over financial reporting previously disclosed in the fiscal 2022 Form 10-K. A remediation plan was underway, but management had not concluded that the weakness was resolved.
Important Facts for Investors to Verify
- Whether revenue conversion from the $13.4 million backlog and the additional $9.5 million of firm orders and expected RFQ awards occurs as projected.
- Whether operating cash usage improves and the Company maintains adequate liquidity with only $0.817 million of cash at quarter-end.
- The status and timing of the planned completion of the discontinued Equipment Leasing business disposal, expected by October 31, 2022.
- Whether additional equity financing, asset sales or preferred-dividend suspension becomes necessary.
- The progress and effectiveness of remediation for the material weakness in internal control over financial reporting.
- The effect of supply-chain constraints, inflation, pricing increases and component availability on gross margins and delivery schedules.
- The sustainability of the quarter’s 36% gross margin, given management’s stated sensitivity to product mix and timing of large discrete orders.