MIND Technology, Inc. (MIND) Earnings Call Transcript & Summary

Good day, and welcome to the iAccess Alpha Virtual Best Ideas Summer Investment Conference 2025. The next presenting company is MIND Technology. [Operator Instructions] I'd now like to turn the floor over to today's host, Rob Capps, President and CEO of MIND Technology. Rob, the floor is yours.

Okay. Thanks very much. I'd like to thank everyone for joining us this morning. Once again, my name is Rob Capps. I am the President and CEO of MIND. I'd like to take a few minutes this morning and give you a brief overview of MIND Technology, what we do, what we're all about. Then I think we'll have plenty of time for you to ask a few questions, if you'd like. So we will -- that's moving on. We'll forgo the safe harbor statement, if you'll allow that. So what is MIND technology? What do we do? So very simply put, we design, manufacture and sell equipment that's used to gather data in the offshore exploration and survey business. Simply put, we don't conduct the surveys, we don't process the data. We supply the kit that enables the data gathering. We provide this technology in 3 broad market areas: exploration, which includes traditional oil and gas exploration as well as other types of exploration. survey markets for offshore installations of all sorts, as well as maritime security, which is an emerging market for us. We operate through our Seamap unit, which we'll talk more about in a few minutes and have a variety of primary products. Most important, those are the seismic source controllers, GNSS positioning systems, Solid towed seismic arrays, as well as a variety of repair and support services. And we'll talk a bit more about these products here in a few minutes to be able to get a better understanding of what they do. We think MIND is a very compelling investment opportunity. We think we're very unique. We're profitable. We have a strong ongoing business with good growth opportunities. We have a pristine capital structure. We have only common stock and very limited employee options outstanding. We have no debt whatsoever. So again, a very, very clean company from which to work from. So we think that gives us a great platform to grow this company and deliver value to the shareholders. Enabling us to do that, we think we have a very good market environment for us. I think the macro environment is quite positive for us. If you look at the offshore space, the marine industry space, the long-term outlooks tend to be very positive. A lot of our customers are seeing increasing backlog, increasing profitability. So we think the long-term outlook for exploration and survey work is really quite bullish. We're seeing a variety of new applications arise such as the surveys for offshore installations, such as wind farms, carbon capture facilities, all sorts of offshore installations require this ocean bottom survey work. So we're seeing more and more applications of our type of equipment, our type of technology in these applications. We're also seeing opportunities for non-oil and gas exploration in the marine environment, rare earths, things of that nature. So again, that's increasing the markets for our customers, therefore, increase the demand that they have for our equipment. So a very positive situation, we think. So what's driven this growth for us? So there have been a lot of changes within MIND in the last 2 and 3 years. We've really transformed the company over the last 2 years. In August of 2023, we sold a unit, which was called Klein is a company that manufactures sonar units. It's a company that we had bought some years earlier and frankly, did not perform well for us. And it was not a good acquisition in retrospect. So we made the decision to exit that market, sold that business, allowed us to retire all outstanding debt at that point in time and gave us working capital to deploy in the ongoing business. So that was a really key turning point for us, really gave us the basis from which to make the other changes that we'll talk about here in a moment. After that, we started to streamline the management and corporate operations. With a simpler company, we could operate more simply. we started to really focus on what we did best. That's really the Seamap business that we'll talk more about. With that transaction, we eliminated all debt. So again, we became debt-free at that point. And importantly, it really provided working capital for which we could exploit the opportunities that we were seeing within the Seamap business, the ongoing business that we had. So really a big, big change point for us. Then the next step we took was last fall of last year -- the fall of last year, we had outstanding an issue of convertible -- not convertible, but Evergreen preferred stock and had been accumulating dividends that we weren't able to service given our cash flow situation. So we went to the holders of the preferred stock and arranged for a conversion of all of that preferred stock, including the accumulated dividends into common stock. So that was accomplished late last year. So that limited all overhang from any of the preferred stock, any of the dividends and turned that equity into common equity. Again, a very, very important step for us and really allowed the company to restore sales to profitability on an ongoing basis. Having done that, having started to make money with the company, okay, what's next for us? We're still a very small company. Where do we go next to really deliver value to the stockholders. So we retained an investment banker, Lucid Capital to help us assist identify and investigate potential strategic alternatives. Now what can we do? We are not looking to make a large acquisition. That's not what we want to do. We want to add to what we have. We want to add products, add solutions that we can sell to our existing customer base. So we want to lever what we have now. We want to stay within areas that we understand. We're very cognizant of enhancing stockholder value. We don't want to get bigger just to get bigger. Increasing the value of the company is the objective here. So that's what we're trying to do with this strategic alternative investment. We have filed a shelf registration with the SEC, have no plans to raise capital at this point, but thought it prudent to have that in place should opportunities arise, we could move quickly and execute on those, simple as that. As we've transformed the company, we have made remarkable strides in my opinion, in our financial metrics and really all the key ones, that's revenue, gross profit, operating income and adjusted EBITDA. And for us, when we say adjusted EBITDA, that's simply EBITDA plus any stock-based compensation. That's how we define it. We really achieved this growth by, again, streamlining the business that I talked about. We focused on the primary business by deploying that working capital and really focusing on that business. And we have quite frankly, had favorable market conditions at the same time and really tried to focus on what we do well, what we really know best and not try to get too far afield. And that's enabled us to operate much more effectively, more efficiently. And therefore, I think you're seeing the results in these financial metrics. So something we're frankly quite proud of. Along with that and what helped this performance and helped the increase in sales is we have had better visibility to higher backlog levels. We have a strong backlog. And when we say backlog, we mean firm orders in hand. It means a purchase order or a contract in hand. But beyond the backlog that we report, we have a large listing of a large pipeline of pending orders, highly confident orders and other prospects. So we really have pretty good visibility as to what the business looks like in the coming months. Obviously, the near term is better than the longer term, but that's really helped us operate much more efficiently, have been able to operate the manufacturing operations on a more efficient basis, manage working capital more efficiently, things of that nature. So on the next slide, we move on to that. Backlog is an indicator, but it's just an indicator. It's not the only one. We have pretty consistently, as you can see from this slide, revenue for a year has exceeded the beginning of the year backlog and by a wide margin in some cases. So again, backlog is important. You love to have backlog, but it's not the full story. It's really the pipeline and the visibility that we have is really the key. We see in our business that order flow is just often uneven. So it's not unusual for us to see things come in not much activity for a while, but then becomes very active. So a flood of orders at one given time. So it just depends on the situation at the time and how our customers are going to spend their capital dollars. So let's talk a bit about Seamap. That is our operating unit. We operate primarily, almost exclusively through the Seamap subsidiary that's domiciled in Singapore. So our primary business is operated in Singapore. Seamap is a very well-known commodity within the marine exploration and survey markets. So it's a known industry and well known and well respected in my opinion. As far as the primary products, I alluded to these earlier. We have really 4 product areas, 3 primary products and then another service area. Gunlink is our energy source controller used in seismic acquisition systems. Again, it dominates the market. We have almost 100% of this marketplace. It is a limited market for sure, but we dominate that market. SeaLink, which is a reconfigurable towed solid -- towed streamer system used primarily for what we call 3-dimensional ultra-high resolution surveys of the ocean bottom, not used typically for deepwater oil and gas exploration. That's really not our focus. Ours is more on the 3-dimensional high -- very high-resolution surveys for ocean bottom installations. BuoyLink is a GNSS or GPS resisting system that's used in conjunction with the other products. And in addition, we have a broad line of repair services, spare parts, support, service, training, things of that nature. People we sell to, our customers. They're the traditional seismic exploration contractors. They're the marine survey companies, companies that do the survey work. So generally, we're selling to people that own and operate the exploration survey vessels. These are most often the contractors, but sometimes you'll see a boat owner, a vessel owner actually own the vessel, be our customer and then they will lease that to someone actually conducting the surveys. We do sell in addition to some governmental research organizations that also conduct surveys such as this, but more for research purposes, not so much for commercial applications. The majority of our customers are outside of the United States. And since our sales are taking place out of Singapore, we have very limited exposure to tariffs on imports or exports through the United States. So the recent activity with tariffs being added and taken away has really had essentially no impact on our business to date. Something we're keeping an eye on for sure. And it arguably, it may have had an impact on the global economy to some degree. And so that has a trickle-down effect perhaps. But as far as a direct effect on us, we really aren't seeing that. A lot of the expansion we've seen in the business has been due to the new markets for ocean bottom surveys. Again, this ultra-high-resolution surveys related to offshore installations, again, wind farms, carbon capture facilities, any sort of offshore installation, as well as increased repair activity. I understand this equipment operates in a very harsh environment in the ocean, which creates the need for repair and replacement services. So that's a good thing for us. Just take a quick look at this next slide, give you maybe a bit of a sense as to how this equipment is deployed. Again, maybe I can't tell a lot from this. But I think the message here is, again, this is deployed in the ocean, the activities around it with the seismic exploration project, it's a very harsh environment. So the stuff breaks a lot, stuff wears out a lot. So that results in repeating business for us, repairs, spare parts, service. We call this our aftermarket business. And I'm going to talk more about the aftermarket here in just a moment because it's becoming an important part of our business. So where do we see our growth opportunities? So we do see some organic opportunities ahead of us. We're seeing growth in the traditional marine exploration market. There's been a bit of a resurgence there. has been consolidation in that marketplace. But again, we're seeing some resurgence. There's been new applications of the technology, such as the application to these 3D ultra-high-resolution surveys. The repair work has been growing for us. We see expanded opportunities for streamer applications. And we think we can add other products that are similar that are work in conjunction with our products. Therefore, we can offer more kit, a broader offering to the same customer base. I think there's a lot of leverage in doing that. So that's something we're looking to do. I mentioned the aftermarket business. That's important for us because, again, as our installed base increases, that means the ability to service the aftermarket increases as well. If you look historically, about 40% of our revenues have come from this aftermarket activity as opposed to selling new systems. The last quarter actually was almost 70%. And the point here is, I think the absolute amount of this aftermarket business, this repeatable business is growing as our installed base has grown. And while it's not a 100% predictable, repeatable, it is a very repeatable business, and it isn't dependent upon capital dollars, isn't dependent upon new vessels or expansion of capacity. Anything that is out there working today is going to have a need for this type of expenditure, which typically are operating expenses, which people want to understand, operating dollars are often easier to find the capital dollars. So that's a really important part of our business, we think. We also think there are some other opportunities for expansion, which are a little bit outside what I would call the organic arena. We think we can make some enhancements to our streamer systems, the SeaLink system and the production process, which will allow us to address larger projects, larger sales, which frankly have been outside our comfort zone just from a production capacity standpoint. So that's one area we think is a relatively low-hanging fruit and something we're trying to focus on. The other really interesting area is applying the streamer technology to maritime security or defense applications. We think there is a demand for a reasonably costed commercially developed solution in this area. And actually, we tried to address this market a few years ago, but we really got ahead of ourselves, to be quite honest, and probably tried to address it too soon and perhaps in the wrong way. So we decided at the time to suspend that pursuit as we started to transform the company a couple of years ago. Well, we've done that. So now we think there is an opportunity to readdress this, and we're getting to -- we're beginning to do that. So watch this space. I think this is something that could be really interesting for us, could be really exciting as we see them in the coming months and years. We are a global company. We sell to companies all around the world. Therefore, that requires a global presence. Our headquarters is in The Woodlands, Texas. That's a northern suburb of Houston. As I mentioned before, our primary sales reduction activities are conducted from our Singapore and Malaysia facilities. And these facilities are in close proximity to each other. So Malaysia essentially acts as an extension of the Singapore operation. We have a facility in Huntsville, Texas, which is north of Houston, where we conduct repair and manufacturing operations. Actually, we have recently just expanded this facility in anticipation of a significant increase in activity there. That's something we're really excited about. Then finally, we have a facility in the United Kingdom, west of London, where we house engineering and primary field service operations. So a lot of our engineering activity takes place in the U.K. facility. So again, global presence for a global company. So just to summarize before I let you ask some questions. Again, we think this is a very compelling opportunity. MIND is a profitable business, has good growth opportunities, we think. Our Seamap unit is recognized as a leader in the market. It's a very clean company with no debt, and our capital structure consists only of common stock, so it's very pristine. For all these reasons, we think MIND is a very unique and compelling investment opportunity and warrants your consideration. So that concludes my prepared remarks.

I'd be happy to ask any -- or answer any questions that might come up. I think we have a few minutes we can do that. Okay. Let me -- first question here, there's -- has there been any recent material news which could have caused the annual price action and so in the last several days? The answer is no. There's been no news. There have been no developments. So I can't give you any color on that. Welcome to the world of micro stocks -- microcap stocks, I guess. Let me go to the next question. Does maritime security include some defense industry uses? The answer is yes. It most certainly does. So the applications can be non-military for security of, again, offshore installations, you're listing for things, but also can be for all sorts of military applications, listing for submarines, other incursions, things of that nature. One of our strategies here as we readdress that market is try to partner with someone who is a bit more well versed in the defense industries than we are and therefore, really partner and do what we do best, and that's develop and build product. But the answer to that is quite yes. Question here, who are the principles of Lucid Capital and how do we find them? Primarily, they were previously at Ladenburg Thalmann. We had a relationship there for some year. I think as you may know, the Chairman of our Board was at Ladenburg and is now at Lucid. So that's how the relationship was initially developed. This next question. Which customers or end markets are the top drivers of your growth right now? That's a good question. The market is relatively limited in number of players. There aren't hundreds. There are dozens of potential customers, I would say. We do have some concentration and then there tend to be large buyers in a given year. So in any given year, you might see some concentration. A lot of the survey and seismic contractors are out of Europe, Norway, Holland. We also have customers in Asia. We do business in China to some degree. So I think those are the kind of the customers. As far as what's driving their business, I think, again, it's the revival in marine exploration as well as the expansion of the survey work that I alluded to. So that's really the drivers for us. Maybe go on with a lot of good questions here. Are you using underwater radar like the kind of Kraken robotics makes because that boosts your C&I business? The answer is no. The Klein business, which we sold was involved in that underwater radar like, which seminar is what's actually called. And so we were a competitor with Kraken when we had Klein, but we are no longer, but not anymore. Next and almost the last, what end markets are driving the recent $5.8 million in new orders? And how does that pipeline look going into Q2? Pipeline is strong. I think, continues to expand. So we feel good about that. I think we have pretty good visibility going into the balance of the year and into next year. The margins that's driving that are the ones we just talked about. It's the marine exploration and survey work. And the same customers of ours are doing -- some of them are doing work in both places. They do traditional survey work, additional exploration work as well as starting to move into the marine survey work as well. So that's really, again, the same answer again. I see -- I think that's all I see right now as far as questions. For a moment here. We have some -- Here we go, there are some more. We have a few more minutes. What is your current capacity utilization? How does that impact your gross margin trajectory this year? We are not at capacity. As far as the physical facilities, I think we have a great deal of capacity there. Labor tends to be a limiting factor because you can always add labor. So as we as we have higher sales, the big impact is we are absorbing fixed cost over a broader base. Therefore, that improves gross margins. Also, as we have good visibility for production, we can plan a bit better. I think that improves margins as well. We saw some of that impact last year. So I don't see capacity limitations as an issue for us. I do see as we increase capacity, increase sales, then I think you'll see some improvement in margins. Not dramatic, but a point or 2 here or there. Next, with $90 million in FITL NOLs, net operating loss carryforwards, how you plan to monetize and preserve this asset for future earnings? We need to make money and need to make money in the U.S. Now locally, all earnings worldwide are taxed in the U.S. now, although they're also taxed elsewhere. So the best way to use that is to earn money in the U.S. It's difficult to do transactions that monetize that. You don't want to go out and do a big acquisition of some sort just to try to use that. Number one, that's not a smart way to do acquisitions. But secondly, you often end up limiting those NOLs when you do that. So we think they're preserved. We were able to preserve them through the preferred stock restructuring last year, which is a big step for us. So it is an asset for us and knowing that we can shelter U.S. tax going forward. Next question is, why is EBITDA not higher with the lack of debt versus income? Not sure I totally understand, but the only really add back for EBITDA for us since there's little interest is amortization and depreciation, which we're not a big fixed asset company, so there's not a lot of depreciation. Most of our intangible assets have been fully amortized or written off in the past. So there's just not a lot of things to add back. The stock-based comp is not a big, big number. So there's just not much to add back is the answer to that. Next question is any update on the order that was pushed out of last quarter? Again, as I said in our last conference call, we expect that to be shipped in this quarter and the quarter we're in right now. So highly confident that's going to happen. I have one more question -- time for one more question, I think. Do you still have a relationship with Saab? The answer is no. That relationship was really through the Klein organization and the Klein still has that relationship and the new owner of Klein has that relationship that we no longer do. So I think that's going to run us out of time right now. There are a few more questions. I'm just not going to be able to get to all of them, it looks like. But I do appreciate everyone taking their time this morning to visit with us, and I look forward to talking with many of you as we go forward. Operator, I'll turn it back to you.

Thank you very much. This does conclude today's conference. You may now disconnect. Please consult the conference agenda for the next presenting company.