MIND (MIND) Q2 2027 Earnings Call Transcript

Operator

Greetings, and welcome to the MIND Technology Second Quarter Fiscal 27 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to Jack Lascar, Investor Relations.

Jack Lascar

Thank you.

Operator

You may begin.

Jack Lascar

Thank you, operator. Good morning. And welcome to the MIND Technology Fiscal 27 Second Quarter Earnings Conference Call. We appreciate all of you joining us today. With me are Robert Capps, President and Chief Executive Officer and Mark Alan Cox, Vice President and Chief Financial Officer. Before I turn the call over to Robert, have a few items to cover. If you would like to listen to a replay of today's call, it will be available for 90 days via webcast, going to the Investor Relations section of the company's website at mindtechnology.com. Or via a recorded instant replay until September 16. Information on how to access the replay was provided in yesterday's earnings release.

Information reported on this call speaks only as of today, Wednesday, September 9, 2026, and therefore, you are advised that time sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Before we begin, let me remind you that certain statements made by management during this call may constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 2 thousand.

These forward looking statements are based on management's current expectations, and include known and unknown risks, uncertainties and other factors many of which the company is unable to predict or control, that may cause the company's actual future results or performance to materially differ from any future results, or performance expressed or implied by those statements. These risks and uncertainties include the risk factors disclosed by the company from time to time in its filings with the SEC, including in its annual report on Form 10 k for the year ended January 31, 2026.

Furthermore, as we start this call, please also refer to the statement regarding forward looking statements, in our press release issued yesterday And please note that the contents of our conference call this morning are covered by these statements. Now I would like to turn the call over to Robert Capps.

Robert Capps

Okay. Thanks, Zach, and thank you all for joining us today. As usual, I will touch on our results for the second quarter and provide an update on the current market environment. Mark will then provide a more detailed review of our financials. I will return to wrap things up with some remarks about our outlook. Our second quarter results reflect the ongoing market softness. Offset to some extent by the resilience of our aftermarket business. Order flow continues to be constrained. And customers are maintaining their wait and see approach amid a very unsettled geopolitical and commodity price environment. Our results reflect this. Despite these headwinds, aftermarket business continues to provide a recurring stream of revenue.

This gives us a durable base through a period when new system orders are difficult to predict. This allows us to remain patient and opportunistic rather than reactive. The last quarter, I laid out 2 dynamics in the broader energy landscape with the potential to drive increased activity in order flow. there is a growing need for energy security, following a significant supply disruption. And a favorable oil pricing backdrop is expected to support a resurgence in exploration activity. We believe both dynamics remain intact. But they have yet to result in firm orders. The war with Iran has had a significant impact on our recent results. Certain ongoing projects in The Middle East have been temporarily interrupted.

Additionally, and perhaps more importantly, the award and commencement of additional projects in the region have been delayed. These factors have caused customers to delay spending plans. They also in some cases, have interrupted our customers' anticipated cash flow. This, in turn, caused certain customers to delay payments to us. We are confident these amounts will be received just not within the time frames we originally anticipated. We continue to believe energy independence is top of mind for governments and operators alike. And there is a real need to replenish lost production secure reliable supply. We expect that to drive exploration investment over time.

However, at the present, the stops and starts of the war with Iran have created such volatility within the energy markets the customers are hesitant to commit to project timing. While oil prices remain elevated relative to the historical standards. it is the durability of these prices, not the level. That drives investment decisions. Futures market does not expect today's prices to last. What matters more to our customers to their customers is certainty. An end to the conflict would remove much of that uncertainty impacting projects today. We would then expect these programs to move forward. We see a resolution to the war as good for our business.

Now our backlog of firm orders as of July 31, 2026 was approximately $4.8 million compared to $7.6 million as of April 30, 2026 and $12.8 million as of July 31, 2025. Proprietary customer decision making regarding new system orders and the execution of our existing backlog during the quarter, were the drivers of the decline. As our backlog continues to illustrate, there is considerable variability in the pace and timing of new orders. This has been magnified by the ongoing macro uncertainty. I will remind you that even in a normal market, new orders do not always arrive at a constant rate throughout the year.

Importantly, we continue to view these as temporary pauses as customers iron out their operational plans and evaluate market conditions. Despite the near term softness, the longer term outlook for the marine exploration and the survey industry and more specifically, our business, remains very positive in our opinion. We have begun to see early signs of recovery. We feel that an uptick in activity is inevitable. I will talk a bit more about this later. Outside of our backlog, which is defined as orders for which we have a purchase order or a signed contract in hand, the pipeline of potential orders remains solid. is several-fold greater than our firm backlog.

We are continuing to pursue certain significant projects including some worth $10 million or more each. We have taken actions in recent months to strengthen our positioning to make ourselves more competitive bidders. This provides us with optimism as we work to convert these opportunities into firm orders in coming periods. Turning to our results. Marine Technology product revenues for the second quarter of fiscal 27 were approximately $5.6 million The majority of this revenue roughly 87%, came from aftermarket activity consisting of spare parts, repairs, service, and other support activities. We have talked at length in recent quarters about this component of our business, and its critical role within our overall results.

This has become increasingly important as system orders have slowed. But while the aftermarket business is influenced by the general activity level within the industry, it is more recurring in nature than orders for new systems. Customers might be slow to purchase new sets systems but your existing equipment will need maintenance to keep operating. This benefits MIND since expenditures for aftermarket activity are generally operating cost as opposed to capital expenditures. As our installed base of Seamap products expands, so does the potential for increased aftermarket activity. Second quarter was a difficult 1. And our results reflect that. Our aftermarket activity held up and continued to generate meaningful revenue at a time when system orders were effectively on hold.

It allows us to manage through a period of disruption and position the company for when activity improves. I remain confident in the opportunities ahead of us and I believe it is just a matter of time until order flow returns. Now I will let Mark walk you through our second quarter financial results in a bit more detail.

Mark Alan Cox

Thanks, Robert, and good morning, everyone. Revenues from marine technology product sales totaled approximately $5.6 million for the quarter. As Robert mentioned, our second quarter results continued to be impacted by general market softness and our customers taking a more cautious approach to the decision making process. Despite these headwinds, we are benefiting from aftermarket activity that provides a solid foundation of recurring revenue. This activity supports our overall results and serves as a buffer in times of reduced large system order volume. Second quarter gross profit was approximately $2.1 million This represents a gross profit margin of 37% for the quarter.

Although a significant portion of our second quarter revenue came from aftermarket activity, which typically generates higher margins than larger system orders, lower overall revenue in the quarter resulted in less fixed cost absorption impacting our gross margin. As revenue returns to more normalized levels, we expect our cost optimization efforts and improved production efficiencies to support stronger margins. Our general and administrative expenses were approximately $3.3 million for the second quarter of fiscal 2027. This was down both sequentially and when compared to the same quarter a year ago. Our research and development expense for the second quarter was approximately $407 thousand which was up sequentially when compared to the second quarter of fiscal 26.

This increase was due to the timing of cost recognition for component purchases. Consistent with prior periods, these costs were largely directed toward the development and enhancement of our streamer systems and source controller offerings. Operating loss for the second quarter of fiscal 27 was approximately $1.8 million compared to operating income of approximately $2.7 million in the second quarter of fiscal 26. Second quarter adjusted EBITDA loss was approximately $949 thousand compared to adjusted EBITDA of $3.1 million in the same quarter a year ago. Net loss for the second quarter was approximately $1.7 million compared to net income of $1.9 million in the second quarter of fiscal 26.

As of July 31, 2026, we had working capital of approximately $36.7 million including $15.8 million of cash on hand. This compares to approximately $19 million of cash at the beginning of the fiscal year. I would caution against reading that change as a reflection of our cash burn rate. Movement in cash reflects the timing of receivable collections as much as it does operating performance. As Robert mentioned a moment ago, collections in the first half of fiscal 27 were slower than we anticipated due to circumstances impacting certain of our customers' markets. For a more accurate measure of our operating performance, we would point to our adjusted EBITDA.

Company continues to maintain a clean debt free balance sheet with a simplified capital structure. We also maintain operational flexibility to pursue strategic opportunities should they arise. I will now pass it back over to Robert for some concluding comments.

Robert Capps

Okay. Thanks, Mark. We are operating in a challenging macro environment. And our customers' wait-and-see approach reflects that. Customers continue to delay order commitments regardless of industry or end-use, limits our visibility. Will likely pressure results for another quarter or 2. Much of that timing depends on conditions in The Middle East. Which remain unsettled. We are not going to predict when that will change. However, I want to emphasize that we believe demand has not gone away. Although the timing remains uncertain, customers are actively evaluating several sizable projects which we view as an encouraging sign for future activity.

As conditions stabilize, we expect customers will reactivate their capital programs and we are positioning the business to respond quickly when they do. Customer interest and engagement remained solid. But they are not converting into firm orders at the rate we expected at this point in the year. As a result, our expectations are that our fiscal 27 results will be below fiscal 26. By this view, 2 things give us confidence in our ability to manage through this period. Our aftermarket business provides a steady stream of recurring revenue that supports our results and we have meaningful working capital, including cash on hand.

This gives us the flexibility to invest in the business and act on opportunities as they arise. Our conviction regarding the longer term prospects has not changed. The underlying dynamics within the marine technology industry remain intact. And we are seeing opportunities to capitalize on new areas of focus within the market. Rather than pull back during this slowdown, we have continued to invest in our technology that is beginning to open doors. As an example, we have started gaining traction with our passive array technology and maritime security applications. it is still early days, but we believe this technology provides a cost effective solution to a real operational need.

We are encouraged by the interest we have received and look forward to providing updates as things develop. We are also pursuing upgrades and improvements to our source controller and towed streamer products. Which we believe will generate new opportunities. In recent quarters, I have discussed our capital allocation strategy. We have a simple capital structure and a debt free balance sheet. We ended the quarter with $15.8 million in cash. This liquidity gives us flexibility that not all small public companies possess. We are constantly evaluating opportunities to create meaningful long term value for our stockholders. Our first priority is always to preserve the strength of the company.

This includes funding operations through a period of reduced order flow and lower revenue. While continuing to invest in technology that positions us for the recovery we expect. Beyond that, we see a real need to add scale. And we are actively pursuing opportunities to do so. As we have said previously, there are several paths available to us. We can execute organic growth initiatives we have identified. We can acquire assets or businesses adjacent to what we already do. We can combine with another organization What we will not do is jeopardize the progress that we have made at MIND by chasing something that does not fit what we do.

That being said, we continue to actively seek out transformative transactions. And we also recognize that another attractive use of capital is stock repurchases. Especially at current price levels. We believe that recent prices for our stock do not accurately reflect the true value of the company. I would point out that as of the end of the most recent quarter, we had working capital of approximately $36.7 million, which equates to more than $4 per common share. Despite these apparently attractive economics, we did not purchase any of our common stock during the second quarter. I understand how many of you are frustrated by this lack of activity.

We do believe our stock at current levels represents a good investment. However, there are often limitations on when we can be active in the market. We are precluded from buying selling for that matter, or stock during blackout periods preceding the release of periodic financial results. Additionally, we cannot buy or sell our stock when in possession of material information that has not yet been disseminated to the market. These situations could include ongoing preliminary discussions regarding new business or strategic transactions. We will continue to assess the appropriate time to enter the market against our other capital priorities. Going forward, preserving and enhancing value remains our primary focus.

And we will allocate capital to the areas where we see the greatest return. In closing, the market remains soft. I am confident about where this business is headed. The projects our customers have deferred have not gone away. And the underlying demand fundamentals are only growing. When activity returns, we intend to be ready for it. We have no debt. Real liquidity, and an aftermarket business generating recurring revenue. Our technology is expanding our addressable markets. We are using this period to improve our positioning and sharpen our competitive edge. We are focused on innovating, adding scale, and partnering with customers who appreciate the value we deliver. I look forward to executing on these priorities.

Which we believe will drive improved stockholder value. And with that, operator, I think we can now open the call up for some questions.

Operator

Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to 1 question and 1 follow-up. To ask a question, please press star 1. You may press star 2 if you would like to remove your question from the queue. Using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Tyson Bauer with KC Capital. Please proceed with your question.

Tyson Bauer

Good morning, gentlemen.

Robert Capps

Hello, Tyson.

Tyson Bauer

I am just going to follow up quickly on your last comment. And that is given the Middle East conflict on and off situation, and no resolution seemingly coming quick. How does that sway your capital use decisions for MIND? Does that accelerate some of these things you have talked about as far as improving shareholder value and growing the business? Or do you hang on to that cash a little tighter and you see how things kind of play out And follow-up to that is you talked about these blackout periods and a lot of irons in the fire you have going, would you anticipate that most, if not all, of Q3 maybe in those blackout periods?

Robert Capps

Let me address the last 1 first. Not necessarily. Again, I do not want to telegraph when we may or may not be in the market. But I would not say that is necessarily just the case. I think that the situation in the Middle East is something we have to contemplate when we look at capital allocation. Surely, if we see a lesser opportunity in the very near term for new business that might you know, steer us a different direction as far as where we might allocate capital. Yeah. Maybe if you are inclined to buy back stock at that point, or something more strategic.

But, yeah, I just do not wanna telegraph what we are going to do, but it is something we do have to contemplate. But for sure, the Middle East situation, has gone on much longer than I think any of us anticipated. And certainly has a bigger impact than we originally anticipated.

Tyson Bauer

Now you do obviously have business that is should not be impacted by the Middle East such as scientific activity in Asia, survey agencies, your Scandinavian customer that have been big in the past, critical mineral exploration off the coast of Africa, and some of those areas. When we look at this pipeline being frozen, is it more at the government level for these types of projects or is it in addition to the corporate budgeting level?

Robert Capps

there is kind of a combination at this point. So that is a really a good question, Tyson. There are projects in The Middle East that have been impacted. But also, I think the general economic macro situation has caused people to be cautious elsewhere in the world. Our customers, maybe whether they are located in the Middle East, Dubai, or in Norway or The US, you know, operate on a worldwide basis. So just because they are not in The Middle East does not mean they are not impacted by the macroeconomic situation. That happens overall. So I think that is really the bigger driver factor for the slowdown in activity. You are definitely correct.

We do see activity and are actively chasing projects that are non-energy-related, especially in Southeast Asia. there is a lot going on there. In other parts of the world. So we are not totally energy dependent. And you know, we are seeing activity there. But, again, part of that problem is just the budget cycles, and those are driven by governmental issues and government budget cycles, not in The US necessarily, but elsewhere in the world. And they just move very slowly sometimes. But those are some of the larger projects that I alluded to earlier.

Tyson Bauer

And if we use this analogy of a frozen pipeline, obviously, we have got 2 solutions. 1 is slow fall that creates a trickle of orders that come on the backside of this. Or if it thaws quickly, you end up with possibly a pipe bursting, which, you know, I think we would not treat that as unwelcomed even though you may have a working capital requirement there. How do you see that playing out?

Robert Capps

Is this more likely a trickle or more likely the pig in the python or a Yeah, bolus. Yeah. that is a tough 1 to answer. I personally think it is more of closer to a trickle. Maybe not -- trickle's not the right word I would use, but I do not see things just bursting loose. I think because of the uncertainty that this has created, and companies tend to be much more cautious now. Than they might have been in the past. Just because of this uncertainty. So that is that is my read on it, but you know, take it for what it is worth.

Tyson Bauer

Last couple quarters, you have thrown up the carrot out there, these $10 million project, possibly possibilities. What, if anything, can you add color to? What are they contingent upon? That we can Mhmm. Touch in the marketplace that it makes it more likely or less likely they could occur.

Robert Capps

I think that the particular instances I have in mind are more related to budget cycles and the process we have to wade through rather than anything from the macro environment. So I do not think the Middle East situation necessarily has a big impact on those particular projects. But, again, government budgets, government agencies, those things. And they have moved at the pace they move.

Tyson Bauer

Couple just quick financials. It appears that Q3, Q4 more likely than less likely to resemble Q2 or within that ballpark of that $5 million to $8 million that you have experienced in the past on repair sales and the kind of what you have talked about, that recurring revenue base So even if we have any orders materialize, it is likely that this fiscal year is kind of more or less set. In what we should expect and all the focus then becomes can you grow backlog before the end of the year? And what does that imply for fiscal 28? Is that correct?

Robert Capps

Well, anyway, there is definitely truth to what you are saying there. I would I guess, modify that in that Certainly, there are orders that are prospects that were in the pipeline that we could turn around and deliver in this year. Now, obviously, as time goes by, the closer you get to the end of the year, that likelihood reduces. So I would not you know, write off the back end of the year completely at this point, but I think that is from a standpoint of large system orders. Okay. And last 1. Last 1 for me.

Tyson Bauer

Obviously, cash flow, $15 million. You said that it was an abnormal cash use quarter. I do not expect that to continue. What kind of cash management and projection are you looking at for the next quarter or 2?

Robert Capps

Well, again, I think the issue with our the cash situation that Mark alluded to or addressed was we have had actually had 3 customers which had their cash flow impacted by the Middle East situation directly. Excuse me. 2 of those have been resolved. Been collected as of now. there is just a third that is still an issue, which is a substantial amount Again, we are very confident about the collection given who it is. But we are just working through the logistics of getting that resolved.

So if that is resolved, by the end of the year as we expect it would be, then I think you will see a significant increase in cash balance at that point.

Tyson Bauer

But today's cash balance is greater than the $15.8 million recorded at the end of July.

Robert Capps

Yeah, roughly. I mean, not dramatically, but roughly.

Tyson Bauer

Okay. Thank you.

Operator

Our next question comes from the line of Ross Taylor with ARS Investment Partners. Please proceed with your question.

Ross Taylor

Thank you. Well, Tyson covered a lot of the ground that I would wanted to address. But I think getting down to it, what steps -- it sounds like you expect to be in this situation for a quarter or 2 longer. What steps are you taking to reduce the operating cash burn to a more acceptable level?

Robert Capps

Sure. So we are looking at things on the production side, production costs, there is people primarily on the production side, what we can do there without hurting the longer term prospects. Same thing on the R&D side. Think we have really already done a lot on the g and a side. Although there are a few tweaks here and there. But those are not the big dollars. We are definitely actively looking at those things right now, Ross. Okay.

Ross Taylor

What are your public company costs?

Robert Capps

Oh gosh. Since I look at it, it is probably you know, $2 million to $3 million anyway, on an annual basis. So it is not meaningless. Oh, no. Definitely not. Definitely not.

Ross Taylor

Okay.

Robert Capps

It strikes me-- Ross, let me point you something. If you look at our 10 q's and our financial reports, and our quarterly I am sorry. Our segment disclosures that gives you some idea of what the corporate costs are. They are substantial. They are not all public company costs, but they will give you some idea of what that is. Okay. I appreciate that.

Ross Taylor

It does strike me as the situation in The Middle East and also in the Black Sea actually, in many ways, should be driving, increased demand for exploration away from those regions. So is that something that you are seeing? I mean, obviously, no matter what the outcome of the war with Iran is, it is gonna lead to a lessened interest in, demand for, less, less confidence in that as an energy source. So I would think that we would be seeing your customers accelerating a desire to explore elsewhere for, you know, these types of for oil and gas, and other things? Is that something you are seeing?

Robert Capps

Absolutely correct. Absolutely. Just how quickly does that happen? You know, these projects have long lead times So how quickly do we see them come to fruition and therefore filter down to our business? But that is the uncertainty in our mind right now. But there is no doubt in my mind, and I think most people's minds, that what you say is absolutely correct. Okay.

Ross Taylor

And to kind of just sum up with your answer to Tyson's question about cash, Currently, you have got just under 16, so you would expect to be measurably higher than that level of cash at the end of the fiscal year?

Robert Capps

that is correct. Again, based on the based on the collections from this 1 customer. Okay.

Ross Taylor

And you have talked a lot about the idea of doing a strategic potentially doing something strategic. Given the situation, I mean, it strikes me as MIND lacks the size and the stability of revenues or at least stability of earnings at this stage to do a lot to leverage your balance sheet, I think you would be really reticent to make an acquisition that would involve a great deal of debt However, at the same time, your stock is selling well under book value. I think book value is, coming into the quarter, was what, north of $4.50 a share. Okay. And so you are selling well under book, which makes it very difficult to use your stock.

Unless a deal is really attractive. So how do you think how -- what kind of size are you looking at for a deal? You talked about transformative. to me, that means a company that is more than its current size bigger than it is. Is that a correct read? And stability of profitability.

Robert Capps

Yeah. I mean, obviously, those deals do not come along every day. But if we can find that sort of situation or if we can find the tuck-ins that we can do on a reasonable basis to you know, gradually increase scale. But at some point, I think a more transformative transaction that you alluded to makes some sense. But, again, those are hard to come by. And if you do it on a relative basis, perhaps it makes some sense. But those are the sort of things we are open to. I mean, we are as we have said before, we have a blank sheet of paper there.

So we are open to lots of different ideas, but we recognize you know, we need to change the scale of this operation in order to bring more stability to it.

Ross Taylor

Right. And changing the scale, you in many ways, also mean you need to create a business that generates a consistent, you know, level of cash flow, earnings, revenues, so that you can put a higher multiple on the overall business. Correct? it is not just make it bigger.

Robert Capps

it is really making-- No, no. You are exactly right. Okay.

Ross Taylor

And I will say, you talked about the idea that it kind of seems that you are in a lot of blackout periods, it would be nice to find an open blackout an open period that would allow your insiders to buy stock. I mean, right now, I think I can probably buy a couple shares of stock for a latte. And, it would strike me as it might be worthwhile to see some insider buying there. Has not been insider buying in this company in a long time, and that would be a really nice vote of confidence. I understand that 100%.

Robert Capps

Okay. Yeah.

Ross Taylor

I was just saying. So if we can get ourselves to where cash is higher or you know, we are trading well under book value, the stock does strike me as a very attractive investment. Here for a patient investor. So you know, good luck pushing forward.

Robert Capps

I appreciate it.

Ross Taylor

Okay. Take care, sir.

Robert Capps

Yep.

Operator

This now concludes our question and answer session. I would like to turn the floor back over to management for closing comments.

Robert Capps

I would just like to thank everyone for joining us today and look forward to giving you ongoing updates about our progress and talking to you again after our third quarter. Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. Please disconnect your lines, and have a wonderful day.