Greetings, and welcome to the MIND Technology First Quarter Fiscal 2025 Earnings Call. At this time all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. Thank you, sir. You may begin.

Thank you, operator. Good morning, and welcome to the MIND Technology fiscal 2025 first quarter earnings conference call. We appreciate everyone joining us today. With me are Rob Capps, President and Chief Executive Officer; and Mark Cox, Vice President and Chief Financial Officer. Before I turn the call over to Rob, I have a few items to cover. If you'd like to listen to a replay of today's call, it'll be available for 90 days via webcast by going to the investor relations section of the company's website and that's mind-technology.com or via telephonic instant replay recorded until June 18th. Information on how to access these replays features was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Tuesday, June 11th, 2024, and therefore you're advised that time sensitive information may no longer be accurate as of the time of any replay listing or transcript reading. And 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 1995. 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 or future results or performance to materially differ from any future results or performance expressed or implied by these statements. These risks and uncertainties include the risk factors disclosed by the company from time-to-time and its filings with the SEC, including its annual report on Form 10-K for the year ended January 31, 2024. Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in our press release issued yesterday and please note that the contents of our conference call this morning are covered by these statements. Now that behind me, I'd like to turn the call over to Rob Capps. Rob?

Okay. Thanks, Ken, and thank you all for joining us today. I'll start by discussing some highlights from the quarter. Mark will then provide a more detailed update on financials and I'll wrap things up with some remarks on our outlook. Now it's only been six weeks since our fourth quarter and year-end call, so you can expect that many things haven't changed much since then. We're pleased to again report positive results. We continue to operate efficiently, while converting our backlog into sustainably higher level revenue. We've been able to build on the momentum that we generated last year. This resulted in another quarter of positive adjusted EBITDA and overall profitability for MIND. We remain well positioned to achieve positive adjusted EBITDA and favorable results in future periods. We maintain our belief that MIND is strategically positioned for growth. Our GunLink source controllers, BuoyLink positioning systems, and SeaLink streamer systems are all contributing to our strong backlog, and we're optimistic that we'll generate additional orders for these products as the year progresses. A favorable macro environment, a narrowed focus, strong customer relationships, ever increasing capabilities, and valuable partnerships have boosted our order flow in recent quarters. I remain confident that we're the partner of choice for companies looking to acquire high quality and versatile marine technology products. We entered the second quarter with a strong backlog of approximately $31 million. Our backlog is down a bit sequentially. This is to be expected at times as we execute and make deliveries. New orders don't necessarily arrive at a constant rate throughout the year. We still maintain a meaningful book of business that is significantly above where it stood a year ago. In fact, the backlog at the end of the quarter was over 70% higher than at the end of…

Thanks, Rob, and good morning, everyone. Consistent with the past several calls I would like to remind everyone that with the sale of Klein those operations have been treated as discontinued operations and prior period results have been restated to reflect that. Accordingly, the results from containing operations that we reported yesterday and are discussing here today including prior period comparative data do not include amounts related decline. They include only our ongoing business. As Rob mentioned earlier, revenues from marine technology product sales totaled approximately $9.7 million in the quarter, which was down about 9% from approximately $10.6 million in the same period a year ago. The shifting of deliveries and the impact of that on quarterly revenues is just a fact of life for our business. We continue to believe the underlying strengths we're seeing in all our key markets and the significant customer demand driving our robust backlog positions us well for sustained high level revenue in the coming quarters. First quarter gross profit was approximately $4.2 million, which was down approximately 7% when compared to the first quarter of last year. However, gross profit margin was approximately 44% for the quarter which is an increase from the same period a year ago. Gross profit margin improved despite lower revenues in the quarter as a result of price increases implemented in fiscal 2024 and increased production efficiencies. Our general and administrative expenses were approximately $2.8 million for the first quarter of fiscal 2025, which was down sequentially from $3 million and more notably down 17% from $3.3 million in the first quarter of last year. As we mentioned on our last call, the sale of Klein is allowing us to streamline our operations and thereby reduce some costs. In addition to the Klein related savings in the…

Thanks, Mark. MIND continues to benefit from the strategic transformation we embarked on several years ago. Most recently, we've been able to refocus our attention with the sale of Klein last year. We believe the company is better position today than at any other time in its history. Our focused approach and streamlined operations have given us a lean operating structure and improved our ability to control cost. As a result, our first quarter built on our positive momentum from recent periods to deliver favorable results that were in line with our expectations. Our goal of maintaining positive adjustability and profitability throughout fiscal 2025 is well within our sights. Market conditions remain favorable. We believe there are still notable opportunities for our [CNAP] (ph) unit and for our other initiatives. We've developed valuable partnerships and customer relationships that enabled us to build a strong backlog and our marine technology products continue to penetrate a variety of industries and markets. I believe this is a direct correlation to the work that our team has done to develop and continually adapt our technology to meet the evolving needs of our customers. We believe our significant customer engagement and the order received to date are indications of the market adoption of our product lines. While we're pleased with the results for the first quarter, we believe MIND is poised to capitalize on additional opportunities and deliver improved results in the coming quarters. Despite these positive results and our favorable outlook, as expected, during the quarter we utilized liquidity to acquire inventory and execute on our backlog. This is a prime example of what we've discussed in recent quarters about our need to retain capital from operations to execute our book of business and deliver orders. This further supports our rationale behind the continued…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Tyson Bauer with KC Capital. Please proceed with your question.

Good morning, gentlemen.

Hey, Tyson.

You mentioned a couple times and repeated it that you are looking to build off Q1 results as you go forward, given your backlog, your cost containment, all that starts to play through as we go forward. Is that to imply that Q1 is kind of the foundation then for the next three quarters? And if that is the case, if there were to be 8 million shares outstanding on a pro forma basis, and you did about $0.12 in the quarter, should we look at that as the baseline then that will work our way forward?

Let me talk to one at a time. So as far as the revenue level, we do think we'll see improvements later in the year. Obviously, based on the backlog, we have good visibility as to what we have to deliver. And it's just a function of when people want it, when we can get it built, when key components come in, things like that impact actual delivery schedules. So that's where you'll see ups and downs. So I would expect that the revenue for the year would be at a higher level than if you were to annualize the first quarter. If that -- I think answers your question.

Right, we might have variability, but overall, you're going to average higher quarterly levels.

I think that's fair to say. But again, there could be variability. Again, you have a $4 million order, and it slips a month or so if it has an impact. But generally speaking, I would agree with that. As far as EPS, I'm not sure I want to get into the game of trying to project the earnings per share, but I think it kind of gives you a base for where we think revenues are. I think our cost structure is been demonstrated to come in line. I think as we see higher revenues, just naturally we'll see some improvement in margin. Not dramatically, but some additional absorption of overhead. But not dramatic impact there. Does that get at what you're asking, Tyson?

Yes, I don't think you're going to comment at all on EPS, given your [indiscernible]. I just wanted to throw out for everybody, that's 8 million shares outstanding if this vote goes through, and this quarter would have been $0.12. Just simple math. Working capital relief, you have the increase in inventory and accounts receivable. Give us a little flavor of that cash cycle, trying to tighten that up, because you keep your accounts payable pretty tight, and you have done so through the previous periods. Should we start to see some relief, or are these going to be kind of those balances as we go forward that we won't have a negative impact. We just will see levels kind of in the range that they were at the end of this quarter.

Yeah. So I think we'll see some relief. We'll start to generate some operating cash out of this as we go through. Obviously, we've done some things ahead of times, knowing we have the backlog, having to acquire product, make some prepayments in some cases, things like that. But if we continue to grow as we think we will, that is going to continue to absorb some of that working capital. So I think we'll see some relief, some turnaround, but I would think it's going to be dramatic at this point, at least not in the near term.

Okay. But self-sustaining where you're not going to be requiring capital going forward, what you have now for what you know is sufficient to maintain your needs internally.

Yes, absent some growth spurt. So that's right.

Okay. You talked a lot about order flow. You're very optimistic going forward. Give some characteristics on, are these mainly repeat customers? Are the sizes of these POs larger than what you've experienced before? And the lead times, are you getting an order for something that may be a year out?

Yes, so some repeat customers, some new customers, so a little bit of both. So as we kind of expand our streamer offerings, the 3D high res, we're seeing some new customers there. Order size, some bigger, some smaller. We see from a couple hundred thousand dollars to several million dollars. So it just depends, Tyson, and it's really all over the place. I'd say as far as orders in hand, once we get a PO, it's not going to go out a year. Typically, something that's out six months or more is not unusual at all. But we do have good visibility, I think, on other potential things that are going out in that one-year period. I'm not saying we have the POs in hand, but again, we have discussions going on. We know the customers have some plans, but they actually haven't placed the order yet.

Okay. Are you willing to, if not in the actual absolute numbers, just kind of give us a sense, we're halfway through this quarter, how the POs backlog kind of cash situation. Are you feeling more optimistic today than you were 45 days ago?

Well, I don't want to get specifics for sure, but I think things are going as we anticipated. So I'm happy with where things are going right now.

Okay. And the last one for me before others get on. You have a significant amount of tax loss carry-forwards that are U.S. domiciled that you're really not able to use depending on where the deliveries take place and you had a 20% tax rate this time. Are there avenues or have you been advised on how to try to monetize those loss carry-forwards in the US to take advantage of those?

Yeah, so we are looking at things to do there. I'll tell you that monetizing NOLs is a difficult chore. Having tried to do that in the past, it's hard to do. The IRS on purpose has limited your ability to do that. But we are trying to explore ways to be a bit more tax efficient. Because as you know, we are paying taxes in foreign jurisdictions right now.

Okay. And most of your cash is held overseas, correct?

Well, it's generally overseas and it's either there or back from time to time. It's US dollars though.

Okay, thank you gentlemen.

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

Thank you. Can you walk through a couple of things? One is, the cost structure which has come down, the SG&A structures come down some. But I would think it has more room to come down given the shift in the business. So could you walk through the ability to bring that cost structure down?

Yes, so I think you're right -- Ross, sorry. There is some ability to do more. Obviously as we got rid of Klein, that's allowed us to be a little more lean at the corporate structure, at the corporate level. And I think there are some more things we can do there, be a little -- still be more focused. And I think there's still some benefits that haven't worked their way through the income statement yet. So I think we'll see some continued improvement there. But we are a public company, even though we're small. So that creates some challenges. There's a point where you just can't go below at some point.

What are your public company costs you think? Would it be -- are they in the $1 million annual range?

Well, I'd say they're more than that.

More than that. So going back to Tyson's 8 million share math, we're talking about public company costs are probably more than $0.12 a share annually at this stage, which would go away if you were to end up merging with another business.

That's the math.

Yes. Okay. Let's talk about the amount of time it takes to convert inventories to cash. You've been carrying some pretty high levels of inventory. In some cases, it's because from prior comments you've made, it appears that you are -- you want to make sure you have key components so that when you get orders, you can build them out. But generally, what should we expect that inventory conversion time horizon to be?

Yes, that's complicated now for those reasons you just mentioned, because lead times have become an issue for many components or many things that we utilize. Yes, [indiscernible] we might have historically had a 90 day lead time, we might see now 180 day lead time. So that means we have to be more aggressive in buying inventory. And that's driven part of the increase that you've seen. So it's really hard to give you specifics at this point as to how quick we turn that. I think we are at a point where we don't anticipate having to increase that level beyond where we are now, again, unless we see a growth spurt. So we would expect to start to see that come down somewhat. But that's a tough one to predict right now. That's something we have to manage nearly on a daily basis almost.

When you price new business, how do you protect yourself against those components, the cost of those components that might be choke points?

Yes, so from a pricing standpoint, buying in advance is one way you do that. So you know what you can buy, or at least commit to buy. So that's one thing. We obviously try to adjust pricing on an annual basis through our customers, which we've been successful in doing. So it's just a combination of those things.

Okay. So can you talk -- you mentioned the fact that you have some NATO business, really not adding a great deal at this stage. Can you talk about the market opportunity there and what your role or how you get compensated in that business? Is it a royalty set up?

So, yes, that's our Spectral Ai Software Suite, which right now is being marketed through General Oceans or through Klein. And so we have a license arrangement. So it's a recurring license fee, an annual license fee. So it builds on itself. So that's one where the software is developed. There is some maintenance of the software but the costs are relatively minor in comparison. So that's one where I think we have opportunity to build that. Is that going to be a $20 million a year business for us? No. But could it be a few million dollars? Yes. And that's a nice recurring business. And frankly, we think also we could take that same basic technology and apply it to other areas, other sensor systems, and therefore expand that. But right now, we're trying to move slowly and get it established, get a revenue stream coming in to help kind of pay for itself.

And should we expect as that grows that it generates kind of traditional software margins? Operating margin?

Yes, yes, yes. And that's the only reason I like it so much, both from a market standpoint and from an evaluation standpoint, obviously.

Okay. Are you seeing any sectors meaningfully outperform your expectations here or meaningfully underperform them? And if so, what do you think is driving the outdoor underperformance?

Well certainly we're seeing our traditional markets perform very well. Energy related is performing very well right now. We are starting to see the alternative energy markets, survey applications for those alternative energy markets start to perform very well. So I really don't see anything underperforming at this point.

Okay, great. Real quick, so we got a vote coming up on Wednesday. I know you won't comment on it. What I will say is that, we appreciate the fact that you reached out and listened to your shareholders, your preferred shareholders this time, and we for one, I can't comment on anyone else, but we are supportive of this transaction at this stage, at this ratio. So thank you very much.

I appreciate that, Ross.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back to Mr. Capps for closing comments.

I'd just like to thank everyone for joining us this morning and look forward to talking to you again in a few months for our second quarter results. Thanks.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.