MIND Technology returns to profitability in Q2 2026, driven by increased revenues and robust aftermarket contributions despite economic uncertainties.

OPERATOR - (00:01:24)

Welcome to MIND Technology second quarter 2026 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughn. Thank you, Mr. Vaughn, you may begin.

Zach Vaughn - Moderator - (00:01:50)

Thank you, Operator. Good morning and welcome to MIND Technology Fiscal 2026 Second Quarter Earnings Conference Call. We appreciate all of you 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 would like to listen to. A replay of today's call, it will be available for 90 days via webcast by going to the Investor Relations section of the company's website@mind-technology.com or via recorded instant replay until September 17th. 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 10, 2025 and therefore you are advised that time sensitive information may no longer be accurate as of 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 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 future financial 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 10K for the year ended January 31, 2025. 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 I'd like to turn the call.

Rob Capps - President and Chief Executive Officer - (00:03:41)

Over to Rob Capps. Thanks Zach and thank you all for joining us today. Today I'll discuss some highlights from the quarter. Mark will then provide a more detailed update on our financials and I'll return to wrap things up with some remarks about our outlook. MIND delivered strong results for the second quarter that were in line with our expectations. We were able to get back on track and return to profitability after certain delivery delays. In the first quarter, we generated increased second quarter cement revenues, driven by system sales and the growing contributions from our aftermarket activities, which I'll touch on in more detail shortly. Our business continues to operate efficiently and our execution is generating resilient results. Despite some economic uncertainty, we are finding ways to capitalize on pockets of demand and our near term visibility bodes well for the balance of this fiscal year. MIND remains strategically positioned for growth, favorable financial results, and continued profitability in coming periods. Our backlog of firm orders as of July 31, 2025 was approximately $12.8 million, compared to 21.1 million as of April 30, 2025 and approximately 26 million as of July 31, 2024. Now, I'll remind you that it's not uncommon to see pauses in order activity throughout the year, especially during the summer months and more specifically our second quarter. Therefore, this lower sequential backlog is not unexpected after the substantial deliveries we made this quarter. Let me also remind you that for an order to be included in our backlog, we must have a purchase order or signed contract in hand. There are a number of pending orders in various stages that we are highly confident in. Let me give you a little color on that. There are two orders in particular totaling about $10 million that we believe are imminent. We've been in almost constant contact with this customer, finalizing technical specifications which is necessary before the formal purchase orders are issued. These orders are not in our backlog, but we are highly confident that they will be received soon. Our pipeline of potential orders remains strong. We believe we will continue to convert these into firm orders. Within our backlog, our orders remains three main product lines. Finlinc Source Controllers, vulilink Positioning Systems, and C Link Streamer Systems. All three of these product lines provide the foundation for our business and will continue to drive our financial results going forward. As a whole, our CMEP business continues to enjoy a strong market position in each of its products, even a dominant position in some cases. As I mentioned earlier, another component that has meaningfully contributed to our improved financial results is our aftermarket business. This consists of spare parts, repairs, service and other support activities. Contribution as a percentage of revenue fluctuates from quarter to quarter based on product mix and the timing of larger system deliveries. However, in the first six months of this fiscal year, aftermarket revenue accounted for about 68% of our total revenues. I'm pleased that our aftermarket activity has continued to meaningfully support revenue. Additionally, this often carries higher margins since these orders normally do not attract discounts as line of full system order. As our installed base of CMEP products continues to expand, with it comes the prospect for increased aftermarket activity. To address this growing aftermarket opportunity and as I highlighted last quarter, we recently expanded our manufacturing and repair facility in Huntsville, Texas. This expansion provides us with additional floor space and other enhancements that will allow our MINE Maritime Acoustics unit who efficiently take on significantly larger manufacturing and product repair projects from that location. This increased capacity will be used to further support our existing CMEP products, newly developed products and services to third parties now turning to our results, Marine Technology product revenues for the second quarter of fiscal 2026 were 13.6 million. This was a healthy improvement from the same quarter last year and despite the noise from the first quarter, we remain on track to achieve our fiscal 2026 goals. I'll touch on our outlook in a moment, but I'm pleased with our ability to navigate uncertainty within the market to generate favorable results. We will continue to capitalize on opportunity as it presents itself to stimulate order flow and generate improved returns in future periods. Although we are pleased with our results for the second quarter and maintain our near term optimism, the current market and global economic environment remain impacted by various macro uncertainties that are limiting visibility into next year. General market conditions within the marine technology space continue to be good. However, at this stage some customers are taking a more wait and see approach. This has caused some delays in purchase commitments. Despite this limited visibility, we remain encouraged by the favorable long term market dynamics within the marine technology industry and expect customers to firm up their Halder 2026 plans in the coming months. I continue to believe that we have a differentiated approach and best in class suite of products that will give us a competitive advantage. To maintain this competitive edge, we will continue making additional investments to further develop and advance our next generation of marine technology products to meet the evolving needs of our customers. Now I'll let Mark walk you through our second quarter financial results in a bit more detail.

Mark Cox - Vice President and Chief Financial Officer - (00:09:15)

Thanks Rob and good morning everyone. As Rob mentioned earlier, revenues from marine technology product sales totaled 13.6 million for the quarter, which was up approximately 35% from the same period a year ago. We're continuing to see strength in all our key markets in the current favorable customer demand environment and our backlog give us confidence for solid results in the second half of fiscal 2026. Second quarter gross profit was 6.8 million. This represents a gross profit margin of 50% for the quarter. These metrics improved both sequentially and year over year due primarily to product mix, which included a greater proportion of spare parts and other aftermarket activity. Additionally, higher revenue in the quarter helped absorb overhead costs. We also continue to benefit from our cost structure optimization, which includes greater production efficiencies, and we expect these efforts to help maintain favorable gross profit and margins in future quarters. Our general and administrative expenses were approximately 3.6 million for the second quarter fiscal 2026. This was up both sequentially and compared to the same quarter a year ago. The sequential increase is partially expected due to normal seasonality of certain costs such as incentive and stock based compensation. Our research and development expense for the second quarter was 311,000, which was down slightly compared to the same quarter a year ago. Consistent with prior periods, these costs were largely directed toward the development and enhancement of first streamer and source controller offer. Operating income for the second quarter was approximately 2.7 million, which represents an increase of approximately 86% when compared to operating income of 1.4 million in the same quarter a year ago. Second quarter adjusted EBITDA was approximately 3.1 million compared to adjusted EBITDA of 1.8 million compared to in the second quarter a year ago. Net income from the second quarter was approximately 1.9 million compared to net income of 798,000 in the same quarter a year ago. As of July 31, 2025, we had working capital of approximately 25.1 million, including 7.8 million of cash on hand. Liquidity is impacted by the timing of receipts and expenditures as well as our operational requirements such as acquiring inventory and executing on our backlog of orders. The Company continues to maintain clean debt free balance sheet with a simplified capital structure. We continue to believe our solid footing and flexibility will help us enhance stockholder value in future periods. I'll now pass it back over to Rob for some concluding comments.

Rob Capps - President and Chief Executive Officer - (00:12:28)

Thanks, Mark. MIND remains well positioned for long term success and we are focused on enhancing and maximizing stockholder value. We've taken necessary steps to strategically position the company to realize its full potential. We intend to evaluate all suitable opportunities with the goal of maintaining financial flexibility, reserving our balance sheet, adding scale, expanding offerings and growing existing product lines. This proactive approach should enable us to strengthen MIND and improve its standing within the market for the benefit of all stockholders. Operationally, we have a streamlined footprint, but our technological innovation allows us to expand our capabilities and address new opportunities. We're constantly evaluating unique ways to repurpose our existing technology for new applications. I'm excited to chase these new opportunities in coming periods and look forward to providing an update as we strive for growth. Given our current visibility, we remain bullish on the balance of this fiscal year. Customer interest and engagement related to our CEMAP product lines remain steady. However, the prevalent uncertainty within the market has slowed some customer decision making for the next year. Despite this, the current strength of our existing backlog and pipeline of orders gives us optimism with favorable financial performance in the coming quarters. We expect customers to solidify their plans for next year in the coming months and I look forward to sharing updates as our longer term pipeline takes shape. Now, let me take a moment to address our recent actions to establish an at the market or ATM program and a stock buyback program. I know some of you have questioned these steps, or at least the timing of the steps. We believe that these preparatory actions are entirely consistent with and supportive of our stated objective of enhancing stockholder value by whatever means available. The ATM facility enables us to raise capital if and when we believe circumstances dictate and in amounts we think appropriate. By having the program in place in advance, we can act quickly and efficiently to take advantage of opportunities. These opportunities could include acquisitions of businesses or product lines to help grow our business. We intend to be very disciplined in our approach to this, Weighing the expected return with the cost of capital, cost of additional capital Essentially, the price of our stock at the time will always be an important consideration. Firstly, marketing conditions and our view of the prospects for our business might indicate that buying our own stock is the best use for our capital. By establishing the buyback program now, we are able to react quickly and efficiently should circumstances dictate. There's always a chance that timing issues or customer delivery delays like the ones we experienced earlier this year could impact our results in any given period. However, our current belief is that our results for fiscal 2026 will look similar to that of fiscal 2025. Our marine technology products continue to penetrate a variety of industries and markets. We believe our backlog of firm orders and the pipeline of pending orders and other prospects are reflective of the significant demand and market adoption of our product lines. As a result, we have line of sight that gives us confidence for continued favorable financial results in the near future or in any unforeseen circumstances. We expect to achieve positive adjusted EBITDA and profitability in each of the remaining quarters of fiscal 2026 and on a full year basis. Looking forward, we are encouraged by the setup for the back half of this year with a solid existing backlog and pipeline of pending and highly confident orders that will prove advantageous as we aim to deliver consistently favorable financial results. We are also pursuing several new opportunities within our current and future markets, which I'm confident will bear fruit. We will remain focused on controlling what we can control, which includes optimizing our operations and efficiently managing our cost. Customer delivery requirements and other factors may impact future periods, but we are doing everything in our power to mitigate these impacts on our financial results. We have a differentiated and market leading suite of products, a favorable market environment and a clean capital structure. Look forward to sharing updates on our strategic actions in the coming periods as we strive to enhance stockholder value. With that operator, I think we can now open the call up for some questions.

OPERATOR - (00:16:56)

Thank you. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Tyson Bauer with Casey Capital. Please proceed.

Tyson Bauer - Equity Analyst at Casey Capital - (00:17:27)

Good morning, gentlemen. Tyson, just a couple of clarifications on some of the numbers, the parts and services revenue given your 68% for the full year. So that was roughly about 7 million in the quarter.

Mark Cox - Vice President and Chief Financial Officer - (00:17:49)

That's probably about right. I don't have the number in front of me, but that's in the ballpark anyway.

Tyson Bauer - Equity Analyst at Casey Capital - (00:17:53)

Right? That's how the math works. On does that include any catch up from Huntsville, where you had kind of the delays until you got that capital project done, or it that 7 million from what we've seen in the first quarter, second quarter, a fairly good run rate as we go through the second half of the year.

Mark Cox - Vice President and Chief Financial Officer - (00:18:11)

Yeah. So there's really no catch up on Huntsville. First answer, you know, run rate? I'm hesitant to say that's a run rate. I think it's indicative of where that trend is going. Could it be less next quarter? Sure could because there will still be some fluctuations in that. But clearly that line is trending up and going to be more consistent as I go forward.

Tyson Bauer - Equity Analyst at Casey Capital - (00:18:37)

And should we see a boost given the expansion in Huntsville at some point going forward?

Mark Cox - Vice President and Chief Financial Officer - (00:18:43)

I think we will be ramping up that operation through the balance of this year and into next year. So I think we'll see that start to increase.

Tyson Bauer - Equity Analyst at Casey Capital - (00:18:53)

Okay. You had a 4.5 million delayed order in Q1 that hit in Q2. At least that was what was relayed to us on the last Conference call. Given the 7 million, that leaves about 2 million of new activity in the quarter to hit your revenue level, which I find interesting with your backlog because you ended April with 21.1 million. You had a 4 million order on June 10, a Gunlink system. So if you deliver that 4.5, you had 2 million in new activity backlog looks like it should be closer to 18. Ended up 12. 8. Were there a cancellation? Was there a reclassification? Just kind of. Where's that variance of 6 million?

Mark Cox - Vice President and Chief Financial Officer - (00:19:40)

Yes. So a couple of things. There's no cancellations for sure. Some of the aftermarket business will be in backlog. We'll get an order for spare parts that will be in backlog at some point in time. So that's part of it. And I'm not sure that 7 million is exactly the number for the quarter. Again, I don't have that in front of me. So I think a combination of those things make up that difference.

Tyson Bauer - Equity Analyst at Casey Capital - (00:20:04)

Okay. As we go forward, you made the comment that fiscal 26 should be now similar to fiscal 25, which is a little different. We're almost like the Fed speak here. Previously you said fiscal 25, so you have a little bit of an adjustment there. The implication is with your expectation of parts and services. That's about one, you know, basically two or three more full systems delivered before year end to hit those numbers. Does that sound about right? And if we're going to get 10 million immediately on a new orders, it almost seems like we need to get another 10 million just to feel comfortable that that's achievable for the second half of the year.

Mark Cox - Vice President and Chief Financial Officer - (00:20:56)

Yeah. So it's, you know, Tyson, the timing of some of these orders is when we'll get them out the door, you know, is, is there's some uncertainty there, of course, as when we actually get some, the new orders, so when we'll actually be able to deliver them or when they want to be delivered. You know, we do have additional systems in the, in the pipeline, including the two orders that we talk about specifically. So I think what we're trying to guide to, and I think it's not too inconsistent with what we said before. I mean, what we, I think what we said before was, you know, we're going to be in the same ballpark. I think what I try to guide to is, you know, don't expect the same sort of growth in this fiscal year as we saw before. It's going to be a little more consistent. And I think we're still seeing that, you know, could there be a $2 or $3 million swing, a $4 million swing between quarters because of delivery? You know, you bet there could be, as we saw in the first quarter. But I think our general view of the, of the year is pretty consistent as it has been all along.

Tyson Bauer - Equity Analyst at Casey Capital - (00:21:59)

Okay, this is the time of the year where you typically have received a large annual order from our Scandinavian friends, companies over there. Are they still in that time schedule or have, are they cautious also?

Rob Capps - President and Chief Executive Officer - (00:22:18)

I think there is some cautiousness in the marketplace. There has been some softening in the seismic market, at least, at least temporarily. So I think there's some, some caution there. I think people are being careful about CapEx commitments right now. So I think that, again, that's what we're trying to indicate in the one reason. I think we've seen, you know, the backlog down a bit from where it had been. But I think in the long term prospects, the overall activity, offshore exploration is very bullish. So I think just a matter of timing from that standpoint. So, again, people just being cautious about making those commitments until they, you know, they have their business in hand. That goes across the board. That's just not, you know, Scandinavia. That's across the board.

Tyson Bauer - Equity Analyst at Casey Capital - (00:23:01)

Okay, last one for me and I'll let others ask questions about your capital stuff. The what we hear from the rhetoric from the administration. Let's play a little what's real. What's just headlines. Moratorium and offshore wind production projects. Having an adverse look at wind energy, especially the offshore stuff, but wanting more rare earths and deep sea mapping. Those kind of things which we say may be off in the future, may be more of a commentary of what they want to do as opposed to what will be done, what's true, what's false between these headlines regarding those two things that do affect your business.

Rob Capps - President and Chief Executive Officer - (00:23:47)

Wow, if I knew all those answers, I guess I would have to work for a living. Tyson But I think what we're seeing is, you know, we're, remember, we're selling to people who do survey work, and that's all sorts of different kind of survey work. You know, it can be, you know, energy exploration, it can be wind farm installations, it can be carbon capture installations, it can be rare earth exploration. So they're doing lots of different things, and we don't always know what they're buying the equipment for. Sometimes you do based on configuration, but not always. Certainly there's been a slowdown in U.S. activity for offshore wind, no doubt about that. But we're seeing continued activity elsewhere in the world so that's still been a good market for us. I think that's part of the cautiousness we see in the market right now is as to what is going to happen from a macro standpoint. You know, what's this administration going to do? So it's hard to know what's really going to happen there. I think it certainly, though, has caused some of the caution that we're experiencing right now. But again, I think long term, I think, you know, those things work themselves out and it's still, still very bullish.

Tyson Bauer - Equity Analyst at Casey Capital - (00:25:01)

Okay, thank you, gentlemen.

OPERATOR - (00:25:06)

Our next question is from Russ Taylor with Ars Investment Partners. Please proceed.

Russ Taylor - (00:25:13)

Thank you. First, great quarter. I will admit I was one of those people who was somewhat surprised. I think I've been in this business for a little over 40 years and I've never seen an ATM and a buyback announced on the same press release. But it's always good to learn along that line. I'd love for you to talk to me or us a little bit more about your acquisition strategy. From what you've said and the like, what makes the most sense as you'd use the atm if you were looking at you had a very interesting acquisition that fell in. What is your what are you looking for? Are you looking for products that you see fit into your current structure? What would be additive? Also, what's your thinking on dilution and the like? You've talked a lot about wanting to do the right thing by shareholders and driving and concerned about share price. I'm curious about have you given thought about what parameters you would put on any acquisition you would make?

Rob Capps - President and Chief Executive Officer - (00:26:12)

Yeah. So, Ross, what we're looking for primarily are things that are additive to what we do. Excuse me. We don't want to do a large step out and frankly do another client. We don't want to. That's not what we're looking to do. What we want to do are things that are additive to what we're doing, things that we understand well operationally. So things that we can tuck in, not go out and make a, you know, a $30 million acquisition of another company, necessarily. The things that, you know, tie into our customer base, the technologies that we know. So things that have a lower risk profile from that standpoint. You know, with any acquisition there's risk, but the better you understand it, the closer it is to what you're doing, the lower that risk. So that's the sort of thing we're looking for.

Russ Taylor - (00:26:59)

Okay. So products or small divisions of other companies, things of that nature is what you'd be looking to do.

Rob Capps - President and Chief Executive Officer - (00:27:08)

Yes, that's the ideal situation for us.

Russ Taylor - (00:27:10)

Okay. Last quarter we talked about a deal with a company that, you know, innovative, newcomer into the mapping space and the like. Has there been any progress with that?

Rob Capps - President and Chief Executive Officer - (00:27:25)

There has. We. That project is ongoing right now. So right in the middle of it. I really don't have anything I could share right now for some proprietary reasons. But we are right in the middle of that right now. That is progressing well.

Russ Taylor - (00:27:39)

And what kind of opportunity do you think if we come back, looking back a year in the future, two years or three years in the future, what kind of opportunity are you looking at.

Rob Capps - President and Chief Executive Officer - (00:27:48)

From that in that deal specifically? Yeah, yeah. Again, I think, I don't want to get too specific on that. I think again, that is a product that would be used by our existing customer base so it'd be easy for us to sell, you know, in partnership with the, with the other company. So it's an easy step out for us. It's technology that's very familiar to us. Is it going to double the company? No. But is it additive, you know, can add a few million dollars? Yeah, that's that sort of magnitude, just to give you a sense of it. So again, relatively low risk, relatively low investment at this point. So that's the ideal situation for us.

Russ Taylor - (00:28:34)

I might have missed it, but did you mention what cash was at the.

Rob Capps - President and Chief Executive Officer - (00:28:37)

End of the quarter then? It's about 7.2 million. 7.2 million.

Russ Taylor - (00:28:46)

Okay. Also, can you talk about the opportunity you've mentioned and Tyson asked about Huntsville. Can you talk about the opportunities? What is Huntsville going to do and what kind of opportunities do you see coming out of it, business wise? Will this be something that's meaningful? Meaningful meaning, you know, do you see it being able to add, you know, around 10% or more to annual revenues or is it something less meaningful than that?

Rob Capps - President and Chief Executive Officer - (00:29:14)

Well, I think it's in that magnitude, if not a little bit more, frankly. So what we are doing is we are repairing products that have been manufactured by others. So third party products. We're doing some repair work and not just one customer. We are doing some ancillary work for CMAP of Singapore. There are some things that we can do here effectively or efficiently that help expand their capacity. So that's new products as well as some support activities as well. We also in some cases are doing some manufacturing for third parties of their designs. So it's not our ip, it's their IP that we're building for them. So it's really a combination of those things. The other Thing that's interesting is if we're able to move our technology into the maritime security space as we've talked about again, that's still very early days there. Being able to do that in the United States is a real plus for security reasons. So that's another reason we want to expand Hutsville and also for tax and.

Russ Taylor - (00:30:30)

Cash flow reasons then. Right as well.

Rob Capps - President and Chief Executive Officer - (00:30:32)

Right, Absolutely right. For cash flow for sure. We don't have to bring money back from overseas. Obviously we have, you know, tax on security for it. So if we can generate US income, we can shelter that very efficiently. You're exactly right about that.

Russ Taylor - (00:30:46)

So that would be meaningful as well. With regard to your comments about this year. Last year, last year Top Line grew at about 29%. So far this year it's been growing at about a 9% rate. Listening to you and Tyson talk leaves me feeling that you're probably, you might not want to commit to it, but you're probably shooting for that kind of a continuation of the first half growth over year, over year. To see in the second half, it was something in that, you know, high single digits, low double digits type range. Am I wrong in that interpretation?

Rob Capps - President and Chief Executive Officer - (00:31:21)

No, you're not wrong. I think the caution I'm trying to throw in here is, you know, given what we saw in the first quarter, that situation, you know, that situation can repeat itself and that can have a big impact on that growth rate. So I think generally we're seeing that those opportunities for that sort of a, maybe a single digit, high single digit growth rate, will that all fall within this time period? That's more difficult to say with precision right now. So that's the reason I want everyone to be cautious.

Russ Taylor - (00:31:55)

Yeah, so it's lumpy, but the trends are there. And if it's, if it's not made, it's likely it's going to be seen in the backlog if you're not able to get it because. Right, okay.

Rob Capps - President and Chief Executive Officer - (00:32:05)

That's what we think.

Russ Taylor - (00:32:07)

Okay. So basically we're looking at this thing so we can still trust Tyson and his numbers. Okay, thank you.

Rob Capps - President and Chief Executive Officer - (00:32:13)

Oh my gosh. I'm going to say. Yeah.

Russ Taylor - (00:32:17)

I don't usually drink early in the morning, but sometimes so. But yeah, it's great. Good job. I think, you know, you continue to push forward with it. Thank you for giving us some explanation on the overlapping ATM and share buyback that did leave me somewhat scratching my rather thinning hair. But other than that, thank you. Keep it up.

Rob Capps - President and Chief Executive Officer - (00:32:38)

Okay, thanks, Ross. Appreciate it.

OPERATOR - (00:32:41)

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

Rob Capps - President and Chief Executive Officer - (00:32:49)

Thanks everyone for joining us today. And I look forward to getting with you again here in just a few months after we report our third quarter in early December. Thanks very much.

OPERATOR - (00:32:59)

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.