Mind Technology inc

[Perttu_Hamalainen]

MIND Technology, Inc. provides technology and solutions for exploration, surveying, and defense applications in the seabed, hydrography, defense, seismic, and security industries. MIND Technology’s headquarters are located in The Woodlands, Texas, and it has key operational sites in the United States, Singapore, Malaysia, and the United Kingdom. Its Klein and Seamap units design, manufacture, and sell specialized, high-performance sonar and seismic equipment.

History

Mind Technologies Inc. was previously known as Mitcham Industries. The name eventually changed in 2020. In 2016, Mitcham Industries acquired Klein Marine Systems. Klein’s founder, Martin Klein, is an American engineer and inventor. He is widely regarded as a significant inventor and developer in the field. His invention, Side Scan Sonar, led to the discovery of the Titanic wreck, among other things. Mitcham Industries focused almost exclusively on the rental and sale of seabed mapping tools required for oil and gas drilling, while Mind’s repertoire is considerably broader.
The company’s development has followed the same pattern familiar to small businesses. Profitability has been just around the corner, and development work has consumed cash at a commendable rate. Equipment from Mitcham’s legacy has been sold to cover costs, as cash flow from actual operations has been negligible. The COVID-19 pandemic hit the company at a bad time. The company, which largely gained recognition at trade fairs, was unable to showcase its products, and there were also country-specific problems with testing. The can was kicked down the road, albeit for an understandable reason. The company was debt-free for a long time, and the recently raised debt of USD 3.75 million is its only institutional debt. The company is indebted to its shareholders because it printed preferred shares #MINDP worth USD 25 million. One share was available for USD 25. The preferred shares have a cumulative 9% dividend. If Mind does not pay dividends on these shares by the end of this year, the owners of #MINDP shares have the right to elect two members to the company’s board of directors.

Mind Technologies Inc. Positive Drivers

The global situation tightened after Russia’s invasion of Ukraine, and military budgets received significant increases. For Mind, the situation appeared as an opportunity.
Mind secured a contract with the US Navy – there is a press release about this, but information regarding the interaction is naturally highly confidential. A European partner has been discussed for a long time. For a moment, Mind’s website featured an image of an AUV where the company’s name was visible. There is no official announcement about this, but the company was SAAB.

Despite all the green transition efforts, the energy sector cannot forget oil and gas. When energy prices are low, energy giants refrain from investing. The search for new drilling sites must begin at some point.

In electricity generation, it has been realized that there is not enough space for wind power. Offshore wind farms are becoming one solution. The construction of these requires seabed mapping.

Mind for Investors

Share prices at the time of writing the thread on Friday, May 19, 2023 (closing prices)
#MIND 0.55
#MINDP 7.20

There are two share classes: #MIND and #MINDP
Fiscal year: 1.2-31.1

Revenue grew Q4 2021 - Q4 2022 by 330%
Backlog over 23 million.
Company market capitalization 7.3 million USD
A comparable company, Kraken Robotics, which generates 0 profit, is valued at a multiple of x15. In terms of revenue, these compete in the same league.

The company’s story is at an interesting juncture. The geopolitical situation and the challenges in the energy industry provide positive drivers for the company. Cash sufficiency is a challenge. However, the debt situation is at least tolerable, and rising interest rates do not directly affect the company’s operations. From the 2022 results, it can be concluded that the cash situation is easing, with the order backlog being record-breaking. If MIND were to be acquired, the buyer would first have to pay the full price of USD 25 for a #MINDP share, totaling USD 25 million (current share price 7.15), and all unpaid dividends for these, USD 2.8 million. Only then can the owners of #MIND shares dream of receiving something. This should be kept in mind if one intends to invest in this.

Pictures and videos from the company’s website, where you can also find the company’s press releases and reports. mind-technology.com I recommend reading the press releases from the last few years to get a more comprehensive picture of the company.

[Santtu3]

Yes! Thanks Perttu, I’ve secretly been hoping that someone (=you​) would start a thread for this!

Regarding the matter itself, I could add the patents the company has received, as they also have some value.

[Perttu_Hamalainen]

A few press releases from 2023, in case you don’t feel like browsing the company’s website yourself.

May 15, 2023

MIND Technology Announces Source Controller Order

April 18, 2023

MIND RECEIVES ORDERS FOR WIND FARM PROJECT

April 17, 2023

MIND Technology Announces Source Controller Orders

March 29, 2023

MIND Technology Obtains MA-X™ Technology Patent

January 5, 2023

MIND Technology Announces Source Controller Orders

[Perttu_Hamalainen]

Pan India Consultants posted the image in question a week ago, which apparently shows the latest AUV equipped with a Klein Mako.

Pan India Consultants is already a significant partner.

An update regarding this has now also appeared on Klein’s website

Pan India Consultants provides consulting for the Indian Army, and tests were successfully completed there at the beginning of the year, so it’s not hard to guess that these updates are related to that. The Deputy CEO of Pan India Consultants visited Mind’s factories a couple of months ago. Attached is a LinkedIn post where Mind’s employees thank him for his visit.
https://www.linkedin.com/posts/pan-india-consultants-private-limited_panindia-panindiaconsultants-panindiagroup-activity-7021442412812091392-csO9?utm_source=share&utm_medium=member_desktop

[Perttu_Hamalainen]

A comment from a former Mind employee regarding the latest patent. Posting it here as it surfaced again on another forum.

[Simppa1]

Thanks @Perttu_Hamalainen very much for creating the thread!

I don’t quite understand the dividend for the preferred shares. A million of them were issued @ 25 USD with a 9% cumulative annual yield, meaning 2.25 USD per year and 0.5625 USD per quarter.

Now, dividends for five? quarters have been deferred, so the company owes shareholders 5x 562,500 USD, which is about 2.8 million USD, or in other words, 2.8 USD per share. So far, it’s all relatively clear.

However, the CEO said in the latest earnings call that unpaid dividends were “940k per quarter, i.e., 3.8 million USD” in total. What figures was he referring to?

If we use the figures above for the calculations, the future return on the preferred shares (currently 7.21 USD) (if the company is solvent):

• Unpaid dividends: 2.8 USD per share, which is about 40% of the share’s value.
• Annual dividend: 2.25 USD per share, which is about a 30% dividend yield per year.

So in two years, you should already be breaking even because of the dividends?

Thanks in advance if anyone can shed some light on this.

[Perttu_Hamalainen]

I need to correct that data: the share issue for MINDP on October 9, 2021, added an additional 432 thousand shares. This means there were existing shares at the base, which explains the discrepancy.

And yes, if the company manages to get out of the red, it will have to start paying accumulated dividends for MINDP fairly soon. These shares from the latest issue are currently entitled to the amount you mentioned.

[Perttu_Hamalainen]

This is not related to the company, but rather to trading its shares. If you are planning to buy the stock, you should follow it on the Nasdaq website rather than on TradingView (TV). Even if you have purchased the fastest data, for some reason TV does not update this very frequently. Nasdaq provides an update every 30 seconds. With a stock this volatile, this can matter in trading.

[Kuulamies]

Please be kind and explain once more, like I’m a small child, the difference between #Mind stock and MINDP. The value of MINDP is many times higher and there are several dollars in unpaid dividends, but if and when the dividends are eventually paid, how do the values of the different share classes compare? Do you get a much larger slice of the company with a preferred share and then a better dividend overall, or how does it all work? I tried to research the company’s website myself, but I can’t find anything.

Yeah, I probably shouldn’t be investing when I don’t even understand the basics, but it’s an interesting case.

[Simppa1]

Hi there!

Here’s a bit of an explanation from one toddler to another.

The Mindp share entitles you to an annual 9% dividend yield (this is calculated from the redemption price, not the market price), deferred dividends, and a $25 redemption price if the company decides to redeem the preferred shares at some point. This also becomes relevant if the company files for bankruptcy and it is determined which owner must be paid first. Thus, the preferred share is in a privileged position but doesn’t necessarily have, for example, voting rights.

A common share, on the other hand, has voting rights and only starts receiving dividends after Mindp, if the board so decides. This dividend could, however, be higher than Mindp’s 9% annual dividend if the cash flow allows for it. Personally, I would bet that the company would redeem the preferred shares before that. So, a common share entitles you to regular ownership, while a preferred share is more like being a debt holder, for which the company pays interest, i.e., a dividend.

Hopefully, this answered at least some of your questions, and I’m happy to try and answer follow-up questions if I can!

[Perttu_Hamalainen]

@Kuulamies

Please be kind enough to explain to me, like I’m a toddler, the difference between #Mind shares and MINDP. The value of MINDP is several times higher and there are several dollars in unpaid dividends, but if and when the dividends are eventually paid, how do the values of the different share classes compare? Does a preferred share get a much bigger slice of the company and overall better dividends, or how does this work? I tried to research the company’s website myself, but I can’t find anything.

Yeah, I probably shouldn’t invest when I don’t even understand the basics, but it’s an interesting case.

Just to add a bit to this: When this preferred stock was first issued, the ratio was considered to be 10:1, meaning if yesterday’s closing price for MINDP was 7.50 USD, MIND should be 0.75 USD. This doesn’t really matter at this stage, but it could have an impact in the event of a potential acquisition, the redemption of MINDP, or if they start paying dividends on the MIND share. I don’t see the latter happening anytime soon.

[Perttu_Hamalainen]

A few more words about MIND as an investment. Regarding some stocks, threads have been accused of hype and underestimating risks. MIND’s business model is not very scalable. The company is not going to be churning out billions in revenue at any point.

For an investor, being cash flow positive and having normal valuation multiples is quite enough. If these are achieved, the share price should be many times higher. The risk-reward ratio is attractive. Despite everything, this is a risky investment, which surely comes as no surprise with a market cap of 8 million.

I reserve the right to respond harshly to anyone accusing me of hype and will quote this message in my reply.

[Simppa1]

Well written @Perttu_Hamalainen. I would also give a probability of over 50% for losing all the money, but since the company has a chance to turn positive, the risk to reward is attractive in my opinion as well.

[Santtu3]

After the latest earnings report, I wouldn’t put such a high probability on losing money anymore. But it’s still a possibility…

[Avokado]

Here are 3 scenarios to consider when thinking about common vs. preferred shares (MIND vs. MINDP).

1. The company goes bankrupt. In this case, both shares likely receive nothing because creditors take everything. The preferred share is theoretically better, meaning it could receive something, but it’s unlikely.

2. Acquisition. In this situation, the preferred share has a fixed redemption price of €25 + dividends, which may be better than what remains for the common share.

3. The company becomes profitable and lucrative. In this case, the advantage of the common share is that the upside is not capped. Even in this situation, the preferred share is capped at 25 + dividends, and the preferred shares can be redeemed from you at a price of 25.

I recall that according to studies, common shares are better performing. Of course, there is a lot of variance. Ben Felix, a popularizer of scientific investing, explains more.

Why I Prefer to Avoid Preferred Shares | Common Sense Investing

[Perttu_Hamalainen]

@Avokado

• The company goes bankrupt. In this case, probably neither share class gets anything because creditors take everything. Preferred is theoretically better, meaning it could receive something, but likely won’t.

Mind has less than 10 million on its balance sheet in anything that could be considered external debt. Receivables are around 3 million and inventory is 15 million, but let’s say it were valued at 7 million now. A bankruptcy where the preferred would get nothing would therefore mean that the company itself would have no value beyond its net asset value. In the current situation, this scenario is very difficult to understand.

@Santtu3

And to this, I’ll add the patents again!

These, of course, are already part of that company value. In the same way as all data, manufacturing methods, personnel, customers, and pending orders.

[Santtu3]

And I’ll add those patents here again!

[Perttu_Hamalainen]

Klein sonars are more commonly associated with high-end equipment. Accuracy and speed are apparently the reasons. Example: Kongsberg 100B, which features the Klein 3500 side scan sonar.
REMUS-100B-3-31-22_web.pdf (242.2 KB)

Last year, MIND signed a cooperation agreement with the French company RTSYS. They manufacture cheaper AUVs and primarily target the Asian market. https://www.navalnews.com/naval-news/2023/05/rtsys-showcases-affordable-uuv-solutions-at-imdex-asia-2023/

[Simppa1]

Good morning to the thread! What kind of expectations do others have for Q1? It’s coming out today after the US market close.

Personally, I’m expecting something quite similar to Q4, but I’m looking forward to the full-year guidance and the plan for dividend payments.

[Perttu_Hamalainen]

Yep, revenue is surely quite close to 10-13 million USD. Significant deviations from this would be strange, to say the least. The backlog is known, and the ability to push it out of the factory is also known quite accurately. Expenses are the question mark: have they “learned” to manufacture more efficiently, and how much has been spent on sales? Cost-cutting measures have been in place for a while; will the effects still show in this quarter too? Forecasts suggest that expenses will no longer continue to decrease. The possibility for a positive surprise lies right here. A second good quarter following the previous one would bring nice upward pressure on the share price. One positive quarter doesn’t usually make a summer—a second one is needed in succession.

Edit: I forgot about the recruitments, which have also been made during this quarter. Development work is being done, and it consumes capital. In the forecasts, the weakening profitability is certainly largely due to this.