MIND Technology (NASDAQ – MIND)
I hate myself for even writing about MIND, but I have no choice. I think this could be their moment.
If you’re unfamiliar with MIND, scroll down for the full thesis. The elevator pitch is that the company has great products that the U.S. Navy wants to use in mine detection. For a $16 million market cap company, a couple multi-million dollar contracts would do them wonders, in addition to their other revenue streams. The expected contracts have been delayed for years, and MIND has puttered along. Finally, a research and development contract with the Navy was announced in December 2021, but investors have grown so impatient the stock has traded down since then.
MIND investors have been in a frustrating cycle the past few years:
Wait for catalyst (usually a Navy contract)
News release hints at progress toward catalyst
Stock pops 25%
No news for months. Stock bleeds down and makes lower lows.
Repeat, except with less patience this time.
It might be finally time for MIND after a painful few years for shareholders. A couple big contracts have felt like they’re right around the corner ever since I started following the company in 2020.
But is the catalyst here? Oil prices are comfortably above $100, which might mean MIND gets some more phone calls from oil companies for their services. Probably not though, because that would be good for the stock, and nothing good ever happens to the stock.
If nothing else, this recent oil boom might get more eyeballs on the company. Investors looking for exposure to oil service companies might be interested. MIND could start showing up on screens. Then people will realize this company is pretty cheap. Cheap for a reason? Probably. I’m not too bullish and I don’t own any shares, but I’m thinking about it. Not because high oil prices materially increase MIND’s value, but it might provide the catalyst MIND has lacked.
Company Overview
MIND provides technology to the marine industry - including the oceanographic, hydrographic, defense, seismic and security industries. Klein Marine Systems, a division of MIND, is a global leader in side scan sonar technology. What is that? Basically, it’s technology used in underwater vehicles to emit pulses that bounce off the seafloor and provide a detailed picture of what’s beneath. It’s used for searching for sunken ships, seafloor mapping, and environmental assessments. It can be used in oil and gas exploration, and by navies for all sorts of things like detecting enemy mines. The latter being the most important, but we’ll get to that later.
Side Scan Sonar
Martin Klein founded Klein Associates in 1968 and is considered the father of side scan sonar. Klein Associates later became Klein Marine Systems and was acquired by MIND in 2016, and they have dominated the industry ever since.
Side scan sonar is done by Unmanned Underwater Vehicles (UUVs). The UUV family includes many different types of vehicles, but they all try to reach the same goal – a clear image of the seafloor. These vehicles navigate through the water emitting pulses to create an image of what’s beneath. The problem with side scan sonar technology ever since its birth is there’s a blind spot in the image. The “nadir gap” is a strip in the middle of the image from the sonar not being able to cover the area directly beneath the vehicle.
The implications of this gap could be costly if it contains an enemy mine or other important object. Because of this, the vehicle has to make multiple trips across the same area in order to create a complete image. This takes time and money. Enter Klein. In 2019, they introduced revolutionary technology to eliminate the nadir gap. No blind spot. No blank strip in the middle. Their MA-X and micro-MA-X products eliminate the need to make several passes to get a full image.
This results in a 40% increase in survey efficiency, Klein believes. Quicker, more efficient surveys mean savings on fuel, labor, and wear-n-tear on the survey vehicle. I can’t stress enough how ground-breaking this technology is and the potential it creates. The industry has been craving a cost-effective solution to the nadir gap for decades, and Klein finally delivered.
U.S. Navy
The advantage Klein’s technology offers has attracted the U.S. Navy and other European navies. They intend to use UUVs in “three D” missions, meaning “dull, dirty, or dangerous.” The efficiency advantage of Klein’s products will mean the difference between a successful and failed operation.
There have been mentions in MIND’s earnings calls about their work with the Navy, and a research and development contract was announced in December 2021. When management was asked about it on a recent earnings call, they mentioned they are working with several parts of the Navy - which means there is a possibility of getting multiple contracts at a time. These contracts won’t be for measly hundreds of thousands; the Navy has the potential for significant revenue for MIND. Because it’s the Navy, management has to stay tight lipped. They don’t have the luxury of hyping up their products, but if you read between the lines you can tell management is excited. Insiders have bought shares, granted they were pretty small quantities.
Mitcham Industries
MIND used to be a seismic equipment leasing company called Mitcham Industries. In 2020 they ditched that segment, changed their name to MIND Technology, and will be completely focusing on their marine technology business. They slowly sold off the remains of the old business, which helped to sure up their balance sheet.
Another recent development came with their announcement that they are working on synthetic aperture sonar systems (SAS) with a European defense contractor. Combining these two could bring impressive products and increase Klein’s domination of side scan sonar.
Revenue?
On the Q3 2021 earnings call, management finally gave investors a sense of what to expect. Co-CEO Guy Malden said, “Now given the size of the opportunities available to us, our goal over the next five years is to grow our annual revenue to $140 million, with EBITDA margins in excess of 20%” This is the first projection of revenue they’ve given since becoming MIND Technology. This shows their confidence in their products and the contracts they can land.
COVID-19 has delayed orders and decreased their sales, but this revenue isn’t gone, just delayed. They haven’t been able to travel around to demonstrate their products. Customers won’t sign a multi-million dollar order without knowing exactly what they’re getting.
Final Thoughts
Investors are frustrated and impatient and have been dumping the stock. I once read that there are only three edges in investing:
You can be smarter than everyone else
You can be luckier than everyone else
You can be more patient than everyone else
The question I’ve been asking myself is whether this is a time to be impatient and not let dead money sit in my portfolio while the stock bleeds out, or should I buy and wait patiently to get rewarded?
Not investment advice.