Q1 2021 Mitcham Industries Inc Earnings Call
If anyone should require operator assistance during the conference. Please press star zero on your telephone Keypad. As reminder, this conference is being recorded it and now my pleasure to introduce your host Ken Dennard. Thank you you may begin.
Thank you operator, and good morning, everyone and welcome to the Mitcham Industries fiscal 2021 first quarter Conference call. We appreciate all of your joining US today your hosts Rob Capps Co Chief Executive Officer, and Chief Financial Officer, and Guy Malden Co Chief Executive Officer, an executive Vice President of Marine systems.
Before I turn the call over to manage what I have the normal housekeeping details to run through we'd like to listen to a replay of todays call it'll be available for 90 days via webcast by going to the Investor Relations section of the company's website at Mitcham industries DACO <unk>.
Our reported instant replay until.
June 18th which is a telephonic replay information on how to access that replay was reply provided in yesterdays earnings release.
Information reported on this call speaks only as of today Thursday June 11, 2020, and therefore, you're advised the time sensitive information they no longer be accurate as of the time of day replay listening or transcript greedy 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.
Nike 95. 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 so materially differ from any future results or performance Express store.
Applied by those statements. These risks and uncertainties include the risk factors disclosed or the company from time to time and its filings with the FCC, including its annual report on form 10-K for the year ended January 30, Onest 2020. Furthermore, as we start just call. Please also refer to the statement regarding forward looking statement.
It's incorporated in our press release issued yesterday and please note that the concepts are going to conference call. This morning are covered by these statements now I'd like to turn the call over to Guy Malden GAAP.
Thanks, Ken and good morning, everyone. We would like to thank you for joining us today for our fiscal 2021 first quarter conference call.
These are challenging like you an exciting times for us challenging due to the disruptions caused by the cobot 19 pandemic, but exciting for the various opportunities we see before us and the rebranding another company on which we have embarked we'll talk about that little bit later.
I'll make some general comments about the first quarter.
Rob will then discuss our financial results in more detail.
Well that address our general market outlook and the proposed rename another company to mine Technology, Inc.
As expected they were broad based disruptions to our businesses through the first quarter due to reduced activity and general market uncertainty, resulting from the covert 19 pandemic.
Our first quarter results were down on a year over year basis with consolidated revenues pulling back by roughly 25%.
On a sequential basis consolidated revenues were down 44%.
For the Marine technology product segment.
Client and seen that both pulled back sequentially.
Seamap accounted for most of the decrease is there were no system deliveries in Q1, compared with both a but we like and a ceiling system delivered during the fourth quarter.
As you may remember from our previous call.
Seamap also had a $2 million delivery that had been delayed due to a customer revising their requirements, causing the order to be postponed until the second quarter.
So as a result, we saw no benefit from that in Q1, although it does provide some measure of visibility into the upcoming Corp.
While there remains a tremendous amount of uncertainty in the marketplace due to covert 19 and other events.
There were also encouraging size, both internally and externally that we will weather the storm and benefit as the economy recovers.
As we discussed on our last call our facilities in Malaysia, and Singapore were temporary closed due to government mandated shutdowns.
The Malaysian facility resumed operations in early May and is operating at essentially full capacity and working off backlog.
In Singapore, we were able to continue limited shipping and receiving operations during the shutdown.
And were able to resume manufacturing operations as of last week.
Well, we're not running at full capacity in Singapore.
We expect to build to that over the month of Jim.
Turning to the broader market I'd like to note that economic weakness notwithstanding we currently see activity in the marine market and this has been substantiated by an uptick in request for quotes.
While these favorable fundamentals haven't yet manifested into an influx of new orders. They are a reassurance sign that bodes well for the resilience of the industry. Despite widespread macro economic turmoil.
It also attached to our strategy of expanding the marine technology business and diversifying away from the more cyclical oil and gas related markets.
With that let me now turn the call over to Rob good. Thanks Guy.
Jim I give you more detailed review the financial results.
Revenues for the Marine technology product segment totaled 3.2 million in the core it's down 46% from 6 million in the first for a year ago down 63% from 8.8 million in the fourth quarter fiscal 2020.
Seamap revenues were down year over year to 2.2 million in the quarter 4.39, a year ago core and were down 69% sequentially.
As Guy mentioned, there are no large system deliveries in the quarter compared with both of whom we like a ceiling, let rebate in Q4.
First quarter revenues declined 1.2 million, a decrease from 1.6 million a year ago and down 27% sequentially.
We believe the disruptions and uncertainty introduced by the code 19 pandemic and other events across many customers delayed spending decisions.
And the equipment leasing segment revenues increased to 4.2 million a quarter compared to 3.9 million in the first quarter a year ago.
Well at least an operations were down both sequentially and year over year segment results were lifted by more than one point fourmillion leaseco equipment sales as well as higher other equipment sales.
On a sequential basis the segment was down 7% driven entirely by the decrease in land leasing activity.
First quarter gross profit for Marine technology product segment was half a million dollars.
Which was down from 2.6 million a year ago down from 4.4 million in Q4.
At this represents a gross profit margin at 15% compared to 43% last year's first quarter and 50% in the park or.
The decrease in margin was result of higher amounts of Omnisource manufacturing overhead due to lower revenues short.
Revenues dropped precipitously, but they're just not from a cost standpoint necessarily into entailed light.
Resulting in a greater level of Unabsorbed cost.
And our equipment leasing business depreciation expense in the first quarter was down to 926000 from 1.4 million a year ago and was down 23% sequentially.
Gross profit in the segment for the first quarter was 1.7 million versus 1.3 billion comparable year ago period.
Six nine in the fourth quarter last year.
Our cost containment efforts continue to yield meaningful benefits as our general administrative expenses were 4.7 million for the first quarter fiscal 2021, which was down 11% year over year and 7% sequentially.
Our research and development expense was 400000, which was essentially flat with both a year ago quarter and the fourth quarter of last year.
Our many of our peers in the recent quarter, we recorded impairment charge related to our remaining goodwill.
Discharge, which amounted to about 2.5 million was precipitated by the deterioration macroeconomic conditions and the decline in the market value of our equity securities during the quarter. The recent this recovery those values notwithstanding.
Absent this noncash charge, our overall operating loss for the first quarter. This year was 3.6 million as compared to an operating loss of 2.5 billion post it on a year ago core.
Reversed first quarter adjusted EBITDA was a loss of 952000 compared to our profit at 61000 last year's first quarter.
Profit of 124000 during Q4 last year. However, net cash provided by operating activities was a positive 929000 and the first quarter.
Compared to the 1.9 million use of cash from year ago period.
Maintenance capital structure is debt free and liquidity remains liquidity remains solid.
We ended the quarter, we had about 20 million of working capital that included cash and cash equivalence of approximately 4.7 million, which is up from about 3.2 million at the beginning of the core.
As I've mentioned before we believe our capital and cost structures are well suited to handle disruptions and uncertainty. This current environment and the absence of blooming financial obligations for restricted covenants provides us with a good deal flexibility.
We also have other options to redeploy capital to the further monetization of our lease school and more favorable cost structure, we had the penalty to adjust relatively quickly to changes in demand that activity.
Looking at the market environment, although the overall tenor is uncertain.
We continue to see solid brain activity as steady flow inquiries inquest approach.
Our ongoing customer engagement has been encouraging.
Adverse macroeconomic environment does weigh on discussions I can lead to delays or purchasing decisions.
Despite these issues are from order backlog at 10.2 million ended the quarter.
In the fourth quarter backlog of 8.9 million.
With that I'd like to discuss our reincorporation and Delaware and the associated name change and rebranding.
Given the transformation that the company has been going through and the opportunities we see before as we think now is an appropriate time to recognize the change in a more formal matter and a better position ourselves for the growth we envision.
Accordingly, we are asking our shareholders to approve the reincorporation at the company from the state of Texas to Delaware.
Currently we plan to rename the company to mind Technology, Inc.
As a part of the Reincorporate reincorporation transaction.
We're also seeking to increase the authorized shares of common stock to 40 million EUR 20 million any authorized shares are preferred stock to 2 million from 1 billion.
We have no immediate plans for the additional authorized capital, but I think it's prudent to provide room for future transactions to facilitate our growth.
And as we recently disclosed we also think it is appropriate to further de emphasize our land seismic leasing business due to our strategic focus on marine technology as well as recent developments in the global energy markets Accordingly.
We've decided to make no further investment Atlanta. Please go equipment that will seek to maximize the value of our existing equipment either through leasing transactions where sales of equipment.
We're also taking steps to reduce the cost structure. This part of our business to reflect the lower levels of activity.
Let me now turn the call back over to Guy for few closing comments before we take any questions.
Thanks, Rob while global economic fundamentals have been a headwind we remain on phase and continue to adapt to the situation as it unfolds, while focusing on those critical variables that we can control.
This means keeping a strong focus on our cost and operational efficiency as well, maintaining ample liquidity and being judicious in our capital allocation.
As we've emphasized before we will continue to build out the marine technology product segment and going forward, we're addressing three primary markets.
Marine Survey Rina exploration and maritime defense.
Specific applications within those markets include C survey search and recovery mineral and geophysical exploration.
Mine countermeasures and anti submarine warfare.
We have existing technology and products that meet the needs in each of these markets, including side scan sonar.
The factory systems.
[music] sticker raise such a seismic streamers and marine seismic equipment, such as Gunlink and Buoylink.
We also see a number of opportunities to add to our technology and to apply existing technology and products to new applications.
Despite this global pandemic and the widespread negative impacts that it has created.
We're grateful to be in the position that we're in today and look forward to what lays ahead.
That concludes our formal remarks, we'll be happy to take any questions now.
Operator.
Thank you we will now be conducting a question answer session if you'd like to ask a question. Please press star one on your telephone keypad a confirmation totally your line is in the question can you.
Let me start to if you'd like to remove your question from the Q.
Participants, you think speaker equipment, and maybe necessary to pick up your handset before pressing star.
Our first question comes from the line I'm Tyson Bauer KC capital. Please proceed with your question.
Good morning, gentlemen.
All right sizing.
Just breaking down so on the or your cash flow management over the next two to three quarters anything unique as far as special government receipts, whether there from U.S., Malaysia or others.
I know that 4.7 million of cash you built up.
Do you anticipate further asset sales basis, you got 12 million on the books right now for a lease pool sounds like for filing moving completely away is that 12 million in essence up for sale.
I wouldn't say that Tyson. So you again, we're looking to see the best way to to get value of that in some ways leasing transactions are the best way to do that so we're looking at on a case by case basis, but there are opportunities for at least fuel sales. So I would anticipate further sales or equipment from time to time, but.
We also anticipate other leasing transactions.
As far as the government programs there are some.
There are seven in Singapore.
For.
Reimbursement of payroll costs, there's similar programs in Canada in the UK.
And the U.S., there's the paycheck protection program, which we received up 1.6 million lung from.
After the ended the quarter. So it's there was something in that second quarter.
So there are some of those opportunities out, there, which which helping offset some of the.
Ongoing cost to maintain the workforce during this period of time.
And now that 4.7, you built up in cash where do you see that over the next couple of quarters, maintaining or what level do you want to keep that well.
No I think we'd like to maintaining those levels.
Obviously goes up and down is working capital comes in and out and you know demands going up but I don't see dramatic change from that.
Okay.
Regards to with covert coming in to play we were involved in testing with U.S. Navy and other global navies previously starting in December those schedules getting a monkey wrench thrown into on any updates on testing orders and working with your primes.
That you could provide on that side of it.
I mean really nothing we can we can address and again as you noted that cobot situation did disrupt some of those schedules just because of travel restrictions from our customers and their customers.
So some of them are still still restricted on travel.
But we expect that to resolve itself and go forward, but nothing we can talk about specifically at this point.
Okay.
The delayed on the Seamap system delivery now that we're in the middle of June or has that been delivered in this quarter.
As not yet been labor, but it's in process.
Okay. So you expect that to be delivered before the end of them up.
Yes, we do you put into the quarter.
Okay.
Cline, which seems to be the focus as you go forward.
On your business strategy changing the name a a lot of the activities you've done in hiring personnel.
We've not seen the revenue progress on that and in fact, the best year Klein did was the year before you bought it.
You've announced various technology.
Improvements new technologies like the Max.
Give us a sense. So what sales have you actually received since those and introductions of that new technology.
Well, yeah, we have delivered product, we have sold that technology and a couple of different forms.
Right. It's we've not seen dramatic improvement that we think we will see as you know these sales cycles can be quite long, sometimes deal with governmental programs, especially.
There is a long sales cycle, along evaluation cycle, but we are very confident.
Based on the feedback we're getting from the marketplace from specific customers.
We're going to see that improvement as time goes on.
Okay and the timing for the name change in that we've you know it's been discussed off and on for last year two years.
Why now has the board taking the opportunity to make these changes and too.
Push all the cards and they're all the chips into the middle of the table that Okay. We now our Marine Tech company and we're all in.
Well I think just things started to come together, we've made a lot of additions to our personnel standpoint over the last year.
It's really important additions, which are really having an impact we're seeing some of these opportunities become.
A more real ash, we feel more confident about it we have some.
No further plans for expansion to the technology and for taking some of our existing technology into other areas. Other application. So just it's a combination thanks Tyson as far as its just specific timing.
Yes, it coincides with our annual meeting this summer so it's a shareholder vote.
So we wanted to come just with the normal shareholder vote. So thats. The reason why do it right now rather than a month ago or amounts for now.
Okay.
Ill go back in Q.
Yes.
Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question. Please press star one telephone keypad at this time.
Moments will allow for questions.
First off.
Thank you. Our next question comes from the line up Tyson Bauer when Keating capital. Please proceed with your question.
That was quick.
[laughter], we'd like to talk to you again. So there you will I think you referenced that I'll just delivery that we are expected to see NKTR Seamap system has a lot of those expenses already been encouraged so we may see a unique margins situation developing Q2 on that segment.
Well I would say that obviously as we build stuff goes the inventory so from a margin standpoint assets should not necessarily but certainly from a cash flow standpoint.
As an impact right. It's sit in inventory so you're not spend of the cash that you don't recognize that cost and so actually ship it.
But it shouldnt be a lot, but but having said that ties. It just as you see volume increased sales levels increase you'll see margins decreased because you're absorbing more the overhead right.
Our is that a or.
Are you getting paid upon delivery on that so we're not gonna necessarily see a a accounts receivable build that'll drive down cash off.
The expectations and cash flow from operations here in second quarter, because leasing typically is very weak in the second quarter.
Yes, that's true.
I do not want to comment specifically, but you know receivables from those transactions are kind of normal terms. So we expect very good terms, there very reliable customers.
So don't see any issues there.
And he is giving you did not take any additional doubtful accounts that we took care of hopefully in the Q4 any activity there on some of those possibly coming back into fold or those just we're done with those.
Now there are some are silverstein again, we made the provision based on.
Our judgment as to likelihood so that and the risk involved given the current environment.
We certainly are continuing to pursue some of those and are very hopeful that we'll see some cover there.
Oh that 10 million and backlog.
Given that two of it as we already know will be delivered and some of this is related apart services other things that are involved.
What percentage of that is expected to be delivered in the quarter or within the next four months.
I guess I'm not prepared to call talking about that specifically I think we expect all have to be within the year I guess, what I would say is we would expect the sales in the marine technology products and the second quarter to be up from the first quarter.
Partially because that backlog, we feel pretty confident about that.
As you any but as you noted earlier I think we can expect to leasing business to be down from the first quarter.
Would you anticipate lease pool sales to be.
Up down or approximately in the same.
Hard to site as you know that those are transaction specific and the happen or don't happen.
It could be up that could be down it's I really can't.
Predicted this one.
Every two years they marine Tech revenue base is kind of what you normally incur without having to have system sale. So that's a fairly almost an annuity type revenue stream for you.
And this is a tough environment you make specific projections about Tyson because people are delaying decisions, but also have need so it's really hard to predict so I really like to stay away from any specific.
Forecast on that.
But.
You would anticipate a increase and backlog as we go through the year, especially in the marine Txi, though.
We would yes, okay. Thank you John.
Yes, thanks, guys.
Thank you. Our next question comes from the line African Taylor with Era investment partners. Please proceed with your question.
Thank you could you gentlemen, give us an idea of what you project obviously at the board level you have some projections for what revenue expectations are for the next couple of years.
Get out beyond the covert crisis situation can you.
Give us an idea of what those numbers are for both defense side of the business and the undersea mapping signed at the business.
Yeah, Ross, we really don't want to get into specific projections at this point or any guidance on that although I will say, we expect significant increases in that part of the business, that's where we're we're putting our focus so we do expect significant growth there, but I really want to start with from any specific metrics.
Well you comment on any other navies beyond the United States Navy Lucky using your side scan sonar system as part of unmanned undersea vehicle.
Absolutely absolutely.
And what kind of time Horizons do you think we're looking at our those.
And our those nations European Nations Middle Eastern Nations, where might we find them on the map.
I'd say all over the math all over the World is a good placed look except obviously places that you would expect a soft selling.
Okay, well I'd say that you guys have a great technology, you've really struggle to bring that bring the benefits of the to shareholders I understand and support desire to change the name I'm, not particularly wild about the idea of increasing the share count because when I think the shares are trading at a meaningful discount to what their work.
Just learn to my experienced.
Huh.
Better off not trusting boards to have the same do you have an equity value that I do.
So I would say I'm, a little concerned about that and I think you guys really need to find a way that.
If you can't get this stuff generating bottomline return for shareholders and therefore getting the stock price meaningfully higher I think you should.
Flow the sale of the business I understand that when you get a major contract some someone like US Navy that will become a lot easier, but I do think that the assets undervalued and I think you shareholders are going exceptionally patient and waiting for the turnaround, which seems a little bit like.
Hanging with booking trends and Guildenstern on the beach.
Okay. Thanks Ross.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to management for any final comment.
Okay I'd like to thanks, everyone for joining us today.
Look forward to talk with you again at the end of our next quarter. Thank you.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.