MIND Technology, Inc.
Q2 2015 Earnings Call Transcript

Published: 4 Sep 2014

[Operator:]

Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Mitcham Industries’ Second Quarter Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded. And I would like to turn the conference over to Karen Roan. Please go ahead, ma’am.

[Karen Roan:]

Thank you, Danny. Good morning and welcome to the Mitcham Industries’ fiscal 2015 second quarter conference call. We appreciate all of you joining us today. Your hosts are Guy Malden, Executive Vice President of Marine Systems, and Rob Capps, Executive Vice President and Chief Financial Officer. Before I turn over the call to Management, I have a few items to cover. If you would like to listen to a replay of today’s call, it will be available by webcast by going to the Investor Relations section of the company’s website at mitchamindustries.com, or by a recorded instant replay until September 18th. Information on how to access the replay was provided in yesterday’s earnings release. Information reported on this call speaks only as of today, Thursday, September 4, 2014, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. 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 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 10-K for the year ended January 31, 2014. Furthermore, as we start this call, please 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 would like to turn over the call to Mitcham’s Executive Vice President of Marine Systems, Guy Malden.

[Guy Malden:]

Thanks, Karen and good morning everyone. We would like to thank all of you for joining us today for our fiscal 2015 second quarter conference call. I’m sure you’ve noticed that Bill is not here today. He had surgery a few days ago and is recuperating. I can report that he is back home and doing well and we expect to have him back in the office in a couple of weeks. Now I’d like to begin by making a few general comments about the second quarter. Rob will then discuss our financial performance and we’ll conclude with a discussion of our market outlook. Then we will open the call for your questions. I think it is no surprise to anyone that the overall seismic industry remains under a good deal of pressure. We saw the normal second quarter pullback in our leasing results as the second quarter is seasonally the weakest of our leasing business. However, there were some notable areas of year-over-year improvement in our core leasing business or perhaps not quite as much as we had anticipated. As we mentioned in our first quarter call, we expected growth in our core leasing business to come mainly from our international markets this year, and so far activity has basically tracked with those expectations. For the second quarter, we experienced improved results in Latin America, Europe, the Pacific Rim and the Middle East. We also saw continued strong performance in our downhole business, which is benefiting from the ongoing focus on development activity and some longer-term projects. Latin America continued to show stronger activity levels and remains one of our primary markets, although this quarter, we saw a pause in activity in Colombia. There were two projects in Latin America that we thought would begin during the second quarter, but they were delayed due to regulatory issues at the local level. As a result, Latin America was down sequentially, but still up markedly over last year’s second quarter. The good news is that one of those delayed projects has already begun and the other one is expected to start this month. Now that being said, permitting and regulatory challenges remain an issue particularly in Colombia and we do not expect a significant resumption of activity there until late in the fourth quarter. European seismic market continues to show healthy improvement as we’ve seen an increase in bidding activity in the region particularly in Eastern European countries such as Romania, Bulgaria, Serbia and Croatia. Channel counts are increasing in Europe, so we are seeing the benefit of not only more jobs, but also a need for more equipment on those jobs. We have also seen some activity in the Middle East, despite political upheaval in the region. We have supplied equipment for two jobs in Kurdistan, one that will be completed very soon and another that should be finished later in the year and we are bidding on other jobs in the region. Asia Pacific also showed solid improvement in the quarter. Activity in Australia and Indonesia was robust with demand for both cable and wireless equipment in the region. We are also seeing an increase in channel counts there. Activity in the U.S. is still well below levels of a year ago. However, we do see sporadic activity in certain regions and we have a large job pending in the US. The marine leasing market remains soft as it is still being weighed down by excess equipment in the market. While these conditions have been present for a while, we do not see signs of a turnaround and do not expect any significant improvement for the remainder of this year. Now turning to our Seamap business, we delivered two of our next generation BuoyLink 4DX systems, as well as one digital source controller in the quarter. We have further system delivery scheduled for the balance of fiscal 2015. The second quarter also reflected results from the sourced product lines that we acquired from ION Geophysical in May. And with that, I will turn over the call to Rob who will give you a detailed review of our financial results and some remarks about our outlook for the second half of the year.

[Robert P. Capps:]

Okay, thanks, Guy, and good morning everybody. I'll start as usual by discussing the top line of each of our two segments

[Operator:]

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Veny Aleksandrov. Please go ahead.

[Veny Aleksandrov:]

Good morning guys.

[Robert P. Capps:]

Hi, Veny. How are you doing?

[Veny Aleksandrov:]

Good and I hope that Bill is back soon, I wish him all the best.

[Robert P. Capps:]

(Indiscernible)

[Veny Aleksandrov:]

I hope – yes, I hope he is back this week. Back to the question, sorry, in terms of Colombia I remember that there was this permitting issue where every operator and every service company had to do the permitting by themselves. But then it kind of got resolved, are we back to the same scenario, is this why we have the permitting challenges?

[Robert P. Capps:]

Yes, Veny I think we just have to recognize this is going to be an ongoing issue in Colombia. And I think what's happened is we got some issues resolved, some jobs going forward and new jobs were queued up, new jobs were [left] and they are working through the permitting issues for those. So I just think it's going to be continuing issue and frankly it’s an issue everywhere in the business. It's an issue in the U.S., it’s an issue in Europe from time to time. So it's a tough situation. And for our business as the channel counts have gotten larger, therefore the jobs are larger, there's a bigger impact on a delay. But we're still very optimistic about Colombia, there's a lot of work down there, a lot of jobs have been – or projects have been tendered recently, has been ordered recently, so we think as we work through the issues, we'll see that come back. Now we do have work going on there, I'm not trying to say there's no work in Colombia, it's just taking a bit of a pause from what we saw in the first quarter.

[Veny Aleksandrov:]

Okay, and then when you talk about Marine, the softness expected to continue through end of the year, but can you give us your take on the long-term picture? When are we going to get out of the down cycle? When is capacity going to be exhausted and (multiple speakers)?

[Guy Malden:]

Veny, there is couple of things going on. One is, and we've talked about this, just a tremendous amount of excess equipment that still exists on the market. The other thing that's happening, and everybody has read all this, is several of the large contractors are derigging boats. They're taking capacity out of the market. Now that's going to take some time to remove that capacity. We all believe that once the fleet around the world right sizes, if you will, then perhaps there will be an increasing in pricing which helps our customers and it also helps our Marine Leasing business. But I think from our perspective, well into next year, the situation won't change from the Leasing perspective. And again I think if everybody in the industry looks towards what's happening with the contractors and as they're all saying, into next year, mid next year and perhaps end of next year before all of the right sizing of the fleets will be completed. There are several holes that are still being – that are still on board for completion. Several of them the schedules have slipped, so we are still seeing some new holes come into the market. But nonetheless, there's more coming out, or plan to be, could be derigged.

[Veny Aleksandrov:]

Okay and I will requeue but I missed when you said how many more systems you have, what's your backlog to the end of the year? I think you mentioned it on the call and I missed it.

[Robert P. Capps:]

Okay, I'll go ahead and answer that. We said we have additional systems scheduled for delivery, we really usually don't disclose in our [release].

[Veny Aleksandrov:]

Okay, but you have additional systems scheduled for delivery between now and the (indiscernible)?

[Robert P. Capps:]

Yes, Veny. Yeah.

[Veny Aleksandrov:]

Okay, okay. Thank you and I will requeue. Thanks.

[Robert P. Capps:]

Okay.

[Operator:]

(Operator Instructions) We’ll take our next question from Tyson Bauer. Please go ahead.

[Tyson Lee Bauer:]

Good morning gentlemen.

[Guy Malden:]

Good morning, Tyson.

[Tyson Lee Bauer:]

A quick question, in lieu of the importance of Canada and what that means later in your fiscal year, when do you think we will have better clarity and do you have contingency plans where you can move systems or channels to other areas of strength like Eastern Europe, those type of places? Give us your philosophy and how you guys are going to have contingency plans in place if we don't have a strengthening of the Canadian and Alaskan markets.

[Robert P. Capps:]

Right, so I think we'll start to get stronger indications as we get into October, November. I think by November you pretty much have to know because you'll have to be staging equipment and that's typically what we see. As far as contingency plans, we can lose some equipment elsewhere such as Eastern Europe or Russia although the sanctions make that a little more complicated these days. But frankly we're already moving some equipment from other areas to Eastern Europe. But there are some things we can do with there. You can’t take everything that's in Canada and move it to Europe and put it to work necessarily. So if Canada doesn't develop than that is an issue for us for sure and you can’t replace all of that revenue. But that said, the early indications are optimistic, it's just very early days still.

[Tyson Lee Bauer:]

We've seen in years past where one large U.S. contract can swing a quarter. Any indications on this – the reference U.S. contract that's pending of the size of that contract?

[Robert P. Capps:]

Just say it's a significant contract and it is imminent.

[Tyson Lee Bauer:]

Imminent.

[Robert P. Capps:]

Yeah.

[Tyson Lee Bauer:]

Okay. So you have a PO in hand it's just (inaudible) winning award?

[Robert P. Capps:]

No. We are running shift equipment, actually it's –

[Guy Malden:]

Equipment is moving.

[Robert P. Capps:]

Moving today actually.

[Tyson Lee Bauer:]

Thank you gentlemen.

[Operator:]

(Operator Instructions) We’ll take our follow-up question from Veny Aleksandrov. Please go ahead.

[Veny Aleksandrov:]

Thank you. On the downhole business, you mentioned that everything is going well. Do you need more equipment or are you good for now with what you have?

[Robert P. Capps:]

I think we're good for now with what we have. We're really not looking to add anything to that at this point.

[Veny Aleksandrov:]

Okay and the Chinese office, is it up and running?

[Guy Malden:]

We’re still in process. We have allocated space there. We also have, along with our current aged structure there, still looking for a more of a technician or an engineer to fulfill our field service role which will be our first step. We also have some planned activity into that market for several of the contractors and again as we just completed integrating the source products into Huntsville for the Sleeve Guns and Digishot, the source controller into Singapore, we fully expect to be ramped up probably between now and the end of the year there.

[Robert P. Capps:]

We actually have people on the ground, representatives on the ground inside and out. We just don't have the representative office opened yet. That's a 6-month process to get this done.

[Veny Aleksandrov:]

Thank you. And my last question, we heard from a lot of the seismic guys in the space that clients are asking for wireless equipment, do you see the same trend?

[Robert P. Capps:]

In the U.S.?

[Veny Aleksandrov:]

Yes.

[Robert P. Capps:]

I think its safe to say that in the U.S. and maybe to a lesser extent in Canada also, there is a trend towards wireless equipment and that most of what we see deployed in North America or certainly in the U.S. is wireless. I think as was said before, other markets it's kind of a mixed bag. We see different things in different places.

[Veny Aleksandrov:]

Thank you, I appreciate it. And please give my regards to Bill.

[Robert P. Capps:]

Okay. Thanks.

[Guy Malden:]

Thanks, Veny.

[Operator:]

This does conclude our question-and-answer session for today. I’d like to turn the call back over to management.

[Robert P. Capps:]

Thanks, Danny. Once again we'd like to thank all of you for joining us on this call and your interest in Mitcham. I know Bill looks forward to talking to you again at the conclusion of our third quarter. Have a good day. Thanks.

[Operator:]

As a reminder, this does conclude today’s presentation. We appreciate everyone’s participation.