Mitcham Industries Reports Fiscal 2017 Third Quarter Results

Contacts:

Rob Capps, Co-CEO

Mitcham Industries, Inc.

936-291-2277

Jack Lascar

Dennard ▪ Lascar Associates

713-529-6600

MITCHAM INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

(unaudited)

October 31,
2016

January 31,
2016

ASSETS

Current assets:

Cash and cash equivalents

$  3,232

$   3,769

Accounts and contracts receivable, net of allowance for doubtful accounts of $5,192 and $5,821 at October 31, 2016 and January 31, 2016, respectively

11,292

19,775

Inventories, net

12,521

12,944

Prepaid income taxes

1,656

2,523

Prepaid expenses and other current assets

1,808

1,685

  Total current assets

30,509

40,696

Seismic equipment lease pool and property and equipment, net

54,192

73,516

Intangible assets, net

9,442

10,466

Goodwill

3,997

4,155

Deferred tax asset

1,206

586

Long-term receivables

4,968

4,972

Other assets

28

368

Total assets

$104,342

$134,759

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Accounts payable

$ 2,716

$  3,543

Current maturities – long-term debt

8,676

3,218

Deferred revenue

178

326

Accrued expenses and other current liabilities

2,094

5,369

  Total current liabilities

13,664

12,456

Long-term debt, net of current maturities

-

17,266

Total liabilities

13,664

29,722

Shareholders' equity:

Preferred stock, $1.00 par value; 1,000  shares authorized; 328 issued and outstanding

6,975

-

Common stock, $0.01 par value; 20,000 shares authorized;  14,019 shares issued at October 31, 2016 and January 31, 2016

140

140

Additional paid-in capital

121,251

120,664

Treasury stock, at cost (1,929 and 1,928 shares at October 31, 2016 and January 31, 2016, respectively)

(16,858)

(16,854)

Retained earnings (accumulated deficit)

(10,405)

13,188

Accumulated other comprehensive loss

(10,425)

(12,101)

  Total shareholders' equity

90,678

105,037

Total liabilities and shareholders' equity

$104,342

$134,759

MITCHAM INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (in thousands, except per share data)

(unaudited)

For the Three Months
Ended October 31,

For the Nine Months
Ended October 31,

2016

2015

2016

2015

Revenues:

Equipment leasing

$   2,577

$   4,271

$ 7,819

$ 19,966

Lease pool and other equipment sales

229

1,440

2,439

2,092

Equipment manufacturing and sales

5,251

9,970

18,193

18,319

 Total revenues

8,057

15,681

28,451

40,377

Cost of sales:

Direct costs - equipment leasing

739

1,175

2,276

3,593

Direct costs - lease pool depreciation

6,428

7,241

19,976

22,460

Cost of lease pool and other equipment sales

83

470

882

831

Cost of equipment manufacturing and sales

2,944

5,072

10,062

9,803

Total cost of sales

10,194

13,958

33,196

36,687

Gross (loss) profit

(2,137)

1,723

(4,745)

3,690

Operating expenses:

General and administrative

5,039

4,359

15,778

14,219

Provision for doubtful accounts

-

600

-

1,200

Contract Settlement

-

2,142

-

2,142

Depreciation and amortization

558

600

1,857

1,868

Total operating expenses

5,597

7,701

17,635

19,429

Operating loss

(7,734)

(5,978)

(22,380)

(15,739)

Other income (expense):

Interest, net

(111)

(136)

(539)

(523)

Other, net

287

(445)

126

666

Total other income (expense)

176

(581)

(413)

143

Loss before income taxes

(7,558)

(6,559)

(22,793)

(15,596)

Benefit (provision) for income taxes

228

746

(506)

3,698

Net loss

$   (7,330)

$   (5,813)

$ (23,299)

$  (11,898)

Preferred stock dividends

(180)

-

(294)

-

Net loss available to common shareholders

$   (7,510)

$   (5,813)

$ (23,593)

$  (11,898)

Net loss per common share:

Basic

$ (0.62)

$ (0.48)

$ (1.96)

$ (0.99)

Diluted

$ (0.62)

$ (0.48)

$ (1.96)

$ (0.99)

Shares used in computing net loss per common share:

Basic

12,075

12,051

12,068

12,035

Diluted

12,075

12,051

12,068

12,035

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

For the Nine Months
Ended October 31,

2016

2015

Cash flows from operating activities:

Net loss

$       (23,299)

$       (11,898)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization

21,927

24,432

Stock-based compensation

587

724

Provision for inventory obsolescence

65

134

Provision for doubtful accounts, net of charge offs

-

1,200

Gross profit from sale of lease pool equipment

(1,420)

(1,027)

Excess tax benefit from exercise of non-qualified stock options and restricted shares

-

(125)

Deferred tax benefit

(582)

(5,285)

Changes in working capital items:

Trade accounts and contracts receivable

10,308

268

Inventories

471

(982)

Prepaid expenses and other current assets

(893)

3,925

Income taxes payable

384

518

Accounts payable, accrued expenses, other current liabilities and deferred revenue

(4,242)

2,547

Foreign exchange gains net of losses

381

(532)

Net cash provided by operating activities

3,687

13,899

Cash flows from investing activities:

Purchases of seismic equipment held for lease

(604)

(2,128)

Purchases of property and equipment

(117)

(227)

Sale of used lease pool equipment

2,256

1,566

Net cash provided by (used in) investing activities

1,535

(789)

Cash flows from financing activities:

Net payments on revolving line of credit

(9,400)

(11,500)

Payments on term loan and other borrowings

(2,414)

(2,413)

Net proceeds from short-term investments

-

182

Net proceeds from preferred stock offering

6,975

-

Preferred stock dividends

(294)

-

Purchase of treasury stock

(2)

(3)

Excess tax benefit from exercise of non-qualified stock options and restricted shares

-

125

Net cash used in financing activities

(5,135)

(13,609)

Effect of changes in foreign exchange rates on cash and cash equivalents

(624)

(110)

Net change in cash and cash equivalents

(537)

(609)

Cash and cash equivalents, beginning of period

3,769

5,175

Cash and cash equivalents, end of period

$     3,232

$     4,566

Supplemental cash flow information:

Interest paid

$        610

$        538

Income taxes  paid

$        705

$     1,405

Purchases of seismic equipment held for lease in accounts payable at end of period

$        160

$            8

Mitcham Industries, Inc.

Reconciliation of Net Loss and Net Cash Provided by Operating Activities to EBITDA and Adjusted
EBITDA

For the Three Months Ended

October 31, 

For the Nine Months Ended

October 31,

2016

2015

2016

2015

(in thousands)

(in thousands)

Reconciliation of Net loss to EBITDA and Adjusted EBITDA

Net loss

$    (7,330)

$    (5,813)

$    (23,299)

$   (11,898)

Interest expense, net

111

136

539

523

Depreciation and amortization

7,017

7,877

21,927

24,432

(Benefit) provision for income taxes

(228)

(746)

506

(3,698)

EBITDA ⁽¹⁾

(430)

1,454

(327)

9,359

Non-cash foreign exchange losses and (gains)

(288)

429

31

342

Stock-based compensation

154

566

587

1,085

Contract settlement ⁽²⁾

-

1,781

-

1,781

Cost of lease pool sales

51

358

764

540

Adjusted EBITDA ⁽¹⁾

$    (513)

$    4,588

$    1,055

$ 13,107

Reconciliation of Net cash provided by operating activities to EBITDA

Net cash provided by operating activities

$ 602

$ 2,249

$ 3,687

$ 13,899

Stock-based compensation

(154)

(566)

(587)

(1,085)

Provision for doubtful accounts

-

(600)

-

(1,200)

Provision for inventory obsolescence

(22)

(44)

(65)

(134)

Changes in trade accounts, contracts and notes receivable

(1,539)

5,070

(10,308)

(268)

Interest paid

106

141

610

538

Taxes paid, net of refunds

176

202

705

1,405

Gross profit from sale of lease pool equipment

(36)

811

1,420

1,027

Changes in inventory

(290)

(2,367)

(471)

982

Changes in accounts payable, accrued expenses and other current liabilities and deferred revenue

228

(3,208)

4,242

(2,547)

Changes in prepaid expenses and other current assets

220

(33)

893

(3,925)

Foreign exchange gains net of losses

196

(488)

(381)

532

Other

83

287

(72)

135

EBITDA ⁽¹⁾

$   (430)

$   1,454

$ (327)

$ 9,359

(1)

EBITDA is defined as net income before (a) interest income and interest expense, (b) provision for (or benefit from) income taxes and (c) depreciation and amortization. Adjusted EBITDA excludes non-cash foreign exchange gains and losses, non-cash costs of lease pool equipment sales, certain non-recurring contract settlement costs, impairment of intangible assets and stock-based compensation. This definition of Adjusted EBITDA is consistent with the definition in the Credit Agreement.  We consider EBITDA and Adjusted EBITDA to be important indicators for the performance of our business, but not measures of performance or liquidity calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP"). We have included these non-GAAP financial measures because management utilizes this information for assessing our performance and liquidity, and as indicators of our ability to make capital expenditures, service debt and finance working capital requirements. The Credit Agreement contains financial covenants based on EBITDA or Adjusted EBITDA. Management believes that EBITDA and Adjusted EBITDA are measurements that are commonly used by analysts and some investors in evaluating the performance and liquidity of companies such as us. In particular, we believe that it is useful to our analysts and investors to understand this relationship because it excludes transactions not related to our core cash operating activities.  We believe that excluding these transactions allows investors to meaningfully trend and analyze the performance of our core cash operations. EBITDA and Adjusted EBITDA are not measures of financial performance or liquidity under GAAP and should not be considered in isolation or as alternatives to cash flow from operating activities or as alternatives to net income as indicators of operating performance or any other measures of performance derived in accordance with GAAP. In evaluating our performance as measured by EBITDA, management recognizes and considers the limitations of this measurement. EBITDA and Adjusted EBITDA do not reflect our obligations for the payment of income taxes, interest expense or other obligations such as capital expenditures. Accordingly, EBITDA and Adjusted EBITDA are only two of the measurements that management utilizes.   Other companies in our industry may calculate EBITDA or Adjusted EBITDA differently than we do and EBITDA and Adjusted EBITDA may not be comparable with similarly titled measures reported by other companies.

(2)

Non-recurring contract settlement costs of approximately $2.1 million include approximately $1.8 million of deferred cash payments and approximately $300,000 of stock based compensation.

Mitcham Industries, Inc.

Segment Operating Results

(in thousands)

(unaudited)

For the Three Months Ended

October 31, 

For the Nine Months Ended

July 31,

2016

2015

2016

2015

(in thousands)

 (in thousands)

Revenues:

Equipment Leasing

$  2,806

$  5,711

$  10,258

$ 22,058

Equipment Manufacturing and Sales

5,251

10,127

18,229

18,589

Inter-segment sales

-

(157)

(36)

(270)

     Total revenues

8,057

15,681

28,451

40,377

Cost of sales:

Equipment Leasing

7,249

8,918

23,134

26,981

Equipment Manufacturing and Sales

2,887

5,123

10,062

9,948

Inter-segment costs

58

(83)

-

(242)

Total cost of sales

10,194

13,958

33,196

36,687

Gross (loss) profit

(2,137)

1,723

(4,745)

3,690

Operating expenses:

General and administrative

5,039

4,359

15,778

14,219

Provision for doubtful accounts

-

600

-

1,200

Contract settlement

-

2,142

-

2,142

Depreciation and amortization

558

600

1,857

1,868

     Total operating expenses

5,597

7,701

17,635

19,429

Operating loss

$    (7,734)

$    (5,978)

$    (22,380)

$(15,739)

Equipment Leasing Segment:

Revenue:

Equipment leasing

$   2,577

$   4,271

$  7,819

$ 19,966

Lease pool equipment sales

87

1,167

2,256

1,566

Other equipment sales

142

273

183

526

2,806

5,711

10,258

22,058

Cost of sales:

Direct costs-equipment leasing

739

1,175

2,276

3,593

Lease pool depreciation

6,428

7,273

19,976

22,557

Cost of lease pool equipment sales

51

358

764

540

Cost of other equipment sales

31

112

118

291

7,249

8,918

23,134

26,981

Gross loss

$    (4,443)

$  (3,207)

$ (12,876)

$ (4,923)

Equipment Manufacturing and Sales Segment:

  Seamap

$2,536

$9,976

$9,662

$17,364

  Klein

1,999

-

6,462

-

  SAP

1,440

151

3,253

1,225

  Intra-segment sales

(724)

-

(1,148)

-

5,251

10,127

18,229

18,589

Cost of sales:

  Seamap

1,061

5,020

4,501

9,035

  Klein

1,468

-

4,330

-

  SAP

1,140

103

2,436

912

  Intra-segment sales

(782)

-

(1,205)

-

2,887

5,123

10,062

9,947

Gross profit

$    2,364

$  5,004

$ 8,167

$ 8,642

Gross profit margin

45%

49%

45%

46%