Mitcham Industries, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended January 31, 2018, with unaudited fourth-quarter data for the quarter ended January 31, 2018. The company operates Marine Technology Products and Equipment Leasing businesses serving marine, hydrographic, defense, oceanographic and seismic markets.
Financial performance
| Metric | Fiscal 2018 | Fiscal 2017 |
|---|---|---|
| Revenue | $48.3 million | $41.0 million |
| Gross profit (loss) | $6.1 million | $(7.4) million |
| Operating loss | $(19.7) million | $(31.3) million |
| Net loss | $(21.1) million | $(33.2) million |
| Net loss attributable to common shareholders | $(22.0) million | $(33.6) million |
| Loss per common share | $(1.82) | $(2.79) |
| Net cash from operations | $0.7 million | $3.2 million |
| Adjusted EBITDA | $7.2 million | $3.6 million |
- Marine Technology Products revenue increased to $27.6 million from $25.1 million. Segment gross profit was $10.7 million, with a 39% margin versus 46% in the prior year.
- Equipment Leasing revenue increased to $20.9 million from $16.0 million, primarily because lease-pool equipment sales rose to $12.5 million from $5.3 million. Recurring equipment-leasing revenue declined to $7.8 million from $10.2 million.
- Equipment Leasing generated a $4.6 million gross loss, despite a $4.9 million gross profit on lease-pool equipment sales.
- Fourth-quarter fiscal 2018 revenue was $10.4 million, gross profit was $1.4 million, and net loss was $7.8 million, compared with fourth-quarter fiscal 2017 revenue of $12.5 million, a $2.7 million gross loss and a $9.9 million net loss.
Balance sheet, liquidity and capital structure
- Cash, cash equivalents and restricted cash were $10.1 million at January 31, 2018, versus $3.5 million a year earlier. Working capital was approximately $25.3 million.
- Debt was fully repaid: total debt was zero at January 31, 2018, compared with $6.4 million at January 31, 2017. The revolving credit agreement was terminated in March 2017 and the Seamap credit facility was canceled in April 2017.
- Total assets declined to $73.7 million from $94.7 million, primarily reflecting depreciation and disposal of lease-pool equipment. Net lease-pool equipment and property, plant and equipment declined to $22.9 million from $43.8 million.
- Shareholders’ equity was $65.8 million. Series A preferred stock outstanding increased to approximately 532,000 shares, with a 9% cumulative dividend and a $25 liquidation preference per share.
- Fiscal 2018 investing cash flow was $9.0 million, including $10.3 million of proceeds from used lease-pool equipment sales. Capital spending included approximately $0.9 million for new lease-pool equipment.
- Contractual obligations totaled approximately $5.0 million, including $2.2 million of operating leases, $1.4 million of other obligations and $1.5 million of purchase obligations.
Material changes versus the prior period
- Revenue increased 17.7%, but the improvement was driven substantially by disposals of lease-pool equipment rather than recurring leasing activity.
- Recurring leasing revenue fell approximately 23%, continuing the prolonged decline caused by weak oil and gas exploration, excess seismic equipment capacity, lower pricing and customer financial pressure.
- Gross profit improved by $13.5 million, mainly due to higher lease-pool equipment sales and improved leasing-segment results, but the company remained significantly loss-making.
- The company recorded a $1.5 million impairment of goodwill related to Klein, following revenue shortfalls and weaker expected performance. It also recorded approximately $0.6 million of inventory charges for legacy Seamap products reaching end of life and approximately $0.4 million of fourth-quarter restructuring-related costs.
- Accounts and contracts receivable, net, declined to $15.1 million from $18.6 million. Approximately $6.2 million of customer receivables were more than 90 days past due, and the company recorded a $1.0 million doubtful-account provision.
- Marine Technology Products backlog fell sharply to approximately $2.7 million from $12.5 million, although management expected substantially all backlog to be fulfilled in fiscal 2019.
Outlook, commentary and risks
- Management expects Equipment Leasing results to remain well below historical levels in fiscal 2019 and plans to maintain low lease-pool investment. Land leasing is expected to remain depressed, while marine leasing may continue to be constrained by excess equipment.
- Management expected Seamap revenue in fiscal 2019 to be comparable to or slightly higher than fiscal 2018. New SeaLink marine sensor and solid-streamer products were expected to contribute materially beginning in the second half of fiscal 2019.
- Management was optimistic that Klein sonar revenue would recover, but acknowledged disappointing fiscal 2018 and fiscal 2017 results caused by government project delays, weaker sonar demand, competition and delayed product introductions.
- In February 2018, the company acquired Hydroscience intellectual property and other assets for $3.0 million in cash plus approximately $1.2 million of receivables forgone. It issued 152,290 preferred shares to Mitsubishi Heavy Industries for $3.5 million and may issue an additional 21,756 shares for $0.5 million subject to conditions.
- Liquidity depends on cash on hand, operating cash flow, further lease-pool asset sales and potential preferred-stock issuances. The company had no replacement revolving credit facility at filing and cautioned that new bank financing may not be available on acceptable terms.
- Key risks include continued oil and gas and seismic-market weakness, customer concentration and collection risk, high fixed costs, foreign operations and currency exposure, supplier concentration, impairment of long-lived assets, environmental and export regulations, cybersecurity, intellectual-property disputes and execution risk from acquisitions.
- Two customers represented approximately 27% of fiscal 2018 revenue; the five largest represented approximately 43%. Approximately 76% of revenue came from foreign operations or customers.
Most important facts for investors to verify
- Whether fiscal 2019 revenue growth is driven by recurring Marine Technology Products sales rather than additional lease-pool asset disposals.
- Whether Klein revenue and margins recover and whether further goodwill or intangible-asset impairments are required.
- The collectability of approximately $6.2 million of receivables more than 90 days past due and the adequacy of the $6.2 million allowance for doubtful accounts.
- Cash burn, preferred-stock issuance and dividend requirements, particularly given the absence of revolving debt financing and continuing net losses.
- Actual contribution, production costs and customer adoption of the Hydroscience-derived SeaLink products.
- Customer concentration, foreign-market exposure and the sustainability of management’s projected fiscal 2019 activity levels.