Greetings, and Welcome to the Mitcham Industries Fiscal First Quarter 2021 conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. Thank you. You may begin.
Thank you, operator. Good morning, everyone, and Welcome to the Mitcham Industries Fiscal 2021 first quarter conference call. We appreciate all of you joining us today. Your hosts are Rob Capps, Co-Chief Executive Officer and Chief Financial Officer, and Guy Malden, Co-Chief Executive Officer and Executive Vice President of Marine Systems. Before I turn the call over to management, I have the normal housekeeping details to run through. If you'd like to listen to a replay of today's call, it'll be available for 90 days via webcast by going to the investor relations section of the company's website at mitchamindustries.com, or there'll be a recorded instant replay until June 18th, which is a telephonic replay. The information on how to access that replay was provided in yesterday's earnings release.
Information reported on this call speaks only as of today, Thursday, June 11th, 2020. Therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. 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 its annual report on Form 10-K for the year ended January 31st, 2020. As we start this call, please also 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. I'd like to turn the call over to Guy Malden. Guy?
Thanks, Ken. Good morning, everyone. We would like to thank you for joining us today for our fiscal 2021 first-quarter conference call. These are challenging yet exciting times for us, challenging due to the disruptions caused by the COVID-19 pandemic, but exciting for the various opportunities we see before us and the rebranding of the company on which we have embarked. We'll talk about that a little bit later. I'll make some general comments about the first quarter. Rob will then discuss our financial results in more detail. We'll then address our general market outlook and the proposed renaming of the company to MIND Technology, Inc. As expected, there were broad-based disruptions to our businesses through the first quarter due to reduced activity and general market uncertainty resulting from the COVID-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 Products segment, Klein and Seamap both pulled back sequentially. Seamap accounted for most of the decrease as there were no system deliveries in Q1 compared with both a BuoyLink and a SeaLink 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. As a result, we saw no benefit from that in Q1, although it does provide some measure of visibility into the upcoming quarter.
While there remains a tremendous amount of uncertainty in the marketplace due to COVID-19 and other events, there are also encouraging signs, 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 temporarily 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. While we are not yet running at full capacity in Singapore, we expect to build to that over the month of June.
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 requests for quotes. While these favorable fundamentals haven't yet manifested into an influx of new orders, they are a reassuring sign that bodes well for the resilience of the industry despite widespread macroeconomic turmoil. It also attests to our strategy of expanding the Marine Technology Products and diversifying away from the more cyclical oil and gas-related markets. With that, let me now turn the call over to Rob.
Okay, thanks, Guy. I'll begin by giving you a more detailed review of the financial results. Revenues for the Marine Technology Products segment totaled $3.2 million in the quarter. It's down 46% from $6 million in the first quarter a year ago, and down 63% from $8.8 million in the fourth quarter of fiscal 2020.
Seamap revenues were down year-over-year to $2.2 million in the quarter, from $4.3 million in the year ago quarter, and were down 69% sequentially. As Guy mentioned, there are no large systems deliveries in the quarter compared with both a BuoyLink and a SeaLink delivery made in Q4. First quarter revenues declined for $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 COVID-19 pandemic and other events have caused many customers to delay spending decisions. In the equipment leasing segment, revenues increased to $4.2 million in the quarter compared to $3.9 million in the first quarter a year ago. While leasing operations were down both sequentially and year-over-year, segment results were lifted by more than $1.4 million in lease bill 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 our Marine Technology Products segment was $500,000, which was down from $2.6 million a year ago and down from $4.4 million in Q4. This represents a gross profit margin of 15%, compared to 43% in last year's first quarter and 50% in the prior quarter. The decrease in margin was a result of higher amounts of unabsorbed manufacturing overhead due to the lower revenues. In short, revenues dropped precipitously but the adjustment from a cost standpoint necessarily entailed a delay, resulting in a greater level of unabsorbed cost. In our equipment leasing business, depreciation expense in the first quarter was down to $926,000 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 million in the comparable year ago period and $1.6 million in the fourth quarter of last year. Our cost containment efforts continue to yield meaningful benefits as our general administrative expenses were $4.7 million for the first quarter of fiscal 2021, which was down 11% year-over-year and 7% sequentially. Our research and development expense was $417,000, which was essentially flat with both the year ago quarter and the fourth quarter of last year. Like many of our peers in the recent quarter, we recorded an impairment charge related to our remaining goodwill. This charge, which amounted to about $2.5 million, was precipitated by the deterioration in macroeconomic conditions and the decline in the market value of our equity securities during the quarter. The recent recovery of those values notwithstanding.
Absent this non-cash charge, our overall operating loss for the first quarter of this year was $3.6 million as compared to an operating loss of $2.5 million posted in the year ago quarter. Reverse first quarter adjusted EBITDA was a loss of $952,000 compared to a profit of $61,000 in last year's first quarter and a profit of $124,000 during Q4 of last year. However, net cash provided by operating activities was a positive $929,000 in the first quarter, compared with the $1.9 million use of cash in the year ago period. MIND Technology's capital structure is debt-free and liquidity remains solid. At the end of the quarter, we had about $20 million of working capital that included cash and cash equivalents of approximately $4.7 million, which is up from about $3.2 million at the beginning of the quarter.
As I've mentioned before, we believe our capital and cost structures are well suited to handle the disruptions and uncertainty of this current environment, and the absence of looming financial obligations or restrictive covenants provides us with a good deal of flexibility. We also have other options to redeploy capital through the further monetization of our lease pool and with a more variable cost structure, we have the ability to adjust relatively quickly to changes in demand and activity. Looking at the market environment, although the overall tenor is uncertain, we continue to see solid marine activity and a steady flow of inquiries and requests for quotes. While our ongoing customer engagement has been encouraging, the adverse macroeconomic environment does weigh on discussions and can lead to delays in purchasing decisions.
Despite these issues, our firm order backlog of $10.2 million at the end of the quarter is up from the fourth quarter backlog of $8.9 million. With that, I'd like to discuss our reincorporation in Delaware and the associated name change and rebranding. Given the transformation that the company has been going through and the opportunities we see before us, we think now is an appropriate time to recognize the change in a more formal manner and to better position ourselves for the growth we envision. Accordingly, we are asking our shareholders to approve the reincorporation of the company from the state of Texas to Delaware. Concurrently, we plan to rename the company to MIND Technology, Inc.
As a part of the reincorporation transaction, we are also seeking to increase the authorized shares of common stock to 40 million from 20 million and the authorized shares of preferred stock to 2 million from 1 million. We have no immediate plans for the additional authorized capital, but think it's prudent to provide room for future transactions to facilitate our growth. 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 have decided to make no further investment in land lease pool equipment and will seek to maximize the value of our existing equipment either through leasing transactions or sales of equipment. We are also taking steps to reduce the cost structure of this part of our business to reflect the lower levels of activity. Let me now turn the call back over to Guy for a few closing comments before we take any questions.
Thanks, Rob. While global economic fundamentals have been a headwind, we remain unfazed 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 Products segment. Going forward, we are addressing three primary markets: marine survey, marine exploration, and maritime defense. Specific applications within those markets include seafloor 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, bathymetry systems, acoustic arrays such as 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. Now, despite this global pandemic and the widespread negative impacts that it has created, we're grateful to be in the position that we are in today, and look forward to what lies 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 and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Tyson Bauer with KC Capital. Please proceed with your question.
Good morning, gentlemen.
Good morning, Tyson.
Hey, Tyson.
Just breaking down some of your cash flow management over the next two to three quarters, anything unique as far as special government receipts, whether they're from U.S., Malaysia, or others? Of that $4.7 million of cash you've built up, do you anticipate further asset sales? You got $12 million on the books right now for lease pool. Sounds like we're finally moving completely away. Is that $12 million in assets up for sale?
I wouldn't say that, Tyson. I'd say again, we're looking to see the best way to get value out of that. In some ways, leasing transactions are the best way to do that. We're looking at that on a case-by-case basis, but there are opportunities for lease pool sales. I would anticipate further sales of equipment from time to time, but I'd also anticipate other leasing transactions. As far as the governmental programs, there are some. There's some in Singapore for reimbursement of payroll costs. There's similar programs in Canada and in the U.K. In the U.S., there's the Paycheck Protection Program, which we received a $1.6 million loan from after the end of the quarter. It was something in the second quarter.
There are some of those opportunities out there which help and offset some of the ongoing costs to maintain the workforce during this period of time.
Of that $4.7 that you built up in cash, where do you see that over the next couple of quarters maintaining, or what levels do you want to keep that at?
Well, I think we'd like to maintain those levels. Obviously, it goes up and down as working capital comes in and out and demands come up. I don't see dramatic change from that.
Okay. In regards to with COVID coming into 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 them. Any updates on testing orders, working with your primes, that you could provide on that side of it?
Really nothing we can address. Again, as you noted, the COVID situation did disrupt some of those schedules just because of travel restrictions from our customers and their customers.
Some of them are still restricted on travel.
Yeah. We expect that to resolve itself and go forward. Nothing we can talk about specifically at this point.
The delay on the Seamap System delivery, now that we're in the middle of June, has that been delivered in this quarter?
It has not yet been delivered, but it's in process.
Okay. You expect that to be delivered before the end of the month?
Yes, we do. Before the end of the quarter.
End of quarter.
Yes.
Okay. Klein, which seems to be the focus as you go forward, in your business strategy, changing the name, a lot of the activities you've done in hiring personnel. We have 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 MA-X. Give us a sense of what sales have you actually received since those introductions of that new technology.
Well, yeah, we have delivered product. We have sold that technology in a couple of different forms. We've not seen the dramatic improvement that we think we will see. As you know, these sales cycles can be quite long sometimes, dealing with governmental programs especially. There's a long sales cycle, a long evaluation cycle, we are very confident, based on the feedback we're getting from the marketplace and from specific customers, that we're going to see that improvement as time goes on.
Okay. The timing for the name change in that, it's been discussed off and on for the last year, two years. Why now has the board taken the opportunity to make these changes and to push all the cards in or all the chips into the middle of the table that, okay, we now are a marine technology company and we're all in?
Well, I think just things started to come together. We've made a lot of additions from a personnel standpoint over the last year. Made some really important additions which are really having an impact. We're seeing some of these opportunities become more real. We feel more confident about it. We have some further plans for expansion of the technology and for taking some of our existing technology into other areas, other applications. It's a combination of things, Tyson. As far as the specific timing, it coincides with our annual meeting this summer. It's a shareholder vote, so we wanted to just do it with the normal shareholder vote. That's the reason we do it right now rather than a month ago or a month from now.
Okay. I'll go back in the queue.
Yep.
Thank you. Ladies and gentlemen, as a reminder, if you'd like to join the question queue, please press star one on your telephone keypad at this time. We'll pause a moment to allow for questions. Thank you. Our next question comes from the line of Tyson Bauer with KC Capital. Please proceed with your question.
Well, that was quick.
We can't wait to talk to you again.
Oh, there you go. I think you referenced that of this delivery that we are expected to see in Q2 in the Seamap System, has a lot of those expenses already been incurred? We may see a unique margin situation develop in Q2 on that segment?
I wouldn't say that. Obviously, as we build stuff, it goes to inventory. From a margin standpoint, not necessarily, but certainly from a cash flow standpoint, it has an impact.
Right.
It's sitting in inventory, so you're not spending the cash, but you don't recognize that cost until you actually ship it.
But it should-
Having said that, Tyson, just as you see volume increase, sales levels increase, you'll see margins increase because you're absorbing more of the overhead.
Right. Are you getting paid upon delivery on that, so we're not going to necessarily see an accounts receivable build that'll draw down cash? What's the expectations on cash flow from operations here in the second quarter? Leasing typically is very weak in the second quarter.
Yeah, that's true. Again, I don't want to comment specifically, but receivables from those transactions are kind of normal terms. We expect very quick terms. They're very reliable customers, so we don't see any issues there.
Given you did not take any additional doubtful accounts that we took care of, hopefully in Q4, any activity there on some of those possibly coming back into fold, or those just we're done with those?
No, there's some that we're still pursuing. Again, we made the provision based on our judgment as to likelihood 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 recovery there.
Of that $10 million in backlog, given that two of it, as we already know, will be delivered and some of this is related to parts 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 talk about that specifically. I think we expect all of it to be within the year. I guess what I would say is we would expect the sales in the Marine Technology Products in the second quarter to be up from the first quarter, partially because of that backlog. We feel pretty confident about that. As you noted earlier, I think we can expect the leasing business to be down from the first quarter.
Would you anticipate lease pool sales to be up, down, or approximately the same?
Hard to say. As you know, those are transaction specific, and they happen or don't happen. They could be up, they could be down. I really can't predict at this point.
Should we use the marine technology revenue base as kind of what you normally incur without having to have system sales, so that's a fairly, almost an annuity type revenue stream for you?
This is a tough environment to make specific projections about, Tyson, because people are delaying decisions, but also have needs. It's really hard to predict that. I'd really like to stay away from any specific forecast on that.
Okay. You would anticipate a increase in backlog as we go through the year, especially on the marine tech side, though?
We would, yes.
Okay. Thank you, gentlemen.
Yep.
Thanks, Tyson.
Thank you. Our next question comes from the line of Ross Taylor with ARS Investment Partners. Please proceed with your question.
Thank you. Could you gentlemen give us an idea of what you project, or obviously at the board level, you have some projections for what revenue expectations are for the next couple of years to get out beyond the COVID crisis situation. Can you give us an idea of what those numbers are for both the defense side of the business and the undersea mapping side of the business?
Yeah, Ross, we really don't want to get into specific projections at this point or any guidance on that. I will say we expect significant increases in that part of the business. That's where we're putting our focus. We do expect significant growth there, but I really want to stay away from any specific metrics.
Will you comment on, are any other navies beyond the United States Navy looking at using your side-scan sonar system as part of an unmanned undersea vehicle?
Absolutely.
What kind of time horizons do you think we're looking at? Are those nations European nations, Middle Eastern nations? Where might we find them on the map?
I'd say all over the map. All over the world is a good place to look, except obviously places that you would expect us not to be on.
Okay. Well, I'd say that you guys have a great technology. You've really struggled to bring the benefits of it to shareholders. I understand and support the desire to change the name. I am 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 they're worth, I've just learned through my experience that I'm better off not trusting boards to have the same view of an equity value that I do. I would say I'm a little concerned about that. I think you guys really need to find a way that if you can't get this stuff generating bottom-line return for shareholders, and therefore getting the stock price meaningfully higher, I think you should explore the sale of the business.
I understand that when you get a major contract from someone like the U.S. Navy, that will become a lot easier. I do think that the asset's undervalued, and I think your shareholders have been exceptionally patient in waiting for the turnaround, which seems a little bit like hanging with Rosencrantz 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 comments.
Okay. I'd like to thank everyone for joining us today. We look forward to talking to 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.