Greetings and welcome to Mitcham Industries' fourth quarter 2020 conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ken Dennard. Thank you. Mr. Dennard, you may begin.

Thank you operator. Good morning and welcome to the Mitcham Industries' fiscal 2020 fourth 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 a few normal housekeeping details to run through. If you would like to listen to a replay of today's call, it will be available for 90 days via webcast by going to the Investor Relations section of the company's website at mitchamindustries.com or via a recorded instant replay until April 29. Information on how to access the replay was provided in yesterday's earnings release. Information reported on this call speaks only as of today, Wednesday, April 22, 2020 and 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 Reform on Form 10-K for the year ended January 31, 2020. Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in the company's press release issued yesterday and please note that contents of the conference call this morning are covered by these statements. Now I would like to turn the call over to Guy Malden. Guy?

Thanks Ken and good morning everyone. We would like to thank you for joining us today for our fiscal 2020 fourth quarter and year-end conference call. Before I begin, I would like to express our support and gratitude to all of our employees, suppliers, customers and stakeholders during such a difficult time. The COVID-19 crisis has impacted all of our lives and our foremost concerns are for the health and safety of our employees and their families as well as the broader community as a whole. While we continue to adapt to the challenging conditions and operational disruptions brought on by this crisis, we have had to work closely with our customers to uphold commitments and assure a high level of service and support while also looking for ways to reduce our expenses and capital outlays due to the heightened economic uncertainty brought on by this crisis. Maintaining this balancing in the face of a pandemic, market uncertainty and volatile commodity prices has been extremely difficult but our operational flexibility and debt-free capital structure have enabled us to weather unfavorable fundamentals in the past. So as we make our way through this extraordinary situation, I would again like to draw on the strength and resilience of everyone in the Mitcham organization and express our thanks, support and deepest gratitude to all of you for your hard work and perseverance through this difficult time. Now, fiscal 2020 was a year characterized by accelerating momentum in the development of our marine technology products segment, as we made excellent progress in adding new personnel, developing new technologies and obtaining new business in the pursuit of our strategic vision to become a leading global provider of marine technology products. While there is little question that we have meaningfully reduced our dependence on traditional oil…

Thanks Guy. I will begin by giving a more detailed review of the financial results, then I will make some comments about our views on current market conditions. Let me start with the marine technologies products segment. Revenues for the segment totaled $8.8 million in quarter, up 30% from $6.7 million in the fourth quarter a year ago and up 9% from $8.1 million the third quarter of this year. Seamap revenues rose year-over-year to $7.1 million in the quarter from $4.9 million in the fourth quarter of fiscal 2019 and was up 25% sequentially. Seamap revenues include the deliveries of both a BuoyLink and a SeaLink system during the quarter. Now, as Guy said, we had expected an even better quarter for Seamap. However due to a customer requested modifications, we were unable to complete a $2 million order scheduled for the fourth quarter. Now, due to the impact of the COVID-19 pandemic, it is likely that this order will now be delayed until the second quarter of fiscal 2021. Fourth quarter revenues from Klein were $1.7 million and increased from $1.3 million a year ago, but down 29% sequentially. In the equipment leasing segment, revenues decreased to $4.5 million in the quarter, compared to $5.5 million in the fourth quarter a year ago. The revenue decline was limited to other equipment sales and lease pool sales as leasing revenues were up roughly 7% from a year ago. Now, we did have a sizable $1 million lease pool sale to an Asian customer that was to be completed before year-end, but due to erratic macroeconomic environment, this has been delayed. I can report however that we recently concluded a similar transaction with a North American customer indicating that the market for such transactions remains viable. On a sequential basis,…

Thanks Rob. As I outlined earlier, we have come a long way over the last year in adding to Mitcham's capabilities. Going forward, we believe this trend will continue as we will put more resources, personnel and emphasis on building out the marine technology products segment, both domestically and abroad. There are a number of specific areas of opportunity for us in the coming months and years, including the following. Continued acceptance of our MA-X technology, application of our µMA-X technology in the growing UUV market, development of enhanced sonar capabilities opening new markets, introduction of new bathymetry subsystems for the hydrographic industry, continued acceptance of our SeaLink towed streamer system into scientific and survey capabilities, application of our streamer and acoustic technology into waterside security and passive acoustic array systems and continued penetration of our industry-leading GunLink and BuoyLink products. Because of all this, we remain confident that we are on the right path and are more optimistic than ever about Mitcham's future. Now that concludes our formal remarks. We will be happy to take any questions now.

[Operator Instructions]. Our first question is coming from Tyson Bauer of KC Capital. Please go ahead.

Can you hear me?

Yes.

Yes, Tyson.

Yes. Just doing some back of the napkin adding, you know it didn't happen, so you can't count it, but the $2 million order delay, the extra $1 million in equipment sales, if that $2 million order what the 50% margin that we saw for the composite overall for Seamap, that puts your op income on a pro forma basis, excluding your uncollectibles roughly around $1 million, give or take a little and actually produces a close to breakeven, if not a positive number down below. Now, all this is fine and dandy on playing with the numbers, but that's kind of what you were looking at, at the end of the Q3 going into this quarter. Was it not?

Yes. That's exactly right.

Okay. So going forward, now you have got $3 million in cash on the balance sheet. You just experienced a $6 million burn in 2019. You are paying $2 million on preferred dividends in the year. And in regard to that, what was the decision to pay the cash dividend a week ago when a lot of companies conserving cash?

Yes. We did pay it. Just looking at our liquidity situation, we felt like we can do it. We think it's important to show that confidence to the investment community, to the holders. Obviously, that's something, if things change, we can look at that going forward. But we just felt it was a prudent thing to do.

Okay. So in your estimation, you have got plenty of liquidity and the means to access liquidity for what? For the full year?

Obviously, it's an uncertain situation, Tyson. It's something we are looking at on a day-to-day. But as I said in the comments, we have some confidence and we think we have flexibility that other people don't have. So we feel pretty good.

Okay. You only made $1.9 million in sales of your lease pool equipment out of that, which a lot of that is fully depreciated. Was the market not there? Or was that a cognizant decision not to make greater sales from the lease pool? And you have already suggested that you are making some of those sales now. Do you anticipate getting that lease pool level down to a certain amount where you have that cash influx?

Yes. It's something we always look to do and as far as last year, it's really as opportunities arise and we kind of look at what the opportunities are versus what we can do with the leasing of assets. It's a fluctuating marketplace, obviously. So it's something we look to do. But we do think there are opportunities. As I said, we completed a sale just recently of about $1 million. So we think those things are certainly still out there, although it's not something you can do everyday. You have to pick and choose and be active in the market to do it. We feel we can do that.

Have you run numbers to see where you could get that lease pool number down to and still be an effective participate in that market?

That's a really tough number to give, given depreciated assets. So I really haven't tried to look at it from that standpoint.

Okay. You referenced U.S. Navy doing the preliminary testing and the initial, I guess not necessarily an order, but it is an order to run the test. Are we getting closer to those tests being completed and seeing a PO in hand that you will be able to announce?

No. The PO is not imminent. The new system has been installed on the vehicle and now it's back, it's going to be in the Navy's hands to do their qualifying testing. That's a little bit of a target. Target dates are a little bit difficult there just because the U.S. Navy is going to control that.

Plus, you know the global situation impacts that, obviously. They are impacted as well. So it's hard to dictate or indicate exactly when all that's going to be done.

Yes.

The numbers in the marine technology side is really driven still by Seamap and not Klein. Klein is basically flat, which gives us another year that we are trying to get that push forward being in the future for Mitcham. Are the expectations to get Klein going? Obviously, that's what you want to do but we are still relying on Seamap. When do we flip the switch?

Well, the current situation makes it difficult to give you a date of quarter when that happens. But I think all the things we have been doing, the things we introduced last year and some of the new initiatives that we are pursuing now, we can see that the light at the end of the tunnel there. Is it two quarters out, three quarters out? It's hard to say, Tyson. But we do see the way to it most definitely.

Okay. And last question and I will get back in queue in case there is somebody else there. As far as access to capital, you don't have a credit line. You do have the ability to sell some of your lease pool equipment to generate cash. You have the ability to cut expenses. If needed, the preferred dividends you can pick. What other sources of capital or what other avenues do you have should you need to use them this year?

Well, there are some of the government aid programs that I mentioned. Excuse me. Sorry about that. There is also potentially other capital available in the market. We are looking at, we don't see the need for it right now. But we think there are potential other mechanisms out there, should a need arise.

Okay. Thank you gentlemen.

Yes.

[Operator Instructions]. Our next question is coming from Ross Taylor of ARS. Please go ahead.

Thank you gentlemen. Tyson asked most of the questions because I was most concerned with the ability to generate capital because obviously the market is pricing Mitcham shares right now as though it's going out of business and there is not much value in them. Given that you have no debt and the like, it's a little striking. But also, the Navy and the Pentagon appear to be accelerating, trying to accelerate payments to help suppliers. Is that one of the types of programs you are talking about possibly having access to?

Not really.

No.

Not really. Our arrangement is through a prime contractor at this point. So realistically, that's not a big impact to us at this point.

So the Navy doesn't really look at you as a contractor or subcontractor. They are just looking to people you are working with?

Not for that program. There are other programs where we deal directly with the Navy. But not for that program.

Okay. And then talk about basically, you kind of indicated that you are seeing this crossover out a couple of quarters, three quarters. You obviously have COVID as a wildcard. But are the pieces in place? Are you seeing the demand for things like undersea mapping? Obviously the energy space has been pretty heavily hit. But have the other segments that make use of that type of technology seeing pullbacks?

Not as much. I mean a lot of our activity on the traditional seismic products, the senior products, for lack of a better term, are really non oil and gas related applications. They are survey companies or research institutes, governmental research institutes. So a lot of what we have been doing recently, a lot of the pending orders we have are non oil and gas or non exploration related. So certainly not impact to a greater degree.

And going forward, we are seeing that segment of the businesses be a lot more stable than the traditional seismic on the oil and gas side. The other thing with Seamap products, we have got a tremendous install base and regardless of how the industry shrinks down, the active hulls, the active operations are still going to need parts, service and support. So there is a base there that will continue on the Seamap side.

Okay. And will you talk about the technological advantages? It strikes me, you guys have what appears to be a significant technological advantage in this space with your new technologies, your new capabilities, your side scan, gapless sonar and things of that nature. And it just strikes me, as this company is a lot more valuable than what it's trading at and I am wondering at what point do you look at it and say, if the market is not going to recognize that, you pick up the phone and call one of the bigger players, bigger systems players and the like in this space and start talks about enhancing shareholder value as the euphemisms goes? Because, it's clear shareholders don't appreciate what you guys are doing.

Ross, I mean we just need to run the company and deliver results. I think a lot of the market rationale is not necessary specific to us, at least in my opinion. That's my personal opinion. You can look at all microcaps, especially any who have better than energy taint to them, they hit pretty hard. So I think there is some of that. It's just some of that hangover. So I think our focus now is to just to operate and to deliver on our results.

Okay. Well, someone knocks on your door and decides to offer you fair value, I would definitely suggest that you look at it. Because I am not quite sure how we are going to get investors to appreciate what you guys are doing. It seemed like you made a lot of progress this quarter in many ways, particularly when you back out some of the adjustments, it was a lot better than I thought it could be and obviously than the street was pricing them.

Okay. Got you.

Thank you gentlemen.

Okay. Thank you Ross.

Thank you. This brings us to the end of the Q&A session. I would like to turn the floor back over to management for any final comments.

I would just like to thank everyone for joining us today. And I hope everyone stays safe. Take care of yourself and your families. We look forward to talking to you after our first quarter. Thank you.

Ladies and gentlemen, thank you for your participation. You may disconnect your lines at this time and have a wonderful day.