MIND Follow-up

[dan_s]

After digesting all of my notes from the MIND conference call, it is clear this one offers us a lot more upside. This is a crazy market so no telling where the share price will go in the near-term. However, the long-term (i.e. next six months) are shaping up to be VERY STRONG for Mitcham Industries.

Buy the dips!
Usually when a company blows away my earnings forecast it is caused by a one-time event like an asset sale or a special order. For MIND, it would not surprise me if they recorded a big sale by Seamap that resulted in a nice bump to net income. But MIND's 3rd quarter earnings were the real deal. Core "Leasing Revenues" were up 116% year-over-year. I have followed this company for more than five years and this is truly incredible stuff.

If the growth continues, and there is no reason to think it won't for at least the next six months, MIND is going to generate a ton of cash flow. The share price is just 5X my estimate CFPS for this year!

The seimic market is global and it is HUGE. The majors and large-cap E&P companies spend a ton of money on seismic. MIND has the potential to grow a lot more as they expand their global reach. Just the South American business could double top line revenues in a couple years.
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Mitcham Industries, Inc. (NASDAQ: MIND) reported record 3rd quarter earnings of $6.8 million ($0.52/share) on revenues of $28.0 million. It was the best 3rd quarter in the history of the company, crushing the First Call earnings per share estimate of $0.22 and our forecast of $0.25.

We did expect very good 3rd quarter results, but 52 cents was way above the high end of our expectations. I was most impressed by the firm’s 116% year-over-year increase in their core leasing revenues.

We have recently raised our earnings per share estimate for the current year to $1.62, which will make this the best year in the history of the company by a wide margin. MIND went public in 1987.

What we heard on the company’s conference call on December 7th reinforced our belief that MIND has considerable upside from here.
Bill Mitcham, the Company's President and CEO, stated, "We are extremely pleased with our third quarter results as this is the best quarter in the history of our Company in terms of total revenues, leasing revenues, net income and EBITDA. These results are even more extraordinary since the third quarter is usually the second weakest quarter of the year. Our third quarter leasing revenues of $17.4 million actually exceeded those in the first quarter, a first-time occurrence for the Company. Historically, our first quarter has always produced the strongest leasing revenues of the year.
"Over the past few years, we have implemented a strategy to increase the size and breadth of our lease pool, expand our geographic footprint and improve asset utilization. This strategy, combined with the improving global seismic market, has produced record results. Our leasing revenues, net income, earnings per share and EBITDA for the first nine months of this fiscal year are greater than that of any prior full fiscal year in our history.
I believe there is significant upside in this stock for us over the next six months as Q4 and Q1 results should be very strong.

Mitcham Industries, Inc., a geophysical equipment supplier, offers for lease or sale, new and "experienced" seismic equipment to the oil and gas industry, seismic contractors, environmental agencies, government agencies and universities. Headquartered in Texas, with sales and services offices in Calgary, Canada; Brisbane, Australia; Singapore; Ufa, Bashkortostan, Russia; Lima, Peru; Bogota, Colombia and the United Kingdom and with associates throughout Europe, South America and Asia, Mitcham conducts operations on a global scale and is the largest independent exploration equipment lessor in the industry.

[halvin]

Hi Dan,

What would you consider the dip levels?

Thanks

[dan_s]

MIND now has the attention of Wall Street. A blow out quarter, debt free and higher quarterly results coming will do that for a stock. As of Friday's close, it is still trading at less than 6X this year's cash flow per share. Take a look at my forecast under the Sweet 16 Tab.

This is a crazy / volitale market. I have no idea what the share price will do but I to know this stock is way under an reasonable fair valuation.

Keep an eye on the First Call EPS forecasts. My guess is that several analysts will be issuing updates next week.

[setliff]

you have often said mind's earnings happen mostly in 3rd and 4th q's.

it seems like if they are leasing equipment this would smooth out over the year. can you explain?

should we expect their 1st and 2nd q's to be weak? if so it would indicate a sell on next earnings report.

tia
jim

[dan_s]

Jim;

Take a look at my forecast model for MIND.

They have a lot of business in Canada and Russia. In those areas it is best to shoot seismic when the ground is frozen. MIND's fiscal 2nd quarter is (May-July), revenues from Canada and Russia drop off a cliff during those quarters. It happens each year and it will continue to happen.

Now that they have more business in South America and North Africa revenues are not quite as seasonal. This is why they reported a profit in Q2 this year.

Q1 is usually the best quarter of the year. STUDY MY FORECAST MODEL and you will see how this works. Log on to the website, click on the Sweet 16 tab and click on to the MIND logo to see it.

Dan