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PROFILE
NASDAQ NMS:
Fiscal Year:
IPO:
FY96 Rev. Growth:
FY96 Inc. Growth:
FY96 EPS:
MIND (common)
January 31
Jan. 1995
17%
45%
$.66
Shares Outstanding:
Recent Price (9/27/95):
Primary Industry:
2Q FY97 Rev. Growth:
2Q FY97 Inc. Growth:
Trailing P/E:
4,378,650
$6 3/8
Oil/Gas Services
28%
74%
11x

OVERVIEW
Founded in 1987, Mitcham Industries, Inc. ("Mitcham" or the "Company") has established a highly profitable niche within the growing 3-D seismic industry and is now the largest independent Company specializing in the short-term leasing of 3-D seismic equip ment to the oil and gas industry. 3-D seismic technology provides the most accurate data available for identifying oil and gas deposits, making it an invaluable tool for exploration companies striving to increase productivity and reduce exploration costs . Mitcham also sells used seismic equipment, often in the international marketplace.

Mitcham's lease fleet consists primarily of 3-D seismic equipment. The Company's operations are focused on leasing state-of-the-art 3-D equipment, with leasing accounting for 71% and sales accounting for the remainder of the Company's total revenue last year. As the demand for 3-D seismic surveys increases and Mitcham acquires additional 3-D equipment, this percentage is expected to grow.

3-D seismic surveys provide the most accurate data for identifying oil and gas deposits, dramatically increasing drilling success rates. The obstacle, however, is the considerable cost of acquiring the equipment needed to obtain 3-D data. Mitcham remove s this obstacle by leasing state-of-the-art seismic equipment and offering maintenance and support to companies on a short-term basis.

Traditional 2-D seismic surveys utilize 24 to 120 channel systems to collect and transmit the seismic data, while today's 3-D surveys generally require a minimum of 1200 channels. The cost of acquiring these 1200 seismic channel systems can run as high a s $4.5 million. As a result, in order to secure enough channel boxes and related equipment for a 3-D survey, companies often turn to Mitcham to supplement their existing data acquisition systems.

OPERATIONS
Mitcham Industries Inc. leases and sells seismic data acquisition equipment to companies engaged in the oil and gas industry. The Company believes it is the leading independent lessor of land-based three-dimensional ("3-D") seismic data acquisition equip ment, including channel boxes and other peripheral equipment. Seismic data acquisition equipment is used in the identification and graphic definition of subsurface geologic structures and formation that potentially contain oil and gas. Channel boxes are remote data acquisition units that collect and transmit seismic data. The Company has exclusive lease referral and supply agreements with the two principal manufacturers of land-based 3-D seismic equipment, Input/Output, Inc. ("I/O") and Societe E'tudes Recherches et Construction Electroniques, S.A. ("SERCEL"). From January 1, 1994 through January 31, 1997, the Company's lease fleet of 3-D channel boxes increased from 85 to approximately 2,000 (or from 510 to approximately 12,000 channels).

Demand for channel boxes has increased significantly in recent years primarily due to the increasing use of 3-D seismic surveys. Current 3-D seismic techniques use a greater number of channels and channel boxes than 2-D surveys, thereby providing higher resolution data for better representation of the earth's subsurface. Additionally, oil and gas companies are contracting for 3-D surveys over larger geographical areas and often specify an increase in the concentration of channel boxes as a means of incr easing data resolution. Consequently, seismic survey companies frequently use more than twice the number of channels for surveys than they typically own. The Company believes that many companies providing land-based seismic surveys will meet this additi onal requirement by leasing channel boxes and supporting peripheral equipment on a short-term basis rather than making the substantial capital expenditures necessary to purchase such equipment.

The Company leases its seismic equipment primarily to seismic data acquisition companies and major oil and gas exploration companies conducting land-based seismic data acquisition surveys. The leases generally have terms between three and nine months and are renewable thereafter on a month-to-month basis. Rates for 3-D channel boxes range from between 6% to 8% per month of the equipment's purchase price. For the fiscal year ended January 31, 1997, the Company maintained a utilization rate of its 3-D ch annel boxes in excess of 80%.

The Company has entered into supply and exclusive referral agreements with each of I/O and SERCEL. The Company believes that most of the land-based 3-D seismic systems and equipment currently in use and being put into use are I/O and SERCEL systems. The agreement with I/O, originally entered into in February 1994, has been the source of a majority of the Company's lease pool equipment to date. Pursuant to this agreement, I/O must refer to the Company, on an exclusive basis, any requests it receives to lease its 3-D channel boxes and certain peripheral equipment in North and South America. A condition of the agreement with I/O is that the Company must purchase, at favorable rates, $13.3 million of equipment from I/O by May 31, 2000. Through January 31 , 1997, the Company has met $4.9 million of this requirement.

In September 1996, the Company entered into two agreements with SERCEL. One agreement provides that until December 31, 1999, the Company will be SERCEL's exclusive worldwide leasing agent and that SERCEL must refer to the Company all requests it rec eives to lease its 3-D data acquisition equipment and peripheral equipment. This agreement also provides that the Company must purchase, at favorable rates, up to $10.2 million of 3-D data acquisition equipment and other field equipment from SERCEL. Through January 31, 1997, the Company has m et $5.4 million of this requirement. The second agreement provides that until September 19, 1999, subject to earlier termination after September 20, 1997, the Company will be SERCEL's exclusive sales agent in Canada.

There are several advantages of leasing vs. buying 3-D seismic equipment:

  • Reduces Expensive Equipment Surplus
  • Leasing allows exploration and seismic contracting companies to supplement existing equipment inventories for specific jobs, eliminating the prospect of having expensive equipment lying idle between exploration jobs.
  • Reduces Capital Expenditures
  • Leasing does not require significant capital expenditures and adds no debt to a company's balance sheet.
  • Provides Equipment On Demand
  • Mitcham often fulfills equipment needs within 24 hours. This, combined with the short-term nature of Mitcham's leases, provides companies with a flexible and efficient means of supplementing their seismic inventories for specific jobs.
One-stop leasing. Mitcham's current seismic fleet includes 2-D and 3-D channel boxes and I/O's latest state-of-the-art radio telemetry system as well as a complete inventory of peripherals such as land and marsh geophones, seismic monito rs/cameras, earth vibrators, geophysical cables, etc. The Company's extensive lease fleet enables customers to rely on Mitcham for complete seismic needs, from the leasing of simple peripherals to the complete set-up and maintenance of a 3-D data acquis ition system.

STRATEGY FOR GROWTH
The Company's business strategy is to meet the expanding needs of users of 3-D seismic equipment through its leasing and support services. In order to accomplish this, the Company has identified the following major objectives:

  • Enlarge and diversify its lease pool of seismic equipment. To meet customer demand, the Company will continue to increase its lease pool of channel boxes and peripheral seismic equipment, such as seismic vibrators, vibrator control electronics and ge ophones. The Company believes that the availability of a larger and more complete pool of 3-D seismic equipment for lease will encourage seismic survey companies to increasingly lease, rather than purchase, such equipment. The Company is also evaluating the feasibility of a lease pool of marine seismic equipment.

  • Expand its international presence. The Company receives referrals from SERCEL on a worldwide basis and is its exclusive sales agent in Canada, where the Company has an office in Calgary, Alberta. The Company believes that its alliances with I/O and SERCEL will help the Company to further penetrate, on a cost-effective basis, international markets, where such manufacturers are well-recognized and have well-developed business relationships. The Company is also evaluating the feasibility of opening ad ditional foreign offices.

  • Develop and enhance alliances with major seismic equipment manufacturers. The Company uses alliances with manufacturers such as I/O and SERCEL to acquire and build its lease pool of equipment and increase customer referrals. The Company continues to seek to expand the scope of these alliances, as well as develop similar arrangements with other equipment manufacturers.
MANAGEMENT
Billy F. Mitcham, Jr., founder, is Chairman of the Board, President and Chief Executive Officer. He has more than 19 years experience in the geophysical industry. From 1979 to 1987, he served in various management capacities with Mitcha m Associates equipment leasing company. From 1975 to 1979, Mr. Mitcham served in various capacities with Halliburton Services, primarily in oilfield services.

Roberto Rios, CFO, has been Vice-President-Finance, Secretary and Treasurer and a director of the Company since September 1994. Mr. Rios held senior positions, including Vice President and General Manager, with ADVO, Inc., a publicly-tra ded national direct mail company. From 1980 to 1989, he held several senior financial positions, including unit controller, with Harte-Hanks Communications, Inc., a publicly traded multimedia advertising company. Mr. Rios is a member of the American Ins titute of Certified Public Accountants.

Paul C. Mitcham is Vice-President of Operations and a director of the Company. Mr. Mitcham has held executive positions with the Company since 1989. Prior to 1989, he worked in various field positions in the geophysical industry.

William J. Sheppard has been Vice-President of International Operations and a director of the Company since October 1994. Mr. Sheppard has more than 25 years of experience in the geophysical industry. Prior to joining Mitcham, Mr. Shepp ard was the President of Alberta Supply Company, a Canadian seismic equipment sales and service company.

Gordon M. Greve, a director since June 1995, has held various management positions with Amoco Corporation from 1977 through 1994. He has more than 30 years of experience in the geophysical industry including Acting Vice President of Expl oration Technology and Services for much of 1994, and manager of exploitation from 1991 through 1994. From July 1986 to February 1991, he was a manager in geophysics. Mr. Greve is the former President of the Society of Exploration Geophysicists.

Randal Dean Lewis was elected a director of the Company in November 1994. Mr. Lewis is the Dean of the Business School at Sam Houston State University and has served in this capacity since October 1995. From 1987 to October 1995, Mr. Le wis was the Associate Dean and Professor of marketing at Sam Houston State University. Prior to 1987, Mr. Lewis held a number of executive positions in the banking and finance industries.

John F. Schwalbe was elected a director of the Company in November 1994. Mr. Schwalbe has been a Certified Public Accountant in private practice since 1978, with primary emphasis on tax planning, consultation, and compliance.

INVESTMENT SUMMARY
With one of the world's largest independent lease pools of 3-D seismic equipment, Mitcham is poised to take advantage of the growing demand for technologically superior 3-D seismic surveys. The utilization of 3-D seismic surveys is expected to increase in the coming years and become the dominant seismic data acquisition technique in the oil and gas industry. While more costly than its 2-D counterpart, the greatly enhanced information regard ing subsurface geology provided by 3-D seismic equipment results in vastly improved drilling success rates and thus, reduced exploration costs.

Given the expense of 3-D channel boxes and other peripheral equipment, the Company believes that seismic survey firms and oil and gas exploration companies will increasingly engage in short-term leasing of such equipment as an alternative to purchasing. Mitcham, whose fiscal 1997 net income increased 58%, is selling at an 16x trailing price to earnings ratio, making it an attractive candidate for both growth and value investors.

Selected Financial Data
(In thousands, Except per share information)

Three Months Ended April 30, 1997 1996
Statement of income Data:
Leases $4,116 $1,804
Sales 1,420 466
Total Revenues 5,536 2,270
Net Income $ 1,723 $ 505
Earnings per common share $0.28 $0.13
Weighted average shares outstanding 6,251,000 4,024,000

April 30, 1997
Balance Sheet Data:
Working capital $16,705
Seismic equipment lease pool, net 18,240
Total assets 39,095
Short-term debt, including current installments of long-term debt $3,370
Long-term debt 48
Stockholder's equity 35,032

FINANCIAL HIGHLIGHTS
Years Ended January 31, 1997 1996 1995 1994 1993
Statement Income Data:
Leases $8,345 $5,157 $2,424 $1,601 $1,266
Sales 6,345 2,135 2,860 2,926 1,156
Total Revenues 14,690 7,292 5,284 4,527 2,422
Net Income 2,702 1,713 1,000 703 35
Earnings per common share 0.60 0.52 0.66 0.51 0.03
Weighted average shares outstanding 4,522,000 3,306,000 1,514,00 1,380,000 1,380,000

January 31, 1997 1996 1995 1994 1993
Balance Sheet Data:
Working capital $ (119) $ 920 $1,452 $ (94) $ 162
Seismic equipment lease pool, net 17,963 8,155 4,9794 885 62
Total Assets 24,293 12,239 8,199 2,427 615
Short-term debt, including current installments of long-term debt 1,937 847 429 623 60
Long-term Debt 2,674 1,173 261 - -
Stockholder's Equity 15,242 8,048 6,176 977 274


FOR MORE INFORMATION, CONTACT:

Mitcham Industries, Inc. (409) 291-2277
Billy F. Mitcham, Jr., Chairman, President & CEO
Roberto Rios, VP-Finance, Secretary, Treasurer & CFO

---or---

Investor Relations Counsel
The Equity Group Inc.
Marie Driscoll (212) 836-9605
Linda Latman (212) 836-9609
* The Equity Group is retained by Mitcham Industries, Inc. to provide investor relations services.

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