Mitcham Industries Q4 2007 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Pierre Conner - Capital One Southcoast - Analyst : Thanks for having the conference call. Appreciate it. First questions are around GunLink. And so, I appreciate the commentary you feel like you are confident that you have gotten all that resolution of the design issue behind you. Was there anything that came through in that, that is going to change your expectation of future margins? In other words is there going to be another processing step or something in the ability that changes what, how you expect the margins to come once you start delivering on a regular basis?

Question: Pierre Conner - Capital One Southcoast - Analyst : But directionally, they should expand as opposed to changing anything in the process that should contract them? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Pierre Conner - Capital One Southcoast - Analyst : Great. What about the increase in the backlog there on -- and I'm assuming that the backlog is all made up of 4000 -- so correct me if I'm wrong there. And then tell me what you see, you know we are all very familiar about the increase in marine. So what do you -- what's on the fringes here on the order and interest level? Has anything changed as a result of having to make changes in the design here, Billy, in terms of inquiries or from customers on GunLink 4000?

Question: Pierre Conner - Capital One Southcoast - Analyst : Okay, good. Two for Rob. In the or maybe, Billy, in the guidance number of revenues and I apologize if I didn't quite understand. But what was your assumption for experienced equipment sales within that $55 to $60 million? I imagined it's lower obviously but can you give us that clarity of that number?

Question: Pierre Conner - Capital One Southcoast - Analyst : That's fine. I understand. And the second one, Rob, was on the -- I know you are going to do some work on try to evaluate utilization/channel counts. And so I open that up to see if you've got some perspective you could share with us on, okay, we had so many thousand channels in '07 fiscal at this utilization level. Do you have any of that kind of metric yet?

Question: Pierre Conner - Capital One Southcoast - Analyst : But from a qualitative perspective I think you shared before, though, that you feel that there's opportunity for utilization to actually increase and --? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Pierre Conner - Capital One Southcoast - Analyst : I'm going to let some other guys. I'm sorry to jump into -- .

Question: Pierre Conner - Capital One Southcoast - Analyst : Good. All right. Excellent, guys. Very much appreciate the detail and the conference call.

Question: Terese Fabian - Sidoti & Co. - Analyst : I would like to talk a little bit about the Marines seismic market. We understand the market is strong, but can you talk a little bit more about the level of control equipment that is required? Do vessel owners mix and match their systems? Do they get back-up systems? And what your level of confidence is on sales into this market? That's one question.

Question: Terese Fabian - Sidoti & Co. - Analyst : That's great. Now my other question is very short which is, what was involved in the production delays on the GunLink 2000 system in the fourth quarter? And is that something that can recur?

Question: Terese Fabian - Sidoti & Co. - Analyst : That's very helpful. Thank you. I will save my other question for later.

Question: Tyson Bauer - Wealth Monitors - Analyst : Good outlook, gentlemen, and thanks for taking the time to do a conference call (inaudible) some exposure. I also hear you are going on a road show next week so, hopefully, that goes well for you. Two quick questions. One, can you give a little more detail to that $1.4 million expense on those delayed GunLink deliveries or resolving those issues? You talked about ensuring your customer relationship. What was involved with that $1.4 million?

Question: Tyson Bauer - Wealth Monitors - Analyst : And none of those are expenses that are reimbursable by the actual gun manufacturer?

Question: Tyson Bauer - Wealth Monitors - Analyst : Second question. You talked about, assume you are getting the Sercel new technology products in, you are basically have them out the door almost immediately. Yet we are not seeing a whole lot of lease sales from the pool because of the strong demand. Can you give us a sense of that blend of what you would characterize as new technology in your lease pool, compared to older technology. And where've you been finding the homes for some of that older technology that you have no need for trying to sell that?

Question: Tyson Bauer - Wealth Monitors - Analyst : Very good. One quick follow up then. If you looked at your revenues as far as your annual projection, if you looked at it as leasing versus nonleasing revenue, are we getting to the point where we are reaching that 50-50 plateau? Or are we looking at a situation where nonleasing revenue may overcome and overtake the leasing revenues?

Question: Tyson Bauer - Wealth Monitors - Analyst : You can say at least generally that both are seeing significant demand. It's not one leading the other?

Question: Tyson Bauer - Wealth Monitors - Analyst : All right. Thank you.

Question: Brian Black - Lamb Partners - Analyst : I want to understand a couple of things. One is when you talk about improvements and utilization, which are tough to quantify, but you see opportunities to do that in part through moving the facility to Singapore. You've given us '08 guidance which, obviously, we can look at what the margins implied by that is, but if you look out beyond '08 what do you see as the opportunity, ultimately, as far as operating margins for this business once you have sort of, you've completed the transition to Singapore?

Question: Brian Black - Lamb Partners - Analyst : Right. I guess I'm just -- the core incremental margin stays the same prior to making the two changes in Singapore with the repair facility and the manufacturing of Seamap. So what additional kind of pickup do you get once both of those changes are made?

Question: Brian Black - Lamb Partners - Analyst : Okay. Then just a kind of housekeeping item or two. What do you think the -- does the run rate depreciation that we saw for the fourth quarter is that okay to approximate for each quarter during the fiscal year '08?

Question: Brian Black - Lamb Partners - Analyst : But you started depreciating all of it, even if you weren't getting sales from that 15,000?

Question: Brian Black - Lamb Partners - Analyst : But it is unlikely to be dramatically different from the $2.5 million.

Question: Brian Black - Lamb Partners - Analyst : Then as far as the tax questions or just to clarify, you will become in fiscal year '08 a cash taxpayer at the rate of 34 or that's the GAAP --?

Question: Brian Black - Lamb Partners - Analyst : And that 10 to 15, does that carry into fiscal year '09 or it starts to catch up by then?

Question: Tamara Menukien - Greenwood Investments - Analyst : Thank you for having this conference call. I would like to clarify a few points and then I have also a couple of housekeeping questions. I guess I will start with the housekeeping one. On the income statement your provision for doubtful accounts is up, it seems significantly. I was wondering, what is the reason for that?

Question: Tamara Menukien - Greenwood Investments - Analyst : Another question is, it seems like, well, your capital expenditures are up a lot -- about $25 million -- and equipment leasing revenues increased only 13% in this fiscal year. I was wondering if 2008 is expected to increase a lot more than that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Tamara Menukien - Greenwood Investments - Analyst : Then, fourth quarter last year, equipment leasing revenues were only $4.4 million. And my understanding was that fourth quarter is usually seasonally the strongest quarter. Was there any reason why sales last year in the fourth quarter were so low?

Question: Tamara Menukien - Greenwood Investments - Analyst : So then my conclusion out of this is that 50% increase in revenues from this segment is not unreasonably high number. It can repeat again. Is that the correct assumption?

Question: Tamara Menukien - Greenwood Investments - Analyst : 50% increase from the equipment leasing revenues in the fourth quarter of this year. Is that a sustainable number at all?

Question: Terese Fabian - Sidoti & Co. - Analyst : I have a question on your guidance which I applaud. Are you going to be providing updates in the course of the year? I know you are not going to be doing quarterly, but for the fiscal year are you going to be providing updates as developments arise or the outlook changes?

Question: Terese Fabian - Sidoti & Co. - Analyst : Good. I think that will be very helpful. Thank you.

Question: Pierre Conner - Capital One Southcoast - Analyst : I wanted to get to the question on the impact of the channel count coming in late. So right now, we are at 60,000 channels I believe you said. Can you remind us, Bill, what was your channel count going into fiscal '07?

Question: Pierre Conner - Capital One Southcoast - Analyst : Yes, this time last year.

Question: Pierre Conner - Capital One Southcoast - Analyst : I was looking at that increase coming in -- the bulk of that if we did an average the bulk of that is coming in at the end of the year.

Question: Pierre Conner - Capital One Southcoast - Analyst : Got it. Then one last follow-up still on the guidance question. Rob, what do you -- you know we have some Sarbanes-Oxley. We have some expenses. Just one last line item, what can you tell us where that G&A line ought to be? Maybe you could tell us on a percentage basis or something of that nature?

Question: Pierre Conner - Capital One Southcoast - Analyst : There wasn't a particular lump of catch-up in the fourth quarter associated with the 123R.

Question: Pierre Conner - Capital One Southcoast - Analyst : Got it. That's what I wanted. Thanks for the follow-up. I appreciate it.

Question: Brian Black - Lamb Partners - Analyst : Just two quick follow ups. One is, what sort of assumptions are applied in the guidance for the channel count? In other words you are at 60. Are you assuming continued purchases or this is basically what you generate in revenue, based on just your current asset base? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies.

Question: Brian Black - Lamb Partners - Analyst : But as far as your plans that if the market remains as strong as it appears now, would you likely continue to increase the channel count over the course of the year?

Question: Brian Black - Lamb Partners - Analyst : And then -- .

Question: Brian Black - Lamb Partners - Analyst : Right. And then the last thing is, can you give -- do you have some kind of order of magnitude sense for us on sales in Russia? We know the number of channels there and you gave us the mix of what types of products those are. You know, the sales or the trend. I mean, it's obviously a big market opportunity. And are you sort of at plan, ahead of plan as far as the growth of the Russian business?