U.S. Markets open in 4 hrs 54 mins

Edited Transcript of SAEX earnings conference call or presentation 5-May-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 SAExploration Holdings Inc Earnings Call

HOUSTON May 11, 2017 (Thomson StreetEvents) -- Edited Transcript of SAExploration Holdings Inc earnings conference call or presentation Friday, May 5, 2017 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Brent Whiteley

SAExploration Holdings, Inc. - CFO, General Counsel and Secretary

* Jeff Hastings

SAExploration Holdings, Inc. - Executive Chairman of the Board and CEO

* Ryan Abney

SAExploration Holdings, Inc. - VP of Finance

================================================================================

Conference Call Participants

================================================================================

* R. Gregg Hillman

First Wilshire Securities Management, Inc. - Senior Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, ladies and gentlemen, and welcome to the SAExploration Q1 2017 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I'd like to introduce your host for today's conference, Mr. Ryan Abney, Vice President of Finance. Sir, please begin.

--------------------------------------------------------------------------------

Ryan Abney, SAExploration Holdings, Inc. - VP of Finance [2]

--------------------------------------------------------------------------------

Thank you, Vince, and good morning, everyone, and thank you for joining us today. Our speakers today will be Jeff Hastings, Chairman and Chief Executive Officer of SAExploration; and Brent Whiteley, Chief Financial Officer and General Counsel of SAE. Also with us today is Brian Beatty, Chief Operating Officer of SAE.

Before we begin, I would like to remind everyone that some statements made during the course of today's call may be forward-looking within the meaning of the federal securities laws. These statements can be identified by the use of words or phrases, such as believes, estimates, expects, intends, anticipates, projects, plans to, will, should and variations of these words or similar words. These forward-looking statements may include statements regarding SAE's financial condition, results of operation and business, and SAE's expectations or beliefs concerning future periods; and are subject to risks and uncertainties, which may cause actual results to differ materially. These risks and uncertainties include fluctuations in the levels of exploration and development activity in the oil and gas industry; intense industry competition; a limited number of customers; the need to manage rapid growth, delays, reductions or cancellations of service contracts; operational disruptions due to seasonality, weather and other external factors; crew productivity and the availability of capital resources; high levels of indebtedness; substantial international business exposing SAE to currency fluctuations and global factors, including economic, political and military uncertainties; the need to comply with diverse and complex laws of regulations and other risks incorporated by reference in the SAE's filings with the Securities and Exchange Commission. Certain risks and uncertainties related to SAE's business are or will be described in greater detail in SAE's filings with the SEC. In particular, risks and uncertainties that could cause actual results to vary materially from SAE's expectations are described under risk factors and cautionary note regarding forward-looking statements in SAE's Form 10-K filed on March 15, 2017, for the period ended December 31, 2016, and has to be updated in our Form 10-Q for the period ended March 31, 2017. The information discussed today should be taking in light of such risks. Except as required by applicable law, SAE is not under any obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise.

With that said, I would now like to turn the call over to Jeff Hastings, Chairman and Chief Executive Officer of SAE. Jeff, please go ahead.

--------------------------------------------------------------------------------

Jeff Hastings, SAExploration Holdings, Inc. - Executive Chairman of the Board and CEO [3]

--------------------------------------------------------------------------------

Thank you, Ryan. Good morning, everyone. Thanks to each of you for participating in today's call. I'll start with some initial comments on this past quarter and the overall direction of the company, and then Brent Whiteley, our CFO, will review the financial results for the first quarter of 2017. After that, we'll turn the call over for questions.

We're very pleased with the performance and the results we produced during the first quarter, specifically our ability to maintain and repeat the excellent level of execution and efficiency demonstrated in the first quarters of 2016 and 2015. Activity in the first quarter held firm, supported by seasonal projects in Canada and Alaska, the successful execution of a major deep water ocean-bottom nodal project in West Africa and operations in New Zealand. This was done in the face of continued pressure throughout the industry and all of our geographical markets, as producers remained patient and diligent in their evaluation of capital-spending plans. We continued to engage in discussions with customers about longer-term agreements as evidenced by the signing of the -- of our 3-year agreement with Hocol to provide all of their geophysical services in Columbia.

We expect the Hocol agreement to add an incremental revenue potential of about $40 million a year on a normalized annual basis through maturity. Because of our constrained visibility, however, our formal bids outstanding are relatively low. This is not necessarily reflective of the overall level of activity, but instead, is due mostly to the timing and lack of producers' willingness to plan project as far in advance as we've become accustomed to in the past.

Conversely, early stage prebid opportunities, RFIs, that we see coming into our markets, but that have not officially been tendered yet, suggest that the future prospects may be brighter.

We remain well positioned internationally in key markets around the world. We continue to believe in our overall strategy and the fundamental elements that underpin our strength. Our core markets have proven resilient and our diversification has assisted us in maintaining stability. We expect to remain focused on preserving liquidity, including continuing our efforts to monetize the Alaska tax credits, to renew or replace our revolving credit facility and senior note facility, while we await recovery of exploration spending. In the meantime, our capital expenditures will be kept at a minimum, with a target of less than $5 million for 2017.

I'll now turn the things over to our CFO, Brent Whiteley, to discuss the financial results for the first quarter of 2017. Brent?

--------------------------------------------------------------------------------

Brent Whiteley, SAExploration Holdings, Inc. - CFO, General Counsel and Secretary [4]

--------------------------------------------------------------------------------

Thanks, Jeff, and good morning to everyone. I'll take a few minutes to review our financial results for the first quarter of 2017, and then we'll turn the call over for questions.

Total revenues in Q1 2017 decreased 4.4% to $86.2 million from $90.2 million in the first quarter of 2016, primarily due to a decrease in activity in Alaska, offset by an increase in ocean-bottom marine activity in West Africa when compared to the same period last year. However, total revenues in Q1 2016 included approximately $38.6 million related to the tax credit projects in Alaska, when there are no such projects in Q1 2017.

By geography, approximately $46.4 million or about 54% of our revenues for the first quarter of 2017 were generated in North America, followed by West Africa at $35.2 million or about 41% of our revenues, Southeast Asia at $2.9 million or about 3% of our revenues, and South America at $1.8 million or about 2% of our revenues.

Our gross profit for Q1 2017 was $25.1 million or 29.2% of revenues, compared to $26.4 million or 29.3% of revenues in the first quarter of 2016. Gross profit for Q1 2017 and Q1 2016 included depreciation expenses of approximately $3.3 million and $4.2 million, respectively. Gross profit excluding depreciation expense, or adjusted gross profit, which is a non-GAAP measure, was $28.4 million in Q1 2017 or 33% of revenues, compared to $30.6 million or 34% of revenues in Q1 2016. Despite a marginal decrease in revenue, gross profit, as a percentage of revenue, remained comparable to Q1 2016 due to sustained levels of performance and efficiencies at the field level.

SG&A expenses during Q1 2017 decreased 3.4% to $6.5 million or 7.6% of revenues, compared to $6.7 million or 7.5% of revenues in the first quarter 2016. Our SG&A expenses in Q1 2017 included approximately $0.9 million of nonrecurring and noncash expenses, compared to $0.2 million in Q1 2016.

Income before income taxes during Q1 2017 was $10.6 million compared to $17.3 million in the first quarter of 2016. The decrease in income before income taxes was largely due to significantly higher other expenses compared to Q1 2016. During Q1 2017, other expenses included, among other things, $8.4 million of interest expense, of which approximately $5.3 million was noncash amortization of loan issuance costs, and $2.2 million was interest that was paid in kind. While a noncash charge, the amortization of loan issuance costs is suspected to continue to impact income before income taxes to a similar degree until the senior loan facility is repaid in full or matures in January of 2018.

Provision for income taxes was $1.7 million during Q1 2017 compared to $0.7 million in Q1 2016. The increase in provision for income taxes was primarily due to fluctuations in earnings among the various jurisdictions in which we operate, decreases in valuation allowances reversals and increases in foreign tax rate differentials, offset by decreases in permanent differences.

Net income attributable to the corporation during Q1 was $6.8 million or $0.73 per diluted share, compared to $14.2 million or $110.08 per diluted share on a reverse-adjusted split -- split-adjusted basis in the first quarter 2016. Net income during Q1 2017 was impacted by a number of factors, including the lower revenue and corresponding decrease in gross profit, higher interest expense due to the amortization of loan issuance costs related to our senior loan facility and a higher effective tax rate.

Adjusted EBITDA, which is a non-GAAP measure, was $22.7 million in Q1 2017 or 26.4% of revenues, compared to $24.1 million or 26.7% of revenues in the first quarter 2016.

Capital expenditures in the first quarter of 2017 were $2.2 million compared to $0.2 million in Q1 2016. Capital expenditures in Q1 2017 primarily related to the remaining cash payments for the purchase of additional vibrator trucks made in Q4 2016, and were partially offset by the receipt of $1.9 million of proceeds from the sale of fixed assets during Q4 2016. Given the state of the industry and the limited growth opportunities requiring capital expenditures, we expect our total capital expenditures for 2017 to be under $5 million.

On March 31, 2017, our cash, cash equivalents and restricted cash totaled $15.7 million, which included approximately $4.2 million of restricted cash, primarily related to currency exchange control regulations in a West African country where we completed a deep water ocean-bottom marine project during Q1 2017. Also on March 31, 2017, our working capital was $44.8 million, total debt at face value, excluding net unamortized premiums or discounts, was $118.8 million, and total stockholders' equity was $47.5 million.

Lastly, our contracted backlog on March 31, 2017 was $53.1 million, which includes recently announced $20 million of project rewards in North and South America. On the same date, our bids outstanding totaled $155 million. Our entire backlog on March 31, 2017 was comprised on land-based projects. Approximately 89% is attributed to South America and 8% to North America and the remainder in Southeast Asia.

We currently expect all of the projects in our backlog to be completed during 2017.

At this point, I'll turn the call over to the operator and open the floor for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question is from [Ariel Rothman] of Tegean Capital.

--------------------------------------------------------------------------------

Unidentified Analyst, [2]

--------------------------------------------------------------------------------

I guess, first in terms of the backlog. Is there any revenue associated with the kind of the Hocol in backlog right now?

--------------------------------------------------------------------------------

Brent Whiteley, SAExploration Holdings, Inc. - CFO, General Counsel and Secretary [3]

--------------------------------------------------------------------------------

Yes. There is some revenue in South America in that backlog, yes, which will be associated with that agreement.

--------------------------------------------------------------------------------

Unidentified Analyst, [4]

--------------------------------------------------------------------------------

Okay. And then in terms of kind of the tax credit, just kind of could you give us an update on kind of where we stand on that process and how that's going so far?

--------------------------------------------------------------------------------

Jeff Hastings, SAExploration Holdings, Inc. - Executive Chairman of the Board and CEO [5]

--------------------------------------------------------------------------------

This is Jeff Hastings. Currently, we are still awaiting several of the applications that are with the Department of Revenue in the State of Alaska Tax Division and several pieces of legislation that are the -- both the house and the senator in session in Alaska and expected to be in session through middle of May. There's several pieces of legislation there that look like they will expedite those application processes, but it's just like any other legislative -- piece of legislation. It needs to be voted on, and we expect that vote to come some time near the middle or end of May, of this month.

--------------------------------------------------------------------------------

Unidentified Analyst, [6]

--------------------------------------------------------------------------------

Okay. And can you just remind us the total balance that's still yet to pass the -- transferred over, I guess, at this point?

--------------------------------------------------------------------------------

Brent Whiteley, SAExploration Holdings, Inc. - CFO, General Counsel and Secretary [7]

--------------------------------------------------------------------------------

That's right at $58 million.

--------------------------------------------------------------------------------

Unidentified Analyst, [8]

--------------------------------------------------------------------------------

Okay. And I guess, lastly, in terms of kind of -- yes, I've heard some, kind of, competitors' calls talk about kind of some strengths in tender reactivity and on ocean-bottom. Are you kind of seeing that? Do you see that, that's out there at this point?

--------------------------------------------------------------------------------

Jeff Hastings, SAExploration Holdings, Inc. - Executive Chairman of the Board and CEO [9]

--------------------------------------------------------------------------------

Yes, we're still seeing a fairly high level of requests for information and RFPs in the ocean-bottom nodal market.

--------------------------------------------------------------------------------

Unidentified Analyst, [10]

--------------------------------------------------------------------------------

Okay. Is there anything such as...

--------------------------------------------------------------------------------

Jeff Hastings, SAExploration Holdings, Inc. - Executive Chairman of the Board and CEO [11]

--------------------------------------------------------------------------------

Most of those are focused on late 2017 and 2018 at this point, though.

--------------------------------------------------------------------------------

Unidentified Analyst, [12]

--------------------------------------------------------------------------------

Is there any specific reason that you're seeing strength or is it kind of broad-based?

--------------------------------------------------------------------------------

Jeff Hastings, SAExploration Holdings, Inc. - Executive Chairman of the Board and CEO [13]

--------------------------------------------------------------------------------

That's fairly broad-based actually.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

Our next question is from Gregg Hillman of First Wilshire Securities.

--------------------------------------------------------------------------------

R. Gregg Hillman, First Wilshire Securities Management, Inc. - Senior Research Analyst [15]

--------------------------------------------------------------------------------

I had a question about kind of like future strategy. Is there any way some of your services can be used for nonoil things, such as subsea mining or subsea surveying, for some other purpose? You know what I mean?

--------------------------------------------------------------------------------

Jeff Hastings, SAExploration Holdings, Inc. - Executive Chairman of the Board and CEO [16]

--------------------------------------------------------------------------------

Yes, we do offer services in terms of seabed mapping for different applications, whether it'd be pipeline or ice couch type work for industries other than oil and gas industries. And, of course, a lot of our equipment in South America is -- can be used not just in terms of support of seismic operations, but it's also rented out for construction support, power line support, pipeline support, that type of thing, the gaps in communication systems.

--------------------------------------------------------------------------------

R. Gregg Hillman, First Wilshire Securities Management, Inc. - Senior Research Analyst [17]

--------------------------------------------------------------------------------

Okay. Would you ever -- I mean, just in terms of M&A activity, what was the last acquisition that the company made? And assuming things come back, what opportunities would you have to reinvest cash flow, let's put it that way, if you start to see cash flow really strong over the next 2 or 3 years?

--------------------------------------------------------------------------------

Brent Whiteley, SAExploration Holdings, Inc. - CFO, General Counsel and Secretary [18]

--------------------------------------------------------------------------------

Yes, so all the company's growth for the most part has not been through acquisition. We had one small acquisition in Canada when the company first kind of moved into North America and that was it. So I think there is a lot of different opportunities available in the industry for both acquisition and combinations in different forms and different ways of put putting companies together. We always keep an eye on those. We gave a pretty open dialogue at many different avenues. And as the -- right now, we're really focused on our business, making sure our business has adequate liquidity and is functioning well in this market. But we keep our eye on opportunities. If there's an opportunity that makes sense to us, then we will go after it.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

(Operator Instructions) At this time, I see no further questions in queue. I'll turn it to Mr. Hastings for closing remarks.

--------------------------------------------------------------------------------

Jeff Hastings, SAExploration Holdings, Inc. - Executive Chairman of the Board and CEO [20]

--------------------------------------------------------------------------------

Thank you, Vince. If there's no further questions, I would like to thank you all for joining us today. We appreciate your support. And we look forward to speaking with you next quarter. Have a great day.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.