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Edited Transcript of SAEX earnings conference call or presentation 26-Mar-19 2:00pm GMT

Q4 2018 SAExploration Holdings Inc Earnings Call

HOUSTON Mar 30, 2019 (Thomson StreetEvents) -- Edited Transcript of SAExploration Holdings Inc earnings conference call or presentation Tuesday, March 26, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brent Whiteley

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

* Jeff Hastings

SAExploration Holdings, Inc. - Chairman & CEO

* Ryan Abney

SAExploration Holdings, Inc. - Former VP of Finance

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the SAExploration Fourth Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Ryan Abney. Mr. Abney, you may begin.

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

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Thank you, Josh, and good morning, everyone. 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 operations and general 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 may include or be influenced by: developments with respect to Alaska oil and natural gas exploration tax credit system that continue to affect our ability to timely monetize tax credits that have been assigned to us by our customer, including litigation over the constitutionality of the legislation allowing Alaska to sell bonds to retire its liabilities relating to tax credit certificates; changes in Alaska oil and natural gas exploration tax credit system that may significantly affect the level of Alaskan exploration spending; fluctuations in the level of exploration and development activity in the oil and gas industry; intense industry competition involving a competitive bidding process that involves significant cost and risk; delays in permitting and land access rights; a limited number of customers; credit and delayed payment risks related to our customers; the availability of liquidity and capital resources, including our need to obtain additional working capital; limited ability to make capital expenditures due to our current liquidity and cash flow situations and the potential impact it has on our business and competitiveness; increases in activism against oil and natural gas exploration and development activities; the need to manage rapid growth and contraction of our business; delays, reductions or cancellations of service contracts; operational disruptions due to seasonality, weather and other external factors; crew availability and productivity; whether we enter into turnkey or term contracts; high fixed cost of operations; substantial international business, exposing us to currency fluctuations and global factors, including economic, political and military uncertainties; risks relating to cyber incidents; the ability to retain key executives; the need to comply with diverse and complex laws and regulations; and other risks incorporated by reference to 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 Securities and Exchange Commission. In particular, risks and uncertainties that could cause actual results to vary materially from SAE's expectations are described under Risks Factors and Cautionary Note Regarding Forward-looking Statements in SAE's Form 10-K filed yesterday, March 25, 2019, for the period ended December 31, 2018.

The information discussed today should be taken 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.

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Jeff Hastings, SAExploration Holdings, Inc. - Chairman & CEO [3]

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Thank you, Ryan. Thanks to each of you for participating in today's call. I'll start with some initial comments on this past year and the overall direction of the company, and then Brent Whiteley, our CFO, will review our financial results for the fourth quarter and the fiscal year ended December 31, 2018. After that, we'll turn the call over for questions.

This past year was a dichotomy of extremes. On one hand, we experienced our lowest level of revenue generation since before 2011, when SAE first expanded from South America to North America. On the other hand, we successfully identified and closed what will likely be some of the more meaningful strategic transactions this company will undertake.

While we cannot control variables such as commodity prices or exploration activity, we're very proud of our ability to remain disciplined during a very difficult period. Specifically, I'm encouraged with our focus on positioning the company in the best possible way to capture meaningful value when the cycle turns.

We believe the underlying fundamentals of our industry remain strong for the long term. While our customers have spent the last few years adjusting their asset portfolios and investment strategies, we believe most of the major oil and gas companies that underpin our global markets have found a profitable formula at today's commodity prices.

The services we provide to the oil and gas industry are very important to minimizing risk, creating meaningful incremental value during cyclical periods, where efficiency gains and cost reductions at the wellhead are ever more important.

We are encouraged by certain signals pointing towards a return to growth in activity in certain markets. The ocean-bottom marine market continues to be a bright spot for the seismic industry. We are currently performing a large ocean-bottom marine project in India, a second in the Middle East. Additionally, we have announced another ocean-bottom marine project in the Asia Pacific region. We expect to complete these projects by midyear.

Additionally, we are optimistic that we will be successful in converting new ocean-bottom marine opportunities to signed contracts in the near future as the demand in the ocean-bottom marine seismic market remains robust globally.

The silver lining for last year was the level of activity we experienced during the fourth quarter, which was relatively higher than what we typically see during this period due to the Lower 48 operations we were able to build from the Geokinetics asset acquisition.

Despite our Lower 48 crews encountering significant weather delays, which negatively impacted our margins during the fourth quarter of 2018, we hope the somewhat steadier and more predictable activity levels in the Lower 48 will give us the ability to offset the more unpredictable and lumpy seasonable utilization levels from our international markets.

With a steadily improving backlog and a somewhat healthier bidding landscape, together with 2 full crews operating on the North Slope, as we speak, ocean-bottom marine crews in Asia and the Middle East and an average of 3 to 4 crews targeting multiple unconventional-focused resource plays in the Lower 48, we are expecting meaningfully improved results during the first half of 2019 and improved visibility on the second half of the year as well.

We also plan to continue to refine our integrated cost structure to maximize efficiencies for the Geokinetics asset acquisition. Part of this strategy may include selective asset sales, while also combining the high utilization of assets with compatible opportunities in our current backlog so that we achieve incremental value and cash flow from a reduction in rental costs.

We believe the strategic steps that we have taken with the asset acquisition and the related capital structure transactions, along with the continued support of our employees and key stakeholders, will allow us to achieve our goal of leveraging SAE's outstanding operational record to become a market leader in seismic data acquisition and processing services worldwide.

I will now turn the call over to our CFO, Brent Whiteley, to discuss our financial results for the fourth quarter and the fiscal year ended December 31, 2018. Brent?

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

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

During the fourth quarter of 2018, we reported revenues of $25.6 million, a 70.6% increase from the third quarter of 2018 and a 428.6% increase from the fourth quarter of 2017.

For the fiscal year 2018, we reported revenues of $94.6 million, which is a 25.5% decrease compared to fiscal year 2017. The quarterly increase from both the third quarter of 2018 and the fourth quarter of 2017 was due to an increase in the number of projects in North America, offset by fewer projects in Colombia.

The decrease in our annual revenue was due to fewer projects in South America, particularly Colombia, and no projects in West Africa, particularly offset by more projects in North America, primarily in Canada and the Lower 48.

We also reported adjusted gross profit of $1.3 million for the fourth quarter of 2018 compared to adjusted gross loss of $1.1 million for the third quarter of 2018 and adjusted gross loss of $0.8 million for the fourth quarter of 2017.

For the full year 2018, we reported an adjusted gross profit of $8.5 million compared to an adjusted gross profit of $33.8 million in 2017. Adjusted EBITDA was negative $8 million for the fourth quarter of 2018 compared to a negative $8.9 million for the third quarter of 2018 and a negative $6.8 million for the fourth quarter of 2017.

Our fiscal year 2018 adjusted EBITDA was negative $18.5 million compared to positive $11 million for 2017. Both adjusted gross profit/loss and adjusted EBITDA for the fourth quarter and the fiscal year 2018 were negatively impacted by less favorable pricing when taking into account the fixed cost involved in our projects. Adjusted gross profit or loss and adjusted EBITDA are non-GAAP financial measures and are described in our earnings release under non-GAAP measures.

For the fourth quarter of 2018, we reported net loss of $22.6 million or $7.75 per basic and diluted share compared to a net loss of $25.3 million or $27.80 per basic and diluted share in the third quarter of 2018, and further compared to a net loss of $15.9 million or $33.81 per basic and diluted share for the fourth quarter of 2017.

For the fiscal year 2018, we reported a net loss of $82.7 million or $102.25 per basic share and diluted share compared to a net loss of $38.8 million or $86.90 per basic and diluted share in 2017.

As of December 31, 2018, our cash and cash equivalents totaled $7.2 million; working capital was $2.8 million; total debt at face value, excluding net unamortized premiums or discounts, was $108.3 million; and total stockholders' equity was $15.4 million.

Capital expenditures for the fourth quarter of 2018 were $0.2 million compared to $0.3 million in the third quarter of 2018 and $0.3 million in the fourth quarter of 2017. We reported $1.3 million of capital expenditures for the fiscal year 2018 compared to $2.7 million in 2017. The low level of capital expenditures in all periods was primarily due to the continuation of unfavorable conditions in the oil and gas industry.

Lastly, as of December 31, 2018, our backlog was $184.9 million, which does not include the recently announced $60 million in new projects in Alaska and Asia Pacific region, and our bids outstanding totaled $570.7 million.

Approximately 99% of our backlog is comprised of data acquisition projects, and the remainder is comprised of data processing projects. Additionally, approximately 48% of the data acquisition projects are located in North America, with the balance attributable to an ocean-bottom marine project in the Asia Pacific region and the Middle East.

We currently expect to complete substantially all of the projects in our backlog as of December 31, 2018, during 2019. The estimations of realization from our backlog can be impacted by a number of factors, however, including deteriorating industry conditions, customer delays or cancellations, permitting or project delays and environmental conditions.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And there are no questions currently in queue at this time. I would now like to turn the call back over to Mr. Jeff Hastings for any further remarks.

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Jeff Hastings, SAExploration Holdings, Inc. - Chairman & CEO [2]

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Thank you, Josh. If there's no further questions, I'd like to thank you, again, for joining us today. We appreciate your support, and we look forward to speaking with you next quarter. Have a great day, and goodbye.

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Operator [3]

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Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.