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Edited Transcript of SAEX earnings conference call or presentation 14-May-19 2:00pm GMT

Q1 2019 SAExploration Holdings Inc Earnings Call

HOUSTON May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of SAExploration Holdings Inc earnings conference call or presentation Tuesday, May 14, 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. - 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 First Quarter 2019 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, Vice President of Finance. Sir, you may begin.

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

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Thank you, Joelle, 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 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 risk and uncertainties which may cause actual results to differ materially. These risks and uncertainties may include or be influenced by: Developments with respect to the Alaskan oil and 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 the tax credit certificates; changes in the Alaskan oil and gas exploration and tax credit system that may significantly affect the level of Alaska 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 risk 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 and the potential impact this has on our business and competitiveness; increases in activism against oil and gas exploration and development activities; the need to manage rapid growth and contraction of our business; delays, reductions or cancellation of service contracts; operational disruptions due to seasonality, weather and other external factors; crew productivity and availability; 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; risk 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 risk and uncertainties related to SAE's business are or will be described in greater detail in SAE's filings with the SEC. In particular, risk and uncertainty 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 on March 25, 2019, for the period ended December 31, 2018. The information discussed today should be taken in light of such risk. 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 quarter and the overall direction of the company and then Brent Whiteley, our CFO, will review the financial results for the first quarter ended March 31, 2019. After that, we'll turn the call over for questions.

Operational execution at the crew level, disciplined strategy, sound decision-making and a strong liquidity allowed us to post one of our better first quarters in our recent history. As expected, we have seen progressive growth in the ocean-bottom nodal market, and a return to activity in the North Slope in Alaska this past year resulted in utilization levels not seen in several years.

Additionally, the business we have built in the Lower 48 has diversified our customer base and introduced additional opportunities to deploy our new equipment and capture cost synergies through a reduction in rental expense.

While we continue to expect some integration-related expenses before our new overhead and fixed cost profiles normalize, we are excited to see the positive impact from our acquisition of the Geokinetics assets last year. We are ahead of our own expectations with respect to the timing of realizing the monetary benefits from this transaction and from the difficult choices we've made over the past few years.

The growth in our contracted backlog and the rate at which we have been able to replace revenue generated from our backlog are encouraging trends.

We are seeing an improvement in activity levels primarily in Alaska and the ocean-bottom nodal markets worldwide. Our recent $25 million ocean-bottom marine award in Brazil expands our geographic footprint offshore to include Asia Pacific, the Middle East, West Africa, the North Sea and now South America. We continue to see a positive imbalance in the marine market between the number of producers allocating capital for new seismic expenditures and the number of service providers and the number of -- and the equipment available to perform the desired projects.

In Alaska, much of the return to growth in the seismic activity has been driven by declining production rates and the advancement in new recording technologies, which combined with higher channel counts and higher-density program designs, have resulted in superior imaging quality than what exists currently from pre-existing data.

Additionally, primarily due to the instability in commodity prices, in conjunction with the short seasonal window to perform services, many of the producers in the North Slope have conservatively replaced reserves from existing production over the past few years. A similar effect can be seen unfolding in international markets, where some areas have not seen significant investment in many years. As we observed previously, we expect this unusually long period of industry-wide underinvestment in new exploration initiatives together with access to enhanced recording technologies to result in a surge to replace depleting reserves globally.

I am very proud of all SAE employees who have spent the past couple years making tough choices to position the company for future success, especially during a very difficult period where many service providers were making decisions to boost near-term results at the expense of long-term objectives.

Even with the inherent lumpiness in our quarterly revenue, we are optimistic that 2019 could be a markedly improved year overall. We see -- we expect to see most of the large working capital build related to the ramp-up in activity we experienced during the first quarter to return to our cash balance by the end of the second quarter. This cash generation, combined with the remaining $8 million of available borrowing capacity under our senior credit facility subject to lender approval, should be sufficient to repay our $7 million of senior notes due September plus cover working capital requirements for new projects this year.

While visibility into the second half of the year is still constrained beyond the projects currently in backlog, we are comfortable that our current liquidity and related near-term expectations will be sufficient to continue to position SAE for future success.

I'll now turn things over to our CFO, Brent Whiteley, to discuss our financial results for the first quarter ended March 31, 2019. 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 first quarter of 2019 and then we'll turn the call over for questions.

During the first quarter of 2019, we reported revenues of $93.4 million, a 265% increase from the fourth quarter of 2018 and a 152% increase from the first quarter of 2018. The quarterly increase from both the first quarter and the fourth quarter of 2018 was due to the increase in the number of projects in North America and the Asia Pacific region, particularly offset by fewer projects in South America.

We also reported adjusted gross profit of $23.2 million for the first quarter of 2019, an increase of 1,644% from $1.3 million in the fourth quarter 2018 and an increase of 109% from $11.1 million in the first quarter of 2018.

Adjusted EBITDA was $15.9 million for the first quarter of 2019 compared to negative $8 million for the fourth quarter 2018 and positive $6 million for the first quarter of 2018. Both adjusted gross profit and adjusted EBITDA in the first quarter of 2019 were impacted by few -- by more favorable pricing and better-than-expected performance compared to budget when taking into account the fixed costs involved in our projects. Our adjusted gross profit and adjusted EBITDA are non-GAAP financial measures and are described in our earnings release under non-GAAP measures.

For the first quarter of 2019, we reported net income attributable to SAExploration of $3.8 million or $0.50 per basic share and $0.26 per diluted share, compared to net loss attributable to SAExploration of $22.6 million or negative $7.75 per diluted share -- per basic and diluted share for the fourth quarter of 2018, and further compared to a net loss attributable to SAExploration of $2.3 million or negative $92.06 per basic and diluted share for the fourth -- first quarter of 2018.

As of March 31, 2019, our cash and cash equivalents totaled $9.1 million. Working capital was $19.4 million. Total debt at face value, excluding net unamortized premiums or discounts, was $118 million. And total stockholders' equity was $21.2 million.

Capital expenditures for the first quarter of 2019 were $0.3 million compared to $0.2 million in the fourth quarter 2018 and $0.1 million for the first quarter of 2018. 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 March 31, 2019, our backlog was $183.9 million and our bids outstanding totaled $431.9 million. Approximately 98% of the backlog is comprised of data acquisition projects and the remainder is comprised of data processing projects. Of the data acquisition projects, approximately 52 were onshore and 48 -- 52% were onshore and 48% were marine. Additionally, approximately 50% of the data acquisition projects are located in North America, and approximately 32% are located in the Asia Pacific region with the balance attributable to projects in South America and the Middle East.

We currently expect to complete approximately 81% of the projects in our backlog as of March 31, 2019, during the remainder of 2019 with the balance scheduled to be performed during Q1 2020. The expectations of realization from our backlog can be impacted by a number of factors, however, including, deteriorating industry conditions, customer delays or cancellation, 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) I am not showing any questions at this time. I would now like to turn the call back over to Jeff Hastings for any closing remarks.

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

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Thank you, Joelle. If there are 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.

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Operator [3]

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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.