U.S. Markets close in 5 hrs 17 mins

Edited Transcript of SAEX earnings conference call or presentation 13-Nov-18 3:00pm GMT

Q3 2018 SAExploration Holdings Inc Earnings Call

HOUSTON Nov 13, 2018 (Thomson StreetEvents) -- Edited Transcript of SAExploration Holdings Inc earnings conference call or presentation Tuesday, November 13, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Brent Whiteley

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

* Jeff Hastings

SAExploration Holdings, Inc. - Chairman & CEO

* Ryan Abney

SAExploration Holdings, Inc. - VP of Finance

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

Presentation

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

Operator [1]

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

Good day, ladies and gentlemen, and welcome to the SAExploration Q3 2018 Earnings Conference Call. (Operator Instructions)

I would now like to turn the call over to Ryan Abney. Please go ahead.

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

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

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

Thank you, Sarah, 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 include developments with respect to the Alaskan oil and natural gas exploration tax credit system that continued to affect our ability to timely monetize tax credits that had been assigned to us by our customer, including litigation over the constitutionality of the legislation allowing Alaska to sell bonds for retirees' liabilities relating to tax credit certificates; changes in the Alaskan oil and natural gas exploration 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; 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 and refinance or replace our credit facility and our senior loan facility; the limited ability to make capital expenditures due to our current liquidity and cash flow situation, and the potential impact this has on our business and competitiveness; 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; crude 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; 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 for the period ended December 31, 2017, and as updated in SAE's Form 10-Q filed for the period ended June 30, 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 the Jeff Hastings, Chairman and Chief Executive Officer of SAE. Jeff, please go ahead.

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

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

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

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 third quarter of 2018. After that, we'll turn the call over for questions.

As expected, activity in many of our markets remains historically low during the third quarter due to continued and sustained lack of exploration spending. However, despite the first 9 months of 2018 being one of the most challenging periods in our history, I am encouraged by the effort put into formulating and executing the necessary changes to realign SAE's business model and financial structure for long-term success.

Beginning in January and ending in September, we initiated and completed a comprehensive strategy to further reduce our overall leverage and interest expense, enhance our liquidity, and affect the much-needed consolidation in a fragmented industry by opportunistically acquiring accretive assets. Even though we would always prefer to be busier at the field level, I believe these strategic initiatives could prove to be well-timed if exploration spending increases, particularly given how soon we could deploy and benefit from our expanded and upgraded equipment profile.

Looking forward, we are beginning to see some positive momentum, with customers evaluating and approving new projects. As evidenced by our improved backlog, we currently expect to see a higher-than-normal activity in the fourth quarter, which historically has been a seasonally weak period for SAE. Most of the activity will result from active contracts in the lower 48 as well as from the start of our recently announced ocean-bottom marine project in Asia. Our customers -- as our customers continue to formulate their plans for 2019, we think it is possible that we could see some improvement in exploration spending. In particular, the ocean-bottom marine market appears to be the most active, with the large number of opportunities competing for limited available capacity of nodes in the market. We expect the overall healthy economic conditions in the OPM market to benefit our ability to compete and to secure additional projects.

During the fourth quarter, we plan to continue to -- the integration of the Geokinetics asset acquisition, which we expect will involve cost reductions and asset sales as we trim down to keep an efficient and protective equipment fleet without redundancies. We also will continue to maintain our core focus on maximizing potential cash flow on our ongoing new projects. While we cannot control the exploration spending nor predict when the growth may return, we are executing on a plan to put SAE in the best possible position, not only to be sustainable in the current market environment, but to prosper in any broader recovery.

We believe the strategic steps 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 enable us to achieve our goal of leveraging SAE's outstanding operational history to become a market leader in the seismic data acquisition and processing services worldwide.

I'll now turn things over to our CFO, Brent Whiteley, to discuss our financial results of the third quarter of 2018. Brent, please go ahead.

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

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

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

Thanks, Jeff, and good morning to everyone. I'll take a few minutes to review our financial results for the third quarter 2018, and then we'll turn the call over for questions.

During the third quarter of 2018, we reported revenues of $15 million, an 11.1% decrease from the second quarter of 2018, and a 33.2% decrease from the third quarter of 2017. The decrease from the second quarter 2018 was due to fewer projects in Colombia, offset by an increase in projects in North America. The decrease from the third quarter 2017 was due to more projects in North America, offset by fewer projects in Colombia.

We also reported adjusted gross loss of $1.1 million for the third quarter 2018 compared to an adjusted gross loss of $2.8 million for the second quarter 2018 and adjusted gross profit of $4.3 million for the third quarter 2017. Adjusted EBITDA was negative $8.9 million for the third quarter of 2018 compared to negative $7.6 million for the second quarter 2018 and negative $1.2 million for the third quarter 2017. Both adjusted gross loss and adjusted EBITDA for the third quarter -- in the third quarter 2018 were negatively impacted by less favorable pricing when taking into account the fixed cost involved in our projects.

Adjusted gross loss or profit and adjusted EBITDA are non-GAAP financial measures and described in our earnings release under non-GAAP measures.

For the third quarter of 2018, we reported a net loss of $25.3 million, or negative $27.80 per basic and diluted share compared to a net loss of $33.3 million or negative $44.90 per basic and diluted share for the second quarter of 2018.

For the third quarter 2017, we reported net loss of $13.8 million or negative $29.30 per basic and diluted share. As of September 30, 2018, our cash and cash equivalents totaled $20.3 million, working capital is $14.1 million, total debt at face value, excluding net unamortized premiums or discounts, was $111 million, and total stockholder's equity was $37.6 million. Capital expenditures for the third quarter 2018 were $0.3 million compared to $0.1 million in the third quarter of 2017. The low level of capital expenditures in both periods was primarily due to the continuation of unfavorable conditions in the oil and gas industry.

Lastly, as of September 30, 2018, our backlog was $173.2 million, and bids outstanding totaled $383.7 million. Please note, however, this backlog includes the recently contracted $100 million ocean-bottom marine project in Asia, of which approximately 70% of the revenues are expected to be third-party pass-through revenues at cost. Approximately 98% of the backlog is comprised of data acquisition projects and the remainder is comprised of data processing projects.

Additionally, approximately 41% of the data acquisition projects are located in North America, split primarily between Alaska and the lower 48, with the balance attributable to projects in Asia. We currently expect to complete approximately 31% of the projects in our backlog as of September 30, 2018, during the fourth quarter of 2018, with the remainder scheduled to be performed in 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 for questions.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) We have no questions at this time. I would now like to turn the call back to Jeff Hastings, for closing remarks.

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

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

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

Thank you, Sarah. If there's no further question, I'd like to thank you again for joining us today. We appreciate your support, and we look forward to speaking to you in the next quarter. Have a great day. Goodbye.

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

Operator [3]

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

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