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Edited Transcript of SAEX earnings conference call or presentation 9-Nov-17 3:00pm GMT

Thomson Reuters StreetEvents

Q3 2017 SAExploration Holdings Inc Earnings Call

HOUSTON Nov 22, 2017 (Thomson StreetEvents) -- Edited Transcript of SAExploration Holdings Inc earnings conference call or presentation Thursday, November 9, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brent Whiteley

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

* Jeff Hastings

SAExploration Holdings, Inc. - Executive 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 Q3 2017 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. - VP of Finance [2]

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Thank you, Daniel, 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 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; 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 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 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 as updated in its Form 10-Q filed yesterday on November 8, 2017, for the period ended September 30, 2017.

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. - Executive Chairman & CEO [3]

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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 then Brent Whiteley, our CFO, will review our financial results for the third quarter and the first 9 months, ended September 30, 2017. After that, we will turn the call over for questions.

In the third quarter, we continued to manage a very difficult business environment due to persistent levels of exploration spending. While overall revenue was up sequentially when compared to the second quarter of this year, global seismic activity remained sharply lower than in previous years. Moreover, pricing on new projects continues to be less favorable and indecision on approving new project continues to hamper our visibility on new business prospects. While we are encouraged by the gradual improvement in commodity prices and our continuing dialogue with core customers regarding future project opportunities, we expect any meaningful turn in the cycle to take time before we experience increased activity and corresponding revenue.

Given where our contracted backlog currently stands, we expect the fourth quarter to be relatively inactive as we prepare for up -- for the upcoming winter season in Alaska and Canada at the beginning of next year.

Looking further into next year, we believe the revenue from a combination of projects in Colombia, which is proving to be a bright spot on the back of a long-term agreement we signed with Hocol earlier this year and Alaska and Canada will be sufficient to support our improving cost structure. Additionally, activity levels in the ocean-bottom marine market continue to be robust. While a very competitive market, any new marine projects would represent meaningful upside to our outlook.

We are also encouraged by conversations with specific customers regarding unique opportunities involving strategic agreements and new innovative technology, which we believe could add additional competitive advantages to our differentiated business model. Equally important, we remain hopeful that we will receive and ultimately monetize our remaining Alaska tax credits, although timing of both remains uncertain. We continue to engage in constructive dialogue with potential purchases of the tax credits as the State of Alaska works through regulations that will implement the new legislation passed a few months ago that may reopen a secondary market.

We remain focused on positioning SAE to adapt and become more competitive during this cycle as evidenced with our recent transaction to extend the maturity of our $30 million senior term loan to 2020 and replace our revolving credit facility.

We are also committed to creating and implementing a more sustainable solution for our capital structure, specifically, one that right-sizes our balance sheet, while providing the opportunity to generate long-term upside for our equity in a broader market recovery. As we continue to transition the company, both financially and structurally, we remain dedicated to serving our valued customers with our differentiated business model and proven operational strategies.

And I'll turn things over to our CFO, Brent Whiteley, to discuss the financial results for the third quarter and the first 9 months, ended September 30, 2017. Brent?

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Brent Whiteley, SAExploration Holdings, Inc. - CFO, General Counsel and 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 third quarter and first 9 months of the year and then we'll turn the call over for questions.

Total revenues in Q3 decreased 32% to $22.5 million from $33 million in the third quarter of 2016, primarily due to a decrease in revenue from South America, which was primarily impacted by a large project in Bolivia during Q3 2016, not being repeated in the first period of this year, partially offset by year-over-year increase in smaller projects in Colombia.

For the first 9 months in 2017, total revenues decreased 32.2% to $122.2 million from $180.2 million in the first 9 months of 2016. Activity levels in all jurisdictions continue to be impacted by poor market conditions due to sustained low commodity price environment and continued uncertainty regarding the outlook for the oil and gas industry.

By geography, approximately $19.7 million or about 88% of our revenues for the third quarter were generated in South America, followed by North America at $2.7 million or about 12% of revenues. Year-to-date, North America generated approximately $50.5 million or about 41% of revenues followed by West Africa at $35.2 million or about 29% of revenues, and South America and Southeast Asia at $32.2 million and $4.3 million, respectively, or about 30% of revenues combined.

Our gross profit for Q3 was $1.5 million or 6.6% of revenues compared to $1.4 million or 4.2% of revenues in the third quarter of 2016. Gross profit for the first 9 months of the year decreased 42.1% to $25.6 million or 20.9% of revenues from $44.2 million or 24.5% of revenues in the first 9 months of 2016.

Gross profit for Q3 2017 and Q3 2016 included depreciation expense of approximately $2.8 million and $4.1 million, respectively. Gross profit excluding depreciation expense or adjusted gross profit, which is a non-GAAP measure was $4.3 million in Q3 2017 or 19.1% of revenues compared to $5.5 million or 16.7% of revenues in Q3 2016.

Our gross profit for the first 9 months included depreciation expense of $9 million compared to $12.5 million depreciation expense included in our gross profit for the first 9 months of 2016. Gross -- adjusted gross profit for the first 9 months of 2017 was $34.6 million or 28.3% of revenues compared to $56.7 million or 31.5% of revenues in the first 9 months of 2016.

SG&A expenses during Q3 decreased 13.2% to $6 million or 26.8% of revenues compared to $6.9 million or 21% of revenues in the third quarter of 2016. For the first 9 months, SG&A expenses decreased 9.6% to $18.9 million or 15.4% of revenues from $20.9 million or 11.6% of revenues in the first 9 months of 2016. Our SG&A expenses in Q3 in the first 9 months of 2017 included approximately $0.6 million and $2.1 million, respectively, of nonrecurring or noncash expenses compared to $1.3 million and $2.4 million in Q3 in the first 9 months of 2016, respectively.

Loss before income taxes during Q3 was $11.9 million compared to $16.3 million in the third quarter of 2016. For the first 9 months of 2017, our loss before income taxes was $18.7 million compared to income before income taxes of $4.7 million during the same period in 2016. In Q3, the decrease in loss before income taxes was largely due to an increase in primarily unrealized foreign currency gains in Canada and Brazil and a decrease in debt restructuring costs to Q3 2016 -- compared to Q3 2016.

During Q3 2017, other expense also included, among other things approximately $7.5 million of interest expense, of which approximately $4.4 million was noncash amortization of loan issuance costs and $0.4 million was interest that was paid in-kind.

Similarly, during the first 9 months of 2017, which saw meaningful year-over-year decrease in income before income taxes due to much higher other expense, included, among other things, approximately $24.4 million of interest expense, of which approximately $14.9 million was noncash amortization of loan issuance costs and $4.8 million of interest that was paid in-kind.

Additionally, included in other expense during the first 9 months of 2017 was a $0.7 million foreign exchange loss compared to a $2.1 million foreign exchange gain in the same period last year.

Net loss attributable to the corporation during Q3 was $13.8 million or $1.46 per diluted share compared to $17.4 million or $2.62 per diluted share in the third quarter of 2016. Net loss attributable to the corporation during the first 9 months of 2017 was $24.8 million or $2.65 per diluted share compared to $2.9 million or $1.26 per diluted share in the first 9 months of 2016.

Adjusted EBITDA, which is a non-GAAP measure, was negative $1.2 million in Q3 or negative 5.1% of revenues compared to negative $0.1 million or negative 0.4% of revenues in the third quarter of 2016. For the first 9 months of the year, our adjusted EBITDA was $17.8 million or 14.5% of revenues compared to $38.3 million or 21.2% of revenues in the first 9 months of 2016.

Capital expenditures in the third quarter of 2017 and 2016 were $0.1 million. Our capital expenditures in the first 9 months of the year were $2.3 million compared to $0.8 million for the same period in 2016. Given the state of the industry and significant reduction in oil and gas activity, any significant investment in capital expenditures by SAE, particularly in large equipment purchases, is highly unlikely until the broader market demonstrates a consistent and sustained recovery. Therefore, based upon current market conditions, we expect our total CapEx for 2017 to be under $5 million.

On September 30, 2017, our cash and cash equivalents, excluding restricted cash of $535,000, totaled $13.5 million. Working capital was $14.7 million. Total debt at face value, excluding net unamortized premiums or discounts, was $121.9 million. And our total stockholders' equity was $15.3 million.

Lastly, our contracted backlog on September 30, 2017, was $52.5 million. On the same date, our bids outstanding totaled $111.4 million. The entire backlog was comprised of land-based projects with 62% in South America and the remaining in North America. We currently expect to complete 13% of the projects in our backlog on September 30, 2017, during the last 3 months of 2017 with the balance expected to be completed in 2018.

At this point, I'll turn over the call 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 I'm not showing any questions at this time. I would now like to turn the call back over to Chairman and CEO, Jeff Hastings, for any further remarks.

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

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Thank you, Daniel. If there are no further questions, I'd like to thank you again for joining us today. We appreciate your support. We look forward to speaking to you again next quarter. Have a good 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.