Ion Geophysical Corporation (IO) 2004 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Input/Output second quarter conference call. At this time all participants are in the listen only mode. Following today's presentation instructions will be given for the question-and-answer session. If anyone needs assistance at any time during today's conference, please press the star followed by the zero on your pushbutton phone. As a reminder this conference is being recorded today, Thursday, July 29, 2004.

I would now like to turn the conference over to Mr. Jack Lascar. Please go ahead, Sir.

Thank you Jeff. And good morning, everyone, and welcome to Input/Output second quarter conference call. We appreciate your joining us today. Your host today are Bob Peebler, President and Chief Executive Officer and Mike Kirksey, Executive Vice President and Chief Financial Officer. Before I turn the call over to management I have a few items to go over.

If you would like to be on an email distribution or fax list to receive future news releases or expense of technical problem and didn't receive yours yesterday please call DRG&E and relay that information. That number is 713-529-6600.

If you'd like to listen to a replay of today's call it is available via web cast by going to the investor relations section of the Company's web site at www.I-O.com. Or via recorded instant replay until August 5th, 2004.

To use the replay feature called area code 303-590-3000 and use the passcode 1100 2858.

Information reported on this call speaks only as of today, July 29th, 2004. And therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. Management is going to discuss today certain topics that will contain forward-looking information that are based on management's beliefs as well as assumptions made by and information currently available to management. Forward-looking information includes statements regarding expected revenues, gross margin, EBITDA, and earnings per share for the third quarter and full year 2004. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable it can give no assurance that such expectations will prove to have been correct. Furthermore, as we start this call, please refer to the statement regarding forward-looking statements incorporated in our press release issued yesterday and please note that the contents of our conference call this morning are covered by this statement.

The risks that the Company faces are discussed in greater detail in the Company's filings with the Securities and Exchange Commission including the Company's report on Form 10-K for the year ended December 31st, 2003.

Please also note that you can find reconciliation to reported numbers for non GAAP measures that we will discuss on this call in our press release. I would like to turn the call over now to Bob Peebler.

Good morning and thank you for joining us. The agenda this morning will include highlights of the second quarter, our review of the second quarter and first-half results, an update on progress against our strategy, a preliminary look at the remainder of 2004 followed by a question-and-answer period.

The second quarter represents a significant step towards both our longer-term strategic goals and operational success. As Mike Kirksey will cover in more detail, I was pleased we had a solid performance in every one of our business units including revenue growth, improving margins and cost control. We continue to mature our operational systems and expect to see continued progress the rest of the year.

On the strategic front we completed laying the foundation of the new IO with the acquisition of GX technology. The commendation of IO, Concepts Systems and GXT provides IO with a unique combination of technologies and people unmatched in the industry. We spent this last weekend with many of the key people from each company to start the process of identifying the highest potential integration opportunities that support our strategic technical, and operational goals.

After two intense days I am more convinced than ever that IO now has what it takes to make a significant difference in this ex seismic (ph) energy business and to fuel the Company over a long growth cycle.

We now have started the operational planning to capitalize on our new capabilities and capture the opportunities that lie before us.

On the product front, we achieved a major milestone in our land division with the on-schedule launch of our System Four Digital Analog acquisition system. We have seen significant early interest in this system as it provides a hybrid capability for recording seismic data using either digital VectorSeis centers or standard analog geophones in any combination even on the same job. System Four is bringing significant operational efficiencies to our customers, enabling them to record more shocks per day in the most extreme acquisition conditions a contractor might encounter. By introducing this hybrid variance of System Four we're confident we are now in a much more competitive position in a more mature bread and butter analog systems business, and believe we have the potential to regain market share over the next several quarters.

Our marine division shared in vector site system's success by continued deliveries on our VectorSeis ocean contract with Terra seismic services. We have very early results with the first VibroSeis ocean cable with a calibration shoot last month in the Gulf of Mexico that is being processed by GXT. Both GXT and the oil company customer are pleased with the initial results from the data quality perspective and this led to the next step which will be a full 3-D shoot starting in August.

We believe that the combination of the ability to record high-quality VectorSeis full wave data on the seabed floor with a highly efficient operational system will be a game changer in marine operations. New Technologies like VectorSeis ocean deployed by innovative contractors like Terra (ph) could significantly change the mix of seabed vs. code (ph) streamer recording over the next few years.

The combination of additional System Four VectorSeis sales to land contractors, combined with the deliveries of VectorSeis ocean to Terra, has resulted in 15 million of VectorSeis system sales for the first half of the year which is well on the way to our 40 million VectorSeis goals for the 2004 year.

Related to the overall market, we are seeing a general up trend as oil and gas companies are expanding their exploration and development activities from previously planned levels. I believe this is mainly caused by them raising their price (indiscernible) meaning that there are assumptions for commodity prices used in their planning. This upward revision reflects growing A&P Co. confidence and a strong commodity price environment for the foreseeable future. Generally it also translates into an increase in capital investment activity as more prospects or projects fall above the cutline and receive funding for prices are high. The increase in exploration development budgets highlight oil and gas company requirements for increasing their prospect inventories and that is starting we believe to drive increasing seismic activity.

There is also increasing interest in newly opened markets such as Libya and Iraq and continued move towards growing in Russia. Even with the problems related to Yucos (ph), the large multinational such as BP and Conoco Phillips are looking to expand in Russia driven by the almost unlimited possibilities for exploration and development.

We at IO will continue to expand our international presence as these markets unfold, including our newly acquired company, GXT. We believe that 2004 is a turnaround year for the seismic industry which has finally started to benefit from the general increase on energy services activities.

Finally, when we look back over the past few quarters we are pleased to have delivered on the commitments we made. The Company returned a profitability in Q4 of 2003, gross margins have been improved across the span of our product range -- now in the low 30s as planned, the capital structure and liquidity issues were solved with the December 2003 convertible offering and a recent equity offering which, together, raised almost 1 quarter of $1 billion in capital. The strategic reorientation of the Company was achieved with the acquisition of GX Technology and Concepts Systems. 20 million of VectorSeis based systems sales were completed in 2003 and we are well on our way to our $40 million 2004 goal with $15 million through the first half.

VectorSeis Oceans was successfully launched; it's performing as expected operationally; and is delivering high-quality subservice images based on our initial processing work. The System Four additional analog hybrid was launched as promised in Q2. The management team has been strengthened with additions in key areas. That is a lot of change in a short time and has brought the necessary stability to the Company that was needed to push forward with our growth plans. We have much work ahead but in recognition of these significant accomplishments I would like to thank the IO team and employees as well as all our stakeholders who have helped make this possible. Michael will now cover the financial results.

Thank you and good morning. As indicated in our press release second quarter sales were 62 million; GX technology accounted for 5.6 million because of transactions that closed in the last few weeks of June. Excluding GXT, however, revenues were still at the high end of our previously issued guidance of 55 million. I would like to specifically address the impact of GX Technology on the quarter.

June 30 was GX Technology's year end and several sales were closed in the last several weeks of the year. GX Technology added 5.6 million in revenues for the quarter coming primarily from multiclient sales of 4 million. The effect of the timing of these sales in the last few weeks of June added about 3 cents per share.

Turning to our land group. Sales were 36.9 million compared to 21 million in Q1, and 22.1 million in the last year. System Four acquisition system, sensor geophones and vibrator truck sales were all stronger in Q2. Gross margins continued to improve to 28 percent in the land group compared to 25 percent in the first quarter.

The Sensor Geophones division continues to be a strong performer in our land group on pace for a record year with 10.4 million in sales in Q2. The Marine division continued its good year with sales of 13 million compared to 11.5 million in Q1 and 10.9 million a year ago. Positioning products and VectorSeis ocean both continued to add handsomely to marine results. Gross margins continued strong at 38 percent for second quarter, compared to 26 percent last year.

Excluding the impact of acquisitions, operating expenses were 13.5 million as planned R&D projects and other expenses started in Q2. Operating expenses were 26 percent of sales, down from 39 percent of sales in Q2 last year. We continue to leverage our existing infrastructure which was built for higher sales levels we're now starting to produce. The tax rate for the second quarter of 8 percent reflects the use of our U.S. net operating loss carryforward. The lower rate is likely to continue as U.S.-based profitability continues to improve.

Turning to our balance sheet. Our balance sheet finished the second quarter with approximately 36 million in cash. The offering of approximately 23 million shares includes the overallotment brought 150 million to the Company, 135 million of which was used as the cash portion of the GX Technology acquisition.

Working capital increased to 10 million, primarily in receivables as sales in the quarter were stronger than in Q1. Other assets are obviously up significantly with goodwill and intangible assets from the acquisition. Capital expenditures were about $1 million. I will now turn it back to Bob for some closing comments.

Looking at the rest of 2004, we expect continued growth and improving results across the Company. In our land imaging division we introduced our new System Four Digital Analog offering in late Q2. This product is based on the System Four platform that has been proven by contractors around the world. The customer interest in this product and VectorSeis based systems generally continued to grow. The introduction of System Four analog began a replacement of our older image product line and makes us more competitive in the analog market segment.

Our sensor group in Holland where the world's leading geophone is made is having a record year. Our Marine division is having a good year with overall demand growth and new product introductions. We continue to deliver additional VectorSeis ocean cables to give us a contract with Terra seismic services with Q3 having the largest deliveries.

The integrated and seismic services and processing offering of GXT and AXIS is positioned to have an excellent result in the future and while the third quarter is traditionally our slowest, several multiclient projects are ongoing that will come into the market in Q4 and beyond. The market is shifting from specdata (ph) purchases to specific reprocessing requirements and custom shoots, both proprietary and multiclient sponsored. The increasing need for custom design surveys and high-end imaging should benefit us moving forward as these noncommodity imaging solutions are the focus of both GXT and AXIS.

GXT follow-on sales of multiclient data licenses have been focused around the Gulf of Mexico, to date. But offerings in West Africa, Canada, and the Caribbean as well as extensions in the Gulf will soon be available. We are excited about the growth prospects of GXT in many regions around the world as oil and gas companies return to the basics of regional geologic assessments. Regional geology requires an understanding of how a petroleum system unfolds, not just near the surface but far beneath it. GXT excels in ultra-deep imaging which is critical to assessing regional petroleum systems.

In the Gulf of Mexico, specifically, approximately 3000 blocks will likely change hands over the next three years. This turnover will drive demand for ultra deep data licenses along with tailored seismic acquisition and processing.

Looking ahead, based on our current pipeline of business, the addition of GX Technology, the impact of our new product introductions and overall improving markets, we expect 2000 in revenues to be in the 255 to 270 million range. We expect consolidated gross margins to be in the low 30s.

Based on the expected level of revenues and gross margin, EBITDA should be in the 35 to 45 million with earnings per share range of 20 to 25 cents.

Our third quarter is unfolding fairly close to our original 2004 plan. The third quarter is traditionally a weaker quarter with the fourth quarter and first quarter being the strongest. As a result we expect third quarter revenues to be in the 75 to 85 million range and earnings per share between -- in a range between 6 to 10 cents.

In summary we had a solid second quarter and continued to make our critical milestones related to profitability in new product sales. We remain confident about 2004 and believe we have laid the strategic foundation for consistently profitable future. We are now open for questions.

(OPERATOR INSTRUCTIONS) Joe Agular with Johnson Rice.

Very nice quarter. I was wondering if you could help me, Bob, going forward. Your guidance in terms of revenue if there is any particular segment that you see maybe a little bit contributing a little bit more today than you did a few months ago since you raised your revenue guidance?

Yes, Joe, I think if I look of the segments obviously one is our newly acquired GXT and I think that 1, they look forward because as I mentioned they are in the process of completing some of their most recent projects. Those will be coming on the market in the fourth quarter and continuing on into the next year. Sensor, as we have mentioned before, is a good barometer of the general overall market because they sell actually the highest quality of geophones into the general market and when -- they sell to most companies around the world so when their business is increasing it's sort of telling you the general seismic activity is increasing. And they are having a record year and just look at their backlog and what they have in their pipeline. We would suggest that is going to continue on into the end of this year and into next year.

Our land group also has a lot of opportunities that we are working on and so we would expect those guys to continue to also grow throughout the year so in a way we have sort of a balance across our groups. Each one of them has their own areas of strength but I would say that sort of the sort of a description of what the segments are doing.

It sounds sort of evenly spread.

It sort of is, each of them have their own areas that are hotter than other areas. But I would say it is pretty evenly spread, just because of the nature of the size of sales. We could have one up one quarter and stronger than the other but I think on average we are seeing some strength in all of the groups.

And I was wondering, while we're talking about segments I don't know, Mike, if you have the operating income by segment but if you don't have specifics can you give us a little idea of how the profitability of each segment did in the quarter, relative to your expectations or to previous quarters?

Most of -- are on plan for the quarter. Sensor which we don't spend much time talking about sensor usually but it is our geophones business based in Holland. It continues to outperform all year long and the third quarter will be no different than that the way we look forward. So most all of them their operating income is pretty much on plan and it's pretty much weighted across the divisions. Marine is a little higher than land just because of the type of products that are in there and the sensor group in fact is very high, too, just because of its very high market share. So all of them continue to contribute now. We -- I think we do not have any divisions that are losing money.

I guess my last question for now is there were some news recently regarding a lawsuit involving Input Output. I was wondering if you all might want to sort of clarify that situation for us? Thank you.

Sure. The case you reference was started in 2001 with Paulson asked I/O to manufacture a product and then Paulson refused to pay I/O. After multiple attempts to collect, I/O sued Paulson in 2002 for approximately $800,000 for collection. In response, Paulson's countersuit claiming that I/O had defrauded Paulson by not fully informing them of technical problems with a product and claiming that this seriously damaged his company because of those actions. I/O's position was that the product was more of a prototype that was custom-built for Paulson, that we did have some technical issues that we discussed with Paulson but there was never any intent to damage the Company nor did we cause any damage since they never lost the job because of our equipment. In fact, Paulson successfully used the equipment in question, resulting in significant revenue for Paulson and good data for their customers.

As to the damages because of the jury rule that Paulson was not harmed by I/O they awarded Paulson $0 actual damages. They did tack on a recommendation to the court of punitive damages of $2 million. The judge has not issued the final ruling but our lawyers are very confident that the $2 million punitive damages will not stand. Because by law a person cannot receive punitive damages if they were not harmed. We expect the judge to rule in our favor when the case is finally closed.

Ollay (ph) Lore, Morgan Stanley.

Thank you very much. I wonder whether you could elaborate a little bit more on the quality of the data that has been preliminarily recorded with VectorSeis ocean? If you could add much on what kind of prospect you were shooting over or what you're trying to achieve if you could kind of give us a little bit insight into why you are confident that is game changing?

Yes first the -- it is seabed data so we are collecting VectorSeis full wave. One of the -- particularly in the Gulf of Mexico one of the problems that you have is what's called gas clouds. Which means that the presence of gas in the formations in certain circumstances can cause a-- it's almost a smearing of the image. You can't really see through it all that well. Because share waves travel through the gas clouds more effectively than P wave you can actually resolve and find prospect you couldn't find with the standard P wave way which is what you get with code streamers. So in this particular project as we understand it the oil company -- it is in a very large producing area that does have this gas cloud problem and so even though they drilled many wells there is a lot of opportunities that they just haven't drilled on because they really don't have a good handle to structure.

This happens to be also which is not untypical in Gulf of Mexico -- an area that is highly faulted -- and so it's important to be able to see the structure because there is a lot of risk because of the complexity of the formation. So that's the main, the main purpose of this shoot is to go back into a producing area and further exploit it with data that allows them to map the structures that they currently can't see. The exciting part for us is that once this initial calibration line had been shot not only is the pressure wave data excellent in quality -- quality resolution, quality of signal -- but even more important we're really getting good share data. And so the ability to deal with gas clouds looks like we are going to have quite a strong capability of doing that. We're in the early stages. GXT is processing the data and they are -- the processors themselves who look at the early data before it's actually processed have been impressed with just the quality of the data. And now as we're going through processing we're getting it to where interpreters are even beginning to look at it in a very preliminary way and they are excited about the potential of what they're seeing. So that is going to move from the calibration lines to now moving into a full 3-D shoot over this area.

One of the other attractions is that when you're in producing areas like this, you have a lot of noise related to just environmental noise. Motors running on production platforms and various things. And we believe because of the design -- having this on the seabed and the design of the sensors and the noise reduction and then pull wave which you can deal with noise better, we think we're also going to get just better data from our ability to eliminate noise.

So I think for us Ollay (ph) the seeing this original data is just really supports what we believed about the technology and the early tests we had in the North Sea. So we are all anxiously waiting for them and I think it starts in August to start the 3-D shoot -- get a full 3-D. I have no question in my mind that once companies start seeing the quality of this data on the seabed and the efficiency, that we think Terra is going to get we think it's really start driving a lot of business.

When it comes to gas clouds you are (indiscernible) you are kind of confident that this is more than just an incremental technology. This is something that kind of could be game changing as far as oil companies kind of this side? Drilling plans and so forth?

Yes and actually fractures are more typically on land where in the offshore you're trying to resolve highly faulted formations but even in fracture reservoirs our ability to resolve orientation of fractures, it comes back to this issue that when you look at where the oil and gas is left and the complexities of the problems to be solved, you can't get there, routinely, with standard shoots and standard data. And so moving into the world of digital and world of VectorSeis is going to be there. I personally believe over time we will see full wave become the de facto standard as people realize all the benefits of the data, including we believe more and more a much improved both pressure wave and converted wave because the noise elimination we can do with single processing.

I presume you have had conversations with Mike Scott on how the acquisition part the fiscal acquisition (inaudible)?

The calibration. It will only be the summer before we have a full-blown system in place. The main purpose of this first step was to get the cables in the water with the sensors and make sure that the data quality was good and really demonstrate to the oil company the power of the data and our ability to deal with the noisy environment. It will be this next shoot where Mike will be doing the full-blown using his operational systems. And so, I would have to say that in this first round, it was more or less shaking out the cables and the receivers and the performance of our sensor technology. The next round will be putting this together in its full integrated system and shaking that part out.

Okay so it's too early to say from this whether the sort of significant cost reduction of deployment are on track?

That is correct.

You mentioned that the contract has been expanded. Any views, yet, from your friends at GX whether this could be applicable for subsalt? Is it good enough-- is data potentially the acquisition method particularly powerful enough to have a crack at Ultra deep gas, subsalt?

I think the ultra deep if it's in ultra deep water, we.

I mean shallow water.

One of the areas that they are going to be looking at -- this oil company -- is salt applications and there's a couple of reasons for that. One is, that if you're on the seabed with this system you can, it's easier to get into things like (indiscernible) shooting, tailored shooting and particularly when you are in a development area where you have obstructions production platforms. You just can't really do the design you need to do with code streamer. So I would not be surprised where we stay within the limits of the -- depth limits of the cables that they will be going back in and shooting around some of the more problematic salt domes. And they are going to get I believe they're going to get just a much improved data set around those, both from the survey design in the way you can do that with the seabed system. In addition to that just the improved quality. In the longer-term there is also the whole advantage of the share wave and how that can be used to get better velocity (indiscernible) control and that area -- there's a lot of algorithmic work and science work to be done. But I think it will just improve over time.

So when do we get some feedback on the quality of the data to be acquired on subsalt? Is that sort of late in the third quarter or -- ?

I don't know for sure, I'm not sure on their shooting program when they actually move. That's for Phase II and that's probably best case in the fall some time.

If you have -- I mean, talking to Mike Scott at Terra and so forth I mean they seem to have very interesting, and very ambitious expansion plans but are you talking to other customers as well in terms of selling the cables?

We are. Our goal in the very short term is to focus on making sure that the system is fully operational and successful with these initial shoots but we are certainly having additional conversations with other interested parties. We better let the next person get a crack at us. Thanks.

Theru Ramakirshnan (ph) with Simmons.

The System Four additional analog system, Bob, could you just kind of give us scenarios where that system fits best and what kind of operating environment?

I can tell you that for openers in the places that it can accomplish surveys, that you can't do with the older legacy systems. There are some places that it's operationally very complex to shoot and the system has so many new features on how it can work around problem areas, ways you can design the surveys, just management surveys that we can go win on some very difficult to shoot surveys and just get productivities that make it commercially practical to do.

So I would say the tie-in operational complex areas that that will unlock opportunities for our contractor customers. In addition, from a cost point of view of the systems and competitiveness of the system from an analog point of view, if you combine our system for now additional but the analog portion of that system and then you've put it -- hook it up with our sensors geophones which is the world's leading geophones we have the leading -- in our mind -- we now have the leading analog system that we can compete heads up on all fronts around the world. So and there's really no limits to where that can -- wherever you're doing normal analog shooting, this system is going to be highly competitive because it brings a lot of benefits compared to legacy systems in the market. And then clearly because it's a hybrid you can shoot on any survey, you can shoot analog, you can shoot analog and digital or you can shoot digital. So our digital VectorSeis -- so the places that the customers believe that the additional accuracy of full way or the additional need for additional content with the share wave which as a percent of total will be a great market over time they will be able to provide that with the same system with the right sensors involved with it.

And with looking out in '04, with the digital analog system is that where you're expecting to see most of the VectorSeis come from? That product?

That product, the System Four is our -- one thing, it's our operational digital electronic brains of the operation and it runs with either VectorSeis sensors or analog sensors. And so, if they want the VectorSeis sensors, they have to have System Four. They don't have to have System Four system for with analog systems and that this really replaces our image system which we just stopped mainly as a commercial product in the spring with its introduction.

So our -- so, I guess I would say, yes, all of our VectorSeis sales will be associated with System Four. What we don't know for sure but we expect is that most contractors are going to buy a System Four and keep the flexibility of doing analog or digital with it. It would just make practical sense that they would do that rather than just having one specialty system that is only going to be used for VectorSeis sales.

Last question is margins were stellar in the quarter. Could you give us some more color in terms of how much of this is coming from kind of the cost initiatives that you put in place? And how much is coming from pricing just some more -- ?

We have had lots of improvements on the cost front in particularly land. If I look at the revenues of last year and a year ago and what their margins were and some of the manufacturing and outsourcing, all of the things we were working on, they've made really good progress. They got through that first wave of outsourcing but now they are really working with outsourcing partners and frankly we are looking for ways to get the manufacturing costs down and it's just a continuous program and they are making progress on that continuously. So I can't tell you exactly what that percent is because it depends on the product mix also.

Obviously, another part of that is that as we sell some more of the higher end products where we have competitive advantages or ability to price at higher and whole prices goes up substantially, actually so we will also see part of the benefits of just better products in the market, more competitive products in our discipline to do a better job in marketing and selling and pricing.

If I can add one thing in there? As we move forward the mix of products, being System Four, System Four products, VectorSeis Ocean, the new marine products -- all of those are higher margin type products than the legacy products that we sold a year ago. So all those products bring mid to upper 30s kinds of margins.

We also have in every member now we're starting to get the benefit of the mix of having some software in the mix with concept systems. And then clearly GXT, our good margin business, and so that also helps us. So I think, as we have always said, as our strategy as we go forward those margins compared to a year ago and going forward should strengthen and solidify around the ranges we've been giving people.

Mary Sufriet (ph) with Carl Forsheimer (ph) & Co.

You mentioned a kind of the general spending on seismic and you also alluded to Libya, Iraq, and Russia I'm wondering are you targeting those as areas or were using them as examples? Of growing prices?

We are planning on participating in all those areas. We do have beginning strategies in some, obviously, a place like Iraq is not a place that is going to be a lot of activity until that country hopefully stabilizes but we aren't waiting. You start laying groundwork on how you can participate there. Libya as you know just recently opened for us to even have really the right kinds of conversations. Good news about Libya is because of the past ownerships and participation we have a lot of Western oil companies re-entering Libya. Many of them we know. And Libya is under technology, I mean there's a lot of technology in the geophysical area that will likely find its way into Libya. And then, Russia, we already have a very strong presence in Russia but we only plan to strengthen it. So each of those areas we do plan to be involved with one way or the other. I would say in order Russia we're furthest along in presence and that many of our sales have been into Russia. Libya, media we're just now starting to understand it and having conversations and I would say but probably the likelihood of doing something in Libya would be before Iraq because of the situation in Iraq. Who knows on that one when that they thing will finally be a practical market to serve.

Do you have any idea when you might become active in Libya? When you might sell a system?

No I do not. We are just having early conversations scoping out who is going to be in there? What are the possibilities? So we are just not that far along yet.

(OPERATOR INSTRUCTIONS) Rick Johnson, Tyee (ph) Capital Management.

Looks like Mr. Johnson has stepped away from the phone. We will go to the next question. (OPERATOR INSTRUCTIONS) Thomas Henwen (ph) with OMT Capital.

There has been a lot of publicity I think recently of things that (indiscernible) was doing with Sytell (ph) and consolidation of the industry and seismic industry and things like that. Wonder -- what your perspective on that would be?

On consolidation or --?

What impact Sytell and the changes that are occurring there may have from a competitive point of view? Both issues.

The first, I will just say -- Sytell doesn't really fit the space that we're in. I'm not going to judge whether or not that -- I haven't -- I'm familiar with them. I'm not going to judge whether or not that's a good investment or bad investment, I don't know for sure. But related to what we're doing we are really bringing a technology sort of reservoir-driven, image-driven approach where we have really high-end technology that sort of cracks certain difficult reservoir problems. And then we go out after we've designed, understand the geological problem, figured out what the solution can be working with oil companies and partners. Then we put together a funded shoot, through the multiclient. And then and only then do we actually subcontract out to people to go out and actually do the work and then, in that case, GXT would be project managing. And ultimately do the processing and be working with the oil company.

That's different than more of a spec model where you pick an area or you may even do some funded shoots. But you're really not doing any real geological works, at least of that magnitude. So it's really two different business models.

So you don't compete with them -- ?

No no. I would say that at a 50,000 foot level you could say we are in the same space, seismic, and some of it has to do with that. But we do not compete with them.

How about -- apparently you would concur with a consolidation part you made the comment that you made two acquisitions recently. And is there a lot more consolidation that needs to occur or -- ?

I think in our area, frankly, we have -- we now have the building blocks we need for a strategy. I will never say never but a year ago we had these two companies, the concept and GXT on our radar screen, driven by our strategy and now we have those in the Company and our main focus is now to take that platforms and execute against our strategy. Will there be a few other smaller players or technologies we're interested in? Perhaps and the industry in a broader stroke, people talk about still overcapacity in marine -- will there be some consolidation there? I wouldn't be surprised that is not the case. But I don't know for sure. You have new entrants. Also I believe we are now starting to see the market tighten up a bit, just with activity. To a certain extent the best way out is to have more activity and business for people.

But we're not in the crew business. And we're not in the marine crew business, or the land crew business and so I would say you're better advice would be to talk to the guys that do that work and get their opinions vs. us. In our space there is not a lot of big players out there. We pretty much I think got the leadership that we need.

(indiscernible) Theru Ramakirshnan.

In terms of touching on the last question. In terms of the competitive landscape. Could you comment on your market share with respect to 40 technology in terms of your competitors with Surcell (ph) and then lastly in terms of GX acquisition? How does that effect your -- in terms of custom orders? In terms of GX actually competing with some of your customer base?

In the 4D, actually Surcell, we don't really compete with Surcell that much in 4D. You have the CGG processing that does 40 processing and that -- so I don't really -- that would almost be how much processing do we do and they do and I actually don't know the complete the answer to that. I think actually CGG does quite a bit of 4D processing and so I don't -- but we don't really compete with Surcell right now and heads up in that area except maybe on the technology front that would be used in the acquisition systems themselves. And I would say in that case, we have -- if you look at the technology that is related to 4D particularly the marine is the positioning technology and if you combine concept and our Digi group and our Marine group we have very high market share in that space. And I think we will continue to have high market share. So I guess on the acquisition system front we would have a very strong market share in the technologies as related to 4D.

On the question of our customers, the answer is that in fact, it's a mixed bag because in some cases some of our larger customers are actually -- we are their customer -- because we use them in some of the integrated system or seismic system projects that GXT do. And so in those cases I think they enjoy us because they like working with our guys and they're getting work and projects because of it. Yes we compete -- do we compete in the processing area with some of the fully vertically integrated companies? Yes we do but so does CGG. Which owns Surcell, so I would say we're really no different than the others. We compete some places, we're the customers in some places, they're customer in some places and that net is we've had discussions with almost all of these companies. And I just -- there are a little rough edges here and there a few but I don't see it as a big problem for us.

At this time we have no further questions. I'd like to turn the conference back over for any concluding comments.

Okay, well, we would like to thank you for taking the time to attend this conference call and look forward to speaking again next quarter. Thanks.

Thank you. Ladies and gentlemen, this concludes the Input Output second quarter conference call. If you would like to listen to the replay of today's conference you may dial 303-590-3000 and enter the access code of 11002858 followed by the pound sign. Once again, thank you for participating in today's conference. At this time you may now disconnect.