Ion Geophysical Corporation (IO) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Input/Output first quarter conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded Thursday, May 10th of 2007.

And at this time I would like to turn the presentation over to Ken Dennard with DRG&E. Please go ahead, sir.

Thank you, Andrew, and good morning, everyone. And we welcome you to Input/Output's first quarter earnings conference call. Your hosts today are Bob Peebler, President and Chief Executive Officer, who is calling in from China, and Brian Hanson, Executive Vice President and Chief Financial Officer. Before I turn the call over to management, I have a few items to cover. If you would like to be on an e-mail distribution list to receive future news releases, or if you experienced a technical problem and didn't receive your news release yesterday, please call us at DRG&E and provide us with your information. Our number is 713-529-6600. Also, if you'd like to listen to a replay of today's call, it is available via Webcast by going to the Investor Relation section of the Company's website, at www.i-o.com. Or there is a telephonic recorded instant replay until May 24th, and that information was provided in the earnings release yesterday.

Information reported on this call speaks only as of today, May 10th, 2007, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening. And before we begin, let me remind you that certain statements made by management during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements regarding the Company's expected future financial positions, segment sales, results of operations, cash flows, funds from operations, financing plans, gross margins, business strategy, budgets, projected costs and expenses, capital expenditures, competitive position, product offerings, technology developments, and growth opportunities are forward-looking statements. These forward-looking statements are based on management's current expectations and include known and unknown risks, uncertainties, and other factors, many of which the Company is unable to predict or control, that may cause the Company's actual results or performance to differ materially from any future results or performance expressed or implied by those statements. These risks and uncertainties include the risk factors disclosed by the Company from time to time in its filings with the SEC, including in its Form -- annual report on Form 10-K for the year ended December 31st, 2006. Furthermore, as we start this call, please also refer to the statement regarding forward-looking statements incorporated in the press release issued yesterday. And please note the contents of this conference call this morning are covered by those statements. Now I'd like to turn the call over to Bob.

-- China, and thank you for joining us. We are particularly pleased with our first quarter results. I'm happy to report a very strong, solid first quarter in terms of revenues, with year-over-year growth of 91%, indicating a continued strong growth for our products and services. In fact, we experienced strong revenue performance in all of our divisions. Earnings per share for the first quarter came in at $0.04, an $0.08 turn around from a $0.04 loss in the first quarter of 2006. We started the year with stronger revenues than expected due to greater than planned vibrator truck sales and solid geophone revenues, which are both good indicators of continued land crew expansions around the world. The quarter also included $21 million in revenue for the first FireFly system sale, which was low margin due to normal manufacturing inefficiencies inherent to the first production run.

Before Brian provides a financial overview, I want to spend a couple of minutes and highlight a few important items. As previously reported, the BP FireFly survey was completed successfully, with the main goal accomplished of acquiring a high density full-wave survey in the allocated time. The survey was completed in a environmentally friendly way, with no health or safety incidents, even though the weather conditions were more than challenging. We are still in the preliminary stages of processing the data. We were far enough along to know that we have a very good quality data , and our team is encouraged that the final results will measure up to BP's expectations. I would like to remind everyone that both the BP and Apache shoots are being viewed by us as field trials, meaning that in addition to acquiring the data, we are field testing a very large scale and complex system that integrates hardware, software and electronics in a field environment under very different shooting scenarios. The purpose of the field trial is to shake the system out to identify any areas of the system, and to identify areas that can be improved to make the system even more robust. We have gotten excellent response by all company partners, but also the participating seismic contractors, who have given our engineers great ideas on how to make the system even better.

I have personally been involved over the last 30 years with introducing new technology and field operations. FireFly has been exceptional, related to the team work, enthusiasm and positive input from all of the participants. Related to the Apache shoot, they have completed a layout phase over a 77 square mile area, and now are in the shooting phase. We expect the survey to be complete fairly soon, depending mainly on the amount of rainfall, which has caused several delays due to rain. After getting through some initial technical start-up problems, we were pleased the main issue we had with the BP shoot related to connections between the FireFly boxes and the [central] recording system via radio has been fixed with the recent release of firmware. This is a great example of our engineers working in realtime to improve the system with ongoing feedback from the field. After we complete the BP and Apache jobs, we will be assessing how much more work and testing is needed before we develop the next version of the system that we feel will be both reliable enough, and with sufficient feature functions that we can go to a full commercialization phase.

We plan to pursue some commercial sales of FireFly in the latter part of 2007, but our main goal was to enter 2008 with a highly reliable and capable system, that supports both dynamite and vibrator sources, and that will set our priorities over the -- and that's what will set our priorities over the next several months. So far, I feel very good about our progress and look forward to the balance of the year as it unfolds. We have also started shipping the ONGC order that consists of 14 land recording systems, and we anticipate booking that entire order during the second and third quarters of this year. We are currently staging the first wave of systems in the order in Dubai for acceptance inspection, then the equipment will be turned over to ONGC.

The launch of Scorpion, the latest generation cable-based land acquisition system designed to improve reliability, reduce the cost of goods sold, and sustain our recent market share gains, is going well. We are starting to see improved gross margins in those systems. We are finally turning the corner in Scorpion manufacturing costs, and we'll see continued improvements as the year progresses as we realize the future benefits of our product engineering efforts. This cost reduction effort is multi-faceted, and will continue as we go forward.

Moving on to Marine, we are very pleased with the RXT relationship, and we look forward to shipping the $29 million purchase order for the fourth VSO system during the fourth quarter of this year. We also announced last month, a new comprehensive VSO agreement with RXT. This agreement goes beyond the original exclusivity arrangement,k includes much closer collaboration on R&D to further -- to future enhance the system. A new commitment of a [minimum] of $160 million of VSO equipment purchased over the next four years starting in 2008, and a 2.1% royalty payment on RXT's revenues from acquisition services using VSO. RXT and IO have the same vision for the full-wave seabed future, and believe that our new agreement will help drive the market forward. We look forward to working closely with RXT to fulfill our mutually optimistic vision of the market, and look forward to exceeding the minimum goals of the agreement.

I have touched on only a few of the high points as we continue to make progress across multiple fronts, and we look forward to a strong 2007. Brian will now review the financial results for the quarter, and then I will make some additional comments before the call to -- before opening the call to questions.

Thank you, Bob. Good morning, everyone. During the first quarter of 2007, we generated $165 million in revenues, a 91% increase from the first quarter of 2006. We also generated $0.04 per diluted share in earnings, compared to a loss of $0.04 in the first quarter of '06. As we mentioned before, the first quarter is traditionally a weak quarter for us, and this is the first time in nine years that I/O was profitable in the first quarter. Our gross margin of 23% fell sort of our internal expectations as a result of several items that I'll review this morning. In the Land Imaging Systems, which include both land systems and sensor, revenues more than doubled in the quarter to $73.5 million compared to $34.9 million in the first quarter of last year. This solid revenue quarter was driven by continued strong performance from vibroseis trucks, sensor geophone sales, and the recognition of revenue from the sale of the first FireFly system used on the Wamsutter survey with BP.

Gross margin in our Land business during the first quarter was 15% compared to 18% in 2006. This lower margin reflects several factors, including the limited margin on the first FireFly system sale, and the overall mix of lower margin vibroseis trucks and geophone sales, partially offset by improved margins on Scorpion cable system sales. We are confident of continued improvements in Land cabled system margins, and have no doubt that future FireFly margins will be much higher, especially once we optimize the manufacturing process. As with any new product, the first production run was not nearly optimized for cost, but was more focussed on meeting the tight time lines of the BP survey.

Marine Imaging Systems revenues increased 66% to $44.1 million in the first quarter due to continued strength in the worldwide marine market, a strong contribution from the Company's positioning source and towed streamer product lines, and the delivery of the last portion of RXT's third VSO order. Gross margin in the Marine group remained strong at 38% in the first quarter, higher than full-year 2006 margins of 37%. Gross margin in the Marine group was negatively impacted by a one-time sale of a very low margin replacement cable to RXT for their original VSO system. Our Concept Systems Data Management Solutions segment revenues increased 47% to $6.6 million in the first quarter of 2007. We expect gross margins in this segment to remain strong. In our I/O Solutions group, GXT revenues more than doubled to $40.9 million during the first quarter of 2007, primarily as a result of continued strong processing revenues and a low margin prefunded multi-client survey, which was strategic in nature, but negatively affected overall margin rate for the division, and consequently I/O. As a result, gross margin for the segment was 17% in the first quarter of 2007. Overall consolidated margins were negatively affected by 2 percentage points due to the higher mix of lower margin vibroseis trucks and geophone sales in the Land group, and 4 percentage points due to the impact of three specific events: Recognition of the sale of the first FireFly system, the impact of the low margin, yet strategic multi-client survey, and the sale of the replacement cable to RXT.

Overall, consolidated operating expenses for the first quarter of 2007 as a percentage of revenue were 19% compared to 29% in the first quarter of 2006. We invested $10.1 million in R&D in the first quarter of 2007, or 6% of revenue as compared to 8% the first quarter of '06. As a percentage of revenues, selling and marketing expenses for the first quarter declined to 6% from 9% in last year's first quarter, while general and administrative expenses declined to 7% in the first quarter of 2007 from 11% in 2006. We incurred an income tax expense of approximately $1.2 million in the first quarter of 2007, primarily due to tax payments made in foreign jurisdictions, including a one-time true-up of a prior period tax return in Europe, which represents an effective tax rate of 24.7%. Income tax expense consists mainly of foreign taxes, since we continue to maintain a valuation allowance for substantially all of our net deferred tax assets in the United States. We continue to expect full-year effective tax rates to be consistent with our guidance.

In late March, we entered into a new $75 million revolving credit facility led by Citibank, that replaced the former $25 million facility. The facility will be used for working capital needs and general corporate purposes. In addition, the facility includes a $25 million accordion feature for future growth needs. This new facility gives us the financial flexibility to grow and take on bigger orders, such as the ONGC purchase.

Turning to the balance sheet, inventory rose by $19.6 million from year-end 2006, primarily as a result of building for the ONGC order. CapEx in the first quarter was $1.8 million, and cash decreased from $17.1 million at year-end '06 to $6.9 million at the end of the first quarter. In addition, we drew $10 million on our line of credit to help fund the working capital requirements of the ONGC order.

Our 2007 guidance remains as we discussed in our February 28th conference call. We expect our 2007 revenues to range between $610 million and $670 million. Although the sales of FireFly and one strategic multi-client survey impacted overall margin rate for the Company in the first quarter, we are starting to see margin improvement in the Land System side of the business, and we continue to expect ongoing margin improvement as we capture lower costs associated with the manufacture and delivery of our Scorpion land system. We have started to ship the ONGC order, and that order, as was discussed previously, will somewhat compress margins in the Land Imaging Group in both the second and third quarter. We expect to incur an effective income tax rate of 16% to 17% in 2007, primarily due to tax payments made in foreign jurisdictions, as I mentioned earlier. We continue to anticipate 2007 earnings to be between $0.45 and $0.60 per diluted share, and that earnings will be back-end loaded due to the timing issues related to permitting and other operational consideration for IO Solutions multiclient business, the delivery of the fourth VSO system to RXT, and the natural budget and planning cycle of our larger contractor customers who formulate capital spending plans during the first part of each year, and execute upon them later in the year. With that, I'll turn the call back over to Bob.

Thanks, Brian. As I've mentioned in the past several quarters, our business of seismic equipment and processing services remains strong as the industry continues to refocus on exploration at an accelerated pace, and this bodes well for the next several years. As long as demand for oil and gas holds up at the current pace, we believe the industry is in for a prolonged period of both increased exploration and development activities, which I believe is driving a new technology cycle. This cycle includes not only a continued effort in marine, but a renewed effort to better explore on land, and I believe will drive strong seismic activity for both land and marine for the foreseeable future. In addition, we are seeing a remarkable appetite for new processing technology, such as (inaudible) migration and full-wave for tight gas sands on land. Our GXT pipeline and backlog for high-end processing have never been stronger, and is only limited by our own capacity (inaudible) by qualified people and computing capability. We are also continuing to enjoy a strong demand for our 2D spans, with new venture activities planned for the balance of the year into next. The only thing that's not certain is the exact timing of when those surveys and related library sales will be completed. But we are pleased with the broad portfolio that we now have that helps stabilize the business.

In addition to the already mentioned RXT VSO deal, our Marine business is strong on all fronts. Hardly a day goes by that we don't hear about a new towed streamer vessel that is being planned to be added to the marine fleet over the next two to three years. There is some concern in the industry that we may be in an overcapacity situation by the 2010 time frame, but there certainly is not a [consensus], as the complexity of the surveys are growing, and the required fleet to cover that type of activity, such as wide azimuth, is greater. In addition, it is expected that (inaudible) will continue to grow, which will also likely require additional towed streamer vessels. The bottom line is the industry isn't certain about long-term capacity needs, but over the next couple of years, we expect demand to continue to exceed supply.

As already mentioned, we also expect ocean bottom cable to grow as oil companies appreciate the much improved quality of full-wave seabed data, VSO becomes even more productive. Related to more complex marine acquisitions, we are still on track to commercialize DigiFIN in the second half of the year. DigiFIN is our product offering that steers towed streamer arrays on the horizontal axis, enabling higher resolution surveys and increasing the productivity of the towed streamer vessels. Our Concept Systems business is also a benefactor of both the increasing fleet size and the need for complex surveys. They are seeing strong interest in demand for the new product Orca, and a commercialization phase is on plan.

I've already covered most of our Land topics, but I would like to emphasize that we believe we are still in the early phase of land expansion as it relates to new technology. Much of land crew expansion in the subcycle has been 2D crews or simple 3D in places like Libya and eastern Siberia. But once the initial region exploration phase is completed, more advanced 3D will then be shot. Also, most land surveys were not designed to accommodate deeper exploration and exploitation of nonconventional plays, such as low [proxy] fractured reservoirs. This means not only do we see new areas being shot, we will also see older areas reshot if they have the potential for deeper or more complex plays. I'm personally very bullish on land seismic, and believe we are at the beginning of a long land technology cycle that will include high density full-wave surveys, and eventually 4D. I believe we are very well positioned with FireFly, Scorpion or our GXT land [processing] to take advantage of this growth cycle as it continues to unfold. In summary, we've had a good start for the year, and expect things to continue to improve as the year unfolds. Operator, we are now ready for questions.

(OPERATOR INSTRUCTIONS) James West, Lehman Brothers.

This morning, one of your -- well, you major competitor put up some pretty strong numbers, and in their release and their discussion they talk about two, what they're referring to as significant technology introductions. One, on the wireless land acquisition side, and second, with respect to ocean bottom cables. It seems like a kind of a direct shot towards I/O. I guess my question really is, with those two technologies, where do you think you have a technical edge, vis-a-vis the new products your competitor is introducing? And where, perhaps, are you a little bit behind?

James, I think on those two, we're obviously very familiar with both of them. It's not -- they may have talked to them on the conference call for the first time, but they basically, at the last SEG last fall, they rolled out, one, their intention on Sea Ray, I believe's the name of it, it's their ocean bottom. And secondly is the vibe tech, which they purchased. So very aware of both of them. It's a much longer technical discussion than we have time to go on in the conference call. I would say that on first on FireFly versus vibe tech, in our view, we have quite a competitive advantage for multiple reasons. One is that vibe tech was not originally designed for digital (inaudible). It's only an analog system. And so they've got a lot of work to do to retrofit that architecture to support digital. And in addition, it was originally based on a cell phone technology, and so they're also scrambling to move more towards local data storage like we've done. My view is that our system was architected from the very beginning for very high density digital full-wave shooting. I think we have quite an advantage, with the large test with BP under our belt that we've proven new architecture. And we're more in the phase now of just the normal technical improvements you make as you go through field trial. So without again getting into a lot of technical detail, I feel very confident of our system, and very confident of the advantages we have.

As it relates to their seabed offering, our seabed offering, the VSO offering, I believe is quite a substantial head start. Been in the market with it now, going on the third year. We're on the third or fourth (inaudible) of the system. We've had a very close working relationship with RXT. It's a complex system. Our system is buoy-based, and so we don't have -- we have a lot of advantages on productivity. So I'd say the advantage of VSO is going to be productivity of the system compared to what they have. And I would guess we still have quite a substantial lead on them, from a technology point of view.

Okay. Then one quick follow-up on the land system. Is there a benefit to their system being -- having data transfer in realtime vis-a-vis your system?

The original vibe tech, that was the stick, that it was basically realtime. I think you have to ask them realtime for how much data. I am absolutely confident that they could not move the amount of data that we're talking about moving in realtime.

Okay. Understood. Great, thanks, guys.

Joe Agular, Johnson Rice & Company.

Bob, I was wondering if you could address your marketing plans on FireFly, assuming you mentioned getting commercialization by, say 2008. Do you think it's going to be sort of a situation where you might pursue arrangements like you did with the VSO and RXT? Or is it where you're just going to try and let interested parties buy it, and not try to do any exclusive type arrangements?

We're still having our own internal discussions and some discussions with various parties on how we're going to roll this out. I can almost certainly say, almost irregardless of the exact commercial arrangements, we're going to focus at the beginning, and have -- we would rather a limited number of contractors involved with the system at the beginning. As you can imagine, it's a complex system. It's not one you just put out the sign, "doors are open," and people just line up and start buying it. We've got to make sure that people are well-trained. Because it's a very different way of acquiring the data. But we're not ready yet to speak to the exact specifics on the marketing approach, with the exception that I will say that it'll be -- we'll start out in a limited number of players in a very focussed way.

Okay. For a follow-up, your recent announcement of the expansion of the arrangement with RXT, there is this royalty feature. And is that going to be a situation where you just recognize revenue as they book it over a contract length? Or is there anything unusual there? Could you maybe just explain how that royalty payment is going to work, please?

Brian, handle that one.

Yes, Joe, we'll recognize that royalty as we receive the payment for the royalty.

Okay. And that starts, just to clarify, the beginning of 2008?

That's correct. Yes, the period is effective January 1, 2008, and moving forward.

Okay. Thank you very much.

Terese Fabian, Sidoti & Company.

This may be particularly appropriate for you, Bob, since you are in China. But my question concerns international areas of sales for you all. You get a majority of your revenue from outside of North America. Do you see any particular strengths when you look globally for markets for you?

Yes, I -- actually the strongest markets are the former Soviet Union, which would include Russia. So we have a lot of activity in that part of the world. Last year, we had a very strong finish in -- out of our Russian clients. And I would include the Kazakhstan and that part of the world, so former Soviet Union. We also have strong sales in the Middle East for some of our product lines. We do not have a large base of business yet in land systems, but it's a very big market for us in our geophone side of the business. And then, obviously I'm in China now, and China has been a very good market for us. We expect it to continue to grow. Now, the marine market is a little different in the way you think about it. Because we can sell equipment on a marine vessel, and it can be in the Gulf of Mexico in one quarter, and it might be in the North Sea the next quarter. So it's a little hard to -- it's a little hard to say exactly where the equipment ultimately ends up. But I would even say in the marine, when I consider all of this equipment we sold on towed streamers and VSO, the majority of it -- there's quite a bit of it in the Gulf of Mexico, but the majority of it would be places like West Africa, North Sea, et cetera.

Okay, thank you. And you led into my follow-up question, which concerns the [basin spans]. The data library sales provide an element of recurring revenue for you. Can you talk a little bit about what your expectations are on that?

Yes, on the data library, it really follows -- we have our new venture revenue, which is the revenue that we -- the revenue that we collect is we're actually -- when we have the surveys underwritten. And then in the process of acquiring the data, we recognize revenue. And then you have the data library sell that follows after that. We have -- I can't really tell you what the mix right now between data library sales (inaudible) and the new venture revenues. But we have a substantial amount of [revenue] this year and actually new venture activities, where we're actually out there acquiring some new data in several of those. But I don't believe, Brian, I don't believe we've broken out the mix of data libraries to the new venture revenues, have we?.

No, we don't -- we don't break that out, Terese. And in addition, as you know, it's so lumpy, it moves around quarter to quarter, so the mix can change fairly dramatically.

Yes, typically -- what I will say is that typically, the second half of the year for the data library sales is typically stronger than the first half of the year. Part of that is driven by year-end spending by oil companies, if have they have some money, that they go ahead and transact. The data library tends to be more of a discretionary spend. So they may move it from one quarter to the other, which is what makes it a bit difficult. But I would anticipate it would likely be stronger in the second half than the first half, for library sales.

Okay. Great. Thank you.

(OPERATOR INSTRUCTIONS) [Amit Shah], Thomas Weisel.

Just one question, it's related to the guidance. Like you guys said in the press release that revenues and earnings both would be back-ended, like more in the second half of the year. So if I just take this quarter's revenue run rate, I still end up at the high end of your guidance. Is there any chance you are looking at an improvement in -- or increase in guidance?

I think the -- I'll let Brian also pitch in. But I think this quarter was a little bit of an anomaly in the sense that we had, I would just call it some exceptional revenues that we, for example, the $20 million FireFly sale. And then we had a cable -- a replacement cable that was fairly significant. So we had some revenues -- we had some revenues that were actually even above our own initial plan and forecast that was sort of exceptional. So we could have a scenario where we'd have a quarter with lower revenues in this quarter, but higher margins, for example. So we'll look at the revenues after the -- after this quarter two is complete. And at that time, see whether or not we should change the guidance.

Okay.

Yes, the only thing I'd add to that, Bob, is just to keep in mind, again I'll reinforce how lumpy the business is. You can have big revenue quarters, low margin quarters, low revenue quarters, big margin quarters. So in general, I don't think you can take one quarter and extrapolate the year's results. So that's why we're maintaining our guidance.

A real dangerous thing to do.

Okay. And under the RXT agreement of going into FY '08, what time of the year do you see your revenues hitting? Or what would be like an annual run rate? I know you said like $160 million minimum over four years. So should we just kind of take it as a run rate of $40 million for FY '08?

You're saying for modeling purposes?

Yes, just for modeling purposes -- .

Yes, that's sort of the minimum commitment for each year. And so, Brian, I don't know. That's probably as good as -- as good as anything you could do.

Yes, I'd say that's the minimum commitment for each year, but we can't obviously tell you -- give you any more guidance than that for the model.

Okay. No problem. Thanks a lot, guys.

[Jack Moore], [Harpswell Capital].

Nice quarter. The 160 is the minimum over four years, it's not each year, right?

Right. It's the total for the four years.

So are you under the impression that 40 is fair for each year? Or is there anything that would say it's back-end or front-end loaded?

No, I would -- I think that's driven by their own internal plans. And I think they have a minimum in their plans of adding about one crew a year. And that's sort of their base case or their minimum case, if you want to think of it like that. I believe -- we believe there's a good chance that it could be more than that. There's also spares and repairs that would be -- get included, and that number could also make that number grow. But I would say that from a, again from a modeling point of view, it's probably as good a -- to assume that they're going to put on one system a year, as sort of their base case or their minimum case.

Great. And then, with respect to vibroseis trucks, as we talk to people, we see that people are adding or buying more trucks than just adding crews. Can you give us some indication on where you'd see demand, and the margins rebound -- bouncing back there?

I'm not sure I got the question. You're talking about the vibrator trucks?

Yes.

Yes, one thing that's going on is that depending on where the operations are, but places like the Middle East, one thing they can do is they can add more trucks. They actually get more productive crews. So one way of increasing productivity is actually by adding more vibe trucks. So I think part of the expansion we're seeing has to do with these very large surveys and the attempts to make them even faster. It's also another way -- you can increase resolution by increasing the number of receivers you have on the ground. You can also increase resolution by the number of source points. So as the -- basically, a geophysicist would like to have sort of an equal balance. And so as they're increasing the shot density, or as they're increasing the channel count, they're also starting now to increase the number of vibes, just to support higher density shooting. So it's several factors that's driving that. A lot of the big demand we've seen for vibes has been in the Middle East, where there's a lot of very large surveys going on. Middle East and North Africa.

Great. Nice quarter. When would you give some preliminary outlook for '08?

We are -- we will come out with '08 probably December. We usually try and hold a -- we started holding a guidance call in December of '07.

Great. Nice quarter, guys.

(OPERATOR INSTRUCTIONS) Terese Fabian, Sidoti & Company.

Yes, I wanted to know whether you saw any effect on your business from CGG's acquisition of Veritas? It seems that there is some distinct advantage to partnering up with an equipment provider and an acquisition company.

Actually, we haven't seen -- we haven't really seen any impact on the business. If you look at the -- if you go back, and if you looked at -- obviously, CGG has never bought a lot of equipment from us. And the equipment they buy from us is the equipment that they -- that they can't get from (inaudible). So some of our position equipment, for example, is examples of things they may -- they do purchase from us. And the same was pretty much true for Veritas. And so as they have come together, what they were buying has pretty much stayed the same. And we don't really see any reason that will likely -- that will likely change.

Okay. Do you think that there are, though, advantages in partnering up between acquisition, contractor, and a manufacturer?

I think there's pros and cons to that. One thing we have seen, particularly as they have become more on people's radar screen, I mean they now state and (inaudible) true, that they are the number one, in total size, contractor. And we're having more than one of their customers tell us that -- who compete with their -- would compete with their contracting arm, are really now starting to worry about the size of CGG. And are starting to have a preference for us, just because of the fact they realize (inaudible) not really competing with CGG. So I would argue that -- I would argue that best -- worst case, it's a push for us.

Thank you.

(OPERATOR INSTRUCTIONS) And management, at this time we have no additional questions in the queue. I'll turn the conference back to you for any closing remarks.

Okay. Well, thanks, everyone, for taking the time to attend the call. And we look forward to talking to you during our second quarter earnings call in July, I guess it is. Thanks.

Thank you, management. Ladies and gentlemen, at this time we will conclude today's teleconference presentation. We do thank you for your participation on today's conference call. If you would like to listen to a replay of the conference, please dial 1-800-405-2236 or 303-590-3000. You'll need to enter an access code of 11088923, followed by the pound sign. Once again, if you would like to listen to a replay of today's conference call, please dial 1-800-405-2236 or 303-590-3000. You'll be asked to enter an access code of 11088923, followed by the pound sign. At this time we will conclude today's teleconference. We do thank you for your participation on the program. You may now disconnect, and please have a pleasant day.