Ion Geophysical Corporation (IO) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the ION Geophysical second-quarter earnings 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 today, Thursday, August 6, 2009. I would now like to turn the conference over to Jack Lascar. Please go ahead, sir.

Thank you, Brandi, and good morning, everyone. We appreciate your joining us today. With me are Bob Peebler, our Chief Executive Officer; 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 get on an e-mail distribution list to receive future news releases or experienced a technical problem and didn't receive your news release today, please call the DRG&E and provide us with that information. That number is 713-529-6600. If you would like to listen to a replay of today's call, it is available via webcast by going to the investor relations section of the Company website at www.iongo.com or via a recorded instant replay as of August 20. The information was provided in yesterday's earnings release.

Information reported on this call speaks only as of today, August 6, 2009, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay.

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. 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 annual report on Form 10-K for the year ended December 31, 2008, and its quarterly reports on Form 10-Q. 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 these statements.

I will now turn the call to Bob Peebler.

Thanks, Jack, and good morning. Welcome to our second-quarter earnings release call. As we discussed last quarter, we have suffered a significant slowdown in most of our business lines. The most severely impacted business is our Land equipment, which has been breathtaking in the magnitude of the collapse in both North America and the former Soviet Union. To illustrate the severity of to turndown, we have seen the Land cable systems business dropped by more than 80% from an annualized run rate a year ago.

Our strategy to handle what we believe is a short-term problem has been to rapidly consolidate all of our Land cable businesses into ARAM with significant headcount reductions while preserving our key R&D programs. This has been a significant challenge that is continuing into the third quarter with the goal of having a majority of the related actions completed this month. We are also continuing to focus on cost reductions in other impacted parts of our organization. But, as stated last quarter, we think the majority of headcount reductions are behind us.

The significant fall-off in our library sales compared to our expectations going into the quarter was concerning. We had and still have a significant pipeline to cover our revised plans that were completed last February, but we only closed about half of the business we were forecasting going into Q2. The reasons were many, but a significant amount of business slipped into Q3 due to additional spending checks and balances that the larger oil companies have implemented in reaction to this volatile commodity pricing environment.

Not too surprisingly, the final sign-off level has gone further up in many of our customers' organizations as they also are focusing on cost reductions and cash management. We saw several million dollars in sales that got bogged down in just getting the final paperwork that we expect to pick up in this quarter. What is unique about our data libraries is their focus on the hot exploration areas around the world, including the Arctic, Brazil and India, where activity levels are still high. We are still forecasting a stronger second half of the year in our data sales as improving oil prices and falling development and operating costs should free up capital for greater back-end spending than a year ago, when oil and gas prices were collapsing.

Our Marine systems business has also seen some slowdown as Marine contractors are feeling pressure on both activity levels and pricing for their services. We're starting to see some vessels being stacked and new vessels being canceled or delayed, as illustrated by the recent CGG announcement. In the case of the vessels being taken out of service, all are the older part of the fleet and at the lower end of the technology food chain and are not prime targets for our intelligent acquisition offering. We have a significant backlog of business and sufficient backlog of the business in Marine, with equipment deliveries scheduled in Q3 and Q4 that we still believe we still have a solid year.

One very bright spot in our Marine business line is Concept Systems, which will likely have a record year due to the ongoing commercialization ORCA and a business model which is a subscription business model through which it has been sold. The subscription model doesn't generate the higher front-end revenue boost for product sales, but it delivers a much more predictable revenue stream that continues to build over time as more and more vessels are outfitted with our new technology.

The other bright spot is DigiFIN sales, which are exceeding our own internal projections. DigiFIN is being recognized by oil companies as significantly improving stream of performance, both from an image quality perspective and also productivity, where infill shooting is being reduced by as much as 30%. Game-changing productivity is very important as pressure on costs for both oil companies and seismic contractors have gone up significantly due to the lower oil and gas prices.

We're also making progress of DigiSTREAMER with the recent sale during the current quarter.

Our GXT proprietary data processing business is also heading for a record year with the projects become even larger in scope and more technically challenging. A wave of reprocessing is going on as oil companies take a breather in acquiring data and are focused more on getting the full value out of the data they have been acquiring over the last few very high activity years. Our leading state of art reverse time migration continues to expand among prior customers and also into new geographies and customers. We are also experiencing an increasing interest in our full-wave processing, driven in part by the need for improved fracture detection in the shale resource plays that have become the mainstay of much of E&P activity in the onshore US. Six years ago, GXT was mainly a North American-centric business with the majority of their work coming out of the Gulf of Mexico. But they have successively expanded their coverage to where they are recognized around the world as a leading processing shop.

Even though our traditional Land business is in the tank, we are making significant progress with FireFly. For example, we successfully finished the first of three projects in Mexico and are mobilizing for the second project as we speak. We also finished the Baby Blocker project for BP in the Haynesville shale with Dawson as the contractor and are gearing up for the Big Blocker shoot that will soon start.

Our BGP FireFly project in China was completed during the quarter that resulted in our commercial systems sale revenues being recognized in the quarter. BGP will soon deploy this system on another high-density shoot in the same Mongolia region. We are seeing excellent trace recovery in all of the recent jobs, and we are getting significant productivity that, in some instances, are outshooting nearby cable-based crews by 2- to 3-X. We expect productivity to continue to increase as crews become more familiar with FireFly operations and we make continuous improvements due to customer feedback. Firefly is the only cable system that is routinely shooting 5000-plus full-wave stations, which is equivalent to 15,000 channels of analog, and we're also the only commercial cable system that can record the full wave.

We estimate, since we started with the original FireFly job with BP, that we have recorded eight surveys, of which two are in progress, currently totaling over 650 million seismic traces, representing an area of 1250 square kilometers of data on three continents.

In summary, I would characterize ION's business as a portfolio of business lines where our concept software and our GXT data processing businesses are helping offset the dramatic drop in our Land systems business. Our Marine business has slowed down but is bucking the trend with new integrated technology, which we call Intelligent Acquisition, the combines ORCA, DigiBIRD, DigiFIN and, most recently, DigiSTREAMER, that brings both improved image quality and productivity gains to the operations.

In our multi-client businesses we have a robust portfolio of over 25 libraries that continues to grow, and we still have many more ideas for continued growth. My expectation to that business is to still have timing uncertainty for library sales, and we have a down year compared to 2008, but with more strength in the second half than we have experienced the last two quarters. On a regional basis we do not expect to see much improvement in North America, due to the lingering gas overhang, until mid-2010 at the earliest.

Russia is more complex, as so much depends on oil prices and the stability of the Russian industry. We still believe we can continue to grow in Asia, some places in the former Soviet Union and North Africa and the Middle East, as there are still very large project progressing. So much of our short and medium-term business depends on how the world economies and demand for energy unfolds, and your guess is as good as ours on that regard.

What I do feel certain about is the long-term trend in the industry needing better technology to meet future energy demand. ION is well-positioned as a major player with a portfolio of new technology that we are now bringing into the market, and our continued R&D spend that is still at a $40 million run rate even after all the cutbacks we've made to the Company.

With that, I'll turn it over to Brian.

Thank you, Bob, good morning everyone. Similar to last quarter's call, I would first like to go through our latest quarter's results and then move into a broader discussion, providing updates on our liquidity and other current business initiatives.

Moving into the financials for the quarter, as we expected, our second quarter was soft due to continued market weakness, especially in the North American and Russian Land markets. Overall, we generated revenues of $101 million compared to $181 million during the second quarter of 2008, a decrease of approximately 44%. All of our segments experienced a lower level of revenues compared to last year's second quarter. Sequentially, however, our Data Management Solutions and our Marine Imaging Systems segments had an improved quarter compared to the first quarter of 2009.

Year to date, we generated revenues of $207 million compared to $321 million in 2008. We saw a slight increase in our gross margin in the second quarter to 33% compared to 32% in 2008. In our Marine Imaging Systems division we experienced an [18% -- point] increase in gross margin, mainly related to the product sales mix for the quarter. Our Data Management Solutions segment gross margin showed a 5 percentage point improvement over last year as a result of more software versus hardware sales.

Margins in our ION Solutions segment remained fairly consistent with a decrease of 3% when compared to the second quarter of 2008. Our Land Imaging Systems segment showed the largest deterioration in margins, mainly due to the increased amortization charges related to the ARAM acquisition.

The first half of 2009 contained two special charges that directly impacted our results. The first special charge relates to the previously discussed first-quarter additional impairment of acquired intangible assets of ARAM of $38 million. The second special charge relates to the impact on foreign currency exchange losses on our United Kingdom and Canadian operations. Due to the significant fluctuations and weakening of the US dollar against the sterling pound and Canadian dollar, we recognized foreign currency exchange losses of approximately $7 million for the second quarter of 2009.

In total, the first half of 2009 contains approximately $45 million of special charges before taxes.

Moving to revenues, our Land Imaging Systems business second quarter revenues decreased to $30 million compared to $46 million in 2008. Year to date revenues of $65 million represent a decrease of $31 million from the same period last year. The quarter and six-month decrease were mainly attributed to the continued softness in the North American and Russian markets. As Bob mentioned, during the second quarter we recognized the revenue related to our sale of our fully commercialized FireFly system to the world's largest land contractor. While we announced delivery of the system in the first quarter, we do not recognize revenue until this quarter.

Gross margins in our Land business decreased during the second quarter to 11% compared to 23% in 2008. Year-to-date gross margins decreased to 14% from 23%. Lower Land revenues for the quarter and year to date contributed to this decrease in margins as our main land markets remained depressed. Margins were further diluted due to the inclusion of the amortization of ARAM's acquired intangibles.

For the Marine Imaging Systems business, revenues for the second quarter were $24 million compared to $50 million for second quarter of 2008. Year to date, revenues of $43 million for 2009 decreased from $85 million in 2008. The revenues for the first half of 2009 were impacted by the timing of new vessels and lower VectorSeis Ocean revenues. In 2008 we delivered the final portion of VSO System 4 and the beginning of System 5, which was not duplicated in 2009. Market acceptance and demand has continued for our DigiFIN streamer steering technology, which resulted in several more systems sales in the second quarter.

Second-quarter gross margin in the Marine group increased 18 percentage points to 50% compared to 32% in the second quarter of 2008, primarily a result of product sales mix. Year to date gross margins increased 10 percentage points to 48% from 38%, again due to the product sales mix.

Quarterly revenues from our Data Management Solutions division Concept Systems decreased by $0.4 million compared to 2008. First-half revenues of the division decreased by $3 million to $16 million compared to $19 million in 2008. The decrease in revenues for both the quarter and year to date were entirely the result of changes in foreign currency exchange rates, as this division does business primarily in pounds sterling. Excluding the impact of exchange rates, the division has generated a record year thus far and grew quarter-over-quarter by 21% and year-over-year by 15%.

Our second-quarter ION Solutions revenues were also down compared to prior year at approximately $37 million in revenue. Year-to-date revenues decreased to $84 million compared to $121 million in 2008. The decrease in the ION Solutions division was due to lower multi-client data library and new venture program sets, which relates partially to the timing of the sales and partially to our customers' budgets and spending cuts as a result of lower commodity prices.

However, on the data processing side of our business, we have continued to experience both sales growth and an increase in our backlog. Second quarter gross margin in the Solutions division decreased to 31% from 34% in the second quarter of 2008. Year-to-date gross margins decreased slightly to 31% in 2009 compared to 33% in 2008.

As result of lower revenues this year, second quarter consolidated operating expenses as a percentage of revenue increased significantly to 33% compared to 21% for the second quarter of 2008. However, total operating expenses actually decreased by $5 million quarter-over-quarter. This decrease reflects the initial results of our cost reduction initiatives, partially offset by the inclusion in the second quarter of the ARAM business. Based upon the recent cost reduction measures initiated in the fourth quarter of 2008, we expect to continue to incur lower operating expenses for the remainder of 2009 that were incurred last year to generate savings of approximately $43 million on an annualized basis.

We incurred an income tax benefit of approximately $17 million in the first half of 2009. Excluding the non-cash foreign currency exchange losses in the second quarter, we generated a net loss of $6 million or $0.05 per diluted share compared to net income of $15 million for the second quarter of 2008. Including the foreign currency exchange losses, diluted EPS in the second quarter was a loss of $0.11 compared to income of $0.16 in 2008. The total impact of the special charges was approximately $5 million after-tax or $0.06 per diluted share.

For year-to-date, excluding the first quarter intangible impairment loss and the foreign currency exchange losses, we generated a loss of $17 million or $0.17 per diluted share compared to net income of $23 million for 2008. Including these items, diluted year-to-date EPS was a loss of $0.49 compared to income of $0.24 in 2008. The total impact of the special charges was approximately $32 million after-tax or $0.32 per diluted share. Excluding these items, our year-to-date loss was $0.17 per diluted share.

Turning to the balance sheet, inventories adjusted for $33 million of equipment capitalized to our rental pool decreased by $12 million for the quarter. Adjusting back the effects of currency as we converted Canadian inventories into US dollars, we actually monetized about $16 million to cash through sales of inventory during the quarter. A large portion of our current inventory is held in our Land division, which will take time to monetize, given the continued softness of that business.

Accounts receivable decreased by $14 million from the first quarter as we continue to focus on collections. Excluding the investment in our multi-client data library, CapEx for the quarter was $400,000. The investment in our multi-client data library was $27 million in the quarter.

Overall, our working capital and improved $45 million or 17% to $222 million as of June 30, 2009, from $267 million at the end of 2008. Cash remained flat compared to year end, primarily as a result of reducing trade payables, increasing focus on receivables collections and the additional secured financing transaction in June. At the end of July our unrestricted cash balance was approximately $35 million.

Our adjusted EBITDA was $31 million for the first half of 2009 and $13 million for the second quarter. However, as I mentioned previously, the second quarter in 2009 year-to-date results included significant foreign currency exchange losses. Adding back those losses, our first-half adjusted EBITDA was $37 million, and our second quarter 2009 adjusted [EBIT] was $20 million, respectively.

We now anticipate 2009 consolidated revenue to range between $450 million and $500 million. Mainly as a result of the ARAM acquisition and as adjusted for the write-down of intangible assets in the first quarter, we now expect to book between $16 million and $18 million of non-cash amortization in 2009, which is an increase from the $14 million we incurred in 2008. We are anticipating interest from preferred dividend expense to be between $29 million and $31 million. Consolidate gross margin percentage is expected to be down slightly from 2008, ranging from 30% to 33%, due to the increase in amortization of intangibles, partially offset by higher-margin products.

At the same time, we recognize that our consolidated gross margin is highly sensitive to the overall sales mix of our portfolio of products and services.

Operating expenses as a percentage of revenues are expected to range between 28% and 30% in 2009, excluding the special charges incurred in the first quarter. We now anticipate generating approximately $90 million to $115 million of adjusted EBITDA in 2009. Based upon these assumptions and excluding special charges in the first quarter, we anticipate a loss this year to be between $0.19 and $0.09 per diluted share, with effective tax rate of 20% to 22%.

Including these special charges, we expect the 2009 loss range to be between $0.50 and $0.39 per diluted share, with an effective tax rate of 25% to 27%.

Moving to liquidity, in June of 2009 we issued under a private placement 18.5 million shares of our common stock for gross proceeds of $40.7 million. We then used the net proceeds of $38.2 million plus $2.6 million of operating cash to repay our outstanding principal balance of $48.8 million on a bridge loan with Jefferies. The bridge loan was originally scheduled to mature in January 2010. The extinguishment of the bridge loan was a very important step under our cash management strategy since it was our highest-yield loan with an effective interest rate of approximately 25%.

Additionally, during the second quarter we entered into the fifth amendment of our revolving credit facility. The primary purpose of the fifth amendment was to further relax our debt covenants as well as obtain approval to enter into a secured equipment financing transaction with Icon Capital for $20 million secured by our rental pool of assets. We received $12.5 million in funds for prior to June 30 and received the remaining $7.5 million in July. The loan has an interest rate of 15% and matures on July 31, 2014. We are using the funds in the normal course of business operations.

With that, we will open up the call for questions.

(Operator instructions). James West, Barclays Capital.

Bob, when you talk to your contractor customers and your oil company customers and get a sense for their thinking on exploration budgets, do you think, is it fair to say at this point that the exploration budgets may have hit a bottom? It looks like it from your numbers and from what we are hearing from other seismic companies. But I'm curious as to your thoughts on that. And clearly, places like North America are a little bit different. But maybe on a more global basis?

I think, on a global basis in aggregate, I think what you're suggesting is what we are also picking up on. I think there's a growing feeling of confidence that the oil prices are not going to go to $30, they are in fact going to be above $50. We know that some of our larger oil company customers are using the $50 as their -- I don't know if it's their price [deck], but it's sort of how they are adjusting their organizations. So I think we are seeing the bottom.

My own belief is that they entered into 2009 with a tremendous amount of uncertainty. It's taken them almost to this point to even get themselves organized and release budgets. I would guess, as the year unfolds, we will see some strengthening just in spending going forward. That's what we are assuming, like in the data library sales. And then, going into 2010, obviously if the oil prices hold up I think we'll see things even further strengthening.

And then, on the FireFly business, obviously, you've had a lot of success with the systems that are in the field now. I believe two of these projects are more rental type agreements. When are you comfortable, I guess, first, on putting more FireFly equipment out in the field into new customers' hands? And then, two, do you think any of these rental agreements turn into sales at some point?

The first is, from an activity point of view we are seeing a growing interest in FireFly, as you would expect. We are getting enough activity in multiple places, and we are having enough operational success that I think people are getting more and more confidence in the system. So, because of that and sort of the flow of interest we see a lot being driven by oil companies, as we look forward into next year we can really imagine that we are going to have to expand that fleet one way or the other.

From the point of view of a sale, I think it's inevitable. Obviously, if you look at the economics of a system, as utilization goes up, the rental model, actually, for us is quite good from a margin point of view. But if you are renting that system and you are doing it routinely over time, then the economics of purchase becomes more attractive.

So I think it's really going to be sort of a balance. As this utilization continues to grow, people see the interest in FireFly growing, that at some point people are going to convert and also buy systems.

One question for Brian, if I may. For the data library business I know you guys had talked about strength in that business in the second half. You spent a lot of capital year-to-date or particularly in the second quarter. How should we think about capital outlays for data libraries were or for [span] programs, I guess, in the second half of the year?

Well, we continue to manage that program with the same level of discipline we have historically. So we look at the portfolio of current projects that are ongoing, and we make sure that the total levels of underwriting for those projects match our direct expenses to execute them. So there has been no change in our operating method.

Mark Thomas, Simmons & Co.

I think most people understand that the current market is extremely challenging. But at the same time, I think there's some frustration, given another downward revision in guidance. Can you just help us understand, I guess, why the change in the revenue guidance? And specifically, were there certain projects that you planned to book that didn't come in? You talked about slippage into Q3 with some sales. But if it's just slippage, I guess just help us bridge the revision to guidance, please.

If you look at what we expected to occur in the second quarter, primarily if you looked at it, there's two areas of our business that showed surprising weakness. The first was on the Land side of the house, and just about every deal that we were actively pursuing which was a qualified target in our sales pipeline on the Land business did not come to fruition. We had a very anemic quarter with low revenues there. And everything that we saw on the upside of the portfolio that we had discounted -- none of those came to the house, too.

So many times in a quarter, if the qualified deal falls out, you typically have a deal in the upside that will slide in. And I think, for the first time in our experience, we saw both of them slide out and nothing slid in. So what we've done is we've taken a very conservative look at that Land business for the back half of the year and materially downsized our expectations from a revenue perspective.

The second area in the business that we saw softness that was surprising to us was on the data library sales. As we mentioned, it was softer than we had expected. There were certainly two things that went on there. One was the slippage of certain projects into the third and the fourth quarter because of a more conservative approach to purchasing patterns. And the second is I think we've identified in the second quarter that there's has been more of a reduction in CapEx budgets and that certain spending that we had anticipated to occur simply probably will not occur this year. So we've taken more of a conservative swing at that business, too, for our new guidance.

And then, if you are able to achieve the new guidance, will you remain in compliance with your covenants this year?

Yes, we will.

With respect to the FireFly system this quarter, can you quantify what was booked this quarter?

No; we don't -- obviously, just for competitive reasons, we don't give out specific deal information.

Terese Fabian, Sidoti & Company.

I have a follow-up on the FireFly question. How large a system sale was it? Was it what you had shipped in the first quarter? And are you going to keep advising on the surveys in terms of their design and also processing the data that comes out?

The sale was for 4000 stations.

I'm sorry, Terese, what was the second part of that question?

I think you said that you were assisting in the design of the projects and also doing the data processing afterwards. Is that going to be ongoing?

Yes, that's in reference to the PEMEX jobs. That's not the case -- that is the case from a commercial point of view with the China job. We were very much involved with it, but the PEMEX job, we would consider that more as a full solution where we, in fact, did do the design in collaboration with PEMEX. And then we will be doing the processing of the data and are starting the processing of the data for the first project. And so that one is the full solution.

And in China you are not processing the data?

No; we are also processing the data. But in this particular case, it was more of a prototype where we are processing, the customer is also processing.

Did I hear you say that in the first quarter you conducted further consolidation of the Land system into the ARAM division?

That's correct.

And what was involved there? Is it going to give you additional savings?

Yes. If you think about one of the -- I've said one of the silver linings in this whole thing is that, because we had overlapping product lines, overlapping manufacturing, we really had the opportunity to consolidate those two businesses. I will have to say that we have done it in a much more rapid way than we would have done in the normal course of business if the market would have stayed strong. But this has forced us to just go a lot faster than you would normally do. So we are going to end up mainly with the ARAM group running our Land cable systems business out of Calgary. So there is substantial, substantial savings over time. The consolidated group will be much more profitable when the business turns than either one when they were stand-alone.

I understand that it's hard to predict when the business will turn, in fact. But do you see any saturation of markets with conventional systems that are going to inhibit sales going forward?

Well, I think that in sort of our base business, cable system business, most of the growth opportunities, the highest growth opportunities, I believe, are outside of the US. The US had such a collapse, and it's going to take a while to work our way through all the systems that are out there. That being said, even in the US, there is a trend, and that's going to a much higher station count. So the plan in the US will be sell them back into our installed base versus having a lot of new systems in demand.

So yes; I think the US is going to be a slower one to turn around. We'll see some sales back into it for a higher channel count, but the big play for us is international, in which we think we have significant growth opportunities.

And one last question on the multi-client data library service. Do you give a number on the clients' CapEx for that -- I mean, as for a guidance number for the year?

The clients' CapEx? Do you mean our projected or anticipated CapEx spend for multi-client?

Yes, total, yes.

Yes; our internal -- we have that, and we do give it, and we put it in our K.

Is that the guidance number for that?

The latest was -- I believe it's $80 million to $85 million on the CapEx side. I don't have the Q in front of me, Terese, but it will be in there.

[Andrew Hellman], [MH & Associates].

I just wanted to ask a question on the lawsuit or, I guess, the cross-lawsuit between ION and WesternGeco. I just wondered if I could get an update on that as far as what the costs are expected to be, any settlement, possibility, the length and any other details that you guys could provide.

Mainly on the lawsuit, I think the information we've put out in the press release is pretty much the information that we are putting out. We're not going to really speculate on the length of time or any of those things. I think, if any of you have been involved with these kinds of activities, it's normally in the terms of years, not in the terms of months. And it's hard to estimate expenses or whatever, so this will be quite a long period of time for this thing to play out.

Do you expect it to affect sales in those product areas at all?

No; we haven't really -- we haven't, most recently, seen really that kind of an impact.

Mark Gaskell, MKG Financial Group.

Congratulations on working through a tough, difficult time in this market. Actually, my question has been answered. I appreciate it. Thank you.

[Lars Toslap], [AAM].

Good morning. I have a question regarding your cash flow. If I look at your cash flow in the first half, you had EBITDA of $30 million, and you made a share issue of $40 million. And as far as I can see, you had [cost of] contribution from reduced working capital of some $55 million. So that heads up to $115 million, roughly. And still, your net debt is down by only $20 million. Could you just specify where your cash flow has been used in that period?

Actually, Lars, I think it's probably more appropriate for you to, when we file our Q today, for you to just go to the cash flow statement.

So can I not be more specific on how you have divided the CapEx, for instance?

I'm sorry; could you repeat that question on the CapEx?

Just to give an indication, it's nearly $100 million difference there. I guess much of that has come into CapEx and in multi-client and library and other types of CapEx? Could you just give me an indication on the size of those figures?

Yes. Again, you can break out the investment in multi-client CapEx on the cash flow statement, and in addition you can break out the rest. Our typical CapEx, I think the first-half CapEx was a couple of million dollars. The second quarter investment in multi-client was $27 million. Do you have the first half? Where is the first-half multi-client CapEx? $45 million, total. So the first half of the year, we invested in, between multi-client and just CapEx, about $47 million, $48 million. And when you jump into that cash flow statement, if you have specific questions, feel free to call me.

(Operator instructions) Mark Thomas, Simmons & Co.

On the full-year EPS guidance, does that include the Q2's foreign exchange loss of $0.06?

Yes, it does.

And then your multi-client CapEx of $27 million this quarter -- is that money you spend and you get reimbursed by your clients? Or is that money that --

There's a little bit of a disconnect. The way the underwriting works, typically is it comes in the form of a commitment and then they would tend to pay that commitment at various stages in the project. So, so much at signing, so much at certain milestones, and then a balance when the data is delivered. The actual timing of expenses can be disconnected from the timing the cash flow is coming in. So at any point in time we could be ahead in cash flow or behind in cash flow, depending on how we spend money against the projects.

Obviously, the majority of the expense is done in the shooting stage, or when the boat's floating and we are shooting the seismic. And that tends to be the shortest period of time for the project itself. So it takes -- it's a matter of weeks to shoot the surveys. About 80% of the expenditure goes into that, and then it's a matter of months to process the data and deliver the product, where only 20% of the expenditure is on the data processing side. So there tends to be, on any given project, a time when we have actually invested our cash to bridge the timing of the inflows. And the second quarter would be reflective of that.

Thank you, that's helpful. Bob, GX Technology announced they enhanced their imaging tool-kit this quarter as well as received a new contract. Can you give us some color if that has opened up other bidding opportunities to process more complex geometries?

I'm not going to talk deal-specific, but I can certainly give you the trend. One is that we are seeing the projects growing in size. Part of that is because things like wide-azimuth surveys, which there was a lot of shooting in the Gulf of Mexico and other places. The original turn off the crank was done typically by contract, by the seismic contractor that acquired the data. We're now seeing that data coming back for reprocessing, and a lot of that is the acknowledgment that the first round just wasn't as good as they had hoped or they are just looking for more, and our leading technology is really getting us a lot of work. So we are seeing that whole area just continue to expand.

In addition, our business is expanding globally. So as we become more and more global with that business, there seems to be almost an unlimited demand for what we do. Our biggest challenge there is just, how do you continue to expand? It requires really strong technical people to run that business. And we are really protective of the quality of what we deliver. So we are somewhat throttled just by the rate at which we can expand to cover the business.

(Operator instructions). And at this time there are no further questions. I would like to turn the call back over to management for any closing remarks.

Thank you for taking the time to attend the conference call, and we look forward to talking to you during our third quarter call.

Ladies and gentlemen, this concludes the ION Geophysical second-quarter earnings conference call. You may now disconnect. Thank you for using AT&T teleconferencing.