Ion Geophysical Corporation (IO) 2013 Q1 法說會逐字稿

Good day ladies and gentlemen. Thank you for standing by. Welcome to ION Geophysical's first quarter earnings call. During today's presentation all parties will be in a listen-only mode. Following the presentation the conference will be open for questions, and instructions will be given at that time. This conference is being recorded today, May 1, 2013. I would now like to turn the conference over to Karen Abercrombie, Vice President of Corporate Communications. Please go ahead.

Thank you, Ian. Good morning, and welcome to ION Geophysical Corporation's first quarter 2013 earnings conference call. We appreciate your joining us today. As indicated on slide two, our hosts today are Brian Hanson, President and Chief Executive Officer, and Greg Heinlein, Senior Vice President and Chief Financial Officer. Before I turn over the call to them I have a few items to cover.

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 our website at iongeo.com, or via recorded instant replay for the next couple of weeks. The information was provided in yesterday's earnings release. I should also point out that we are using some PowerPoint slides to accompany today's call. They are accessible via a link on the Investor Relations page of our website.

Information reported on this call speaks only as of today, May 1, 2013, and therefore you are advised that time-sensitive information may no longer be accurate at the time of any replay. Before we begin let me remind you that certain statements made by ION 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 our current expectations, and include known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control that may cause our 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 ION from time to time in our filings with the SEC including in our Annual Report on Form 10-K, and in our quarterly reports on Form 10-Q.

Furthermore as we start this call, please refer to the disclosure 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 over the call to Brian Hanson. He will begin on slide four.

Thanks, Karen. And good morning everyone. As we reported yesterday, our first quarter revenues were $129.7 million, up 16% over first quarter 2012. Our GeoVentures and GXT Data Processing groups both delivered record revenues for our first quarter. Despite a solid showing on revenues our overall results in the quarter were affected by a few one-off items which Greg will cover later in the call, which collectively reduced our earnings by approximately $0.06. Overall, we had some good wins, and made solid progress in all area of our business. I would like to share some of the highlights with you.

Our GeoVentures revenues were up 47% over first quarter 2012, driven by new ventures revenues which were up 67% year-over-year. The outlook for new ventures is extremely positive, and I believe we are benefiting not only from increased E&P activity in international markets, but also from our strategy of providing E&P clients with integrated solutions that leverage our key technologies. Case in point, we have just completed acquisition of a new program offshore west Australia, which includes about 12,000 kilometers of depth image 2D data. We went into the program knowing the area posed significant imaging challenges, so we designed our new patent-pending WiBand processing technology into the program.

The results of a preliminary test looked extremely promising, and we believe this integrated approach to problem solving is a key differentiator for us. On our fourth quarter call I mentioned we entered the 3D marine space with our first 3D program. The project, a large proprietary survey offshore Africa is a substantial and very lucrative program for us. One that has spanned multiple quarters, and is projected to have very good economics. Unfortunately, the first quarter weather delays contributed to the earnings drag I mentioned previously that Greg will address, but in total the program is excellent.

We believe this program is strategic to our growth plans, as it allows us to partner with E&P customers in key select areas, bringing our full resources to bear through planning, permitting, acquiring, processing, and interpreting our findings. While our first quarter new venture revenues were strong, our Data Library sales were impacted somewhat by delays in licensing rounds offshore Tanzania and northeast Greenland. Every indication is that these sales will be realized later this year, as we are extremely well-positioned with high quality relevant data in both of these areas. And also for the upcoming licensing rounds offshore Brazil. In fact, about 40% of our Data Library sales in the first quarter were associated with the first two of Brazil licensing rounds this year, around 11 taking place this month.

Our data processing business remains strong, with 16% growth in revenues over first quarter of last year, a record first quarter in terms of revenues. Contributing to that success was our UK center, which delivered a record first quarter posting a 75% increase in revenues year-over-year. One of the key drivers of our success there has been the uptick of WiBand, which is increasingly being incorporate into project work flows.

We are continuing to benefit from international diversification, and are opening a new processing center in Perth, Australia, expanding our global footprint in the rapidly growing Asia Pacific region. We have identified that market as underserved for our technologies. We are staffing up, and we will be officially opening this facility in late Q2 or very early third quarter, bringing new opportunities not just for data processing but for our new ventures and Data Library business as well. As we transitioned on to being a service provider partnering with E&P customers over the last few years, our growth has been predominantly in international deep water marine markets.

However, I want to take a moment to share some highlights on the land side. Specifically regarding our activities in the North American unconventional plays. I should start off by saying that while we see unconventional reservoirs as a growth area for us, our exposure remains limited. That said, we are seeing increasing demand for both the reprocessing of legacy land data and for the new land programs, and we have several data processing projects and multi-client programs underway in the North American unconventional plays.

In terms of pure processing, our patented technology, AZIM, has driven significant reprocessing of existing surveys across North American unconventional plays, further strengthening our land processing performance. Chesapeake has adopted this technology in their exploration efforts, with a new $3 million award to GXT in the Powder River Basin, following a $2.7 million award in the Mississippi Lime play in 2012. To date, our land processing group has processed over 250 land surveys totaling over 22,000 square miles.

In addition to helping clients like Chesapeake get the most out of their legacy data, we are also seeing demand for new land programs. You might recall about a year ago we launched our ResSCAN 3D seismic data programs for unconventional reservoirs managed by our GeoVentures group, and imaged by our GXT Data Processing Group. This is a unique and differentiated offering. Unlike traditional data programs, ResSCAN programs are designed to work with rock property and engineering parameters prediction in mind. The ResSCAN work flow fully leverages upfront geological, petrophysical, and rock physics analysis, to establish which seismic attributes provide a predictive expression of key reservoir properties for a given shale play. And more important, impact an operator's decisions regarding drilling and completions engineering.

ResSCAN technology is a hydrocarbon phase agnostic, meaning that it works equally well on gas or oil unconventional plays. We now have six programs encompassing about 1,000 square miles completed or underway across the Marcellus, Niobrara, and Mississippi Lime shale plays, a combination of oil, gas and mixed plays. Through these programs we are proving the value of multi-component data as compared to traditional P-wave for understanding rock properties, and helping operators focus their drilling plans on their most productive acreage, which is essential in today's North American oil and gas price environment.

The hydraulic fracturing market was estimated last year are to be $37 billion globally, of which $31 billion was US-based. Industry reports note that in a typical well approximately 70% of production is coming from only 30% of frac stages, so there is substantial room for efficiency gains and cost savings. An industry survey of the hydraulic fracturing market last year revealed that a quarter of frac jobs did not meet initial expectations. The most common reason cited was failure to understand the subsurface. The information we deliver through our ResSCAN programs has the potential to significantly improve efficiency by optimizing decisions around fracking.

A new and integral component of our ResSCAN workflow is the use of microseismic technology for fracture monitoring. The frac monitoring market segment, estimated to be about a $350 million market, is faced with the challenge of recording very small signals in a high noise environment, and has shortcomings of current industry offerings when it comes to accurately locating and characterizing these events. To help meet this need, we developed a new microseismic offering that employs our proprietary ultrahigh sensitivity low noise ION SM 64 sensor deployed in shallow arrays. Our first two commercial monitoring projects are underway in Pennsylvania and Oklahoma, and we are integrating the microseismic data with our ResSCAN 3D multi component data and attribute volumes, to provide operators with a better picture of the completion's effectiveness and overall reservoir models. Coupled with our ResSCAN programs we see the monitoring market as a growth area for us.

Now I would like to return to the marine business. We continue to see significant growth in demand for seabed seismic, driven by the need for higher quality seismic image complex targets for production, and in obstructed areas containing a lot of infrastructure. Our VSO seabed system continues to deliver industry-leading images. And Calypso our next generation VSO system to be field tested this year, will deliver VSO quality imaging along with significant increases in operating efficiencies.

A high value route to market for our Calypso technology is via our recently-announced joint venture with Georadar, currently known as GeoRXT. Today we own 30% of this joint venture, and are very close to increasing our ownership to 50% in the very near future, as indicated in this morning's press release on our high yield offering. Whereas GeoRXT was restricted to operating only in certain geographic areas, we have removed this restriction and opened the doors to address the global market. The new JV company will be able to offer a fully integrated seabed seismic solution that can leverage ION's strengths, including GeoVenture's project origination and global relationships, and GXT data processing and reservoir services along with the operational excellence and relationships that already exist in the GeoRXT team.

We believe a fully integrated seabed seismic offering backed by two strong parents will be well-positioned to succeed in the fast-growing seabed seismic market. We anticipate that the new 50/50 joint venture will go to market with exclusive access to Calypso, accelerating our ability to improve the technology and quickly integrate it into operations, with a fast feedback looped engineering. We sold and shipped two arrays of VSO into the JV in Q1. We have spent the last two months working hand in hand with Georadar to market and qualify GeoRXT, to participate in tender activity in southeast Asia, the Middle East, Africa, India, and other areas.

In our software segment we experienced increased demand for our unique offshore 4D optimization services. Our 4D services revenue in Q1 increased 50% over Q1 2012, and advanced bookings in 2013 indicate a doubling of our E&P customer base over 2012. In addition, we grew sales of our industry-leading ORCA command and control software. Also in Q1 concept systems secured a long-term fleet wide contract with a key marine customer for ORCA, this agreement is yet another testament to our leadership in the streamer operational management market. In addition, the contractor customer's fleet provides another platform for installing our 4D optimizer software, further broadening our exposure to E&P operators.

So to sum it up, we remain confident in our full year outlook. Leveraging the momentum we built in 2012, we are going into the rest of the year with a number of tailwinds. We are extremely well-positioned for upcoming licensing rounds in exploration hot spots around the world, and with a solid backlog of multi-client programs, our business is increasingly international, and the opening of the Perth center should open up significant opportunities for our leading technologies and services in the fast-growing Asia Pacific markets.

We are seeing increasing interest in and demand for our emerging technologies including our WiBand broadband processing platform. We continue to gain traction for our land data processing services leveraging our AZIM technology, and also for our new and differentiated ResSCAN programs. And with our seabed joint venture, we are well-positioned to take full advantage of the growing market for seabed seismic. With that, I will turn the call over to Greg.

Thanks, Brian. Good morning everyone. Overall our first quarter revenues were up 16% year-over-year. Our solutions segment revenues of $89 million improved 35% over the prior year period. Compared to first quarter 2012, our software segment sales decreased slightly to approximately $9 million, while flat in local currency. While our system segment revenues decreased 13% to $32 million. Our first quarter net income was $1.5 million, or $0.01 per diluted share.

Our overall results were adversely affected by a few items which I will cover in a little more detail. In Q1 we had incremental standby costs of approximately $6 million without corresponding revenue from our multiple quarter 3D acquisition program. The economics of this program are great in total. However, the first quarter was exposed to some extreme seasonal weather delays, which we do not expect will be repeated as we wrap up the remainder of the survey in the second quarter. We also recorded nearly $3 million for bad debt expense primarily for a land customer bankruptcy, but fully expect that if they aren't able to ultimately pay the company that picks up their leases will pay for the data. And finally, we recorded a $700,000 loss on our 30% share in the seabed JV. Ironically the JV was profitable for the full quarter. Unfortunately, we were only able to book our portion of the earnings for the short period we owned them in the quarter, which was timed with some weather delays and crew change activity driving the loss. All of these items combined resulted in approximately $0.06 of earnings per share impact during the quarter.

Now let's take a closer look at our Q1 performance starting on slide 11. Our solutions segment revenues increased 35% due to increased performance in both our data processing and new ventures business. Data processing revenues increased by 16%, a best-ever first quarter, driven by continued improvement in the Gulf of Mexico and our international expansion. We continue to smartly invest in hardware, software, and processing talent in this business, given the faith our customers are placing in our processing division. Our new venture revenues increased by 67%, also a best-ever first quarter, driven by work on the large 3D marine project discussed earlier, as well as projects off shore Africa, Australia, and in the Arctic.

Our Data Library revenues were softer than expected as a result of the previously mentioned delays in offshore licensing rounds near Greenland and east Africa. Our quarterly library sales are always difficult to predict and this quarter was no different. Our solutions segment ended the quarter with a backlog of $129 million, flat year-over-year, and down $22 million from last quarter. The decline in backlog during the quarter was due to working through some of the large 3D marine proprietary programs off Africa. We anticipate that our backlog will continue to build over the remainder of 2013 consistent with prior years.

Operating margins for our solutions business were significantly lower this quarter, attributed to the nearly $6 million incremental standby costs due to weather delays, and a reserve recorded as a result of a customer bankruptcy for nearly $3 million. These events which impacted operating margins by 10 points are uncharacteristic for our solutions business, and we expect our margins to return to historical norms as the year progresses.

Turning to slide 12. Our software segment revenues in Q1 were relatively flat, which is pretty normal for the first quarter. This quarter dollar revenues and operating income were modestly impacted by the decline in the British pound. Moving on to slide 13. System segment revenues declined 13% year-over-year, driven by lower demand for positioning products due to very modest capital spending by our contractor customers related to new vessel introductions. During the quarter we also saw a year-over-year decline in revenues in our land sensor business, due to a large string system sale in the first quarter of 2012. Unfortunately the lumpy nature of our equipment business continues to impact our year-over-year comparisons.

On a positive note, our OBC product sales during the first quarter increased significantly as we sold two arrays into our joint venture GeoRXT. Unfortunately we have to defer 30% of our margins over time from sales into the JV because of our current 30% ownership. INOVA continued to have success selling their G3I and unified products introduced in 2012. As we indicated on our last call, INOVA's revenues in their fourth quarter was $59.6 million, relatively flat year-over-year. INOVA delivered an additional 38,500 channels of their G3I cable-based recording system in Q4, and made a few additional US-based vibrator sales.

INOVA fourth quarter operating loss was $300,000, down from the same period in 2012 in which they had an operating income of $6.5 million. We estimate INOVA's first quarter revenues to be in the range of approximately $21 million to $23 million, with an operating loss of $7 million to $9 million. INOVA had a slow start to this year, with several large sales planned for Q1 having shifted into Q2. As always the land equipment business is a lumpy business, but INOVA's second quarter is giving every indication it will be a strong one. Given what we see at this point for the remainder of 2013, we continue to expect INOVA to be profitable for the full year.

Turning to slide 15. We generated free cash flow of $17 million this quarter. Our cash balance stands at $67 million, up $5.6 million from the fourth quarter. Moving on to more details in the balance sheet on slide 16. The asset side of our balance sheet remains clean, with limited debt and our most significant asset being our Data Library net book value of $225 million up $48 million in the last 12 months, and down slightly from year end. Our credit facility has $78 million of capacity outstanding.

Turning to our last slide 17, despite a strong revenue but weak earnings quarter in Q1, we remain confident that 2013 will result in solid year-over-year growth. As we look ahead to the second quarter, we see upward momentum in our three core business segments. We expect to leverage the momentum and growth we delivered in 2012 through the remainder of 2013. With regard to our seabed joint venture, should we decide to increase our ownership in the JV to 50%, our investment in global relationships should enable us to develop a larger sustainable backlog, to allow the venture to expand internationally utilizing next generation Calypso.

We view the seabed market as an important strategic opportunity for ION, affording us the ability to solve some of our customers' toughest challenges with our seabed technology. We continue to expect our 2013 investment in multi-client Data Library to be in the range of $140 million to $160 million consistent with 2012.

Finally, I would like to address our announcement of the launch of our $175 million five-year notes offering. While we can't say much during the marketing period, let me assure investors we are simply terming out our floating rate revolver financing that we have relied on over the years. Interest rates are at generational lows, and as we fund our growth we felt it prudent to have more permanent financing. We intend to use the proceeds to pay down our revolver borrowings, invest into our seabed joint venture, and for general corporate purposes. In summary, we remain optimistic about our future, and this new source of capital will simply provide us with financial flexibility beyond our revolver which matures in two years.

In closing, we would like to thank our customers for their continued faith in us, and our employees who strive to give us a competitive advantage every day. With that, we will turn it back to the operator for question and answer.

Thank you. (Operator Instructions). And our first question comes from the line of Georg Venturatos with Johnson Rice. Please go ahead.

Good morning, Brian. Good morning, Greg.

Good morning, Georg.

Good morning, Georg.

I wanted to start on the seabed JV if we could. Operationally just wanted to kind of get if you can provide anything, in terms of your expectations, potentially if you do go forward in terms of number of crews working, and likely location for those crews to be working? And then additionally, obviously you have some competitive advantages with Calypso, I just wanted to see if you could shed a little more light in terms of operationally the efficiencies that it provides, and also the depth capabilities I think are more on the sweet spot of what operators are looking for right now?

Sure. Georg, let me preface by saying that we, upon completion of our high yield offering, we would anticipate that we are probably going to be closing on the heels of that for the JV. With that, we would expect to have another call and get into a lot more detail around the JV with you guys.

Sure.

Just a couple of high level comments for this call. One is when we look at the world and look at what markets are interesting, obviously South America remains interesting, because of the breadth of the relationships that Georadar already has in that market. Specifically, Brazil they are very strong, and they have other relationships just through the Georadar presence all the way up through South America. That Is definitely one prime area.

And what is really nice is that there is quite a bit of deep water especially offshore Brazil that the OBC system can be employed in, so we think Calypso is extremely differentiated there, because they are operating right now in call it 1,400 to 1,600 meter depths, and truly there is not a system out there really rated for that. We are stretching our VSO capabilities today playing in that area. But Calypso is rated to 2,000 meters, so it will be very nicely positioned for that market. Most other seabed offerings, quite frankly, are playing in under 300 meters, and most of them are rated up to 700 meters, so Calypso at 2,000 meters is quite a step to open up the market a bit. When I look at other geographic locations that are of interest, there are some really prime ones, so west Africa have a really good market. There are a lot of older fields that reservoir management is more important than ever. It is highly populated with a lot of infrastructure, and so just the combination of the superior image and the ability to maneuver around all of the existing infrastructure, just makes it a prime OBC market. That would be one of great interest to us.

The other would be the Middle East where you have a similar issues. There are fields in the Middle East that are 50 to 60 years old. And again reservoir management is very critical. They are shallow water environments, and so I think that is a prime market. Another very interesting area is southeast Asia. Petronas has a lot of pent-up demand for almost exactly the same type of application, where you have got older fields that they are trying to manage the reservoirs, and there is a lot of infrastructure. We are just seeing this recurring pattern come around the world, and so there is interest in a number of markets, but I like those three specifically because I think over time each of those markets will support a permanent crew. That is not going to happen overnight. Because these are large projects. They are sort of multi-year planning horizons, so it is kind of a slow and steady evolution of the business in my mind. So I can't give you specifics on crews right now, other than to say that over time I would expect that each of those markets could potentially support their own crew.

Perfect. Thank you. And just wanted to touch on the new venture side. Obviously we have got very positive outlook there, and in some of the strategic ways you are going about integrating solutions I think offer a differentiated aspect to it. Can you talk maybe a little bit about how you are also I think long-term strategically kind of shifting to diversify kind of your exposure to the reservoir cycle? I think historically you have been more frontier focused, but as you can potentially get more into the developmental phase as well?

Certainly. That is another really good question. We deliberately recognized I would say about four years ago that primarily what we did on the new venture side was really early stage frontier exploration around basins of interest with our 2D program. But we also recognized that what we wanted to do was expand that business, and have it actually cross the early stage exploration, exploration and ultimately production plays, and so we have been slowly diversifying it. If you think in terms of the current offering, we still are certainly one of the leaders in doing early stage frontier exploration with our 2D basin span work, but a couple of the areas that we have really branched in to get into more closer to the production side, is both our ResSCAN offerings on the unconventional plays, and also we see tremendous opportunity around our seabed technology and putting that into kind of a multi-client model as well. So I see that shifting more and more into production. And also we see the expansion into 3D, 3D marine seismic as an opportunity to move away from that early stage frontier exploration, and get into more of the decision-making around participation in lease rounds, and ultimately drilling location kind of decisions.

Okay, great. Really appreciate the answers, Brian.

Thanks, Georg.

Thank you. Our next question is from the line of Joe Maxa with Dougherty & Company. Please go ahead.

Hi, thank you. I want to explore a little more on the 3D seismic. I think in the past we have talked about that being a little more competitive market. Looks like you have some nice success or are about to with this current program that is going to wrap up in Q2. I would like to talk about your differentiators, I think you hit on that a little bit, and then where you see that going in the next 6 to 12 months?

Hi, Joe. The differentiators when you look at almost the spectrum from planning through acquisition to processing and interpretation, in my mind the differentiators from our perspective is that we have a real strong geophysical skill set in the Company, so it starts with our ability to uniquely plan and help the oil company design the survey, and then we couple that with where we can to utilize the technology that we are building, and so we will give, our ultimate design is to give the contractors access to that technology to shoot the survey, and in this case the survey is actually being shot 100% with ION technology. And then we use the unique skill sets of our GXT processing business to create a very high quality output, both from the processing and working on the interpretation side of the equation. What we are not the doing is just going out there and doing turnkey 3D seismic, and trying to compete with the contractors in the business who do that. What we are trying to do is bundle together all of our capability, and create more of an integrated offering so that the end product is superior. And so when an oil company, I think where we are going to be successful is when our customers ultimately feel that we are truly differentiated, and we are going to give them something unique. That is when we are going be successful. I would also say it is somewhat early stage given than we have just launched into the 3D business, and so this being our first project and this one being on a proprietary basis, we also see opportunity to do some 3D on a multi-client, there will be more to come on that this year.

I see. That is very helpful. I'm also wondering on the Data Library sales, you talk about the expectations of bouncing back. Can you talk a little bit more about the delays in the two regions that you talked about, and the confidence level that you will see that revenue return this year?

Yes, absolutely. And so we always have a difficult time trying to predict Data Library sales, but specific to these two regions we had higher expectations that were some what tempered given some current issues. And let me give you a little bit of insight into them. On the Tanzania side, basically it was more of a, it was just a delay of the launch of the Tanzania licensing round, and we are expecting that actual licensing round will probably be announced very shortly. High probability second quarter, and so that will put that data back in play. On the northeast Greenland play, I think there was a little bit of uncertainty in the market around the incoming government, and they made some statements that weren't quite clear whether or not they were going to have another licensing round, or whatever. But I think ultimately they are pretty much cleared up, if not close to being cleared up. So that round will go ahead. I just think they created some ambiguity in the press and in the market, and so that had to be straightened out.

So that round for sure is going ahead and do you have any time or rough expectations of when that may move forward?

Not specifically. And I can't specifically say that they have come out and formally said that it will go ahead. But if you dig into all of the detail underneath that licensing round, it would be hard to imagine that it would not go ahead.

Got it. Okay. Very good. Thanks a lot for your help.

Thanks, Joe.

(Operator Instructions). Our next question is from the line of Justin Baker with Sidoti & Company. Please go ahead.

Good morning, gentlemen.

Good morning, Justin.

Good morning, Justin.

I know that you mentioned that we are going to have probably a follow-up call as far as GeoRXT, so just two really quick ones on that. Greg, you had mentioned that you only got part of the quarter in your results. Are you able to tell us what the full quarter for GeoRXT was, so that we have some frame of reference there?

Again, GeoRXT is a private company so the results that will be known ultimately when we get to 50%, will probably give you better insight to that. For the quarter they were profitable, so January, February they were profitable. Our ownership interest took place in March, and so our 30% piece of that represented a $700,000 loss. They had some down time in March that we incurred.

And then you had mentioned having to defer 30% of the margins I think on that?

Yes, that is exactly it. Whenever you are selling into a related party while you can recognize the revenues, part of the margins have to be deferred. Our ownership of 30% means we have had to push out for five years useful life for the equipment 30% of the margins.

Okay, great.

That obviously will go up to 50% deferral once we move our ownership interest to 50%.

Right. As far as the marine 3D, just to kind of get a sense on this, are you able to give some basics in terms of maybe range of project sizes that you would expect, how margins are going to compare here, and then also given the standby costs that you saw in this, would you structure projects any differently in the future?

Let me try and give you a little bit of perspective on this, Justin. In the 3D arena we, obviously both 2D and 3D project sizes can range across the board, but generally speaking I think we would expect project sizes to be two to three times the size of a 2D project. Again, it is early stage, and so we can't claim to tell you that we know exactly how this is going to unfold. I would rather have a little bit of history under our belt, and then be able to give you more specifics. I would even say that is the answer to the margin question, too. We need a little time in this, and almost any area of the business that you enter initially you are going to have some learnings, and so we are probably going to have a bump or two along the road the same way we did in the 2D projects. But in general if we can't make respectable margins we are not going to be in the business. As far as the design of the program and the standby costs, the reality is, we fully expect there will be hurdles like this and the program was designed accordingly. This program, we took into consideration given it was a multi-quarter program, the geographic area that they were working, the average wave height, the average wind speed, the typical weather conditions, and recognized there would be down time associated with it, given that you are spanning, call it nine months. And so that in total in the program is planned for. However, the timing of it when it comes to revenue recognition, and the recognition of the expense associated is lumpy, and so the program in total is an excellent program, and giving really good returns. The reality though, is because all that down time was in a season where you had three cyclones back to back, it gets pushed through one quarter.

Okay. Thank you.

Thank you. And we have no further questions at this time. I will it turn it back to management for any closing remarks.

Alright. Well, thank you for attending the call, and we hope that you will join us on our next call, which hopefully will be to discuss the GeoRXT joint venture.

Ladies and gentlemen, this does conclude the ION Geophysical first quarter earnings conference call. ACT would like to thank you for your participation. You may now disconnect.