Ion Geophysical Corporation (IO) 2013 Q2 法說會逐字稿

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. This conference is being recorded today, August 8, 2013.

I would now like to turn the conference over to Karen Abercrombie, Vice President of Corporate Communications. Please go ahead.

Thank you, Douglas. Good morning and welcome to Ion Geophysical Corporation's Second Quarter 2013 conference call. We appreciate your joining us today. As indicated on slide 2, our hosts today are Brian Hanson, President and Chief Executive Officer; and Greg Heinlein, Senior Vice President and Chief Financial Officer.

Before I turn the call over to them, I have a few items to cover. We'll be using Power Point slides to accompany today's call. They're accessible by a link on the Investor Relations page of our website, IonGeo.com. There, you will also find a replay of today's call following the call.

Moving on to slide 3, information reported on this call speaks only as of today, August 8, 2013, and therefore you're 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 risk, 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 within the SEC, including 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 into our press release issued yesterday and please note that the contents of our conference call this morning are covered by these statements.

I'll now turn the call over to Brian Hanson, who will begin on slide 4.

Thanks, Karen, and good morning, everyone.

Yesterday, we reported second quarter revenues of $121 million, up 15% from our second quarter revenues last year. We've been consistently delivering solid year-over-year revenue growth, but that being said, the quarter was, overall, both challenging and disappointing for us from an earnings perspective. Our results were affected by a few factors, which I'll touch on and Greg will cover in more detail later in the call. Even with the disappointing performance of the first half of the year, the core business is strong and we remain confident in our long-term growth prospects. First, I'll provide some operational context about 2013 and after Greg speaks to the financials, I'll wrap up with a discussion around the growth theories for our business for the back half of the year and into 2014 and beyond.

The biggest operational challenge we had was with completion of our first proprietary 3D acquisition program off Morocco. We continued to struggle with weather delays due to unseasonally high wave heights that caused approximately $6 million of unanticipated cost overruns in the second quarter. We're obviously disappointed with the performance of this program in the first half of the year, but recognize it was a large program that spanned 2012 and '13; and in total, was a profitable program for us, so well worth doing. In addition, it was the first major 3D program we cut our teeth on, and although marginally successful, we learned a lot for future programs as we enter the 3D multi-client space with our recently announced alliance with Polarcus. All in all, though, it was a significant earnings drag to the first half of the year.

We have also experienced a slower than expected start with the GeoRXT seabed JV, which we announced in Q1. The JV is being hampered by a pull back in business in their home market of Brazil, which resulted in their anticipated backlog through October evaporating in June. We have been assisting them to aggressively move into the international market, getting them pre-qualified for work for E&P companies through the tender cycle, but of course, this takes time.

While we had expected by now to have increased our interest to 50%, along with Georadar, we have delayed doing so while the JV works to secure stronger backlog, both within Brazil and beyond. As such, we recorded a $1.6 million loss from GeoRXT during the quarter, associated with the 30% position we picked up in Q1. Despite the delay, we remained fully committed to putting our Calypso seabed acquisition technology to work in a service model to meet the growing demand for seabed seismic. However, given this delay, we no longer anticipate selling a Calypso system until 2014. I'll expand on the seabed market and our commitment to develop the right go-to-market strategy a little later.

Revenues in the Software segment were down slightly in Q2 year over year, as for the first time we are experience some degradation in our traditional command and control software business. Contractor consolidation, as exemplified by the acquisition of Fugro by CGG and more recently, the bankruptcy of RXT, has impacted our install base causing reduction in revenues from our Orca and Gator product lines. This same customer consolidation, as well as a shift to proprietary technology by the top three marine towed streamer contractors has already impacted our marine product line in our System segment. More about that later.

Finally, as indicated on the last call, we incurred a $4.7 million loss associated with Inova's prior quarter performance. The land business in general was soft, with customers expressing more interest in rentals versus purchases, as CapEx budgets are tight. As such, we expect Inova to perform similarly to last year. Greg will highlight more on this topic.

Over the last couple of years, we have stated our intent to deliver 25% of our earnings in the first half of the year. Last year, we delivered one-third of our earnings in the first half. We believe in most years, this goal should be generally achievable because of the expanding portfolio we've assembled in both land and marine GeoVenture programs, as well as the growing influence of our software earnings. Clearly, that's not going to happen this year. In particular, our GeoVentures group will be more dependent on the back half of this year for earnings, given the headwinds we had in the first half.

Our first half results can be characterized by some good successes offset by a couple of key challenges. On our list of successes the first half, our Solutions segment revenues were up 29% and up 23% in the second quarter, led by strong new ventures revenues. This increase was primarily the result of the completion of acquisition of our first major 3D marine program, and two 2D basin span programs in the quarter -- a 12,000 kilometer program on Australia's northwest shelf, and 5,000 kilometer program offshore Surinam.

Another highlight for us this past quarter was our growing development of our land 3D ResSCAN offering. We now have nine ResSCAN programs, either complete or in progress, comprising about 1,400 square miles of data. As we mentioned on our first quarter call, microseismic for fracture monitoring is a new and integral component of our ResSCAN work flow, and a highlight in the second quarter was completion of our first two commercial frac monitors in Pennsylvania and Oklahoma, using shallower rays instrumented with our proprietary SM64 sensors. The back half of the year looks strong for this segment, as we recently sanctioned a portfolio of three land programs, which were well underwritten, totaling a commitment of more than $50 million in CapEx. Later in the call, I will address why this is strategically important to us.

Our data processing business had another record quarter, with 20% year-over-year growth in revenues, driven by exceptionally strong demand in Europe, the Middle East, and the Gulf of Mexico. We continue to see increased demand for our WiBand broadband processing solution, with over 40 WiBand projects complete or in progress; and we now have WiBand capability deployed in all of our large data processing centers.

We continue to expand our footprint into E&P hot spots. Last month, we formally opened a new processing center in Perth to serve the needs of oil and gas companies in Australia and throughout the Asia-Pacific region. Economic growth in Asia-Pacific is driving the need for a dependable energy supply in the region, prompting industry experts to predict an estimated 20% year-over-year growth in E&P CapEx in 2013. In 2012 alone, there were 13 offshore discoveries in the area. Australia is experiencing an oil and gas exploration industry boom, driven by the massive resources of its northwest shelf and also by the significant potential of unconventional hydrocarbon reserves. We see Asia-Pacific as an underserved market for the high-end imaging services, where we excel, and are pleased to have opened the center with solid backlog.

While Software revenues were down, our concept system group achieved near-record revenues of our 40 optimization services to E&P customers. Demand for our unique technology as a service continues to be strong and we are now engaged in active planning with customers for 4D services for the 2014 season. All in all, we have good revenue growth and solid core businesses. It's a shame we had such a drag on earnings with our 3D survey and the poor performance of Inova.

Before I turn it over to Greg, I'd like to provide update on our WesternGeco litigation. As you know, in August 2012, the jury in the case returned a verdict against us and awarded WesternGeco a total of $105.9 million in damages, mostly consisting of lost profits, damages related to seismic survey revenue received by our customers who use outside our DigiFIN products to conduct seismic acquisitions outside of the US. As we disclosed in June, while the trial court rejected a jury's findings of willfulness and any related enhanced damages, the court denied our challenges to the jury's infringement findings and their related damages amount. The court still has not yet entered a final judgment in the case.

After a judgment is entered, we will appeal the case to the Federal Circuit in Washington, DC. An appeal will take some time to go through the court system, but we still believe that we'll ultimately prevail in this case. However, US GAAP accounting practices guide us to increase our legal reserve consistent with the June order. Greg will provide details on the legal accrual later in the call.

With that, I'll now turn the call over to Greg to take us through the financials.

Thanks, Brian. Good morning, everyone.

Our second quarter revenues were $121 million, up 15% over the second quarter last year. Solutions segment revenues of $88.6 million improved 23%. System segment revenues of $23.8 million were up slightly, while Software segment revenues declined to $8.4 million from $10.4 million. Excluding the legal accrual, which I will discuss in a moment, we reported breakeven earnings per share. While revenues were up, our overall results were negatively affected by those items Brian mentioned, most notably $6 million of cost overruns as we completed acquisition on the large 3D marine program, and $6.3 million of losses in our Inova and GeoRXT joint ventures. Combined, these items resulted in $0.07 of EPS impact.

Now, let's take a closer look at our second quarter performance, starting on slide 8. Our second quarter Solutions segment revenues were up 23% year over year, led by revenues from new ventures up 54% and data processing up 20%. Operating margins were hampered in Q2 by the $6 million of weather-related cost overruns associated with that large 3D marine program. Data library sales were flat, largely attributable to delays in licensing rounds in Greenland and Tanzania; and also, the smaller than expected outcome of the announced licensing round in Brazil, containing only a single block.

Our multi-client investment in the first half was $34 million compared to nearly $53 million spent in the first half of last year. While our first half multi-client investment was low due to program delays, we are starting several new programs both on land and offshore over the next few months. Given these delays, our estimated full-year multi-client investment will likely be in the range of $120 million to $140 million, down from our previously stated target of $140 million to $160 million.

Our Data Processing business remains strong with revenue growth of 20% during the quarter. For the year, we expect similar growth as experienced in the first half. One item to note -- looking ahead to the third quarter, we are currently working on sizable data processing contract renewal with a significant client with whom we have a strong existing relationship. Projects under this renewal have already been allocated to us. While we are performing some of the renewal work during this third quarter, we will neither deliver data, nor recognize revenues on those projects until the contract is renewed, which is expected to occur during the fourth quarter. It is conceivable at this point that approximately $7 million of revenue could shift from Q3 to Q4 pending the renewal of this contract.

This $7 million nearly flows through equally to operating income. Turning to slide 9, we saw a decrease in Software segment revenues in Q2, due to consolidations in our customer base this year. It's clear that the Fugro acquisition by CGG and the recent RXT bankruptcy have negatively affected our Software revenues and earnings. On a positive note, demand for our 4D optimization services continues to rise, resulting in a near-record quarter for Service revenues. Operating margins were similarly impacted by a decline in our Orca and Gator product sales, due to the consumer consolidation. We expect this segment to show sequential improvement during the second half of the year. Moving to slide 10, System segment revenues increased 5% to $24 million.

We experienced a slight increase in operating margins from 4% to 6%, driven by lower R&D spending as compared to last year. Given the consolidation in the towed streamer market, we expect the towed streamer side of our business to remain relatively flat moving forward. Turn fog slide 11, as we indicated on our last call, Inova's revenue in their first quarter was $22 million and they reported a net loss of $9.8 million, resulting in our reporting a loss of $4.7 million in our second quarter. During Inova's first quarter, they experienced a 61% decline in revenues resulting from reduced vibrator truck sales and equipment rental activities. For Inova's second quarter, we estimate revenues to be in the range of approximately $64 million to $68 million, with operating income of $2 million to $3 million. The improvement in Inova's second quarter results compared to their first quarter is due to their continued penetration of their G3I cable-based system, of which BGP has purchased over 100,000 channels to date. They also sold 26 vibrator trucks and 15 uni-vibes and completed their second and third sales of their Hawk cableless system for an additional 21,000 channels.

Since introducing Hawk last year, Inova has sold over 50,000 channels of the system. As you may have seen, they recently announced the commitment of 15,000 channels of Hawk to Greyco, a leading seismic rental equipment provider. In that agreement, they signed a co-marketing commitment with Greyco that will place Hawk on the market for immediate rental worldwide. Turning to slide 12, our cash balance stands at $110 million, up $43 million from the first quarter. This increase was a result of our new $175 bond offering, which resulted in $71 million of net proceeds after we used the funds to pay down the balance under our outstanding revolver. This increase was partially offset by a use of working capital, as we continue to build inventory of Calypso and our unbilled receivables have grown, pending completion and final billing on certain key projects later this year. This $29 million use of working capital primarily drove our free cash flow negative during the quarter.

Moving on to more details in the balance sheet on slide 13, our debt has increased $79 million since year-end, primarily as a results of our five-year bond offering. With our paydown of our revolving credit facility, we now have its full availability, which, combined with our cash balances, brings our available liquidity to $285 million. Net debt increased to $74 million in the quarter, attributable to our new funding and increase in working capital. Turning to slide 14, as Brian mentioned, we've creased our loss contingency accrual related to the WesternGeco lawsuit from $10 million to $120 million, to cover jury verdict damages, court costs, and estimates of prejudgment interest and supplemental damages. As a result, our second quarter results were negatively impacted by an after-tax charge of $71.5 million or $0.45 per share.

We continue to believe we have strong merits in our defense and will appeal the judgment. The appeal process will take up to two years. However, given the judge's second quarter ruling, US GAAP requires that we record this non-cash charge this past quarter. It's important to note that to support the appeal, we have obtained, from two surety underwriters, a commitment for a total of up to $122 million in surety bonds, which we expect to be unsecured.

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

Thanks, Greg.

There's no doubt that our second quarter and first half were disappointing from an earnings perspective. Despite strong revenues, our margins and operating income were impacted by a couple of items, which we've covered in today's call. However, I'd like to take a little time to discuss our longer-term strategy, as we remain confident in the growth profile of this business. While our 2D multi-client business has been a significant revenue and earnings generator for us and should continue to be, we have also been planting the seeds for growth in the 3D market, both offshore and on land. We see a great growth opportunity for Ion in the 3D seismic market.

To expand our presence in this market, on July 26, we announced the formation of a strategic alliance with Polarcus to jointly develop 3D multi-client programs globally. We are very excited about expanding our longstanding working relationship with Polarcus. The alliance will leverage the complementary strengths of our two companies -- Polarcus vessels and crews for data acquisition and petroleum system insights from our 2D basin span library -- much of it in newer growth areas like Latin America and East and West Africa. Achieving superior multi-client returns is all about locations and the ability to locate 3D surveys optimally. The knowledge from our basin spans will allow us to together provide E&P companies with a differentiated 3D seismic offering, as they look to move from gaining an early exploration understanding of the basins in front of licensing rounds to later stage exploration.

This alliance is strategic for us in that it provides us access to a world class seismic fleet, which is consistent with our asset-light strategy, and lets us leverage key assets, our geophysical expertise, and our 2D basin span library, which has generated over $1.4 billion in revenues to date to create an important new growth segment for us.

Another growth emphasis for us is our ResSCAN and microseismic offering in unconventionals. In short, this offering is designed to reduce one of the most significant risks in unconventional development today -- the need to have a better understanding of subsurface rock properties to optimize well location and frac parameters.

Based on industry research, overwhelmingly the number one cause of frac jobs not meeting performance expectations was the failure to truly understand the subsurface. As I mentioned briefly earlier, we now have nine programs complete or underway, comprising 1,400 square miles of data. Our latest programs will be launched in the third quarter and will cover nearly 500 square miles in Pennsylvania. We have secured 75% upfront underwriting for these programs, which are designed to continue to prove out our combined technology offering of both the P-wave and the converted wave data to improve subsurface understanding. We are encouraged that operators in E&P companies are funding us, as we drive this technology forward. This family of programs alone should generate over $50 million in revenue over the next few quarters.

Our Data Processing business continues to grow nicely organically. We expect growth will come from geographic expansions in Southeast Asia, the Middle East, and Russia, as well as from organic growth in our core regional centers in Northern Europe, Houston, and Denver. As we expand our [land treaty] ResSCANs, our data processing in Houston and Denver will continue to benefit from these activities. Because of new technologies like WiBand, and further integration with our Software group, we expect good solid growth for our processing business.

Regarding our Software segment, as mentioned earlier, it has been impacted by recent contractor consolidation in our core command and control market. However, we expect future growth to come from new E&P company-facing solutions, including our new Narwhal solution for ice management. We will officially launch Narwhal at the Society of Exploration Geophysicists, or SEG, show here in Houston next month. Narwhal is a software solution that enables E&P companies drilling in the Arctic, as well as companies acquiring seismic data there, to improve their operational efficiencies, and reduce their risk of operating in the harsh Arctic environment.

Narwhal enables operators to visualize, track, analyze, and predict the movement of ice, other obstacles, and marine mammals, thereby allowing them to take proactive and prescriptive action to address the challenge at hand. It is currently in commercial use in the Canadian Northwest Passage and off Baffin Island, and has the ability to deliver a significant growth wedge in our Software business, potentially surpassing Orca.

Looking at our Systems segment, it's clear that we need to quickly adapt to a changing marketplace where the top three seismic contractors have 75% towed streamer market share and are attempting to integrate their own solutions. In addition, our Geophone business is more commoditized than ever before. This quarter, I've installed new leadership in that division, and we are taking a hard look at how we are presently investing in it and how we're going to run that division for profitability. It is conceivable that there could be some charges recorded later this year as we scrub this business from top to bottom.

Having said that, we remain extremely committed to our seabed product line and we continue to view our seabed technology as an important strategic growth driver for Ion. Just in the most recent quarter, we saw seabed industry growth in both unawarded backlog and new contract awards in excess of $300 million. We continue to help our JV partner develop their international qualifications for winning outside of Brazil, and of course, this takes time. In the meantime, it is conceivable that we will continue to incur noncash losses as we book a portion of the JV losses through the remainder of this year.

In summary, our strategy remains sound and has been focused on shifting from selling equipment to contractors to leveraging our technology to deliver geophysical solutions to oil companies. We are on the right course with growth being led by our GeoVentures and Data Processing business in the Solutions segment. Our Software business will develop new avenues for growth, away from the traditional marine contractors. More and more of our Systems business will be refocused and adapted for the concentrated customer base and our focus for growth will be in the seabed services market.

With that, we'll turn the call back to the operator for Q&A.

(Operator Instructions)

George Venturatos, Johnson Rice.

I just wanted to start on the new venture side and more importantly, that 3D multi-client opportunity. Obviously, the Polarcus alliance looks like a solid strategic agreement. Can you maybe talk about the length of time with that agreement and maybe, if you can talk about what's required of both parties when you look at a potential project?

Sure, George. First of all, the length of the agreement, the initial term of the agreement is a three-year agreement. What we've agreed to do is pretty much bring all of the potential projects that each party has together to flesh out and prioritize what ones we want to focus on.

In addition to that, Polarcus, obviously, is contributing the steel and the operational excellence to execute the surveys and Ion is contributing the geophysical expertise around the planning and design, all the way through the processing of the data. Any incremental cash that needs to be contributed, we've agreed on what that allocated percentage of contribution on both sides would be.

Great. You talked about your learnings from some of the recent 3D program in Morocco. Is it more contractual or is it operational? How do you think you're better positioned going forward with future 3D programs?

First let me step back and talk just a little bit about the accounting and how that impacts a proprietary versus a multi-client program. If this was 3D multi-client program, it would, for all sakes, appear as a good program to the investment community, because the program was a profitable program and was a positive cash generating event for us. The reality is a multi-client program, we're able to capitalize that program and distribute the expenses and proportion of the revenue over time. That's how it appears that it's a good profitable program.

On a proprietary program, you're taking all of the expense directly through the P&Ls you incur. So that skews the results of the profitability of this program showed up in Q4 and it turned out to be an earnings drag in Q1 and Q2. The first learning here, George, is the accounting is not necessarily conducive for proprietary programs.

The second is truly operationally. It's probably less contractual and more operational. When we evaluated the risk associated with working in that area, we did our modeling around the weather that we would expect.

The way these guys model these programs, is they'll go back and they'll take a look at the weather in that area for 10-year or 20-year period and develop a model around what their expected down time will be associated with those weather delays. In this particular case, it was just an absolutely abnormal season, where wave heights were just ridiculously outside of the norm of the statistics around the historical experience in that area.

The learning in that is to be a little more conservative on those models and not necessarily rely as specifically to the historical weather experience. I've got to tell you, we also had that same learning on a land program this year, too, where we modeled it based on historical experience and had an unusually bad season. And so we've adjusted our modeling moving forward.

Great. That makes sense. Last one for me, you mentioned the OBC opportunity still looks like great potential there, particularly with Calypso's launch. You mentioned the $350 million in contracts awarded. Just wanted to check, but sounds like that backlog of unawarded projects, I think previously you mentioned maybe $1.5 billion, that's still growing as well, right?

Yes, that's correct. In fact, the actual -- yes, the backlog actually grew by $300 million, as well. That market has grown nicely in the last quarter.

We're also observing quite a bit of tendering activity right now. There are a number of large projects that are going through the tendering process today that primarily will probably start up toward the end of the first quarter of next year. There's not a tremendous rush to jump into anything. We'd rather move slowly and cautiously, because when we look at the tender activity and the projects that are on the drawing board, the real opportunity, in my mind, is securing some of that work for 2014.

Great. Appreciate the answers, Brian.

Thanks, George.

Joe Maxa, Dougherty and Company.

Two follow-up questions regarding the 3D marine project, do you anticipate taking on more of these proprietary projects or will you focus more on the multi-client now with Polarcus in the mix?

I don't think the 3D proprietary is going to be a huge opportunity for us, Joe. It's kind of a one-off type event, really, so, no, I don't anticipate --. I do think that we'll take on the odd one and when we do, we'll certainly be much more conservative than we were on the first one, given the nature of the accounting and some of the learnings we've had.

But I don't see it as a core growth vehicle for us. I see the 3D multi-client as a core growth vehicle, because you can get much better returns on that stuff.

Regarding the 3D multi-client, if you think a few years from now, I know this initial term is three years in length. But how do you see your projects, maybe on a number perspective or revenue, being allocated between a 3D and 2D, if you look two or three years down the road?

Yes, if I look three years down the road, I would expect that the 3D multi-client would probably be somewhere in the range of half the size of our 2D from a revenue perspective.

Okay. How much more profitable or is it much more profitable than 2D or what would your expectations be?

Expectations would be it would be comparable.

Okay. Understood. I just wanted to follow up on the GeoRXT.

They're having a bit of struggles currently in Brazil and you're looking to move them internationally. But question is, you are holding off this 50% investment, are you still planning to make that as their backlog grows? Or would you look to enter the seabed market through another means?

We're exploring all options, Joe. In my mind, it's critical that GeoRXT is able to build a backlog and not sit back with no business and burn cash. If they're in a situation where they're going to be pretty much burning cash through to the end of the first quarter before they can secure a large job, I would be hesitant to inject capital into them until much closer to that job.

That could preclude us taking our investment up to 50%, but if that's the case, we're also examining other options. We will be in the seabed business and we expect that we'll be in the seabed business by early 2014. It's just a question of what's the right vehicle and we're trying to be conservative about our approach.

Alright. Thank you very much.

Rudy Hokanson, Barrington Research.

Follow up, or a little bit more on the GeoRXT, and that is, could you explain, while you're waiting to see what your position will be with them or if they're the right vehicle of going into the seabed business. You mentioned that you're also building inventory on the Calypso. As I recall, with the original agenda on GeoRXT, was to make that a proprietary use of Calypso and not go into the larger market selling to other contractors. If you're building inventory right now, can you maybe explain a little bit more the strategy there or if it's a hedge or that use of working capital right now?

Sure. First, let me step back and give you an update on where we're at with the development of Calypso and then I'll speak a little bit about what our strategy is putting Calypso into the market. Obviously, Calypso is a development program and we're building our inventory levels in anticipation to going into full manufacturing for the first commercial system probably sometime around October.

We are now at the point where we pretty much worked out the bugs in the system and we're going into the field soon with our Calypso ready to field test it for the last time. And then based on the results of that test, if there's any tweaks or modifications, we'll implement them, and then we're going to start manufacturing.

Now, Calypso is a big system. To build one system that's large enough to really equip an effective ocean bottom crew, it's going to take quite a long time to build it; well into early part of the first quarter. We need to start manufacturing in October, just in anticipation of being able to deploy the system on a job at the end of the first quarter, where it looks like most of these tenders that are being bid right now are going to start work.

The strategy to put Calypso remains one where we're going to do it on an exclusive basis. GeoRXT is still our first choice. We need to see that business recover financially before we inject our capital into it, which is our hesitation. In the event that business is not successful, we have other options and we're going to explore those options. And those options, as well, will be the exclusive vehicle for Calypso to go to work on one of these projects early next year.

Okay. Thank you very much. That does it for me.

(Operator Instructions)

[Stefan Roccio, Breto Securities].

I have a few questions here related toward the multi-client market. Your European peers have been talking of getting some mixed signals on the pre-funding in the multi-client markets. Have you seen any change to that -- pushing it lower or any change to the clients' behavior?

Yes, Stefan, I can tell you that we have. I would characterize this year as a year where not as much on the 2D, but on the 3D, probably more, but it's a year where there seems to be more multi-client capacity being allocated. It's more competitive than ever. I can tell you that oil companies are getting -- they're having the opportunity to sort of pick and choose and so there has been pressure on the levels of underwriting on projects, absolutely.

I understand. Also helpful would be if you could put some color on the three gears for your library going into the second half here. What should we look for, for you guys, in terms of the library exposure?

We don't give guidance as a company. And I can tell you one thing I've learned over the years is, never, absolutely never, try and guess what's going to happen with the library. I have no idea.

It's all about fourth quarter spending and capital budgets are released now. I can tell you there's a general sentiment out there that there should be good year end capital available to allocate into libraries. So we'll just have to play that out and see how it shakes out.

Okay, sure. Okay. Thank you, guys.

At this time, there are no further questions in the queue. I'd like to turn the call back over to Management for closing remarks.

Okay. Thank you for taking the time to attend our 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 ATC teleconferencing.