Ion Geophysical Corporation (IO) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to ION Geophysical's fourth-quarter 2013 earnings conference call.

(Operator Instructions)

This conference is being recorded today, February 13, 2014.

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

Thank you, Camille.

Good morning and welcome to ION Geophysical Corporation's fourth-quarter 2013 earnings conference call. We appreciate you 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 will be using PowerPoint slides accompany today's call. They're accessible via links on the Investor Relations page of our website, iongeo.com. There you'll also find a replay of today's call following the call.

Moving on to slide 3, information reported on this call today speaks only as of today, February 13, 2014. 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 during this call may constitute forward-looking statements, which 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 actual results or performance to differ materially from any future results or performance expressed or implied by those statements.

There risks and uncertainties include the risk factors disclosed by ION from time to time in our filings with 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. Please note that the contents of our call this morning are covered by these statements.

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

Thanks, Karen. Good morning, everyone.

I am pleased to report we had a strong fourth quarter with record revenues of $219 million, up 26% from the fourth quarter of 2012, and record operating income of $64 million, up 158% from fourth quarter of 2012. Our fourth-quarter net income as reported was $20 million, or $0.12 per diluted share, which was impacted by our share of restructuring and special items from our INOVA and OceanGeo joint ventures. Excluding those items, we delivered $0.33 per diluted share.

Despite a very strong fourth quarter, 2013 was challenging. Our full-year revenues were $549 million, up 4% from 2012. Our 2013 reported net income was a loss of $252 million, or $1.59 per share, impacted by several significant restructuring and special items discussed in detail during our third-quarter call. Excluding these items, our 2013 net income was $19 million, or $0.12 per diluted share.

A couple of items in 2013 caused a significant drag on our full-year results. First, we were impacted by cost overruns on a 3D marine program. In addition, we experienced cautious spending by our E&P customers, especially in terms of new venture underwriting.

That said, our customers saw good value in our library as we had a record quarter for data library sales in the fourth quarter. We have also seen a broadening of our customer base for our multi-client library. I'll elaborate on that later.

Now, I'd like to walk through each of our businesses, highlighting our 2013 operational performance. After that, Greg will walk us through the financials. Then, I will wrap up with our outlook for 2014.

As you probably know, last month we increased our ownership in OceanGeo, our ocean bottom seismic acquisition joint venture with Georadar, to 70%, up from the 30% we acquired a year ago. In December, OceanGeo was awarded a 510 square kilometer ocean bottom 3D seismic survey, offshore Trinidad, for Petrotrin. Work on the survey commenced in late December and is expected to take for four to five months to complete. The ocean bottom seismic market has become one of the fastest-growing segments, if not the fastest growing segment in the seismic business. We see this trend continuing as oil and gas companies seek higher quality seismic to better locate wells and manage the reservoirs.

Ocean bottom seismic is strategic to ION. Keeping with our strategy of leveraging our key technologies to provide integrated solutions to oil and gas companies, we intend to put our Calypso technology to work at a higher-value service model through the JV. OceanGeo also leverages our entire infrastructure and enables us to provide an integrated, full-scoped, ocean bottom seismic solution from survey planning and design to data acquisition, processing, and interpretation, something many players in the ocean bottom seismic arena can't deliver.

We are also putting the full business development muscle of the ION GeoVentures Group behind OceanGeo to help them identify and secure additional projects. We're confident that backlog will build.

We are excited about this next step. We believe we are entering the lucrative ocean bottom seismic market at the right time and with the right mix of industry-leading technology, expertise, software, and services in an integrated model.

Now I'd like to shift gears and focus on our segment results, starting with our GeoVentures multi-client business. 2013 was, overall, a good year for our multi-client business. Our full-year, multi-client revenues were $267 million, up 13% from 2012. Our results were driven by exceptionally strong fourth quarter Data Library Sales, which were more than double our fourth-quarter 2012 the Data Library Sales.

A true hot spot for us in 2013,was East Africa, where we assisted the Tanzania Petroleum Development Corporation with managing their licensing round and outs last October. Our involvement allowed us to fully leverage over 20,000 kilometers of relevant span data making East Africa our top region for Data Sales in 2013.

In addition, we saw strong Library Sales in the Gulf of Mexico, validation of the longevity and sustainability of our Gulf span library. We generated significant more revenues from sales of our India and West Africa programs in anticipation of upcoming licensing rounds in those two regions.

As we mentioned on the third-quarter call, we are seeing a change in our marine multi-client revenue mix, specifically an expansion from our traditional multi-client customers, predominantly IOCs to NOCs and independents. We added 16 new customers in 2013. We have noted that our traditional IOC customers are taking a spending pause, acquiring exploration data sets, as they focus on production, cash flow, and return to investors in the short term while the NOCs and independents are positioning themselves to take advantage of this pause and capitalize on potential upcoming asset sales and licensing rounds.

We noted in our third-quarter call that this phenomenon would make it hard to predict the fourth quarter and the same may hold true for 2014. That said, the fact that our Data Library is being purchased by a broader group of companies, confirms the value of our library.

In 2013, the seismic industry saw a softening in new venture activity and underwriting, which we believe was caused by E&P reductions and contractor surveys resulting in excess marine seismic data acquisition capacity. This excess capacity created incentives for contractors to keep their fleets utilized in multi-client programs, intensifying competition. As a result, we delayed our investments in new programs in 2013, sanctioning only when we saw sufficient underwriting levels. We see this continuing into at least the first half of 2014, likely making 2014 another back-half year for ION.

Our full-year data processing revenues were up 4% over 2012, a record in terms of revenues for our data processing business. During the year, we were awarded and performed a substantial amount of data processing work for a national oil company, work for which we were not able to recognize revenues as the customer contract was still pending final execution at year end.

I am happy to report this contract has now been executed. Therefore, we will recognize those revenues in the first quarter of 2014, although all the expense associated with these revenues was incurred in 2013. As a result, we expect our first-quarter results to benefit by approximately $14 million to $16 million associated with the 2013 activity.

During the year we saw continued customer uptake of a WiBand broadband processing technology. We now have about 45 WiBand projects either complete or in progress around the world. To ensure capacity for our clients' growing demand, we significantly upgraded our Houston high-performance computing hub, moving to a new state-of-the-art facility that increased our throughput capacity by 50%. Additionally, we are continuing to invest in R&D in our data processing business to better position our technology for longer-term growth.

Our software business finished the year with a record fourth quarter and their second highest quarter in terms of revenue and operating income driven by increased Orca software and hardware sales. During the fourth quarter we signed a four-year Orca contract renewal with a major marine contractor, reinforcing our leadership in our core command-and-control software business. We also saw a record annual revenue for our Concept Systems 4D optimization services, tripling our services client list during the year.

This past fall, we introduced our Narwhal solution for Ice Management, and announced our first two commercial Narwhal projects. In December we were awarded a patent supporting our technology, providing further differentiation in this emerging segment. Just this week, Narwhal received one of three 2014 Spotlight on Arctic Technology awards for innovation at the Arctic Technology Conference in Houston.

In the face of consolidation in the market for our traditional command-and-control software, we are increasing our spend in software research and development to develop new oil company software solutions such as Narwhal. We anticipate our 2014 R&D spend to reach 15% of our software segment sales, approaching the range that is typical of software companies as opposed to service companies.

In 2013 we restructured our systems business, making necessary adjustments for long-term competitiveness and profitability. As we mentioned in our third-quarter call, we introduced refurbishment programs, targeting our huge install base of legacy towed streamer products to help expand margins.

We reduced the cost structure of our legacy towed streamer product line, shifting our focus, including a significant amount of our R&D efforts, to the seabed market where we will see the greatest opportunity for ION. We also streamlined the cost structure of our land sensor geophone business to allow us to be more competitive in the price-sensitive geophone market.

Overall, we reduced our systems division headcount by about one-third and reduced our annualized operating expenses by about $12 million. The results of this restructuring program began to show up in our fourth quarter, where we improved operating margins in our systems segment by approximately 13 percentage points.

Last summer we consolidated all of our marine systems personnel and operations from four buildings in Harahan, Louisiana into one state-of-the-art facility containing about 120,000 square feet of office and manufacturing space. We believe this segment is now well positioned and equipped for profitability moving forward.

With that, I will turn the call over to Greg.

Thanks, Brian. Good morning, everyone.

Overall, our fourth-quarter revenues were up 26% year over year, reaching a record level at nearly $219 million. Our solutions segment revenues of $66 million improved 37% over the prior-year period. Compared to fourth-quarter 2012, our software segment sales increased to $12 million, up 13%, while our systems segment revenues decreased 2% to $40 million.

Our fourth-quarter operating income was also a quarterly record at $64 million, compared to $25 million in fourth-quarter 2012. Our fourth-quarter net income was $20 million or $0.12 per diluted share and included certain restructuring and special items. Excluding the fourth-quarter restructuring and special items, we delivered net income of $53 million or $0.33 per diluted share.

Turning to slide 11, our reported net income was primarily impacted by our share of restructuring and special items from our INOVA joint venture and recognition of losses resulting from increasing our ownership interest in OceanGeo. During the third quarter, INOVA initiated a restructuring plan. Our share of INOVA charges totaled $19 million and relate to their impairment of intangible assets, write down of excess and obsolete inventory and rental equipment, and severance related charges.

As a result of the restructuring, INOVA has reduced their operating costs by approximately $12 million per year. Of these cost savings, approximately half are due to reductions in headcount and the other half from reduced amortization and depreciation expenses resulting from the write down of assets.

Regarding OceanGeo, because of our increased influence to the joint venture during the fourth quarter, US GAAP necessitated we realized 70% of the JV losses, even though our 70% ownership and control did not become effective until January. Keep in mind OceanGeo did not realize much revenue in the fourth quarter. As a result, we recognized approximately $12 million of losses from OceanGeo in the quarter. The effect of this charge reduces the carrying value of the loan we granted during the quarter for which we expect to be fully repaid.

Also important to note is that our fourth quarter reported numbers include ongoing costs in our processing group to support the large national oil company contract, but $6 million of revenues were excluded during the quarter and in total $16 million of revenues for the year were excluded. Had the revenue been recognizable to match the expenses, our solutions segment margins would have increased by 3 percentage points.

Now let's take a closer look at our fourth-quarter performance, starting on slide 12. Our fourth-quarter solutions segment revenues increased 37% over fourth quarter 2012, attributable to a record $76 million in Data Library Sales, up 131% over fourth-quarter 2012. This increase was seen across the broad portfolio of library, particularly in the areas offshore East and West Africa, East and West India, and the Gulf of Mexico.

As we reported in the past, our Data Library has tremendous long-term value. For example, the fourth quarter $59 million or about 3/4 of our $76 million in total library sales were from programs that are fully amortized. These high-margin sales are from either older programs or new programs that have been fully amortized because underwriting and library revenues came in sooner than we modeled, a testament to our conservative approach to advertising these costs.

Our new venture revenues increased by 9%. However, we continued to experience an overall softening in new venture activity and underwriting. As we move into 2014, we will continue to manage our new venture activities for positive cash generation. We'll only sanction new programs with sufficient underwriting.

Our data processing business revenues were down 9% compared to fourth-quarter 2012. As Brian mentioned, our 2013 results were impacted by costs to support a large contract without being able to recognize revenues. Our solutions operating profit increased to $61 million, or 37% operating margins, up from $39 million, or 32% operating margins, in the fourth quarter of 2012. This increase in operating profit in margins was driven by the increase in our fourth-quarter Data Library Sales.

Turning to the next slide, our software segment achieved its best fourth quarter ever in terms of revenues, and second best of any quarter as revenues increased 13% compared to fourth-quarter 2012. Unlike the first three quarters of 2013, in which are software segment experienced declining revenues due to customer consolidations, we benefited in the fourth quarter from increased Orca software and hardware sales.

Software segment operating profit increased to $7.2 million, or 60% operating margins, compared to $6.6 million or 62% operating margins in the fourth quarter of 2012. The decline in operating margins is due to our increase in research and development to create new oil company software solutions such as Narwhal.

Moving to slide 14, systems segment revenues decreased 2% to $40 million. Systems operating profit increased to $12 million, or 30% operating margins as adjusted, compared to $7 million, or 17% operating margins as adjusted for the fourth quarter of 2012. This increase in our systems operating margins was primary due to cost reductions taken in the third quarter.

Turning to the next slide, INOVA's revenue in their third quarter was $41 million, up 62% from their third quarter of 2012. This improvement in revenues was primarily attributable to increased sales of cabled systems and vibrator trucks. INOVA reported a third-quarter net loss of $39 million, which included approximately $38 million of restructuring and special items.

As the result of INOVA's restructuring, they have reduced their annual operating costs by approximately $12 million, which will benefit INOVA in 2014. For INOVA's fourth quarter, we estimate revenues to be in the range of approximately $39 million to $41 million, which would be an approximate 33% decrease from their fourth quarter one year ago. We expect INOVA to report a fourth-quarter operating loss in the range of $3 million to $4 million.

Turning to slide 16, as of December 31, our cash balance stands at $148.1 million. During the fourth quarter, we generated $37 million of free cash flow, due to the significant increase in revenues and collections in the fourth quarter. We also drew $35 million on our revolving line of credit and provided OceanGeo with $15 million of working capital advances as they began to mobilize their vessels and crew for the Trinidad project, which began in late December. Overall, we generated $25 million of cash flow, excluding draws on our revolver.

Turning to slide 17, at December 31, we had $141 million available under our $175 million credit facility, which when combined with our cash on hand brought our available liquidity at December 31 to $288 million. Our net debt decreased $25 million to $72 million during the quarter, down from $97 million at September 30. This $25 million decline in net debt was due to the significant collections during the fourth quarter. In January we drew down an additional $15 million from our revolver for general corporate purposes, bringing our current availability under our credit facility to $125 million.

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

Thanks, Greg.

While we ended the year on a high note with the a record quarter for both revenues and income from operations, we are taking a cautious view of 2014. Based on commodity prices, we anticipate oil companies will still be patient in their exploration spending.

While industry analysts predict record level E&P spending, we believe we'll see more exploration spending in the second half of the year. As a result, we expect our new venture programs to be lighter in the first half of the year, similar to 2013. Having said that, we have a robust, geographically diverse data library and remain well positioned for upcoming licensing rounds.

Our new programs in offshore Labrador and Surtenham will be complete in advance of licensing rounds in those areas. In Greenland, where we have over 17,000 kilometers of 2D data and 50,000 square kilometers of gravity gradiometry data, we are well positioned for the ordinary round awards expected in the first half of 2014.

The recently announced India round, NELP-X, has spurred interest in our IndiaSPAN programs. We expect traction for our new 12,000 kilometers survey, offshore Australia's northwest shelf, where 31 blocks are in offer. Our involvement in managing the Tanzania licensing round has been extremely successful, stimulating sales of bid-round data packages and also our other seismic data in the area.

In closing, we are taking a measured approach to 2014. We buckled down on our spending. We have come through our restructuring. We are maintaining a pragmatic approach to our investments with a focus on generating positive free cash flow. Similar to 2013, we estimate we will spend $90 million to $110 million in multi-client investments in 2014 as we seek out the best opportunities around the globe.

With that, I will turn the call back to the operator for Q&A.

(Operator instructions)

Joe Maxa, Dougherty & Company.

Thank you and congratulations on a nice quarter.

Thanks, Joe.

Questions on the outlook regarding the new venture, softer first half. Just looking back, it looks like you actually had a stronger first half last year, so I'm wondering what we're seeing there? Along with that, would you expect your OceanGeo joint venture to offset perhaps some of the softness your discussing on this new venture area?

Yes Joe.

First speaking in terms of new ventures, we are talking about programs we sanction and vessels floating, etc. The first half of 2013 was actually quite light. We had a considerable period when we didn't have an active survey. I expect the same thing in 2014, simply because -- although the IOCs are predicting they're going to have large exploration budgets. I think they will be cautious in actually spending the funding.

I think they're probably going to step back and watch commodity pricing and actually see how the year starts to unfold before they make commitments to projects. I would think that the back half of the year will be more indicative of their appetite to fund some of these projects.

Specific to OceanGeo, the reality is that OceanGeo should be a positive income contributor to ION in the first half of the year as a result of executing the Petrotrin job. The big elephant in the room is building backlog for them, so that they can have a full-year's worth of revenues and a full-year's worth of contribution to our business. That's really our focus at this time with OceanGeo.

Right. Let me just ask one on the Data Library outlook. It sounds like you are positioned for some good orders, potentially. It looks like a more -- I don't know if you could call it a normal year, as far as how you may see that progress through the year, but any type of help you can give us on what you are seeing in the timing of some of these versus how lumpy it was in 2013?

I have given up trying to give any guidance on Data Library Sales because every year we have simply been wrong. It really comes down to discretionary budgets and the willingness of our customers to commit to those sales and the timing of that. We can't predict that.

All right. Thank you.

Gerog Venturatos, Johnson Rice.

I wanted to start of the new venture side. Obviously, you guys highlighted that $90 million to $110 million spend. Did highlight the continued softness in underwriting levels. Wanted to just make sure embedded within that expected spend, we've maintained our risk profile that you guys have employed over the years? Also wanted to get a sense of where those underwriting levels have trended in the last few quarters versus where they were maybe a year ago?

Good question, George.

First of all, we have not relaxed our first profile, if anything we have tightened it up a little bit. We're not in the business of taking extraordinary risk. You guys have heard it from me before. I believe that the ultimate vote for the quality of a project is an oil company putting their checkbook out. We're going to continue along that path. As far as underwriting levels, our underwriting levels have consistently remained high.

Okay. Great to hear.

Another one, on the data processing side, obviously demand continues to be there for that business. You mentioned the increase in the throughput capacity. Just want to get a sense of the driver for that demand? Do you think it's more market share gains on your end, or just absolute increased industry demand just processing on more complex reservoirs?

I actually think that our growth has stemmed from a couple of things. One, is we've had geographic expansion this year, so that's helped grow it. We certainly have penetrated certain markets overseas that we have historically had either no presence or weak presence in. The other area growth has come from the expansion of the toolkit, so the WiBand side of the equation has generated additional revenue for us.

Great. Thanks for the answers, guys.

(Operator instructions)

Rudy Hokanson, Barrington research.

(Audio cut off) quarter, I was wondering if you could talk a little bit more about your software development? Also where you see some of your legacy software going in terms of market demand? What you might be doing to either make that 2.0 or 3.0 while coming up with brand new software programs?

Certainly.

Let's start with the legacy software, Rudy. The legacy software really is in a couple of different camps. One, is our offering for the towed streamer product lines that are out there, the command-and-control software for the marine contractors. We pretty much have an extremely high market share in that area.

The product has evolved over the years, and so we continue to evolve that product from the perspective of, call it, features and functionality, so it is a product that continues to evolve. That's part of our go-to-market strategy with our customers to continue to evolve it. That's ongoing.

It's somewhat limited in its ability to grow further because of our high level of penetration. The other area of the legacy business is the seabed business, where we have a software offering there. That, quite frankly, we've come out with a new version of that software. It's called Gator II. We are in the process of converting the existing customers over to Gator II. In addition, we're seeing expansion in seabed market overall. We think we're very well positioned there for growth in that product line.

Lastly, as we indicated on the call, we're putting a considerable amount of R&D into software that's focused on solutions for oil companies as they tackle broader and larger challenges than just marine contractors shooting seismic. We see Narwhal, and some other things that we've got in the kitty, pretty interesting and potentially significant growth opportunities for that business.

Okay. Another question. In terms of your work on land, where is that progressing right now in terms of opportunities or growth of the high-resolution work your trying to do?

Today -- we went into 2014 with a fairly nice book of business already put together and fully underwritten. We have finished one of those surveys. We have two more of those surveys that are underwritten and sanctioned, and so we expect to be shooting those well into the first half of the year.

Okay. Just on an accounting basis, Greg, you mentioned that with taking a larger loss from OceanGeo in the fourth quarter, even though you didn't have the ownership position then, that it was going to be netted against debt that they had taken or that you had loaned to them. Could you explain that just a little bit more and how it might affect the first quarter?

Sure, Rudy. We loaned, I disclosed, roughly $15 million in the fourth quarter to them, and the losses that they incurred from basically being in standby mode waiting to start a project required that we take the loss against that loan. What I was really trying to convey was that we had incurred the loss against the value of the loan, even though we expect to be fully repaid on it.

In the first quarter, we will consolidate their results, having a 70% ownership position. On each line of the income statement from revenue down to earnings, we will have their earnings flowing through our income statement. Then, we'll have 30% going to minority income for the outside partner. We're not providing any guidance as to what those results will be yet. That's how it will be accounted for in the first quarter.

Which line in the revenue will OceanGeo, then, appear or will it be broken up?

We'll probably break out OceanGeo as a separate reporting segment, much like we do with solutions and software today.

Okay. Thank you very much.

Phyllis Camara, Pax World Funds.

A quick question on what you're seeing in the Arctic. I know you guys -- that's been a niche of yours, it seems in the past. With some of those drillers slowing down there or getting out of the Arctic exploration, does that affect you guys at all?

There has been a shift in activity in the Arctic, as we know that companies like Shell and Statoil have backed off there near-term plans in the Arctic. The Arctic really is a very long-term play. One of the challenges with the Arctic is just the considerable amount of technology that needs to be built over the next 10 to 20 years in order to make it a viable play.

Hearing news that one company or another company is speeding up or slowing down is not that concerning given the length of the program that is occurring up there. The shift that's occurred is that there's more focus on the Russian Arctic for 2014, 2015 and less focus on the US and Canadian Arctic. There's also a considerable amount of focus on Northeast Greenland.

It's shifted a little bit as a lot of the areas in the Russian Arctic that are initially having seismic shot are in areas that can, for the most part, be shot with conventional technology, initially, but then will require more advanced technology as it gets more and more into areas where there's near- and under-ice conditions. Long term we see the Arctic still as a strong business for us. For 2014, for we see the shift more in areas around Northeast Greenland and the Russian Arctic than the historical activity we've done in the American and the Canadian.

Okay. You don't expect, really, to be doing much there in 2014, any new seismicking shot or anything where you guys are participating?

No, I don't think there's going to be an activity in our part in 2014 in the American and Canadian Arctic.

Okay. Can you talk about the seabed business a little bit? You were saying that you have got a new version coming out and you've seen some expansion. What does that expansion look like?

There's two things going on. In general, there's a considerable amount of activity that's pent up that's either going through a tendering process right now or will be going into the tendering process for projects that oil companies want to have executed around the world. We are heavily involved in that business development process now and expect to be able to build a backlog of business related to it.

Separately, we have invested considerably in building out the next generation of seabed technology. ION has been building seabed technology since 2004. The original system we had was a system called VectorSeis Ocean, VSO. We've had a few cycles on the development of that system. A few years ago we embarked on a program to develop a completely new system that takes all the learnings of VectorSeis Ocean, but yet increases the size of the system and drives considerable increase in operational efficiencies on it.

Really, today ocean bottom seismic is -- the data quality is exceptional. The challenge is reducing the costs of acquiring the surveys so that we can start competing with towed streamer and taking market share there. We expect as we roll out our next generation technology we will drive increases in operational efficiency and be more competitive than we have been historically at shooting surveys.

Okay. Are you guys having any trouble finding vessels or anything like that since you don't own your own? Have some of the companies you may lease from started to dry dock anything or anything like that? Are you having any issues with that?

I'm going to answer that question two ways. On the ocean bottom side, we have our own long-term charters, so those vessels stay with us. We have locked them up for a period of years.

On the multi-client side, where we put new venture programs together and grow it and secure to the vessels, it's actually the opposite. There is considerable supply in the market now, so it's very favorable for us to secure those vessels.

Okay. Great. Thanks so much.

Rudy Hokanson.

I was just wondering if you could talk a little bit about Calypso and where you are right now in terms of building out the number of units? As you said, I think a quarter ago or so, that you were using the down time as is still an opportunity to build your capacity. If you could also talk about what you are finding, what you've been able to find with Calypso thus far? I realize it's really early on this particular job, but any kind of testing your doing or improvements or where you feel you are in terms of progress on its capabilities?

Sure. Let's start with the manufacturing side of the equation. We have fully established a manufacturing facility. It's up; it's ready to go. We have secured all along lead time inventory items, so we are ready to build arrays.

We have completed one 12 kilometer array. That array right now is sitting down in Trinidad, and is literally at this time being deployed into the VSO spread. We will be testing that for the next couple of weeks or few weeks.

Based on the experience that we have down there, we'll be kicking off manufacturing in our manufacturing facility on other arrays. We'd expect them to slowly integrate those Calypso arrays into the existing VSO crew and get them up. As far as -- we are really close to firing up the process, so to say, and build up some good Calypso inventory.

Okay. Thank you.

There are no further questions at this time. I would now like to turn the call back over to Mr. Hanson for closing remarks.

Okay. Thank you for attending our fourth-quarter call. We look forward to talking to you on our first-quarter call.

Ladies and gentlemen, this concludes ION Geophysical's fourth-quarter 2013 earnings conference call. If you'd like to listen to a replay of today's conference please dial 1-800-406-7325 or 303-590-3030 with the access code of 4665602. ACPU would like to thank you for your participation. You may now disconnect.