Ion Geophysical Corporation (IO) 2015 Q4 法說會逐字稿

Greetings and welcome to the ION Geophysical fourth quarter conference call. (Operator Instructions). It is now my pleasure to present your host, Karen Abercrombie.

Thank you, Melissa. Good morning and welcome to ION's fourth quarter 2015 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 Steve Bate, Executive 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 slides to accompany today's call. They are accessible by a link on the investor relations page of our website, ION geo.com there you will also find a replay of today's call.

Moving on to slide 3, Information reported on this call speaks only as of today, February 11, 2016, 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 during this call 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 our actual results or performance to differ materially from any future results or performance expressed or implied by the statements.

These risks and uncertainties include the risk factors disclosed by ION from time to time with our filings with the SEC, including in our annual report on form 10-K and 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 conference call this morning are covered by these statements. I will now turn the call over to Brian who will begin on slide 4.

Thanks, Karen. Good morning, everyone. As we announced yesterday we reported a full year 2015 net loss of 25 million on revenues of 222 million, a loss of $2.29 a share. We will provide more color here in a moment, but all of our share amounts have been adjusted to reflect the impact of our recent 1 for 15 reverse stock split. Excluding special items our full year adjusted net loss was $119 million, a loss of $10.83 per share compared to an adjusted net loss of $34 million on revenues of $510 million, a loss of $3.12 per share in 2014.

In terms of liquidity, we ended the year with a solid $125 million in cash and availability under our revolver. By all measures, it was a very challenging year for both ION, our peers and our E&P customers. Steadily deteriorating oil prices resulted in declining revenues, followed by industry wide operational and refinance restructurings. While I don't think I need to recap 2015 oil and gas macroeconomics on this call, I do want to spend a few minutes looking at our fourth quarter performance because I think it was more indicative of what lies ahead for us than our full year results.

Through our cost reduction initiatives during the year we were able to appropriately scale our business to bring it in line with our lower revenue streams, while maintaining all of our core capabilities and continuing to strategically invest in commercial opportunities and research and development of new technologies. By the fourth quarter, we were able to see the majority of the results of those cost reduction initiatives generating a slight positive net cash flow before financing activities during the quarter. Taking into consideration our stock buybacks from our recently implemented stock repurchase program and debt service we consumed only $3 million of cash during the quarter, a significant improvement from our cash burn earlier in the year.

From a revenue standpoint as usual, our fourth quarter was our strongest. In our solution segment our multi client data library revenues were up 6% over fourth quarter 2014, primarily due to increased sales of our Latin America programs. In addition, we generated revenues from our newly acquired industry-funded MexicoSPAN program and were the first to market with fast-track data in the region in advance of Mexico's licensing round one.

In the data processing arena we were recently awarded an extension to our existing multi-year contract with Pemex under which we are providing a broad range of seismic data processing for multiple offshore and onshore surveys. Pemex plans to continue to invest in hydrocarbon exploration and production in the years ahead and this contract extension was a solid vote of confidence in our ability to employ our differentiated technologies to deliver superior images within Pemex's required time frames.

Our software and system segment revenues were hampered by contractor customers taking vessels out of service, despite declining revenues the software segment continued to generate strong gross and operating margins during the fourth quarter of the year. In our Ocean Bottom segment we are still working and are in the leading position on securing multiple projects.

We have found in this environment that the contracting process is slow and my primary concern is although our customers are going through the motions, they simply may not have the funds behind their desire to shoot the surveys. Eventually these surveys will be completed and although we have cold-stacked our crew we have maintained our full capability and are ready to go back to work, as soon as contracts are ultimately awarded and finalized.

I spoke earlier about our improving cash position and now I want to address our stock price. In December of last year we announced a special shareholder meeting to address delisting issues through a reverse split of ION's stock. On February 1st, our shareholders voted in favor of the reverse split and our finance committee approved a reverse split ratio of 1 to 15. We began trading based on the new price on February 5th.

With the current float of 10.5 million shares we would have to see our market cap drop below $11 million to risk a delisting again. On November 4th, 2015 we announced a stock repurchase program. At the time our board of directors authorized ION to repurchase between November 10, 2015 and November 10, 2017 up to $25 million in shares of our outstanding common stock.

Our intention was to use this to guard against the risks of auto delisting from the New York Stock Exchange which would have occurred had our stock dropped below $0.15 cents. For that to happen we would have lost our opportunity to cure the stock price deficiency. Our intention was to use this as a tool to support the stock, while we implemented the reverse split. Between November 2015 and February 2016 we purchased just over 450,000 shares adjusted for our reverse split, at a total net cost of about $3 million reducing our float by 4%.

While the program remains in effect we are not actively making purchases at this time. We may elect to make purchases, under the plan, at a later time. Now that we have addressed the risk of delisting, we have turned our attention to the nearing maturity of our debt instrument, we are currently considering all options available, for delevering our business, including repurchasing bonds in the open market, redemptions, maturity extensions, exchange offers and other retirements. The implementation of any such steps would depend on how well the option maximizes shareholder value, our liquidity objectives, contractual restrictions and other factors.

There is no doubt that 2015 was a very tough year. We went into it with a set of delivered objectives and they were more than to simply weather the storm. We went into the year determined to rightsize the company while maintaining our core capabilities and continuing to strategically invest in R&D and commercial opportunities so that when the market comes back we are ready to take full advantage. We believe we have accomplished that. With that I will turn the call over to Steve to walk us through the financials and then I will wrap up.

Thanks, Brian. Good morning, everyone. Our fourth quarter revenues were down 43% year-over-year. While all of our segment revenues were down a bright spot for the quarter was a 6% increase in our data library revenues within our solutions segment. The result of an increase in year-end spending. Also while our data processing revenues continue to be hampered by the overall market conditions, the extension of our Pemex contract will enable us to more fully utilize our data processing capacity as we head into 2016.

The decline in our systems and software revenues is the result of reductions in activity by seismic contractors that have taken vessels out of service in the past year. Our systems and software fourth quarter revenues reflect the current run rate of software licenses and repair and replacement revenues of marine equipment with very little new software or system sales. Looking forward to the first half of 2016, we would expect our fourth quarter run rates to approximate the continued level of activity within these segments.

Our ocean- bottom services segment contributed no revenues in the fourth quarter as our OceanGeo crews and vessels were still cold stacked. As Brian mentioned, we are working through the tendering process on multiple projects. At the same time, we have significantly reduced our quarterly OVS cash burn rate to approximately $3 million in the fourth quarter while maintaining our core competencies in the segment.

If we are not awarded a contract in the first quarter, we will revisit this spend again, and may reduce it further, but will maintain our ability to tender on contracts and reactivate the crew. Our operating profit for the fourth quarter was a slight loss of under $1 million. A zero percent operating margin on revenues of $77 million, compared to an adjusted operating profit of $6 million, a positive operating margin of 4% on revenues of $137 million in the fourth quarter of 2014. The decrease in quarter-over-quarter operating profits and margins was driven by the revenue decrease and was partially offset by the cost savings initiatives we implemented throughout 2015.

Despite our decline in revenues our net loss for the fourth quarter improved to a net loss of $5 million, a loss of $0.51 a share compared to an adjusted net loss of $11 million and adjusted loss of $1.01 per share in the fourth quarter of 2014. Our adjusted EBITDA in the fourth quarter of 2015 was $18 million compared to $25 million in the fourth quarter of 2014. During the quarter we used approximately $3 million of cash.

Excluding our fourth quarter stock repurchases, and debt service, cash flow for the quarter was slightly positive. A significant improvement from our cash flow profile during the first nine months of the year. At December 31st our total liquidity was $125 million consisting of $85 million in cash and the full $40 million available on a revolving credit facility. Our net debt defined as total debt, defined as total debt less our cash balances was $101 million on December 31, 2015.

With that, I will turn it back to Brian.

Thanks, Steve. Looking ahead, we believe that the expiration landscape throughout 2016 as it impacts our business, will be similar to 2015. As commodity prices continue to decline, and as many E&P customers have still not yet finalized their 2016 budgets we expect our first quarter to be our weakest with improvement expected in the back half of the year. We believe our current liquidity, coupled with the results of our cost reduction initiatives will enable us to continue to weather the storm. We do not expect to see early recovery in the markets we serve until sometime in 2017. Consistent with our asset light strategy I believe we have demonstrated our ability to scale up or down as business dictates. With that we will turn it back to the operator for Q&A.

With that we will turn it back to the operator for Q&A.

Thank you. (Operator Instructions). Our first question comes from the line of Ariel Rothman with Tegean Capital.

Thank you for taking the question and solid quarter on the cash burn. I was looking for color on thoughts on 2016 in terms of multi client investment levels and CapEx investment levels and thoughts on an investment there.

Sure. Ariel, I think 2016 on multi client will be a little bit of a challenging year. The areas of the world where we will do programs is counter cyclical, meaning that, there are a couple of places in the world are very interesting for oil companies. But in general for the most part I think multi client is going to be challenging. So I would expect that our level of investment this year is probably going to be somewhere between $10 million and $30 million, but it will have to be in programs that are properly underwritten.

And generally on CapEx, I mean there was -- that was probably related to Ocean Bottom, I would assume that it would be down next year versus the $19.2 they spent in 2015.

In the CapEx number you have both investment -- excluding the investment in multi client we have spent very little money in CapEx

Right.

So is that -- (Technical difficulties).

Pardon me?

Thank you. I'm sorry. Our next question comes from the line of Peter Carmack, private investor. Please proceed with your question.

Good morning. Thank you for taking the question. A quick question as it relates to the debt side of the balance sheet. I know you have instituted a repurchase agreement or repurchase program on the common stock and I see that went through with some dollars in Q4. Any thoughts or comments you can make as it relates to potential repurchase on the bond side with the bond trading at a pretty significant discount from par?

Yes, Peter, as I said on the prepared remarks we're considering all options right now for delevering our business and extending maturities and that include everything. Nothing is off the table. Repurchasing bonds in the open market, extensions maturity exchange. We are taking a good, hard look at that right now.

Nothing actively being pursued at this second, though?

We are taking a good, hard look at it right now.

Thank you.

Thank you. (Operator Instructions) Our next question comes from the line of Ken (inaudible) with Samco. Please proceed with your question.

Hi, guys. Congratulations on at least getting the plan on the cash flows.

Thank you, Ken.

You have answered a lot of my questions. I guess I will just return to the question that was already asked. You've got so much in cash and so much in bonds due and the bonds are trading at $0.50 cents on the dollar and you have a stock worth x. If you look at a current share you have a considerable amount of working capital. How much is that diluted? I can go back to the question of what plans are you considering? I would enjoy any color on that. Is there an informal committee of bondholder's you are negotiating with?

Ken, I can't say anything more than we are considering all options. Nothing is off the table. If you have any ideas had we would welcome your phone call.

I might take you up on that.

Okay.

The ideas aren't too complex. There is not too many moving parts here. Other than the price of oil.

Never ceases to amaze us.

Thank you. Our next question comes from the line of Brendan O'Boyle with Gates Capital Management. Please proceed with your question.

Yes, this is Jeff. I had a question. Brian, can you talk about the cost competitiveness of where your customer base is on the kind of the global cost curve for oil and maybe also, based on the geographic regions and where you've typically done work?

Yeah, you know, Jeff,-- if you look at what's really going on two things are really going on. It has never been -- it has never been cheaper for a company with our asset-like strategy to go and shoot programs. And that's simply because there are contractors out there, that are absolutely selling their wares below their cost. We can be extremely cost competitive because we are not making decisions that are tied to utilizations.

So we are not out here trying to keep our vessels occupied. So, we can be competitive. The problem is, the oil companies are not spending money. So, it really is less about cost and more about demand. The only areas of the world right now that we are seeing opportunity and more capital is flowing to are primarily three regions. One is naturally, the Mexican side of the Gulf of Mexico where Mexico has been opening up in the last year, year and a half. That's one area we are seeing capital flow to.

The second area a little more surprisingly we have seen capital flow into South America. Our programs that have been shot down there, we have quite a bit of success with those in the fourth quarter. The third area I believe will be a good area in general for the industry in 2017 is Myanmar. Absent those three regions I struggle to see where in the world capital will flow in 2016 in the programs.

Let me reframe this. If you look back traditionally where you worked geographically and the customers with whom you've worked, where are those regions and those customers on the global cost for oil? What price do you need for those regions in your view, for those regions and for those customers to increase their activity again?

Well, we have -- our footprint is so broad, it is absolutely global. If you go to our website you can see we shot our programs all up and down North and South America and Mexico and all over around Africa and both sides of the continent and up into the Arctic regions, both Russia, U.S., Canadian, Greenland. We have programs shot over in southeast Asia. They all have a little bit of a different story to them so I can't give you a simple answer to the question.

My last question you talked 80 million annualized cost-savings with what you have done last year and this year and it looks like from the numbers that you gave for operating expenses you got about 40 million of that realized in 2015. And so should we expect to see an incremental $40 million in cost reduction in 2016 or will you see, some of that giving back by normal cost inflation?

Hi, Jeff, this is Steve. I would expect that there is certainly going to be additional cost-savings flow through in 2016. I would also tell you that when you have to look at the numbers there are some of the cost-savings that are above the line and are not in the OpEx numbers.. There is no doubt and we did not realize the full value of our cost control initiatives in 15 and there is more savings that will flow through in 2016.

How much of the 80 did you get in 2015?

Let me put it this way. In the fourth quarter, we realized about two-thirds of our quarterly goal and we will have a little bit of drag in the first quarter and by the second quarter we will realize 100% of the annualized 80 million.

That's helpful. And so normal CapEx will be -- normal CapEx -- company funded CapEx will be relatively modest? Is that something under 5 million?

I would say so.

And then the multi client would be 10 to 30 depending on the programs?

Exactly.

And when is the next PNC appraisal?

I don't think That's set. Certainly they do an appraisal on an annual basis, but that hasn't been set yet.

When was the last one completed?

We had an appraisal as we did the amendment in August of last year.

Thank you very much. Good luck.

Thanks, Jeff.

Thanks, Jeff.

Thank you, Mr. Hanson there are no further questions at this time. I will turn the floor back to you for closing remarks.

Thank you for taking the time to attend our conference call and we look forward to talking to you on the first quarter call.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.