Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Layne Christensen Company (NASDAQ:LAYN)

Q1 2015 Earnings Conference Call

June 16, 2014 11:00 AM ET

Executives

Thomas Mei - IR

Rene Robichaud - President and CEO

Jim Easter - SVP and CFO

Analysts

Luke Folta - Jefferies LLC

Gerry Sweeney - Boenning

John Rogers - D.A. Davidson & Co.

John Braatz - Kansas City Capital

Operator

Good day, ladies and gentlemen, and welcome to the Layne Christensen Company Reports Fiscal Year 2015 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference Thomas Mei with Equity Group. Sir, you may begin.

Thomas Mei

Thank you, Sam. Good morning, everyone, and thank you for joining us today for Layne Christensen's first quarter fiscal 2015 financial results conference call. Our speakers for today will be Rene Robichaud, President and Chief Executive Officer of Layne Christensen; and Jim Easter, Senior Vice President and Chief Financial Officer of the company.

Before we get started, I would like to remind everyone that statements made during today's call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. Such statements may include, but are not limited to, statements of plans and objectives; statements of future economic performance; and statements of assumptions underlying such statements; and statements of management's intentions, hopes, beliefs, expectations or predictions of the future.

Forward-looking statements can often be identified by use of terminology such as should, intended, continue, believe, may, hope, anticipate, goal, forecast, plan, estimate and similar words or phrases. Such statements are based on current expectations and are subject to certain risks, uncertainties and assumptions, including, but not limited to, the outcome of the ongoing internal investigation into, among other things, the legality under the FCPA and local laws of certain payments to agents and other third parties interacting with government officials in certain countries in Africa relating to the payment of taxes and the importing of equipment including any government enforcement actions, which could arise out of the matters under review or that the matters under review may have resulted in a higher dollar amount of payments or may have greater financial or business impact than management currently anticipates; prevailing prices for various commodities; unanticipated slowdowns in the company's major markets; the availability of credit; the risks and uncertainties and normally incident to the construction industry; the impact of competition; the effectiveness of operational changes expected to increase efficiency and productivity; worldwide economic and political conditions and foreign currency fluctuations that may affect worldwide results of operations.

Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those estimated, anticipated or projected. These forward-looking statements are made as of the date of this filing, and the Company assumes no obligation to update such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

With that said, I now like to turn the call over to Rene Robichaud. Rene, please go ahead.

Rene Robichaud

Thanks Thomas and good morning everyone. Thank you all for joining us today. As we discussed at our call in May, many of the same scenes that impacted our results in Q4 of fiscal ’14 lingered into the first quarter of fiscal ’15 ending April 30th.

At Heavy Civil a combination of severe weather and the weight of previously discussed unprofitable contracts resulted in loss of nearly $8.6 million, approximately one third of the loss was generated from projects Heavy Civil adopted in 2012 from our old water treatment division. At present, less than 10% of our project portfolio is comprise of these unprofitable contracts and we expect to complete all of them by the end of this fiscal year. We also expect to commence work on two new projects this quarter with a total value of $24 million. The first of these projects involves the construction of the new state of the art water treatment plant for the City of Roseville, Georgia, replacing an 80 year old facility that can no longer efficiently or cost effectively supply water for its citizens. The new water treatment plant is expected to expand the city’s water capacity to 3 million gallons a day and is also projected to save the City of Roseville approximately $11.6 million over a 20 year period by reducing outside water purchases and lowering repair and maintenance expenses.

For the second project Layne’s Heavy Civil and Inliner divisions are collaborating to construct a new waste water treatment system for the Skyview Utilities Systems, serving Lakeland, Florida. The project is expected to eliminate unpermitted discharge and associated contamination into Florida waters reduce the financial burden on property owners and citizens of the City of Lakeland and provide a permanent water and wastewater solution for the people of Skyview. We’re taking a number of steps to improve the performance at Heavy Civil. We continue to manage our costs and pursue higher margin negotiated work while moving away from lower margin higher bid municipal projects all this shift to higher margin contracts may generate lower revenues these projects should enhance profitability beginning in Q2.

We are also taking steps to refocus this business both geographically and operationally. We have restricted our geographies where we will self perform the construction work to the Midwest, Southeast and Denver areas where Layne has good relationships and significant experience. We are also implementing additional bid controls to make sure we have proper contingencies on our bids as well as appropriate margins to adequately compensate us for the risks in these contracts. From a target market perspective, our consistently profitable design build group is focused on opportunities for industrial, mining, energy and municipal clients. The design build group is responsible for the very important EPA mandated waste water work, designed to protect the water in the Gulf of Mexico for the villages of Islamorada and Cudjoe Key. For our Mineral Services division, it continues to struggle as commodity price fluctuations, constrained global capital expenditure budgets by mining companies and global economic uncertainty combined to create one of the most unfavorable market environments in years.

We lost nearly $4 million in the first quarter despite our cost containment initiatives at the face of declining demand for our services. Much of this loss was attributable to slow conditions in Africa where we continue to consolidate our offices. Rig utilization in April and May was up to about 40% and if you exclude Africa, it rose to 54% for the rest of world operations. We expect a fiscal year ‘15 will continue, will see continuing challenges at mineral services. We will continue to allowing our cost structure to market conditions and maximize rig utilization at all times. Nonetheless, we expect our wholly-owned and our affiliated mineral services business will face significant challenges for the balance of fiscal year ‘15. With respect to One Layne, our Mineral Services division has marketed our full solutions and capabilities to many of the world’s largest mining companies.

We have several promising ideas for them regarding soil stabilization, heat bleaching enhancements and water management but as we know mining companies are not spending much these days. Despite the Q1 performance of these two divisions, there are number of positive developments to discuss. For water resources, they returned to profitability in the first quarter. Water resources are now operating in one of the best bidding environments in years driven largely by a revived well drilling business in California in response to severe drought condition and a stronger injection well business in Florida. Regarding the latter, we are continuing to work on our $7 million injection and monitoring well assigning for Broward County, Florida that commenced late in the first quarter of fiscal ‘15. Our repair and installation business is also doing well. We continue to believe that water resources is poised for a better fiscal 2015 and that division should be second only to our inliner business.

Regarding inliner, it picked up where it left off in fiscal ‘14, its seventh consecutive year of record profits and 11% increase in revenue produced more than 100% rise in pre-tax profits as work under existing contracts delivered very favorable margins. Our Saertex fiberglass product sales are ramping up as expected. For our outlook, we believe that inliner is poised to have another record year in fiscal year ‘15. Our Geoconstruction division began delivering on the promise of its substantial backlog improvement that occurred in late fiscal ‘14. Despite some delays, first quarter revenues rose by more than 50% and pre-tax profit improved by over $7 million. Geoconstruction will demonstrate significant operating improvement in fiscal ‘15 although Brazil remains a disappointing market for us.

As such along with local management, we are reviewing our investments in that country. Turning to our Energy Services division, although it’s not yet a significant contributor to our operations, we remained very excited about the progress at our energy services business. Revenues rose 57% for the first quarter of fiscal 2014 to $2.8 million. As a percentage of revenues, our losses before taxes dropped from 31.6% to 25.7% as we begin to demonstrate the scalability and efficiencies of our model. Our water sourcing and water transfer businesses are running flat out today for the first time. We are hopefully close to a measure achievement with respect to our water treatment technology as well.

This division is getting close to generating breakeven EBITDA and reaching an annual revenue run rate of $20 million as early as the third quarter. As we discussed on our last call, a major oil and gas company recommended our treatment technology after an extensive pilot program for recycling at its project in the Permian basin. We beat several well known competitors despite being called in at the last minute, by delivering a product that eliminated in access of 97% of the iron, suspended solids and oils and grease in frac water, as well as a 100% of the bacteria. We delivered in All Clear brand which is Layne’s branding for its water recycling solution.

The major client is now performing a second test using our full scale system and if the initial results are validated we are hopeful to begin working for them later this year. We’re currently pursuing over $28 million of opportunities and has 15 master services agreements with large G&P companies up from only 10 at year end fiscal '14.

We intend to sell another -- to sign another five additional master service agreement this year. As for Layne, due to our disappointing financial performance we will implement an important new initiative design to lower our operating cost and improve our cash flow, manage our capital expenditures, moderate our working capital needs and evaluate alternatives for our underperforming businesses.

This multi step plan is design to lower our annual expenses by $12 million and minimize our exposure to money losing businesses. With that I’ll now turn the call over to Jimmy Easter who will review our first quarter results. Jim.

Jim Easter

Thank Rene. And thanks each of you for participating in today’s call. We will file our 10Q with the SEC later today. Net loss attributable to Layne for the first quarter this fiscal ‘15 was $27.7 million or $1.41 per share compared to a net loss attributable to Layne at 23.8 million or $22 per share in last year’s first quarter.

Our revenues decline by $35.2 million or $15.5% to $191.2 million in the first quarter of fiscal '15, from $226.4 million in the first quarter of fiscal '14. Higher revenues at Inliner, Geo and energy services were more than offset by revenue declines at mineral services heavy server and to a lesser extent water resources.

Cost of revenues in the first quarter decline to $162.2 million to 84.8% revenues from $189.6 million or 83.7% of revenues for the same period last year. And we are seeing lower direct costs and lower fuel expenses due to lower operating levels.

SG&A expenses decreased $34.9 million from $41.9 million at last year’s first quarter as a result of lower compensation expenses, lower relocation costs and legal fees that offset somewhat by higher consulting in insurance fees. Depreciation and amortization decline to $13.9 million in the current first quarter from $15.3 million in last year’s first quarter as a result of non-core asset sales.

Losses from affiliates decline to $66,000 in the first quarter compare to a loss of $481,000 in the same period last year, primarily due to the cost cutting initiatives begun last year which were now beginning to fall through.

Interest expense increase to $4.9 million for the first quarter of fiscal '15 and $1.3 million in the first quarter of fiscal '14, Layne issue convertible notes during late fiscal '14 and executed in ABL credit facility and terminated its previous credit facility during Q1 of fiscal '15.

Included in interest expense for Q1 was a $1.1 million onetime recognition of fees associated with a company’s private credit agreement. Also included was amortization of the deferred financing cost associated with the issuance of the convertible notes. And lastly, the fees associated with the execution of the ABL facility which altogether $2.1 million.

Long term debt less current maturities at the end of the first quarter was $147.9 million up from $108.3 million in the fourth quarter due to usage of our ABL credit facility. We recorded an income tax expense from continuing op of $2.2 million in the first quarter of fiscal '15 compare to an income expense of $5.8 million for the same period last year.

During Q1 fiscal '15 no tax benefit was recorded on the domestic losses and certain foreign losses due to valuation allowances provided as the, to the deferred tax asset. During Q1 fiscal '14 Layne recorded the valuation allowance charges of $8 million against prior year foreign tax credit carry forwards.

Our positioned at April 31 was $21.2 million compared to $35 million at the end of the fourth quarter of fiscal '14 the decrease in cash was due to investment in working capital as we entered the peak period in the construction season. We have capital of $129.5 million and equity was $265 million or a $13.31 per share.

I’ll now turn the call back to Rene.

Rene Robichaud

Thanks Jim. And thank all of you for joining us today. I’ll turn the call over to the operator for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Luke Folta of Jefferies. Your line is now open.

Luke Folta - Jefferies LLC

I guess first just wanted to see if I could better understand what you’re thinking of terms of the cost cutting measures or some of the strategic alternatives. The $12 million to $20 million of expected cost savings at least your goal. Does that involve potential further I guess strategic actions, maybe divesting certain things or consolidating certain businesses. I guess you’re already moving to, have you already done the things that will generate the savings or is this kind of something to come?

Rene Robichaud

These are new initiatives that are coming, and some of them may well be strategic initiatives, but what we mean by that is we retrenching out of geographies where we don’t see the outlook as a positive one. One of those we’ve highlighted is the Brazil construction market. Two years ago that was viewed as a very positive market and we had hundreds of millions of dollars of opportunities staring us in the face. Today that’s almost all gone, the Brazilian economy and the desire for Brazilian businesses to build today is so slow, we need to rethink that investment. Africa also is one of our slow geographies, much slower than the rest of the world for us.

Jim Easter

The only thing I would add to what Rene said it’s hard to pick up a newspaper anywhere and find anything positive without economic outlook in Brazil. And it is very frustrating for not just us but everyone involved in infrastructure in that country because we believed that there will be significant opportunities for us in connection with the FIFA World Cup and the upcoming Olympic Games. Unfortunately that seems to have been a miss by just about everyone that was looking at that information. And this is very tough and very disappointing. One thing I would point out that we do have two business lines in Brazil. We have our mineral exploration group which we continue to support, and is doing very well. Unfortunately our geo construction group which is dealing with the infrastructure side of the business is not finding the opportunities that we have hoped.

Luke Folta - Jefferies LLC

And then so I guess in those two areas where you just mentioned Brazil and Africa, can you talk about the extent to which those geographies are impacting your business today. I guess I am just trying to get a sense of it, if you were to pull out of those activities in those regions. Would that be the majority of the cost cutting effort that you’re, that within your goal and also are there assets in these locations which would generate proceeds in terms of if you were to start selling things there?

Rene Robichaud

The cost cutting initiatives that we’re putting in place will be in addition to the strategic alternatives that we’re currently evaluating in Brazil and Africa and selective other offices. So those cost cuttings are really enhancing our business processes, last year we brought the company together, for the first time and this year we’re trying to look at all of our processes and enhance those and save millions of dollars annually.

Luke Folta - Jefferies LLC

And then just on the Heavy Civil business, it looks like there is 10% of the backlog are the problem projects that will be fully executed seems by the end of fiscal ‘15. Can you just talk about and maybe this could be a comment for the business as a whole by division. But just what you’re seeing in terms of pricing for the contracts that are going into backlog and currently this quarter and maybe how that compares to, how we should see the margins develop in some of these businesses over the next four quarters or so, to the extend you have visibility.

Rene Robichaud

Right, from our perspective the businesses that we got into in fiscal ‘11, fiscal ’12 and fiscal ’13 were an enormous mistake. And we changed how we went to market at the beginning of calendar 2012 to fiscal ‘13. And we then started enhancing our margins and restricting our hard-bid business. But about two-thirds of the problem in our first quarter still come from managing some of these older projects, one-third comes from being buried under two feet of snow. And the balance of the portfolio has an embedded margin that’s far superior to the old projects of fiscal ’11 and ’12. But that just means they won’t be losing money, they’ll start to make money over time as we put in better, margin projects and that is the plan where we will be able to execute our business in geographies where we know the owners, know the suppliers and we’ve got a long history of being profitable.

Luke Folta - Jefferies LLC

Gentlemen just one last one if I could. I mean it sounds like the mineral exploration business is maybe tough for a little while and there is some pricing pressures going on there, but it’s kind of interesting your comments that utilization has started to improve in certain areas, can you I guess give us some color on which minerals and what areas you’re referring to specifically?

Rene Robichaud

Sure, we started the quarter at a really awful position probably in the area of 30% capacity utilization or rig utilization, and we finished the quarter at 40% and that continues in the month of May. The 40% though we kind of look at in two pieces Africa being the lead ball if you will, if we were in the Africa our global utilization rate in South America and North America and Australia would be much higher 54% as mentioned. So we’ll look at that and we say when how long should we hang on Africa, we’ve taken a lot of people and out of business in the last 18 months by way of reference the company probably peaked at an employee number of 5054 employees and today we’re in the area of 3900. So a lot of that would have come out of our mineral services already and selected other businesses.

Luke Folta - Jefferies LLC

It sounds like the improved utilization as more function of the base shrinking of the post activity improving anywhere?

Rene Robichaud

There is certainly some of that. Our activity is pretty strong and selected geographic markets Brazil and Mexico and Western United States.

Operator

Thank you. Our next question comes from Gerry Sweeney of Boenning. Your line is now open.

Gerry Sweeney - Boenning

Just want to stick on mineral services for a minute. Just look at some of the competitors out they that sort echo your same thoughts of the challenging first quarter, but there are some hands of maybe the proverbial green chutes that are starting to emerge, they talk about maybe potentially more meters drilled in the second half of this year, some more engineering studies being done that sort of prelude some additional work, late this year and possibly next year, are you seeing any of that out there?

Rene Robichaud

One of our major clients certainly tells us to get ready for next year, next fiscal year say February once the January is out. Most of our clients, a lot of the smaller clients have said look we’ll back in a month, we’ll be back in two months don’t go away don’t leave us, but honestly they have the money on the junior level and we don’t see that changing until the equity markets start wanting to fund junior gold companies again and that’s a complete unknown.

Gerry Sweeney - Boenning

Okay, I don’t mean to cut you off there, if you have more.

Rene Robichaud

I don’t want to ramble either. I’ll stop and focus on your questions.

Gerry Sweeney - Boenning

Okay, Africa, obviously you’ve just mentioned some strategic alternatives are that maybe one area this focuses, how much of that was your business in the past I mean some mining companies or service companies heavily acted at Australia in the last three to six months, but how much of that business in Africa traditionally -- you’re right I am sorry, how much your revenue traditionally was from Africa and how much of a change with that institute and little bit of detail on that front.

Rene Robichaud

Gerry, let me got -- I don’t have that level of granular detail right here with me, but when you think about Africa really there is way we look at there is two pieces as Eastern Africa and Western Africa. Eastern African is just not being kind to us for a very long period of time and we’re really getting about areas like Tanzania and places like that which is predominately a junior market. And Tanzania talked about the juniors and the capital constrain issues they have when you move over on the other side of the continent, you get into the large cap mining companies to larger scale world-class deposits. So, we have had ebbs and flows over the course of our history operating there, some years we do extremely well and can turn as much as $10 million or $15 million of EBITDA coming out of that particular consolidated market. But we just don’t get enough years like that to really justify in our view a longer term position giving the difficult logistics and the difficult political economy you have to work there.

Gerry Sweeney - Boenning

Okay that makes sense that adds a lot. Make sense to me, adds a lot more clarity to it. Jumping over Geoconstruction obviously it sounds like Brazil is a little bit challenging, it was curious as we look at this going forward how much Brazil was a drag and then you’ve also mentioned in your commentary in the release about some of the larger projects in San Francisco, that a little bit of that those large projects that prone to ebbs and flows that are out of your control is there a little something more there that’s going on or is that just a given us a little bit of heads up that could be pretend -- it is a large project and they can speed up slowdown speed up slowdown and maybe a little bit inconsistent?

Rene Robichaud

The way that we think about it is that Geoconstruction went from a walking pace to a sprint pace over the course of six months and in the sprint starting up two projects in San Francisco, Hawaii, Seattle a couple of those projects had interruptions as you started and started to find changes in soil condition that nobody expected or changes in design that were needed and made and then start up again these sort of things happen. And normally when your projects are spread over time, you don’t see them as much because you are starting up one project as you’re working several others and then you start up another and so the startup issues don’t really affect any given quarter unless they all happen in one quarter. And that’s I think what you’re seeing in the United States. In Brazil it’s more of the outlook today we did not make profits last year in Brazil Geoconstruction and we made book losses when you include depreciation. The outlook for Brazil today is so uncertain. We question in the long term reason why Layne has to be there with this Geoconstruction and that’s why we’re entered into discussions with local manager.

Gerry Sweeney - Boenning

All right. Jim, one follow up question for you on the interest cost, I think there is about almost $4.9 million in the quarter and then you said $1.1 million of fees and then amortization and the ABL were an additional $2.14 total of $3.2 million it sounds and like one time fees just in the quarter. Is that the way to look at that just be correct?

Jim Easter

Yeah, I think so. When we get the Q filed, it breaks all that out in greater detail.

Gerry Sweeney - Boenning

Okay, great.

Jim Easter

But yeah your rough math is pretty much on target.

Operator

Thank you. Our next question comes from John Rogers of D.A. Davidson. Your line is now opened.

John Rogers - D.A. Davidson & Co.

Couple of things, first of all, the assets that are involved with the Geoconstruction in Brazil and the African mining that sounds like you may be playing out. How much are we talking about there?

Jim Easter

Well we haven’t really disclosed the book value of those assets it and at least on the Geo side I can tell you it’s not a significant piece of the asset portfolio the largest piece by far of Geo’s operations are in North American. And as far as rigs we have in Africa trying to say exactly what we…

Rene Robichaud

It is -- I am going to say its 15% to 20% of our total worldwide assets rig count today in Africa.

John Rogers - D.A. Davidson & Co.

Okay. So there is…

Rene Robichaud

Much less in terms of actual rigs using I mean for the most part whatever we have over there is stacked and there is selected assets that are good assets that we’re going to want back.

John Rogers - D.A. Davidson & Co.

Okay. So, but it sounds like if you pull back from those markets I mean it’s primarily it’s to stem losses rather than generating the cash through that process. Is that…

Rene Robichaud

There may be some cash coming out of it, some good equipment will come out of it that we will use in another geographic area. But mostly it’s to make sure that we don’t stay in places where we think the outlook is just too cloudy.

John Rogers - D.A. Davidson & Co.

Okay, fair enough. And then the other question is just in terms of your corporate overhead I mean that had been trending down pretty significantly through the last fiscal year and then ramped up again in the first quarter and maybe just talk about what’s happening there?

Jim Easter

Sure. Yeah, part of what you’re seeing there with the relocation cost that we move from Kansas City to Houston so that was the big bump that you saw but we also have had some higher than normal use of outside third party consultants particularly on the IT front and some specialized consultants that we had to bring in just to kind of work on some of our operations. Now as we down -- as we start developing more efficiencies particularly within our IT group and we would expect that to start reducing as well and get back to a much more normal corporate run rate which we believe over the long haul come in between the $32 million to $35 million level.

John Rogers - D.A. Davidson & Co.

Okay, all right. So that’s still the expectation overtime to get it back to that level?

Jim Easter

That’s correct.

John Rogers - D.A. Davidson & Co.

Okay. And then Jim I guess just on tax expense this year, how should we think about that? I mean I understand there won’t be any U.S. taxes or benefits either but your foreign taxes, will that continue to be an expense?

Jim Easter

Yes, the problem we have is many of these jurisdictions that we deal in have deem profits taxes or they just take their tax right off our revenue and it’s actually remitted by the mining client, we never even see it. So, in the foreign jurisdictions because we have a very low operating level we get a disproportionally high tax rate and it varies by jurisdiction as you might imagine, it’s kind of all over the map and our kind of rough rule of thumb is for our foreign tax we use about a 50% effective tax rate and for domestic it’s zero because of our valuation allowance.

John Rogers - D.A. Davidson & Co.

Okay. Okay, and I mean that will be true I mean I guess for a while now.

Jim Easter

For a while, yes, our VA is fairly sizable and then you recall the core key accounting on that kind of stuff that trying to get out of that trailing three year cumulative loss and you can actually wind up writing that backup on your, bringing it back on your balance sheet through your income statement.

John Rogers - D.A. Davidson & Co.

Okay. Okay and then sorry just back to the heavy civil business, how much is left to complete on these loss projects which I assume will be hopefully completed at zero margin now?

Jim Easter

About $20.6 million is our best estimated cost to complete at this point.

John Rogers - D.A. Davidson & Co.

Okay, okay. And then I guess in terms of the overall corporate restructuring, you have talked about the cost savings and some of these moves, is that enough I mean or there are bigger things that you might look at as well at this point? I mean we’re unfortunately a couple of years into this and so we got big losses and I am just wondering as you sit back and you think about these various businesses, I mean should they be part of Layne long-term?

Rene Robichaud

We continue to look at that all the time and from time to time you get a stink bid on a good business and the question is, would you sell at the bottom.

John Rogers - D.A. Davidson & Co.

Right, right.

Rene Robichaud

And so unless you are making as a specific offer, John, I am not sure where to go, this is the plan for now.

Operator

Thank you. (Operator Instructions). Our next question comes from John Braatz of Kansas City Capital. Your line is now open.

John Braatz - Kansas City Capital

Couple of questions. When you think about the cost cutting and the sort of the strategic decisions that you are going to engage in, can you give us an idea of if you were to do that, how much of the operating losses are sort of emanating from those potential strategic moves? Can you give us a sense how big of drag they might have been?

Rene Robichaud

Again that’s the level of disclosure where we don’t go into micro-geography operating income levels, but suffice it to say that if we are trying to get out of Africa which might be in the area of 20%, not all of Africa but most of Africa, 20% of our overall rig count and Brazil geoconstruction which could have been last year, again this is another 25% of the overall sales order of magnitude and both of those had negative operating income number. So, this give you a little bit of a sense of the sort of businesses that we don’t want to continue to drag along for the long-term and it’s part of managing our overall businesses the way may be a Warren Buffet manages his portfolio is just don’t take any losses.

John Braatz - Kansas City Capital

Rene, when you look at, I think of course on all of the balance sheet but you have may be 60 some, $65 million on the balance sheet in terms of investments and affiliates and I wonder I guess my question is with the affiliates doing, they are having a rough time at this point. Is there any potential write-down on your affiliate investments, any impairment charge on that balance sheet item?

Rene Robichaud

We do an analysis every quarter of our investment in the affiliates and we are not anywhere close to that.

John Braatz - Kansas City Capital

Okay.

Rene Robichaud

The affiliates are actually operating reasonably well given the overall poor economy and industry conditions are facing, they are struggling with the exact same thing as we are.

John Braatz - Kansas City Capital

Sure, sure, okay. And what about if you incur some losses going forward, any type of covenant issues with regard to your loans?

Rene Robichaud

No, we are in covenant compliance. We are feeling okay about that. We just recently closed a new credit facility with PNC and Wells. So that gave us a lot more room to maneuver a lot more headroom on our covenants. With JBLs due so we don’t have maintenance covenants in play right now. So we anticipate just moving forward.

Operator

Thank you. And at this time I am not showing any further questions. I’d like to turn the call back to management for any closing comments.

Rene Robichaud

Alright. Thank you all very much for joining us on this conference call and we look forward to our next conference call in early September.

Operator

Ladies and gentlemen thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Layne Christensen Company (LAYN) CEO Rene Robichaud on Q1 2015 Results - Earnings Call Transcript
This Transcript
All Transcripts