SAExploration Holdings, Inc. (NASDAQ:SAEX)
Q2 2016 Earnings Conference Call
August 04, 2016, 10:00 ET
Jeff Hastings - Chairman & CEO
Brent Whiteley - CFO
Brian Beatty - COO
Ryan Abney - VP Capital Markets & Investor Relations
Welcome to the SAExploration Q2 2016 Earnings Call. [Operator Instructions]. I would now like to turn the conference call over to Ryan Abney. Sir, you may begin.
Thank you, Valerie. Good morning everyone. Thank you for joining us today. Our speakers will be Jeff Hastings, Chairman and Chief Executive Officer of SAE; and Brent Whiteley, Chief Financial Officer of SAE. Also with us today is Brian Beatty, Chief Operating Officer of SAE.
Before we begin, I would like to remind everyone that some statements made during the course of today’s call maybe forward-looking within the meaning of the Federal Securities laws. These statements can be identified by the use of words or phrases such as beliefs, estimates, expects, intends, anticipates, projects, plans to will, should and variations of these words or similar words. These forward-looking statements may include statements regarding SAE’s financial condition, results of operations and business and SAE’s expectations or beliefs concerning future periods and are subject to risk and uncertainties which may cause actual results to differ materially.
These risk and uncertainties include fluctuations and the levels of exploration and development activity in the oil and gas industry, intense industry competition, a limited number of customers, the need to manage rapid growth, delays reductions or cancellations of service contracts, operational disruptions due to seasonality whether another external factors, crude productivity, the availability of capital resources, high levels of indebtedness, substantial international business exposing SAE to currency fluctuations and global factors including economic, political, military uncertainties. The need to comply with the first laws, diverse and complex laws and regulations and other risk incorporated by referenced SAEs filings, with the Securities and Exchange Comission.
Certain risks and uncertainties related to SAE’s business are or will be described in greater detail in SAE’s filings with the Securities and Exchange Commission. In particular risk and uncertainties that could cause actual results to vary materially from SAEs expectations or described under risk factors, and cautionary notes regarding forward-looking statements and SAEs annual report on Form 10-K for fiscal year ended December 31, 2015. As amended by amendment number one there to and ask to be updated amended and restated in SAEs Form 10-Q to be filed for the period ended June 30, 2016.
The information discussed today should be taken in light of such risk. Except as required by applicable law, SAE is not under any obligation to and expressly disclaims any obligation to update or alter its forward-looking statements whether as a result of new information, future events, changes and assumptions or otherwise.
With that said, I would now like to turn the call over to Jeff Hastings, Chairman and Chief Executive Officer of SAE. Jeff, please go ahead.
Thank you, Brian and thanks each to you for participating in today's call. I will start with some initial comments on this on this past quarter and the overall direction of the company and Brent Whiteley, CFO will review the financial results for the second quarter and the first six months of 2016. After that we will turn the call over to questions. Let me start by saying how encouraged we’re by the strong performance we continue to produce in this challenging environment. Our year-to-date results demonstrate our continuing focus on maximizing efficiencies throughout the organization. Our operational execution in the field remains well above historic levels and considered in white [ph] of the extraordinary efforts recently completed to realign our capital structure and to ensure our longevity, we’re excited about how we positioned ourselves to move forward.
Our business was built on the ability to withstand adversity and maintain a path to prosperity in all conditions. However not dissimilar to the reset of the broader industry is undergone SAE too has had to reset for it's future. The principle objective of our recently completed restructuring was to create a stronger platform that would enable us to continue serving our highly valued customers who have come to depend on SAE for superior quality and operational excellence.
In conjunction with a meaningful reduction in debt made possible through the support of our bond holders, we have successfully secured additional funding to recapitalize the company and bridge our cash needs until we receive and monetize certain loss of tax credits that are currently being processed. These transactions provide SAE with enhanced liquidity, financial flexibility and realign the balance sheet which will make us even more competitive than the current environment and position us for long term growth and continued success.
We’re grateful for the support and confidence provided to us by all our stakeholders during this transformational process. Most importantly I'm proud of the resilience of our company, that our company is demonstrating and impacting to our new landscape. Despite a sustained reduction and exploration activities we have continued to outperform on many levels particularly in the holding firm and improving our margins which is driven by our continually improving cost structure. We now have an enhanced financial profile and liquidity tax [ph] to merge with our superior operational capabilities. This combination not only ensures SAEs longevity but position us for rapid success on the broader market rebalances.
What we patiently navigate the challenging backdrop we continue to pursue new bids in our TGR bookings with a focus on cash flow generation and even though the cyclic nature of our business is intensified in this environment and visibility is at it's premium we believe SAE is favorable positioned to capitalize on opportunities as they are presented. Overall we remain confident in the fundamentals underlying our core markets in conjunction with their new capital structure we believe our recent financial results are valuable indication as we in here earnings power offered by our focused business model.
Moreover we are well-positioned and adequately capitalized to withstand market headwinds and execute our long term strategic vision. We believe SAE has a correct formula for growth for success and we eagerly await the opportunity to build meaningful value for our stockholders as we look forward.
I will now turn the call over to our CFO, Brent Whiteley to discuss the financial results for the second quarter and the first half of 2016. Brent?
Thanks, Jeff. Good morning to everyone. I will take a few minutes to review our financial results for the second quarter and first half of 2016 and then we will turn the call over for questions. Total revenues in Q2 decreased to 57 million or by 14.7% from 66.9 million in second quarter of 2015. Revenues for the first half of 2016 increased marginally to 147.2 million from 146.5 million in the same period last year. However revenues from projects excluding tax payer programs in Q2 and the first six months increased 1.6% and 49.8% respectively year-over-year. The decrease in total revenue during Q2 was primarily a result of reduced activity in Alaska and South East Asia compared to Q2 2015. However revenue increased meaningfully during Q2 in South America largely due to continuation of a major project in Bolivia and the start of new projects in Columbia, the same period in 2015 saw little revenue contribution.
By geography approximately 41 million or about 72% of our revenue of the second quarter were generated in South America followed by North America 15.3 million or about 27% and South East Asia at 0.7 million or about 1% of revenues. For the first half of the year North America generated approximately 81 million or about 55% of revenues followed by South America at 64.6 million or about 44% and South East Asia at 1.6 million or about 1%. Our gross profit for Q2 was 16.4 million or 28.7% of revenues compared to a gross profit of 16.2 million or 24.2% of revenues in the second quarter of 2015.
Gross profit year-to-date increased by 15.1% to 42.8 million or 29.1% of revenues, from a gross profit 37.2 million or 25.4% of revenues in the first half of 2016. Gross profit for Q2, 2016 and for Q2 2015 included depreciation expense of approximately 4.2 million and 4.8 million respectively. Excluding depreciation expense gross margin in Q2, 2016 and Q2, 2015 was 36% and 31.4% respectively. Gross profit year-to-date included depreciation expense of 8.4 million compared to 9.2 million of depreciation expense included in our gross profit for the first half of 2015. Excluding depreciation expense gross margin in the first half of 2016 and 2015 was 34.8% and 31.7% respectively.
The year-over-year increase in gross profit as a percentage of revenues although Q2 and year-to-date was primarily the result of our improved cost structure and operational efficiencies in the field. SG&A expenses during Q2 decreased 17.4% to 7.2 million or 12.7% of revenues compared to 8.7 million or 13.1% of revenues in second half, in the second quarter of 2015. Year-to-date our SG&A expenses decreased 20.7%, 14 million or 9.5% of revenues compared to 17.6 million or 12% of revenues in the first half of 2015.
Our SG&A expenses in Q2 and year-to-date 2016 increased [ph] approximately 0.4 million of onetime severance cost related to additional headcount reductions recently implemented. Similarly our Q2 first half 2015 SG&A expenses and 3.4 million and 1 million respectively related to our initial workforce production [ph] program which was completed in late 2015. Additionally all senior management elected to reduce their salaries voluntarily for the second half of 2016.
Earnings before income taxes or EBT during Q2 increased 5.5% to 3.6 million or 6.3% of revenues from 3.4 million or 5.1% of revenues in the second quarter of 2015. Year-to-date our EBT increased 143.4% to 20.9 million or 14.2% of revenues from 8.6 million or 5.9% of revenues in the first half of 2016.
The year-over-year increase in EBT was largely due to our higher gross profit, lower SG&A expenses and a positive primarily unrealized gain on foreign currency transaction offset by the cost incurred in our debt restructuring. Net income attributable to the corporation during Q2 was 0.3 million or $1.97 per diluted share on our reverse split adjusted basis compared to 2.1 million or $18.96 per diluted share on a revenue split adjusted basis in the second quarter of 2015. Net income attributable to the corporation during the first six months of 2016 was 14.5 million or $112.09 per diluted share on reverse split adjusted basis comparing net income of 3.3 million or $29.56 per diluted share on reversed split adjusted basis in the first half of 2015.
Adjusted EBITDA for Q2 increased 16.2% to 14.1 million, or 24.6% of revenues from 13.2 million or 19.8% of revenues in the second quarter of 2016. Year-to-date our adjusted EBITDA increased 26.3% to 38.3 million or 26% of revenues from 30.3 million or 20.7% of revenues in the first six months of 2015.
Capital expenditures for the second quarter in 2016 were 0.5 million compared to 0.6 million in Q2, 2015, year-to-date capital expenditure 4.7 million compared to 4.9 million in the first half of 2015. Our first half 2015 CapEx included the payment of 2014 and investments related to our last operations. However given the state of the industry and significant reduction in oil and gas activity any significant investment and capital expenditure [indiscernible] particularly in large equipment purchases is highly unlikely into the broader market demonstrates a consistent and stable recovery therefore we continue to expect our total CapEx for 2016 to be under $5 million. On June 30, 2016, our cash and cash equivalents totaled 16.8 million, working capital was 65.5 million.
Total long term debt excluding capital leases and deferred loan issuance cost was 145.6 million and our total stockholders' deficit was 13.9 million. Further on June 30, 2016 14.6 million was drawn under our $20 million revolving credit facility. Please refer to the section titled restructuring transactions in our earnings release for more information regarding the effects of the restructuring and recapitalization transaction and other related information.
Lastly our contracted backlog on June 30, 2016 was 86.5 million, on the same date our bids outstanding totaled 383.4 million for over nearly all of the contracts in our backlog works in land-based projects primarily North America and South America. We expect [indiscernible] is actually 50% of projects in our June 30, 2016 backlog during the last six months of 2016 with the balance in 2017.
At this point I will turn the call over to the operator to open the floor for questions.
[Operator Instructions]. Our first question comes from [indiscernible] with Jefferies. Your line is open.
Just wondering maybe if you can comment a little bit on just kind of what's going on with the Alaskan receivables, maybe as well just -- where it stands in Alaska as far as the maybe reforming some of the tax issue and policy. I think that might be helpful.
Sure. As we disclosed previously the tax payer issue — we’re sort of in the audit process right now. We think that process will be going well and taking long as stated. So no real change as to status of this problem -- sort of our previous updated filings. You see a little bit further on that date in the 10Q but it hasn’t changed much from [indiscernible]. As to the legislature and what's going on there, I think publically you kind of see that there are still sort of entering back and forth and did some legislation pass. The government vetoed certain items in that legislation and I think you know the line item veto has sort of gone back for restructuring and retalking. But you know there has been some forward progress in the fact that some of the legislation has made us quite through the entire system and I think they still have a lot of work to do as you see from the public documents they are available.
And from a customer standpoint, how did they view this, did they kind of put everything on hold or what did they -- are they waiting for resolution or are they kind of pushing ahead with plans assuming that things eventually will be amicable.
I think that Evan [ph], we still see activity in bidding going in Alaska. The current legislation is not really changed the tax credit other than to begin to phase it out over the next three years. So I think there is some question as to what the next legislative session has been but for the most part we have -- we are seeing activity and I think from few of the independence that are up there I mean obviously they have a lot of money invested in the projects they are in and there is some wait and see but we’re not seeing any lack of business from the priority or the customers that have been with us and supported us for the last 5 to 10 years.
And then also if you can spend two seconds on the South American work, you know it was obviously, it was a solid 2Q performance from South America. How do you see that trending into the third quarter and maybe the fourth quarter this year, is that level sustainable?
From SAE's point of view we do have some good relationships with some major oil companies throughout South America so we’re seeing bidding activity and it's looking pretty good for SAE going forward South America. Of course when you’re as busy as it used to be but because of the relationships we have with oil companies we perceive it should be all right for us.
[Operator Instructions]. I'm showing no further questions from the phone line. I would like to turn the conference over to Mr. Jeff Hastings for any closing remarks.
Thanks, Valerie. If there is no further questions I would like to thank you again for joining us today. We appreciate your support and we look forward to speaking with you again next quarter. Have a great day.
Thank you. Ladies and gentlemen this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.
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