Q4 2019 Earnings Call
[music].
Greetings and welcome to the Ion Geophysicals fourth quarter earnings Conference call.
At this time all participants are in listen only.
Remote.
A brief question answer session will follow the formal presentation.
But he wants you require operator systems during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It's now my pleasure to pleasure to introduce your host Rachel White VP of corporate.
Communications. Thank you Rachel you may be kept.
Thank you operator, good morning, welcome to <unk> fourth quarter 2019 earnings Conference call. We appreciate your joining us today as indicated on slide two our hosted there Chris I'm sure President and Chief Executive Officer, and make more sense executive Vice President and Chief.
Financial Officer before I turn the call over to them I have a few items to cover we'll be using slides to accompany today's call, which are accessible via a link on our website <unk> dot com. There you'll also find a replay of today's call.
We began let me remind you that certain statements made during this call may constitute forward looking statements. These statements are.
Subject to various risks and uncertainties, including those detailed in our latest tuncay. Another STC filings, which may cause our results or performance to differ materially from those projected in these statements.
Our remarks today May also include non-GAAP financial measures additional details regarding these non-GAAP financial measures, including reconciliations.
Directly comparable GAAP financial measure we found in our earnings release issued yesterday I'll now turn the call over to Chris will begin on slide four.
Thank you Rachel good morning, everyone and thanks again for joining US today, our fourth quarter financial results were quite the sporting primarily because we were not able to watch multiple new acquisition multi client programs and close several data.
The library deals in our pipeline.
As a result, our full year results were down slightly rather than the upward trajectory. We've been building towards for 2019 timing on fourth quarter Multiclient deals countering the annual improvements in all our other businesses.
We secured rights to acquire new multi client programs in new geographies, but not did not get programs launched due to host.
Government Blaze in addition, tighter E N P budgetary controls and longer procurement processes have been impacting the data library business in recent years fourth quarter phenomenon observed across our peer group appears to a different drivers.
Despite significant deal volume during the quarter several material data library deals on the order of tens of millions of dollars ultimately did not close by yearend.
Several of our large data library customers have now reported deteriorated fourth quarter earnings due to the lower oil price and given the strong focus on value generation discretionary expiration date of purchases were pushed out.
Just to give you a sense of the sale this disruption and multi client seven of our top 15 customers had more than a threefold change in 2019.
Spend versus an average of the prior two years, while we recognize the data library business has always been lumpy. We expect this more extreme activity be temporary that's market indicators are improving in the sectors. We are targeting and that's I just mentioned all or other business lines are up year on year.
As a result, we're focused on fundamentals and working.
Yes, we directly control our strategy organizational structure cost and investments we revamped our organizational structure in two key ways to improve our execution and accountability, we restructured our E. N P technology services segment to reflect our shift and multi client strategy to include new Threed acquisition and implemented a significant cost reduction program to.
Our operating expenses.
We reorganized our new venture sales organization to accelerate our entry into the Threed multi client new acquisition market, bringing our projects closer to the reservoir, where capital investment tends to be more consistently programs have larger scale revenue and earnings potential. This is our top operational objective for 2020.
We had been laying.
The groundwork for a more meaningful shifting focus for some time, we have rapidly growing our threed data library from almost nothing to 350000 square kilometers of seamlessly integrated beautifully reimage data over the last few years, which has given us credibility and experience in the three space and led to a pipeline of opportunities for new Threed towed streamer endorse the bit programs.
We have not seen before.
We completed development of enabling technologies like our enhanced frequency source enforce the ocean bottom system to further increase the likelihood of our participation success in new Threed multi client programs.
We also successfully released and we also successfully increased marlin adoption in our core market and gained traction in new markets. Therefore.
We redistributed resources on the software side to significantly increase the business development outreach to accelerate Marlin adoption by portion harbors, which is our company's second major operationally objective.
On the cost side of equation, we recognize the need to reduce our corporate cost structure after monitoring the business and market for my first half your CEO and taking into account the time it takes to adjust.
Strategy I felt we were due to undertake these restructuring actions are disappointing fourth quarter performance certainly some answered that decision, but it was something we needed to address in a market recovery that is slower and more subdued in past cycles. In January we executed a program that will limit active priorities to improve focus and execution on strategic initiatives while de levering.
Yes cost savings of over $20 million, Mike will provide more detail on the savings impact This program will achieve shortly.
With that work behind US I guess I am still is excited about the business. That's when I took the CEO role we are aligned to reflect initiatives that can uniquely position I on the new industry landscape, which lead to better financial results.
Sure is picking up and we see material activity, among our customer base to rebalance portfolios and maximize value, which drives related data sales opportunities that feel customer knowledge gaps.
We have reengaged around several large data library deals that slipped out of fourth quarter, including a notable one that would have reshaped our 2019, resulting.
Close as early as this quarter there was a.
Got a positive momentum around Threed, new acquisition, multi client opportunities and our growing operations optimization business, which I'll speak to next.
In our CMP technology and services segment revenues decreased 51% this quarter compared to the fourth quarter 2018, due to a decrease in our multi client revenues, while the quarterly decline as more pronounced and new venture.
Devotee, we had planned finished the year strong with data library sales per my earlier commentary.
It is important to note that a significant phase of our largest threed multi client program to Konya offshore Brazil recently went on the shelf, which attributes to some of the shift to data library in the fourth quarter.
For the year MP technology services revenues were down 8% well multi client revenues were down 12%.
About a third of our full year multi client revenues were from our growing to Kenya program offshore Brazil.
We expanded our data library powerful portfolio significantly during 2019, increasing today by 16% and more importantly, threed by 56%. We sanctioned 12, new multi client programs ahead of our goal of eight and compared to seven for all of 2018.
Well the quantity improve the scale and timing of the new multi client programs didnt materialize as we envisioned especially the to higher dollar investment programs that were delayed due to governmental access of the two large programs we anticipated launching in the second half we were successful in gaining an award on one but it is not yet started and the second one the tendering process and permitting have been delayed.
Since the summer also for the 12 programs where sanctioned in December so most of the revenue for those programs will start flowing and 2020.
During the quarter, we sanctioned five new multi client programs, we spoke about the Threed Reimaging program in Argentina is Argentina's unconventional new can basin last call and have since sanctioned three new threed reimaging programs offshore Brazil.
Well totaling 65000 square kilometers building on our substantial offering there. We also sanctioned to 27000 kilometers beauty Reimaging program offshore Colombia. In addition to repressing existing data Colombia's National hydrocarbon agency. The NH also recently granted us rights to acquire new to the and Threed multi client.
Yes offshore.
Early in the first quarter, we sanctioned a new Threed Reimaging program offshore Uruguay, leveraging our existing regional Uruguay spend data and Subservice knowledge. We are reimaging 22000 square kilometers of data over the country's deepwater blocks to create a holistic exploration perspective of the continental margin.
Looking.
Forward to 2020, we worked hard to diversify our portfolio mix to target all aspects of ERP spending a large part of which was moving closer to the reservoir. We can now support client strategic decision, making around infrastructure, let exploration their existing production emerging basins lower break offer breakeven opportunities and targeted frontier basins.
Spending is shifting back.
Sure as customers seek to rebalance portfolios, whether that's the birth diversifying out of shale are filling knowledge gaps and attractive acreage opportunities. We're strategically leveraging our global basin span library to identify opportunities to expand our multi client offerings to three D through either re imaging or new acquisition the opportunities dictate.
Last quarter, we spoke about our ability to differentiate in the rapidly evolving ocean bottom ecosystem with our enhanced frequency source. As a reminder, this novel energy source significantly extend low frequencies in the acquired data for improved velocity model estimation, while limiting higher frequencies to a more environmentally friendly range.
Developed in collaboration with an empty.
Operator, and validated during multiple field trials over the last 24 months, we have established significant industry support for this solution to be a key ingredient increasing the final image quality of both seabed as well as towed streamer datasets, we are actively engage with customers and launched partners around our 2020 commercialization roadmap.
We are maturing our our pipeline of Threed new.
Position opportunities that have secured a number of threed multi client permits around the world. We believe our technology portfolio, including our enhanced frequency source will be a key ingredient and successfully executing the significant addition to IMS data library portfolio at our hoping to announce a threed new acquisition Multiclient program in the second quarter.
Our imaging services revenues are up 14% this.
At quarter end for the full year, we continue to strategically reserve the majority of our imaging capacity distinguish our multi client offerings and deploy the remaining resources on challenging proprietary projects that keep ions tier one imaging brand at the forefront of our customers mines. This is important when those customers become potential underwriters for new multi client programs our imaging services team.
Focuses on key basins clients and enable us to continually advance our proprietary technology suite and 80% of our 2019 business met this criteria Weve had strong repeat business under this strategy and attracted new clients, who have benefited from our approach to problem solving and customer service imaging services backlog remains healthy.
Our operations optimization.
In revenues were up 13% this year largely due to new technology sales and increased marine equipment replacement and repairs are software group's revenue was up 10% annually, reaching the highest level since the downturn due to continued strong performance of our command and control solutions combined with robust Marlin related revenues and deployments.
We renewed two long term command and control contracts during.
In the quarter, one for towed streamer and one for C., but we don't consider these long term contracts as backlog per se in the operations optimization side of our business, but this recurring revenue lease model provides great stability for our software business.
I'm very pleased at about 20% of our software revenues. This year were from recent technology investments and commercialization are more or less software continues to drive.
Proved operational performance and efficiency offshore and is becoming a recognized enabler for maritime digital transformation in our market segment, we doubled the number of companies committed to the use of Marlin moving for three to six long term contracts.
Moving to adjacent markets are Marlin smart port pilot in the UK is progressing nicely our latest release is successfully.
Along with this anchor customer and has already surpassing expectations around the digitalization of port workflows.
Even our progress we ramped up our Marlin smart port business development capacity during the quarter and just secured another UK port and ferry customer. Despite cuts we made in other parts of bias business, we will add sales resources this quarter to address ports and other geographies given the appealed the.
Solution.
We are working with industry experts to refiner Marlette smart port roadmap and continue to engage closely with a ws to assure efficient provision of the software as a service solution and develop other ports and harbor offerings I'm pleased with the progress we've made executing key initiatives and our software business that position the company for future success in both core and adjacent markets.
In the devices group of our operations optimization segment revenues were up 16% year on year, driven by an increase in towed streamer equipment replacement and repairs are towed streamer clients are seeing higher crew utilization and improved pricing for proprietary surveys and correspondingly we have the highest level of contracted business since the downturn filling deployments in the seabed segment.
You to go well and the solution clearly provides both efficiency and positioning accuracy to our clients projects.
During the fourth quarter year, we reviewed the adjacent market initiatives underway at our devices business with a purposeful content across high on to do fewer things better we identified devices activities exhibiting broader synergies with our software business versus.
Some technical successes that perhaps lacked future materiality and shelved the latter we mentioned our successful port security demo at the U.S. navies advanced enabled technology exercise ethics and prior call, which featured Marlin US the technology integration Center piece that success has led to our recent invitation backed by the Navy for their antics 2020 of that to demo our next iteration.
One of the solution, we believe the harbor security market is closely aligned to our activities in the broader ports and harbors digital transformation arena and synergies here can drive our diversification missions efforts are much more rapidly across our operations optimization segment with that I'll turn it over to Mike to walk us through the financials on that but I'll wrap up before taking questions.
Thanks, Chris Good morning, everyone I'd like to take a moment to introduce myself and my first call as CFO before reviewing our financial results have over 25 years of finance and accounting experience less 17 I've spent ion.
The first decade in my career was primarily focused on accounting and auditing the second decade centered on the Controllership.
During this timeframe I on start is strategically pivoting to a solutions company and I helped acquiring integrate some of the company's most successful acquisitions.
Most recently my focus was on finance Mdna capital market transactions and increasingly operational finance leading to my most.
Recent role as VP of finance and Treasurer.
Served a steep bates right hanmi and for the last five years.
Steve will remain with iron until the end of June to help facilitate a smooth transition.
With that introduction I will now walk through the financials.
Our full year revenues were 175 million down 3% compared to 2018.
The result of the decline in fourth quarter multi client revenues.
Excluding multi client revenues all other businesses were up year over year.
Our full year adjusted EBITDA was 32 million compared to 42 million last year.
Moving to the fourth quarter, our revenues were 43 million down 43%.
Compared to the fourth quarter 2018.
Revenues in our MP technology and services segment were down 51% in our operations optimization segment revenues were down 8%.
The decrease in revenues within MP technology, and services was driven by our multi client revenues, which declined by 57%.
Compared to the fourth quarter 2018.
As Chris mentioned this was largely related to our new venture programs and reduced year end data library spending a.
A bright spot was in our imaging services group, which had revenues of 6 million a 14% increase this quarter.
Our imaging services business remains healthy as we enter 2000.
20 with backlog more than double that of one year ago.
In our operations optimization segment optimization software and services revenues were 5 million a 9% decline from the fourth quarter 2018, and our devices revenues were 8 million an 8% decline.
Both groups were modestly down during the quarter due to the.
Normal ebbs and flows of those businesses.
For the full year optimization software and services revenues were up 10%. The result of increased Marlin deployments and devices revenues were 16% driven by increase in towed streamer equipment replacement or repairs.
Overall, we reported a net loss for the fourth quarter of.
10 million or loss of one dollar a two cents per share compared to a net loss of 19 million or loss of $1.38 cents per share in the fourth quarter 2018.
Including special items in both periods, our adjusted net loss was 6 million or loss of 40 cents per share compared to an adjusted net income of 15 million.
Brian or dollar and seven cents per diluted share in the fourth quarter 2018.
The special item impacting our fourth quarter 2019, primarily related to a noncash charge and 9 billion associated with the impairment of certain older vintages of our QD data library.
You can find a detailed reconciliation of the special items in our financial results.
It's in the tables of our press release issued yesterday.
As Chris mentioned, we implemented a cost savings program in January this program focused on reducing our use of contractors and eliminating certain discretionary spending reducing our facilities and reducing our workforce by around 11%.
Overall this program will save over 20.
<unk> million on an annualized basis, we will start to benefit immediately from these reductions realizing the full effect of these savings starting in the fourth quarter of this year.
To help illustrate the meaningful impact of these cost savings on a pro forma basis, our full year 2019, adjusted EBITDA would have been over 50 million.
We are greater than 30% of our 2019 revenues.
Our cash balance was 33 million and there were no outstanding amounts under our credit facility at the end of the year.
Our total liquidity defined as the combination of our cash balance in the available borrowing capacity under our revolving credit facility.
Was 72 million up 7 million from one quarter ago, and down 3 million from the end of last year. Despite the decline in fourth quarter revenues, our liquidity remains healthy as we head into 2020 with that I'll turn it back to Chris.
Thanks, Mike.
So we adjusted our disappointing fourth quarter and made some required.
First adjustments to set the stage for more consistent and improved performance. While 2020 outlooks are still crystallizing as our clients finalized budgets, we expect MP and fivex spending to be up single digits year on year with more investment flowing offshore we anticipate stronger double digit growth in the key areas, we play such as multi client.
We also believe there is an emerging trend among.
Our MP client base for more disciplined budgeting processes that will lead to more regular spending throughout the year with perhaps less discretionary funds left over in the fourth quarter for data purchases part of our reorganization is aimed at adjusting our customer engagement and account planning to address this possibility.
So given an MPV recovery that still developing we will not solely rely.
Yeah on market growth to improve our business, we are focused on controlling costs and entering new markets segments, where we believe we're competitive and a seismic landscape as Lars largely bifurcated into asset light players and asset only providers. We believe we are different our customers have said, we punch above our way in terms of innovation in 2020, we will do fewer things better and we will continue.
To build a culture around execution, we are reorganized and focused on materially entering the threed new acquisition Multiclient market and building out the Marlin Smart Port business. We believe the combination of our streamlined strategy reorganization and cost reductions will enable us to deliver the first full year of profitability in recent memory with that will turn back to the operator for Q.
Today.
Thank you we will now be conducting a question and answer session.
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One moment, please while we pull for questions.
Our first.
A question comes from Colin Rusch of Oppenheimer and company. Please proceed with your question.
Morning, guys. This is Joe on for college. Thanks for taking our question can you give a little update on the pace of the sales cycle for your imaging services business.
See that backlog has grown but are you seeing clients.
Make purchasing decisions on shorter timelines.
Joe Yes. This is Chris. Thank you so much for joining us this morning.
First thing on the imaging services, we're certainly seeing.
More tender activity than we've we've seen so it's kind of a bellwether.
Four things gradually picking up.
In terms of making decisions it depends because you have some surveys that are very large that people put out there and.
You are also on the in the proprietary market waiting for also acquisition to be awarded which can be the driver on delays or timing. So.
For some of those you see that takes a long time to get the.
But for the repricing best up at the data already exists the clients have access to those pace. So those tend to go pretty quickly so.
And we are seeing a trend towards larger deal size, which is which is a good thing people or have obviously appetite and budget for reposting are producing a larger surveys.
Got it so I certainly don't see a trend where the timing to close deals is pushing out its.
It's variable depending on the size of the surveys.
And whether there are new acquisition are repricing, but I doubt I think.
We're in good shape there.
Got it.
Kind of switching.
Here's how many customers.
I'll have currently testing Marlin offering.
I guess talking the how much that's grown in in the last year.
Sure. So in the Marlin side, you guys, obviously, we got our core market seismic where we've made good.
Progress, which I reflected on year on year. So.
We we often have people using it on a temporary basis on a project basis, it's clearly useful in very congested areas complicated operational environment. So.
Over the last 18 months, we've had no trouble getting people to just deployed on a project basis and obviously our.
Long term eject objective is getting long term subscribers for the software just like our core command and control business and we've been successful there as I noted we went from.
From three.
Long term installations to six and we got we basically and thats been with oil companies and also with the contractor base. The contractor base has been the most.
Assistant the signing up for long term contracts.
Clearly wanted to.
That clearly want it to.
Just tried out where they needed it but we've been successful this year and actually getting.
Three of our contractor customers over the line and they've tagged on marlin into their long term multiyear.
Software lease agreements kind of.
Onto our command and control leases. So that's that's been very good so it's.
Is it completely commercial it's out there. It's just a question of getting people to decide to adopt it for the long term they area, where it's being tested more is in the adjacent markets where people have not been familiar familiar with the track record with Marlin that we've had in the seismic business over.
The last couple of years, so we're entering brand new markets and Thats, where it's been very satisfying as well we've had ports and harbors.
Customers, who we really only started focusing on last year in 2019. Once we identified that was an interesting market and digital transformation was starting to take hold and initial discussions with some ports were very we're very interesting so weve.
I've been able to put Marlin in front of those guys on a test basis and very quickly convert them to take it onboard and then help us to find the roadmap for customizing the software for those for those installations, but they've actually made a purchasing decision based on the existing product with very little testing and just kind of saying you know next year, we'd like to add this feature the year after we'd.
I see this connecting to back off in office.
Invoicing systems et cetera. So.
So.
We've had two of those just in the fourth quarter, we had we had to customers.
Go go live with Marlin and the Port space.
Great. So that if your question yes.
Excellent. Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Mr Rush or there are no further questions at this.
This time the floor is yours for any closing comments.
Thank you very much while I appreciate everyone coming on the call today and listening to.
Our full year in fourth quarter results in 2019 and cut some of the outlook. We have for 2020. Thank you for taking the time to attend the call and we look forward speaking to you on the first quarter and hopefully have some interesting updates wary about.
Ladies and gentlemen, thank you for your participation. This does concludes todays teleconference. You may disconnect your lines and have a wonderful day.