SAEXPLORATION HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the related notes thereto, as well as our
Annual Report on Form 10-K for the year ended
OVERVIEW
We are a full-service global provider of seismic data acquisition, logistical
support and processing services to customers in the oil and natural gas
industry. Our business activities are primarily conducted in
Our customers include major integrated oil companies, national oil companies and independent oil and natural gas exploration and production companies. Demand for our services depends on the level of spending by these customers for exploration, production, development and field management activities, which is influenced, in a large part, by oil and natural gas prices. Demand for our services is also impacted by long-term supply concerns based on national oil policies and other country-specific economic and geopolitical conditions. Significant fluctuations in oil and natural gas exploration activities and oil and natural gas prices have affected, and will continue to affect, demand for our services and our results of operations.
While our revenues are mainly affected by the level of customer demand for our services, our revenues are also affected by the bargaining power of our customers relating to our services, as well as the productivity and utilization levels of our data acquisition crews. Factors impacting productivity and utilization levels include client demand, oil and natural gas prices, whether we enter into turnkey or term contracts with our clients, the number and size of crews, the number of recording channels per crew, crew downtime related to inclement weather, delays in acquiring land access permits, agricultural or hunting activity, holiday schedules, short winter days, crew repositioning and equipment failure. To the extent we experience these factors, our operating results may be affected from quarter to quarter. Consequently, our efforts to negotiate more favorable contract terms in our supplemental service agreements, mitigate permit access delays and improve overall crew productivity may contribute to growth in our revenues.
Most of our client contracts are turnkey contracts. While turnkey contracts
allow us to capitalize on improved crew productivity, we also bear more risks
related to weather and crew downtime. We expect the percentage of turnkey
contracts to remain high as we continue our operations in the regions of the
As of
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RESULTS OF OPERATIONS
Net income for the three months ended
Revenue from services in the three months ended
Revenue from services in
Gross profit for the three months ended
SG&A expenses for the three months ended
As previously disclosed, our former Chief Financial Officer and General Counsel
misappropriated
Other expense, net for the three months ended
Income taxes for the three months ended
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of cash is from the seismic data acquisition services we provide to customers, supplemented as necessary by drawing against our credit facility. Our cash is primarily used to provide additional seismic data acquisition services, including the payment of expenses related to operations and the acquisition of new seismic data equipment, and to pay the interest on outstanding debt obligations. Our cash position and revenues depend on the level of demand for our services. Historically, cash generated from operations, along with cash reserves and borrowings from commercial, private, and related parties, have been sufficient to fund our working capital and to acquire or lease seismic data equipment.
Our working capital needs are difficult to predict and can be subject to significant and rapid increases in our needs. Our available cash varies as a result of the timing of our projects, our customers' budgetary cycles and our receipt of payment. Our working capital requirements may continue to increase due to the expansion of infrastructure that may be required to keep pace with technological advances. In addition, some of our larger projects require significant upfront expenditures.
Over time, we must continue to invest additional capital to maintain, upgrade
and expand our seismic data acquisition capabilities. We currently estimate that
our capital expenditures for 2020 will not exceed
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As of
On
Although we generated net income and cash from operating activities in the first
quarter of 2020, we have reported recurring losses from operations and have not
generated cash from operating activities for the six years ended
Our management continues to: (i) discuss with our debt holders an extension of
the maturity date of the senior loan facility and waivers of the events of
default due to the inclusion of an explanatory paragraph raising substantial
doubt about our ability to continue as a going concern in the report of our
independent registered public accounting firm on our consolidated financial
statements included in our Annual Report on Form 10-K for the year ended
As previously disclosed, certain events of default had occurred under our credit
facility, senior loan facility and 2023 Notes. As a result of such events of
default, we are unable to borrow additional amounts under our credit facility
without the requisite approval of the lenders under such credit facility. We
have entered into forbearance agreements with respect to our credit facility,
senior loan facility and 2023 Notes, whereby the holders of the indebtedness
thereunder have agreed to refrain from exercising their rights and remedies with
respect to these existing defaults and other events of default that have
occurred and are continuing as further specified in the forbearance agreements
until
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As a result of the foregoing factors, we have initiated a process to analyze and evaluate various strategic alternatives to address our capital structure and to position us for future success. To assist us in analyzing and evaluating these alternatives, we have retained a financial advisor. We do not intend to disclose or comment on developments related to our review until such time as we have determined that further disclosure is necessary or appropriate. There can be no assurance that our analysis and evaluation will result in the identification or completion of any strategic alternative, or any assurance as to its outcome or timing.
Long-term Debt
As of
Cash Flows
Cash flows provided by (used in) type of activity were as follows (in
thousands):
Three Months
Ended March 31,
2020 2019
Operating activities $ 21,149 $ (6,764 )
Investing activities (77 ) (184 )
Financing activities (17,561 ) 8,806
Operating Activities
Cash flows from operating activities provided
Investing Activities
In each of the three months ended
Financing Activities
In the three months ended
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We have based our forward-looking statements on our current expectations
and estimates of future events and trends, which affect or may affect our
business and operations. Although we believe that these forward-looking
statements are based upon reasonable assumptions, they are subject to several
risks and uncertainties and are made in light of information currently available
to us. Many important factors, in addition to the risk factors identified in the
"Risk Factors" section included in Item 1A of our Annual Report on Form 10-K for
the year ended
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Our forward-looking statements may be influenced by the following factors, among others:
• our ability to identify, evaluate and complete any strategic alternative
with respect to our capital structure;
• the impact of the announcement of our review of strategic alternatives on
our business, including our financial and operating results, or our
employees, suppliers and customers;
• substantial doubt about our ability to continue as a going concern as of
March 31, 2020 ;
• the impact of the COVID-19 coronavirus pandemic on our business, financial
condition and results of operations;
• fluctuations in the levels of exploration and development activity in the
oil and natural gas industry;
• delays, reductions or cancellations of project awards and our ability to
realize revenue projected in our backlog;
• continuing events of default outstanding under our debt instruments,
including the risk that the holders of the debt take action to accelerate
the maturity date of the applicable debt and exercise their other respective
rights and remedies, such as foreclosure, among other things;
• risks arising from the holders of our debt taking other actions against us,
including by seeking a bankruptcy filing;
• the potential need for us to seek bankruptcy protection;
• the impact of the restatement of our previously issued consolidated
financial statements;
• the identified material weaknesses in our internal control over financial
reporting and our ability to remediate those material weaknesses;
• the outcome of the investigations by the SEC , the DOJ and the DOR with
respect to the circumstances giving rise to the restatement of our
previously issued consolidated financial statements, which could include
sanctions or other actions against us and our officers and directors, civil
lawsuits, and penalties;
• the outcome of our internal investigation of the circumstances giving rise
to the restatement of our previously issued consolidated financial
statements;
• developments with respect to the Alaskan oil and natural gas tax credit
system that continue to affect our ability to timely monetize tax credits,
including litigation over the constitutionality of the legislation allowing
Alaska to sell bonds to purchase tax credit certificates and Alaska budget
constraints driven primarily by oil prices;
• intense industry competition involving a competitive bidding process that
involves significant costs and risks;
• delays in permitting and land access rights;
• limited number of customers;
• credit and delayed payment risks related to our customers;
• the availability of liquidity and capital resources, including our need to
obtain additional working capital for upfront expenditures for upcoming
projects, and the potential impact this has on our business and
competitiveness;
• increases in the level of activism against oil and natural gas exploration
and development activities;
• need to manage rapid growth and contraction of our business;
• operational disruptions due to seasonality, weather and other external
factors;
• crew availability and productivity;
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• whether we enter into turnkey or term contracts;
• high fixed costs of operations;
• substantial international business exposing us to currency fluctuations and
global factors, including economic, political and military uncertainties;
• risks relating to cyber incidents;
• ability to retain key executives;
• need to comply with diverse and complex laws and regulations;
• the possible impact on payments received from the State of Alaska regarding
tax credits that have been issued;
• risks related to our delisting from the NASDAQ Capital Market;
• costs and outcomes of pending and future litigation; and
• the time and expense required for us to respond to the SEC , DOJ and DOR
investigations and for us to complete our internal investigation, which
expenses have been and are likely to continue to be material and are likely
to have a material adverse impact on our cash balance, cash flow and
liquidity.
These words "expect," "anticipate," "believe," "estimate," "intend," "plan to,"
"ought," "could," "will," "should," "likely," "appear," "project," "forecast,"
"outlook" or other similar words or phrases are intended to identify
forward-looking statements. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. The forward-looking statements speak only
as of the date they were made and, except as required by law, we undertake no
obligation to update, amend or clarify any forward-looking statements because of
new information, future events or other factors. All our forward-looking
information involves risks and uncertainties that could cause actual results to
differ materially from the results expected. Although it is not possible to
identify all factors, these risks and uncertainties include the risk factors and
the timing of any of the risk factors identified in the "Risk Factors" section
included in Item 1A of our Annual Report on Form 10-K for the year ended
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