HOUSTON, Aug. 9 /PRNewswire-FirstCall/ -- Geokinetics Inc. (NYSE Amex: GOK) today announced its financial results for the second quarter ended June 30, 2010.
Highlights for the three months ended June 30, 2010: -- Second quarter revenues decreased 17.5% to $119.5 million from $144.8 million in the second quarter of 2009. -- EBITDA (a non-GAAP financial measurement, defined below) was ($3.8) million, which includes $3.5 million of integration costs related to the PGS Onshore acquisition, compared to $29.8 million in the same period in 2009. -- Reported a loss applicable to common stockholders of $39.6 million, or $2.24 per share. -- The Company was awarded over $200 million in new projects in South America, North and West Africa, Australia, the Far East and the United States during the quarter. -- Backlog increased to $519 million as of June 30, 2010, of which $412 million, or 79%, is for international projects and $107 million, or 21%, is for North American (excluding Mexico) projects. This compares to $428 million at the end of the first quarter 2010 and $318 million at the end of the second quarter 2009.
Richard F. Miles, President and Chief Executive Officer, stated, "As anticipated, second quarter results were negatively impacted by depressed activity levels, competitive pricing and delays in contract awards. However, we are clearly seeing signs of an industry turnaround, and results in the second half of this year are expected to improve sequentially in each quarter and into 2011.
"The 13% sequential improvement in our top line was driven by our OBC crew returning to work, increased Multi-Client work in the U.S. and the first full quarter of contribution from the legacy PGS Onshore business. We secured over $200 million in new awards during the second quarter, which included acquisition projects on land and in transition zone shallow water in North and West Africa, Australia, South America and the Far East, as well as Multi-Client commitments in the Marcellus Shale. Our worldwide bidding activity remains brisk, which keeps us cautiously optimistic that our backlog will continue to be supported by additional awards in the coming months. Despite scheduling issues that have been caused, and continue to be caused, by delays on some large international projects, we have seen substantial backlog growth and we are beginning to attain visibility into the first half of 2011.
"In North America, we are experiencing some improvement in market dynamics, and our focus continues to be on Multi-Client work in the U.S., which currently offers the best opportunities. In addition, pricing in North America has started to improve as activity increases. The combination of higher capacity utilization and improved margins in North America, along with recent and expected international project awards, leads us to anticipate a slow but gradual improvement in the second half of 2010.
"We expect third quarter results to be slightly better sequentially as we are slowly experiencing improved capacity utilization, and we expect improving EBITDA as a result of increasing focus on Multi-Client work in the U.S. Despite the expectation of increasing activity, we are implementing further cost reduction initiatives to help mitigate our currently reduced utilization rates and to help preserve margins and liquidity.
"The integration of PGS Onshore has been relatively smooth and is virtually complete. Our previously disclosed goal of $10 million in annual synergies remains intact, and we expect to see the positive impact from those cost reductions going forward. Furthermore, approximately 35-45% of our second quarter revenue was generated from legacy PGS Onshore assets."
Second Quarter 2010 Results
Total revenues in the second quarter of 2010 decreased 17.5% to $119.5 million from $144.8 million in the second quarter of 2009. The decrease in revenues was primarily attributable to low crew utilization and weak pricing internationally as well as less transition zone and shallow water work in the quarter. Conversely, revenues in North America rose primarily due to the Multi-Client data library business and the impact of the PGS Onshore acquisition.
Direct operating costs decreased slightly to $102.4 million in the second quarter of 2010 from $102.5 million in the second quarter of 2009, mainly due to less activity, but offset somewhat by higher idle costs as the Company prepares for new work, both in the U.S. and internationally.
G&A expenses increased 66% to $20.9 million during the quarter when compared to the second quarter of 2009. The majority of the increase can be attributed to integration costs associated with the PGS Onshore acquisition and implementation costs for the Company's new enterprise-wide system to improve bidding, cost tracking, project management, and financial and operational reporting. These costs are expected to be reduced substantially going forward as part of our cost reduction plans.
EBITDA (as defined below) for the second quarter of 2010 was ($3.8) million, which includes $3.5 million of integration costs related to the PGS Onshore acquisition, compared to $29.8 million in the second quarter of 2009.
Depreciation and amortization expense rose by 91% year-over-year to $24.6 million during the quarter, and reflects increases resulting from the addition of the PGS assets and their ensuing write-up and $6.1 million of amortization expense related to the Company's multi-client business in the U.S.
The Company reported a loss applicable to common stockholders of $39.6 million, or $2.24 per share, in the second quarter of 2010 compared to a loss (as restated) applicable to common stockholders of $3.2 million, or $0.30 per diluted share, for the same quarter in 2009. Despite the reported loss before taxes, the Company incurred a tax expense of $1.9 million, primarily related to the Company's international operations.
Selected Second Quarter Segment Data (All data in millions, except gross margin percentages) Three Months Ended June 30, 2010: Data Acquisition North Data America International Processing Consolidated -------- ------------- ----------- ------------ Revenues $40.3 $76.8 $2.4 $119.5 Direct Operating Costs $30.1 $69.9 $2.4 $102.4 Gross Margin % 25% 9% 0% 14% Three Months Ended June 30, 2009: Data Acquisition North Data America International Processing Consolidated -------- ------------- ----------- ------------ Revenues $18.1 $124.2 $2.5 $144.8 Direct Operating Costs $14.7 $85.6 $2.2 $102.5 Gross Margin % 19% 31% 12% 29% Selected Six Month Segment Data (All data in millions, except gross margin percentages) Six Months Ended June 30, 2010: Data Acquisition North Data America International Processing Consolidated -------- ------------- ----------- ------------ Revenues $78.4 $142.1 $4.8 $225.3 Direct Operating Costs $56.7 $124.7 $4.9 $186.3 Gross Margin % 28% 12% -2% 17% Six Months Ended June 30, 2009: Data Acquisition North Data America International Processing Consolidated -------- ------------- ----------- ------------ Revenues $54.0 $232.5 $5.3 $291.8 Direct Operating Costs $43.1 $163.2 $4.4 $210.7 Gross Margin % 20% 30% 17% 28%
Second Quarter Operations Review and Third Quarter 2010 Operational Outlook
The Company is providing this update to assist shareholders in understanding the operations of the Company in the second quarter of 2010 and the operational expectations for the third quarter of 2010.
International
Latin America - Operated two to three crews during the second quarter, with an average of two and a half crews operating in Brazil, Mexico and Trinidad. The Company expects to operate four to six crews during the third quarter, with an average of five crews operating in Brazil, Mexico, Peru and Trinidad.
EAME - Operated two to three crews during the second quarter, with an average of three crews operating in Angola, Cameroon, Gabon and Libya. The Company expects to operate three to six crews in the third quarter, with an average of four crews operating in Algeria, Angola, Cameroon, Gabon and Libya.
Australasia / Far East - Operated one to two crews during the second quarter, with an average of one and a half crews operating in Bangladesh and Malaysia. The Company expects to operate one to four crews in the third quarter, with an average of two crews operating in Australia, Indonesia and Malaysia.
North America
United States - Operated five to seven crews during the second quarter for an average of six crews. The Company expects to operate seven crews in the third quarter for an average of seven crews.
The Company continues to expand its Multi-Client data library through ongoing projects in the Marcellus and Haynesville shale plays and expects to maintain as many as four crews on Multi-Client projects for portions of the third quarter.
Canada - Operated no crews during the second quarter during the spring thawing season. The Company expects to operate one crew in Canada in the third quarter during the summer season for an average of one crew.
Backlog
Backlog increased by approximately $91 million during the second quarter to $519 million as of June 30, 2010 compared to $428 million as of March 31, 2010 and $318 million as of June 30, 2009. Of the current backlog, approximately $412 million, or 79%, is for international business (excluding Canada) with the remaining $107 million, or 21%, for North America, of which $91 million is attributable to the United States. Of the Company's international backlog, approximately $168 million, or 41%, is with national oil companies (NOCs) or partnerships including NOCs. Approximately $136 million of the international backlog, or 33%, is in shallow water transition zones and OBC environments.
Capital Expenditures
Capital expenditures for 2010 are currently estimated at approximately $45.2 million, a slight increase from $38.8 million of capital expenditures in 2009. Investments will primarily be targeted toward expansion of the Company's shallow water capabilities, expansion of international operations upon the receipt of contract awards and maintenance capital. In addition, 2010 Multi-Client data library investments are anticipated to be approximately $51.5 million and include Multi-Client investments related to PGS Onshore's business as well as expansion of the Company's existing Multi-Client data library interests. All of these Multi-Client investments have pre-funding levels in excess of 90% of their expected cash costs. Overall the Company has reduced estimates for 2010 capital expenditures and Multi-Client data library investments by a combined $35.7 million, or 27%, relative to the prior quarter's expectations. The reduced estimates are a result of delays in project starts, operational efficiencies resulting in reduced acquisition costs on Multi-Client projects and the Company's cash conservation efforts.
Cash and Liquidity
Cash, cash equivalents and restricted cash totaled $42.9 million as of June 30, 2010, of which $2.1 million was restricted cash. During the quarter the Company amended its revolving credit facility to, among other things, amend the covenant levels for the June 30 and September 30, 2010 measurement dates to provide greater flexibility and to reduce the maximum amount to be borrowed from $50 million to $40 million. As of June 30, 2010, the Company was in compliance with these covenants. Based on the Company's current forecast, despite improving activity levels, the Company believes that it is likely that it will not be able to maintain the covenants required at the September 30, 2010 measurement date, and possibly beyond. The Company is expecting to utilize this facility to fund capital expenditures and crew mobilizations. If the Company is unable to remedy this situation, it may be forced to delay capital expenditures and/or decline opportunities for new work that requires significant working capital. As such, the Company is currently in discussions to amend the facility or receive a waiver to address this situation. There can be no assurance that the Company will be successful in doing so on commercially reasonable terms, if at all.
Financial Restatements
On August 4, 2010, the Company's management made the determination that certain warrants issued by the Company in July 2008, and the embedded derivative portion of the Company's Series B-1 and B-2 Convertible Preferred Stock, should be reclassified as derivative liabilities as a result of their containing an anti-dilution (down-round) price protection feature. As a result, the Company's financial statements were restated for the year 2009 (which included restatements to each quarter in 2009), as well as for the first quarter of 2010. The restated financial statements account for the reclassification of these derivative liabilities from mezzanine equity and stockholders' equity to a derivative liability and for changes in the fair value of these derivatives in the statement of operations from January 1, 2009 onward. The restatement does not result in a change in the Company's previously reported cash, EBITDA (as defined below) or results from operations shown in its impacted financial statements. Amended financial statements were filed with the Securities and Exchange Commission on August 9, 2010.
Conference Call and Webcast Information
Geokinetics has scheduled a conference call for Tuesday, August 10, 2010, at 11:00 a.m. Eastern Time. To participate in the conference call, dial (480) 629-9819 for international callers, and (877) 941-8631 for domestic callers a few minutes before the call begins and ask for the Geokinetics conference call. A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until August 24, 2010. To access the replay, dial (800) 406-7325 for domestic callers or (303) 590-3030 for international callers, in both cases using pass code 4331115#.
The webcast may be accessed online through Geokinetics' website at http://www.geokinetics.com/ in the Investor Relations section. A webcast archive will also be available at http://www.geokinetics.com/ shortly after the call and will be accessible for approximately 90 days. For more information regarding the conference call, please contact Scott Zuehlke, Director of Investor Relations, by dialing 713-840-3377 or by email at scott.zuehlke@geokinetics.com.
Geokinetics Inc. is a leading provider of seismic data acquisition, seismic data processing services and multi-client seismic data to the oil and gas industry worldwide. Headquartered in Houston, Texas, Geokinetics is the largest Western contractor acquiring seismic data onshore and in transition zones in oil and gas basins around the world. Geokinetics has the crews, experience and capacity to provide cost-effective world class data to our international and North American clients. For more information on Geokinetics, visit http://www.geokinetics.com/.
Forward-Looking Statements
This press release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements, other than statements of historical facts, included in this earnings release that address activities, events or developments that Geokinetics expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements include but are not limited to statements about the business outlook for the year, backlog and bid activity, business strategy, related financial performance and statements with respect to future events. These statements are based on certain assumptions made by Geokinetics based on management's experience and perception of historical trends, industry conditions, market position, future operations, profitability, liquidity, backlog, capital resources and other factors believed to be appropriate. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond the control of Geokinetics, which may cause actual results to differ materially from those implied or expressed by the forward-looking statements. These include risks relating to financial performance and results, job delays or cancellations, reductions in oil and gas prices, the continued disruption in worldwide financial markets, impact from severe weather conditions and other important factors that could cause actual results to differ materially from those projected, or backlog not to be completed, as described in the Company's reports filed with the Securities and Exchange Commission. Backlog consists of written orders and estimates of Geokinetics' services which it believes to be firm, however, in many instances, the contracts are cancelable by customers so Geokinetics may never realize some or all of its backlog which may lead to lower than expected financial performance.
Although Geokinetics believes that the expectations reflected in such statements are reasonable, it can give no assurance that such expectations will be correct. All of Geokinetics' forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements. Any forward-looking statement speaks only as of the date on which such statement is made and Geokinetics undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.
Three Months Ended June 30, 2009 2010 ---- ---- Revenue: Seismic acquisition $142,367 $104,556 Multi-client - 12,635 Data processing 2,473 2,357 ----- ----- Total revenue 144,840 119,548 ------- ------- Expenses: Seismic acquisition and multi-client 100,250 99,977 Data processing 2,233 2,390 Depreciation and amortization 12,867 24,614 General and administrative 12,604 20,948 ------ ------ Total Expenses 127,954 147,929 ------- ------- (Loss) gain on disposal of property and equipment (543) (658) Income (loss) from operations 16,343 (29,039) ------ ------- Other income (expenses): Interest income 52 784 Interest expense (1,669) (9,798) Loss on early redemption of debt - - Gain (loss) from change in fair value of derivative liabilities (4,159) 3,715 Foreign exchange gain (loss) 203 (1,768) Other, net 47 186 --- --- Total other expenses, net (5,526) (6,881) ------ ------ Income (loss) before income taxes 10,817 (35,920) Provision for income taxes 11,593 1,869 ------ ----- Net income (loss) (776) (37,789) Returns to preferred stockholders: Dividend and accretion costs (2,419) (1,816) ------ ------ Income (loss) applicable to common stockholders $(3,195) $(39,605) ======= ======== For Basic and Diluted Shares: Income (loss) per common share $(0.30) $(2.24) Weighted average common shares outstanding 10,579 17,679 Six Months Ended June 30, 2009 2010 ---- ---- Revenue: Seismic acquisition $286,459 $201,701 Multi-client - 18,753 Data processing 5,300 4,842 ----- ----- Total revenue 291,759 225,296 ------- ------- Expenses: Seismic acquisition and multi-client 206,307 181,381 Data processing 4,410 4,870 Depreciation and amortization 25,363 44,202 General and administrative 25,907 41,041 ------ ------ Total Expenses 261,987 271,494 ------- ------- (Loss) gain on disposal of property and equipment (736) (1,049) Income (loss) from operations 29,036 (47,247) ------ ------- Other income (expenses): Interest income 186 952 Interest expense (3,280) (19,971) Loss on early redemption of debt - (2,517) Gain (loss) from change in fair value of derivative liabilities (4,629) 4,822 Foreign exchange gain (loss) 129 (819) Other, net 97 546 --- --- Total other expenses, net (7,497) (16,987) ------ ------- Income (loss) before income taxes 21,539 (64,234) Provision for income taxes 16,799 2,314 ------ ----- Net income (loss) 4,740 (66,548) Returns to preferred stockholders: Dividend and accretion costs (4,798) (4,208) ------ ------ Income (loss) applicable to common stockholders $(58) $(70,756) ==== ======== For Basic and Diluted Shares: Income (loss) per common share $(0.01) $(4.12) Weighted average common shares outstanding 10,576 17,154 December 31, June 30, 2009 2010 ---- ---- (Unaudited) ASSETS Current assets: Cash and cash equivalents $10,176 $40,814 Restricted cash 121,837 2,065 Accounts receivable, net of allowance for doubtful accounts of $1,167 at December 31, 2009 and $5,335 at June 30, 2010 143,944 153,610 Deferred costs 14,364 15,720 Prepaid expenses and other current assets 10,488 21,781 Total current assets 300,809 233,990 ------- ------- Property and equipment, net 187,833 282,857 Restricted cash to be used for PGS Onshore acquisition 183,920 - Goodwill 73,414 126,988 Multi-client data library, net 6,602 39,392 Deferred financing costs, net 10,819 11,038 Other assets, net 8,293 17,636 ----- ------ Total assets $771,690 $711,901 ======== ======== LIABILITIES, MEZZANINE AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt and current portion of long-term debt and capital lease obligations $68,256 $1,503 Accounts payable 55,390 66,213 Accrued liabilities 61,814 63,454 Deferred revenue 14,081 35,645 Income taxes payable 15,335 12,093 ------ ------ Total current liabilities 214,876 178,908 Long-term debt and capital lease obligations, net of current portion 296,601 305,456 Deferred income tax 6,486 21,380 Other long-term liabilities - 1,122 Mandatorily redeemable preferred stock 32,104 32,220 Derivative liabilities 9,317 4,861 Total liabilities 559,384 543,947 ------- ------- Commitments & Contingencies Mezzanine equity: Preferred stock, Series B Senior Convertible, $10.00 par value; 2,500,000 shares authorized, 290,197 shares issued and outstanding as of December 31, 2009 and 304,517 shares issued and outstanding as of June 30, 2010 66,976 70,815 ------ ------ Stockholders' equity: Common stock, $.01 par value; 100,000,000 shares authorized, 15,578,528 shares issued and 15,296,839 shares outstanding as of December 31, 2009 and 18,156,335 shares issued and 17,696,113 shares outstanding as of June 30, 2010 156 179 Additional paid-in capital 215,859 234,193 Accumulated deficit (70,705) (137,253) Accumulated other comprehensive income 20 20 --- --- Total stockholders' equity 145,330 97,139 ------- ------ Total liabilities, mezzanine and stockholders' equity $771,690 $711,901 ======== ======== Six Months Ended ------ June 30, -------- 2009 2010 ---- ---- OPERATING ACTIVITIES Net income (loss) $4,740 $(66,548) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 25,363 44,202 Loss on prepayment of debt, amortization of deferred financing costs, and accretion of debt discount 256 4,540 Stock-based compensation 876 1,421 Loss on sale of assets and insurance claims 736 1,049 (Gain) loss from change in fair value of derivative liabilities 4,629 (4,822) Changes in operating assets and liabilities: Restricted cash 8,046 (111) Accounts receivable (25,925) 54,590 Prepaid expenses and other assets 9,926 (4,709) Accounts payable (4,235) (6,901) Accrued and other liabilities 21,270 (10,255) ------ ------- Net cash provided by operating activities 45,682 12,456 ------ ------ INVESTING ACTIVITIES Investment in multi-client data library (5,071) (15,825) Acquisition, net of cash acquired - (180,832) Proceeds from disposal of property and equipment and insurance claims 604 95 Purchases of property and equipment (17,763) (24,938) Purchase of other assets - (3,295) Change in restricted cash held for purchase of PGS Onshore - 303,803 Net cash (used in) provided by investing activities (22,230) 79,008 ------- ------ FINANCING ACTIVITIES Proceeds from borrowings 83,535 9,000 Stock issuance costs (35) (92) Proceeds from stock issuance - 1,806 Payments of debt issuance costs - (2,481) Payments on capital lease obligations and vendor financings (21,560) (24,195) Payments on debt (78,023) (44,864) Net cash provided by (used in) financing activities (16,083) (60,826) ------- ------- Net increase in cash 7,369 30,638 Cash at beginning of period 13,341 10,176 ------ ------ Cash at end of period $20,710 $40,814 ======= ======= Supplemental disclosures related to cash flows: Interest paid $3,280 $15,274 Taxes paid $3,136 $8,408 Purchase of equipment under capital lease and vendor financing obligations $2,837 $ - Capitalized depreciation on multi-client data library $ - $642 GAAP Reconciliation
The Company defines EBITDA as Net Income before Taxes, Interest, Other Income (Expense) (including derivative liabilities' fair value gains/losses, foreign exchange gains/losses, gains/losses on sale of equipment and insurance proceeds, warrant expense and other income/expense), and Depreciation and Amortization. EBITDA is not a measure of financial performance derived in accordance with Generally Accepted Accounting Principles (GAAP) and should not be considered in isolation or as an alternative to net income as an indication of operating performance. See below for reconciliation from Income Applicable to Common Stockholders to EBITDA amounts referred to above:
For the Three Months Ended June 30, 2010 2009 ---- ---- Net Loss (Income) Applicable to Common Stockholders $(39,605) (3,195) Preferred Stock Dividends and Inducements Paid to Restructure Preferred Stock 1,816 2,419 ----- ----- Net (Loss) Income (37,789) (776) Income Tax Expense 1,869 11,593 Interest Expense, net (including Bridge Loan Commitment Fees) 9,014 1,617 Other Expense (Income) (as defined above) (1,475) 4,452 Depreciation and Amortization 24,614 12,867 ------ ------ EBITDA $(3,767) 29,753 ======= ====== For the Six Months Ended June 30, 2010 2009 ---- ---- Net Loss (Income) Applicable to Common Stockholders $(70,756) (58) Preferred Stock Dividends and Inducements Paid to Restructure Preferred Stock 4,208 4,798 ----- ----- Net (Loss) Income (66,548) 4,740 Income Tax Expense 2,314 16,799 Interest Expense, net (including Bridge Loan Commitment Fees) 19,019 3,094 Other Expense (Income) (as defined above) (983) 5,139 Depreciation and Amortization 44,202 25,363 ------ ------ EBITDA $(1,996) 55,135 ======= ======
Geokinetics Inc.
CONTACT: Scott Zuehlke, Director of Investor Relations of Geokinetics
Inc., +1-713-840-3377, scott.zuehlke@geokinetics.com
Web Site: http://www.geokinetics.com/
