UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10–K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001–35471
SAExploration Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
27–4867100
(I.R.S. Employer
Identification No.)
1160 Dairy Ashford, Suite 160
Houston, TX 77079
(Address of principal executive offices, including zip code)
(281) 258–4400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.0001 Par Value
(Title of each class)
The NASDAQ Capital Market
(Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well–known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filings requirements for the past 90 days. Yes No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S–T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation in S–K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10–K or any amendment to this Form 10–K. Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting
company” and "emerging growth company" in Rule 12b–2 of the Exchange Act.
Large accelerated filer
Non–accelerated filer
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Act). Yes ☐ No
As of June 30, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of
the registrant’s common stock held by non–affiliates was approximately $13.2 million.
As of March 19, 2019, the registrant has 4,052,157 shares of common stock, $0.0001 par value, outstanding.
Portions of the registrant’s Definitive Proxy Statement for its 2019 Annual Meeting of Stockholders are incorporated by reference into Part
III of this Annual Report on Form 10–K.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
Item 1.
Business ..........................................................................................................................................................
Item 1A. Risk Factors ....................................................................................................................................................
Properties ........................................................................................................................................................
Item 2.
Legal Proceedings ...........................................................................................................................................
Item 3.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.........................................................................................................................................................
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations..........................
Financial Statements and Supplementary Data ...............................................................................................
Item 8.
Report of Independent Registered Public Accounting Firm ...........................................................................
Consolidated Balance Sheets ..........................................................................................................................
Consolidated Statements of Operations ..........................................................................................................
Consolidated Statements of Comprehensive Loss ..........................................................................................
Consolidated Statements of Changes in Stockholders' Equity (Deficit) .........................................................
Consolidated Statements of Cash Flows .........................................................................................................
Notes to Consolidated Financial Statements ...................................................................................................
Item 9A. Controls and Procedures .................................................................................................................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance ..............................................................................
Item 11. Executive Compensation.................................................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters........
Item 13. Certain Relationships and Related Transactions, and Director Independence ................................................
Item 14. Principal Accountant Fees and Services .........................................................................................................
PART IV
Item 15. Exhibits and Financial Statement Schedules...................................................................................................
Signatures ........................................................................................................................................................
3
11
26
26
27
27
33
33
34
35
36
37
38
39
66
67
67
67
67
67
68
74
CAUTIONARY NOTE REGARDING FORWARD–LOOKING STATEMENTS
This Annual Report on Form 10–K contains “forward–looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21F of the Securities Exchange Act of 1934, as amended (collectively, 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 Item 1A of the
Annual Report on Form 10–K, may have a material adverse effect on our results as indicated in the following forward–
looking statements. You should read this Annual Report on Form 10–K and the documents that we have filed as exhibits
hereto completely and with the understanding that our actual results may be materially different from what we expect.
Our forward–looking statements may be influenced by the following factors, among others:
• developments with respect to the Alaskan oil and natural gas exploration tax credit system that continue to affect our
ability to timely monetize tax credits that have been assigned to us by our customer, including litigation over the
constitutionality of the legislation allowing Alaska to sell bonds to retire its liabilities relating to Tax Credit
certificates;
•
•
•
changes in the Alaskan oil and natural gas exploration tax credit system that may significantly affect the level of
Alaskan exploration spending;
fluctuations in the levels of exploration and development activity in the oil and natural gas industry;
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, limited
ability to make capital expenditures due to our current liquidity and cash flow situation 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;
• delays, reductions or cancellations of service contracts;
• operational disruptions due to seasonality, weather and other external factors;
•
crew availability and productivity;
• 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;
1
•
•
risks relating to cyber incidents;
ability to retain key executives; and
• need to comply with diverse and complex laws and regulations.
The 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
Item 1A in this Annual Report on Form 10–K.
2
ITEM 1. BUSINESS
Overview
PART I
SAExploration Holdings, Inc. (“we”, “our” or “us”) is a publicly held Delaware corporation formed in 2011. We were
formed with the merger of Trio Merger Corp and SAExploration Holdings, Inc. (the “Former SAE”). Our common stock is
traded on the NASDAQ Capital Market under the symbol “SAEX.” Our business activities are primarily conducted through
wholly–owned subsidiaries and branch offices in North America, South America, Asia Pacific and West Africa.
We are a full–service global provider of seismic data acquisition, logistical support, processing and integrated reservoir
geosciences services to our customers in the oil and natural gas industry. In addition to the acquisition of 2D, 3D, time–lapse
4D and multi–component seismic data on land, in transition zones between land and water, and offshore in depths reaching
3,000 meters, we offer a full–suite of logistical support and data processing and interpretation services utilizing our
proprietary, patent–protected software. We operate crews around the world that are supported by over 135,000 owned land
and marine channels of seismic data acquisition equipment and other leased equipment as needed to complete particular
projects. Seismic data is used by our customers, including major integrated oil companies, national oil companies and
independent oil and gas exploration and production companies, to identify and analyze drilling prospects and maximize
successful drilling. The results of the seismic surveys we conduct belong to our customers and are proprietary in nature; we
do not acquire data for our own account or for future sale or maintain multi–client data libraries.
We specialize in the acquisition of seismic data in logistically complex and challenging environments and delicate
ecosystems, including jungle, mountain, arctic and subaquatic terrains. We have extensive experience in deploying personnel
and equipment in remote locations, while maintaining a strong quality, health, safety and environmental (“QHSE”) track
record and building positive community relations in the locations where we operate. We employ highly specialized crews
made up of personnel with the training and skills required to prepare for and execute each project and, over time, train and
employ large numbers of people from the local communities where we conduct our surveys. Our personnel are equipped
with the technology necessary to meet the specific needs of the particular project and to manage the challenges presented by
sensitive environments.
As of December 31, 2018, we had approximately $184.9 million of backlog under contract, in addition to approximately
$570.7 million of bids outstanding. Our backlog estimates represent those projects for which a customer has executed a
contract or signed a binding letter of award. Our backlog can vary significantly from time to time, particularly if the backlog
is made up of multi–year contracts with some of our more significant customers. Because of potential changes in the scope
or schedule of our customers’ projects, and the possibility of early termination of customer contracts, we cannot predict with
certainty when or if our backlog will be realized. Material delays, payment defaults or cancellations on the underlying
contracts could reduce the amount of backlog currently reported and, consequently, could inhibit the conversion of that
backlog into revenues.
Our principal headquarters are located at 1160 Dairy Ashford Rd., Suite 160, Houston, Texas, 77079. Our telephone
number is (281) 258–4400, and our web address is www.saexploration.com. We do not intend for information contained in
our website to be a part of this report.
Recent Developments
In February 2019, we borrowed an additional $9.7 million under our credit facility and now have $22.0 million
outstanding. We also extended the maturity date of our senior loan facility to January 4, 2021.
As of March 19, 2019, we have issued 0.7 million shares of common stock through the exercise of our Series C warrants,
Series D warrants and Series E warrants thus far in 2019.
3
Industry Overview
Seismic technology is the primary tool used to locate oil and natural gas reserves, and it facilitates the development of
complex reservoirs. Seismic data is used to pinpoint and determine the locations of subsurface features favorable for the
accumulation of hydrocarbons, as well as define the make–up of the sedimentary rock layers and their corresponding fluids.
Seismic data is acquired by introducing acoustic energy into the earth and water through controlled energy sources. Seismic
energy sources can consist of truck–mounted vibration equipment in accessible terrain, explosives such as dynamite in more
difficult terrain, or vessel–mounted air guns in shallow water and certain marsh environments. The sound waves created by
explosives or vibration equipment are reflected back to the surface and collected by seismic sensors referred to as
“geophones” or “hydrophones,” which measure ground and water displacement. One or more strategically positioned
seismic sensors are connected to a recording channel which transmits the data to a central recording location. A typical
project involves the use of thousands, and sometimes tens of thousands, of channels recording simultaneously over the survey
area. In general, the higher the number of recording channels employed in a given survey, the richer the data set that is
produced.
A seismic survey is acquired with a surface geometry grid of seismic energy sources and receivers extending over very
large areas. The size of this grid varies with and depends on the size, depth and geophysical characteristics of the target to be
imaged. The lines must be accurately positioned, so the location of each source and receiver point is obtained using either
GPS, inertial, or conventional optical survey methods depending upon the vegetation and environment in the prospect area.
Seismic receivers are deployed on the surface of the area being surveyed at regular intervals and patterns to measure, digitize
and transmit reflected seismic energy to a set of specialized recording instruments. The transportation of cables, geophones
and field recording equipment can be by truck, vessel or helicopter depending upon the terrain and environment within the
area to be imaged.
Two–dimensional, or 2D, seismic data is recorded using single lines of receivers crossing the earth’s surface, and, once
processed, results in only a profile image of the earth, and the data is generally used only to identify gross structural features.
Prior to 1980, all seismic data acquired was 2D, and 2D surveys are still widely employed in locations previously unexplored
by exploration and production (“E&P”) companies to provide preliminary data for broad–scale exploration evaluation.
Three–dimensional, or 3D, seismic data surveys have proven more effective in providing detailed views of subsurface
structures.
The increased use of 3D seismic data by the oil and natural gas industry in the 1980s helped drive significant increases in
drilling success rates as better data quality allowed operators to optimize well locations and results. Today, the vast majority
of seismic data acquired in North America is 3D, of which high density 3D is a growing component.
More recently, the seismic industry has seen the development of four–dimensional, or 4D, imaging technology, also
known as time–lapse seismic. 4D seismic data incorporates numerous 3D seismic surveys over the same reservoir at
specified intervals of time and can help determine changes in flow, pressure and saturation. As hydrocarbons are depleted
from a field, the pressure and composition of the fluids may change. By scanning a reservoir over a given period of time, the
flow of the hydrocarbons within can be traced and better understood. In addition, 4D seismic data can help geologists
understand how a reservoir reacts to gas injection or water flooding and can help locate untapped pockets of oil or natural gas
within the reservoir.
Once seismic data is acquired, complex mathematical algorithms are used to transform the data into 2D profiles, 3D
volumes of the earth’s subsurface or 4D time–lapse seismic data. These images are then interpreted by geophysicists and
geologists for use by oil and natural gas companies in evaluating prospective areas, designing drilling programs, selecting
drilling sites and managing producing reservoirs.
Our Business
Seismic Data Acquisition Services
We provide a full range of seismic data acquisition services, including in–field data processing, and related logistics
services. We currently provide our services on a proprietary basis to our customers and the seismic data acquired is owned by
our customers once acquired. Our seismic data acquisition and logistics services include the following:
4
Program Design, Planning and Permitting. A seismic survey is initiated at the time the customer requests a proposal to
acquire seismic data on its behalf. We employ an experienced design team, including geophysicists with extensive
experience in 2D, 3D, time–lapse 4D, and multi–component survey design, to recommend acquisition parameters and
technologies to best meet the customer’s exploration objectives. Our design team analyzes the request and works with the
customer to put an operational, personnel and capital resource plan in place to execute the project.
Once a seismic program is designed, we assist the customer in obtaining the necessary permits from governmental
authorities and access rights of way from surface and mineral estate owners or lessees where the survey is to be conducted. It
is usually our permitting crew that is first to engage with the local residents and authorities. We believe our knowledge of the
local environment, cultural norms and excellent QHSE track record enable us to engender trust and goodwill with the local
communities, which our customers are able to leverage over the longer exploration cycle in the area.
Camp Services. We have developed efficient processes for assembling, operating and disassembling field camps in
challenging and remote project locations. We operate our camps to ensure the safety, comfort and productivity of the team
working on each project and to minimize our environmental impact through the use of wastewater treatment, trash
management, water purification, generators with full noise isolation and recycling areas.
In areas like South America and the Asia Pacific, logistical support needs to be in place to establish supply lines for
remote jungle camps. To insure the quality of services delivered to these remote camps, we own ten supply and personnel
river vessels to gain access to remote jungle areas. We also have five jungle camps and a series of 40 fly camps that act as
advance camps from the main project camp. Each of these jungle base camps contains a full service medical facility
complete with doctors and nurses in the remote chance any potential injuries need to be stabilized for medical transport. The
camps are equipped with full meal kitchens held to high standards of cleanliness, sleeping and recreational quarters, power
supply, communications links, air support, water purification systems, black water purification systems, offices, repair
garages, fuel storage and many more support services.
Survey and Drilling. In a typical seismic recording program, the first two stages of the program are survey and drilling.
Once the permitting is completed, our survey crews enter the project areas and begin establishing the source and receiver
placements in accordance with the survey design agreed to by the customer. The survey crew lays out the line locations to be
recorded and, if explosives are being used, identifies the sites for shot–hole placement. The drilling crew creates the holes for
the explosive charges that produce the necessary acoustical impulse.
The surveying and drilling crews are usually employed by us but may be third party contractors depending on the nature
of the project and its location. Generally, the choice of whether to subcontract out services depends on the expertise available
in a certain region and whether that expertise is more efficiently obtained through subcontractors or by using our own labor
force. For the most part, the surveying and drilling crews in North America are typically provided by third party contractors
but are supervised by our personnel. services are subcontracted within Alaska and Canada and our personnel are used in
other regions where we operate. In South America and the Asia Pacific, we perform our own surveying and drilling, which is
supported by up to 200 drilling units, including people–portable, low impact self–propelled walk behind, track–driven and
heli–portable deployed drilling rigs. Our senior drilling staff has a combined work experience of over 50 years in some of the
most challenging environments in the world. On most programs there are multiple survey and drilling crews that work at a
coordinated pace to remain ahead of the data recording crews. When subcontractors are used, we manage them and require
that they comply with our work policies and QHSE objectives.
Recording. We use equipment capable of collecting 2D, 3D, time–lapse 4D and multi–component seismic data. We
utilize vibrator energy sources or explosives depending on the nature of the program and measure the reflected signals with
strategically placed sensors. For land applications, geophones are buried, or partially buried, to ensure good coupling with
the surface and to reduce wind noise. Burying geophones in the ground is a manual process and may involve anywhere from
a few to more than 100 people depending on the size of the seismic crew and the terrain involved. Cables that connect the
geophones to cabled recording systems may also be deployed manually or, in some cases, automatically from a vehicle
depending on the terrain. The acoustic source for land seismic data acquisition is typically a fleet of large hydraulic vibrator
trucks but may also be explosives detonated in holes drilled for such purposes.
In marine surveys, air guns, which release high–pressure compressed air into the water column, are used as the acoustic
energy source. For ocean bottom cable operations, an assembly of vertically oriented geophones and hydrophones connected
by electrical wires typically is deployed on the sea floor to record and relay data to a seismic recording vessel. Increasingly,
ocean bottom nodes positioned by remote operated vehicles are used in areas of obstructions (such as production platforms)
or shallow water inaccessible to ships towing seismic streamers (such as submerged cables).
5
In the transition zone area where land and water come together, elements of both land data acquisition and offshore data
acquisition are employed. Transition zone seismic data acquisition is similar to ocean bottom cable applications in that both
hydrophones and geophones are lowered to the ocean floor. However, due to the shallow water depths, only small vessels
and manual labor can be used to deploy and retrieve the cables. Additionally, the source vessels and acoustic source arrays
must be configured to run in shallow water. In transition zone areas consisting of swamps and marshes, explosives must be
used as an acoustic source in addition to air guns.
Reclamation. We have experienced teams responsible for reclamation of the areas where work has been performed so as
to minimize the environmental footprint from the seismic program. These programs can include reforestation or other
activities to restore the natural landscape at our worksites.
In–field Data Processing. Our knowledgeable and experienced team provides our customers with superior quality in–
field data processing. We believe that our strict quality control processes meet or surpass industry–established standards,
including identifying and analyzing ambient noise, evaluating field parameters and employing obstacle–recovery strategies.
Using the latest technology, our technical and field teams electronically manage customer data from the field to the
processing office, minimizing time between field production and processing. All of the steps employed in our in–field data
processing sequence are tailored to the particular customer project and objectives.
We have available over 135,000 owned land and marine seismic recording channels with the ability to access additional
equipment, as needed, through rental or long–term leasing sources. All our systems record equivalent seismic information
but vary in the manner by which seismic data is transferred to the central recording unit, as well as their operational
flexibility and channel count expandability.
Historically, we have made significant capital investments to increase the recording capacity of our crews by increasing
channel count and the number of energy source units we operate. This increase in channel count demand is driven by
customer needs and is necessary in order to produce higher resolution images, increase crew efficiencies and undertake larger
scale projects. In response to project–based channel requirements, we routinely deploy a variable number of channels with a
variable number of crews in an effort to maximize asset utilization and meet customer needs. When recording equipment is
at or near full utilization, we utilize rental equipment from strategic suppliers to augment our existing inventories. We
believe we will realize the benefit of increased channel counts and flexibility of deployment through increased crew
efficiencies, higher revenues and increased margins.
Historically, we have also dedicated a significant portion of our capital investment to purchasing and leasing wireless
recording systems rather than the traditional wired systems. We utilize this equipment as primarily stand–alone recording
systems, but on occasion it is used in conjunction with cable–based systems. The wireless recording systems allow us to gain
further efficiencies in data recording and provide greater flexibility in the complex environments in which we operate. In
addition, we have realized increased crew efficiencies and lessened the environmental impact of our seismic programs due to
the wireless recording systems because they require the presence of fewer personnel and less equipment in the field. We
believe we will experience continued demand for wireless recording systems in the future.
We also utilize multi–component recording equipment on certain projects to further enhance the quality of data acquired
and help our customers enhance their development of producing reservoirs. Multi–component recording involves the
collection of different seismic waves, including shear waves, which aids in reservoir analysis such as fracture orientation and
intensity in shales and allows for more descriptive rock properties.
Seismic Data Processing and Integrated Reservoir Geosciences Services
We provide a full suite of onshore and offshore proprietary seismic data processing and integrated reservoir geosciences
solutions to complement our seismic data acquisition services. Seismic data are processed to produce an accurate image of
the earth’s subsurface using proprietary computer software and internally developed technologies. Advanced signal
processing of 2D, 3D, time–lapse 4D and multi–component seismic data acquired by us, other industry contractors, as well as
reprocessing of previously acquired legacy data, provides our clients with detailed subsurface information essential to
reducing risk in their E&P activities.
6
We also offer our clients integrated reservoir services where our experts can combine the power of seismic, geologic, well
and petrophysical information to provide detailed information of rock lithologies and fluid content at the reservoir level. This
integration of all sources of subsurface information has become particularly critical with the emergence of shale plays in
North America and internationally since, in these plays, gross structural information is much less important than
understanding physical rock properties such as fracture characterization and stress relationships at the reservoir formation
level.
In addition to providing clients with effective solutions customized to their processing needs, we actively market our
seismic data processing and integrated reservoir geosciences services in conjunction with our seismic data acquisition
services to enhance total value provided to our customers.
Markets and Trends
North America
While the last several years have seen a decline in demand, the North American market has historically been a stable and
sustainable market for 3D seismic data acquisition. The historic stability of this market was one of the reasons we acquired
the assets of Geokinetics, Inc. (“GEOK”) in July 2018. Use of 3D technology is the norm in the United States and Canada as
international oil companies seek to maximize the efficiency of their reservoirs and reduce exploration risk.
Our operations in the North American market are consistent with our strategy to help increase our equipment utilization
rates, while concurrently increasing margins, by balancing growth in North and South America, which have complementary
operating seasons. While this model continues to be a viable operating model, the industry downturn has created significant
pressure on competitive cost structures and pricing, particularly during the early 2018 winter season. However, we are
beginning to see signs that would suggest this trend may be shifting towards an increase in overall regional activity assuming
there is a longer period of consistency in the commodity price environment.
South America
The economies in South American countries continue to expand and develop, demanding significantly more energy to
fuel their growth. As the political environments stabilize, oil companies are increasing operations in the market and are
seeking experienced seismic service providers with complex environment know–how, strong QHSE records and excellent
relations with local communities to satisfy their exploration needs.
We have maintained operations in South America since 2006 while further growing our presence in Bolivia, Brazil,
Colombia, and Peru. However, the global oil and natural gas industry downturn significantly impacted exploration activity in
South America particularly during 2018 and 2017. While some improvements in the level of customer interest can be seen
by an increase in inquiries and subsequent tenders, no assurance can be given that this will result in increased activity or that
future decreases in activity will not occur again.
Asia Pacific
Exploration activities in Asia Pacific have declined recently with lower commodity prices but there is a steady demand
for energy in the region. We expect the Asia Pacific market to continue to be a predominantly marine–based market in the
current commodity price environment. This trend is expected to continue as long as customers remain hesitant to commit
capital to large onshore projects that are more exploration driven.
West Africa
Historically, West Africa has presented numerous offshore marine opportunities. More recently, offshore marine seismic
activity has been increasing in certain West African countries. These projects are more focused on production–enhancement
initiatives than new exploration. Despite the current macro–economic instability related to the oil and natural gas industry
downturn, we expect overall offshore marine seismic activity to continue to improve in the near to medium–term future.
7
Seasonal Variation in Business
Seismic data acquisition services are performed outdoors and, consequently, are subject to weather and seasonality. In
Alaska and Canada, the primary season for seismic data acquisition is during the winter since much of the terrain for seismic
data acquisition cannot be accessed until the ground has frozen. The weather conditions during this time of year can affect
the timing and efficiency of operations. In addition, this prime season can be shortened by warmer weather conditions.
In South America and the Asia Pacific, our operations are affected by the periods of heavy rain in the areas where seismic
operations are conducted. Specifically, the jungle areas in South America are affected by heavy rain during certain parts of
the year so we must either avoid taking projects during these time periods or limit the weather risk in a particular customer
contract. Many of the heavy rain periods in South America, though, are during the high season for Alaska and Canada, and
there are opportunities to maximize the utilization of equipment and personnel by moving them between these regions to take
advantage of the different high seasons.
In all areas of operation, the weather is an uncontrollable factor that affects our operations at various times of the year.
We try to minimize these risks during the bidding process by utilizing the expertise of our personnel as to the weather in a
particular area and through the negotiation of downtime clauses in our contracts with our customers. Due to the
unpredictability of weather conditions, there may be times when adverse conditions substantially affect our operations and
the financial results of a particular project may be impacted.
Marketing
Our services are marketed from our various offices around the world. We have a corporate business development and
marketing staff and also have local managers who interact with customers in each country of operations. Through these
customer interactions, we are able to remain updated on a customer’s upcoming projects in the area and to work with the
customer on projects in other countries.
Contracts are obtained either by direct negotiation with a prospective customer or through competitive bidding in
response to invitations to bid. Most of our revenue historically has been generated through repeat customer sales and new
sales to customers referred by existing and past customers. In addition, a significant portion of our engagements results from
competitive bidding. Contracts are awarded primarily on the basis of price, experience, availability, technological expertise
and reputation for dependability and safety. With the involvement and review of senior management, bids are prepared by
knowledgeable regional operations managers who understand their respective markets, customers and operating conditions
and who communicate directly with existing and target customers during the bid preparation process.
We also work closely with customers on a direct award basis to plan particular seismic data acquisition projects. Due to
the complexity of the areas where we do business, these projects can take a number of months in planning and consulting
with the customer on exploration goals and parameters of the projects to fit within a particular budget. By working closely
with the customer, we are able to acquire seismic data for a project efficiently and within the customer’s required timeframe.
Contracts
We conduct our services under master service agreements with our customers that set forth certain obligations of our
customers and us. A supplemental agreement setting forth the terms of a specific project, which may be canceled by either
party on short notice, is entered into for every project. The supplemental agreements are either “turnkey” agreements that
provide for a fixed fee to be paid to us for each unit of data acquired or processed, or “term” agreements that provide for a
fixed hourly, daily or monthly fee during the term of the project. Turnkey agreements generally mean more profit potential,
but involve more risks due to potential crew downtimes or operational delays. Under term agreements, we are ensured a
more consistent revenue stream with improved protection from crew downtime or operational delays, but with a decreased
profit potential.
Our contracts for proprietary seismic data acquisition services reflect a high proportion of turnkey contracts, which is
preferred by our customers because it shifts much of the business interruption risk onto us; however, it provides us with the
greatest opportunity to maximize the advantage we have from being a full–service provider and the operational efficiencies
created by our vertical integration. We attempt to negotiate on a project–by–project basis some level of weather downtime
protection within the turnkey agreements and increasingly use hybrid contracts where we may share with our customers a
certain degree of the risks for certain business interruptions, such as weather, community relations and permitting delays, that
are outside of our control.
8
Principal Customers
Our customers include both national and international oil and natural gas companies and independent oil and natural gas
companies. Our revenues are derived from a concentrated customer base; however, we are not substantially dependent on
any one customer. Based on the nature of our contracts and customer projects, our significant customers can and typically do
change from year to year and the largest customers in any one year may not be indicative of the largest customers in the
future.
In 2018, we had four customers, TGS–NOPEC Geophysical Company, ConocoPhillips Alaska, Inc., Hocol Petroleum
Limited and Parex Resources (Colombia) Ltd., that individually exceeded 10% of our consolidated revenue from services and
represented approximately 55% of consolidated revenue from services for the year. In 2017, we had three customers, Conoco
Phillips Alaska, Inc., Star Deep Water Petroleum Limited and Hocol Petroleum Limited, that individually exceeded 10% of
our consolidated revenue from services and represented approximately 75% of consolidated revenue from services for the
year.
Competition
The acquisition and processing of seismic data for the oil and natural gas industry is a highly competitive business.
Factors such as price, experience, asset availability and capacity, technological expertise and reputation for dependability and
safety of a crew significantly affect a potential customer’s decision to award a contract to us or one of our competitors. In
addition, the recent excess supply and downturn in commodity prices has decreased demand for seismic services, further
intensifying the competitive landscape and causing further pressure on pricing and margins.
Our competitors include much larger companies with greater financial resources, more available equipment and more
crews, as well as companies of comparable and smaller sizes. Our primary competitors are Compagnie Générale de
Géophysique (CGG), BGP, Inc. and Dawson Geophysical Company. In addition to those companies, we also compete for
projects from time to time with smaller seismic companies that operate in local markets with only one or two crews. As the
barriers to entry in the seismic industry are not prohibitive, it is not difficult for seismic companies outside of the U.S. to
enter the domestic market and compete with us.
Intellectual Property
We rely on certain proprietary information, proprietary software, trade secrets and confidentiality and licensing
agreements to conduct our operations. We continually strive to improve our operating techniques and technologies, through
internal development activities and working with vendors to develop new processes and technologies to maintain pace with
industry innovation. Through this process, we have developed certain proprietary processes and methods of doing business,
particularly with respect to logistics. Although those processes and methods may not be patentable, we seek to protect our
proprietary information by entering into confidentiality agreements with our key managers and customers.
Government and Environmental Regulations
Our operations are subject to various international, federal, provincial, state and local laws and regulations. Those laws
and regulations govern various aspects of operations, including the discharge of explosive materials into the environment,
requiring the removal and cleanup of materials that may harm the environment or otherwise relating to the protection of the
environment and access to private and governmental land to conduct seismic surveys. We believe we have conducted our
operations in material compliance with applicable laws and regulations governing our activities.
The costs of acquiring permits and remaining in compliance with environmental laws and regulations, title research,
environmental studies and surveys are generally borne by our customers. Although our direct costs of complying with
applicable laws and regulations have historically not been material, the changing nature of such laws and regulations makes it
impossible to predict the cost or impact of such laws and regulations on future operations. Additional U.S. or foreign
government laws or regulations would likely increase the compliance and insurance costs associated with our customers’
operations. Significant increases in compliance expenses for customers could have a material adverse effect on customers’
operating results and cash flows, which could also negatively impact the demand for our services.
9
Employees
As of December 31, 2018, we had 803 employees, 563 of whom were located in the United States. From time to time and
on an as–needed basis, we supplement our regular workforce with individuals that we hire temporarily or as independent
contractors in order to meet certain business needs. Our U.S. employees are not represented by any collective bargaining
agreement, and we believe that our employee relations are good.
Available Information
Our annual reports on Form 10–K, quarterly reports on Form 10–Q and current reports on Form 8–K are made available
free of charge on our website at www.saexploration.com as soon as reasonably practicable after these reports have been filed
with the SEC. These documents are also available on the SEC’s website at www.sec.gov. Please note that our website
address is provided as an inactive textual reference only. The information provided on our website is not part of this Annual
Report on Form 10–K and is therefore not incorporated by reference unless such information is specifically referenced
elsewhere in this Annual Report on Form 10–K.
Executive Officers
The following table shows, as of March 19, 2019, certain information concerning our executive officers:
Name
Jeff Hastings ......................................
Brian Beatty.......................................
Brent Whiteley...................................
Mike Scott .........................................
Darin Silvernagle...............................
Ryan Abney .......................................
Age
61
56
53
61
53
33
Position
Chief Executive Officer and Chairman of the Board
Chief Operating Officer
Chief Financial Officer, General Counsel and Secretary
Senior Vice President
Vice President Marine
Vice President Finance
Jeff Hastings has been our Chief Executive Officer and Chairman of the Board of Directors since July 2016. Mr.
Hastings previously served as our Executive Chairman of the Board and a member of our Board of Directors from February
2011 to July 2016. He was the majority stockholder of Former SAE from 2008 until June 2013 and, in March 2011, he
became the Executive Chairman of Former SAE. Previously, he was the President and an owner of Fairweather Geophysical,
which primarily performed seismic operations in Alaska, and which was acquired by Veritas DGC Inc. in 2000. From 2000
until 2008, Mr. Hastings was with Veritas in multiple positions, including Operations Manager for Alaska. Mr. Hastings has
over 35 years of experience in the geophysical industry.
Brian Beatty has served as our Chief Operating Officer since July 2016. Mr. Beatty previously served as our President,
Chief Executive Officer and a member of our Board of Directors from February 2011 to July 2016. He founded Former SAE
in 2006 and served as the President and Chief Executive Officer of Former SAE from its inception until February 2011. Prior
to founding Former SAE, Mr. Beatty held many positions with Veritas DGC Inc., beginning as a seismic field manager and
eventually managing all of Veritas’ South American operations and establishing Veritas’ business in Peru, Chile, Argentina,
Brazil, and Bolivia. Mr. Beatty has over 30 years of experience in the geophysical industry working in numerous different
geographies.
Brent Whiteley has served as our Chief Financial Officer, General Counsel and Secretary since June 2013. Mr. Whiteley
also served as a member of our Board of Directors from June 2013 to July 2016. From November 2011 to June 2013, he
served as Chief Financial Officer, General Counsel and Secretary of Former SAE, and from March 2011 to November 2011,
he served as Chief Operating Officer, Chief Financial Officer, General Counsel and Secretary of Former SAE. Prior to
joining Former SAE, Mr. Whiteley served as General Counsel–Western Hemisphere and Senior Vice President of CGG
Veritas, operating its North and South American land acquisition business. Mr. Whiteley holds a BBA in finance/real estate
from Baylor University, a JD from South Texas College of Law, and an MBA from Rice University — Jesse H. Jones
Graduate School of Management.
Mike Scott has served as our Senior Vice President since July 2016. Mr. Scott previously served as our Executive Vice
President Operations from June 2013 until July 2016. From September 2011 to June 2013, he served as Executive Vice
President of Operations of Former SAE. Prior to joining Former SAE, Mr. Scott spent 20 years with Veritas (CGGVeritas),
ultimately serving in the role of VP North American Operations, with responsibilities for Veritas’ growth through market
expansion, strategic positioning and implementation of a comprehensive quality, health, safety and environmental
management system.
10
Darin Silvernagle has served as our Vice President Marine since July 2016. Mr. Silvernagle previously served as
Executive Vice President Marine from March 2014 to July 2016 and as Executive Vice President Technology from June
2013 to March 2014. From September 2011 to June 2013, Mr. Silvernagle served as Executive Vice President of Technology
of Former SAE. Prior to joining Former SAE, Mr. Silvernagle worked for 17 years with Veritas, Veritas DGC Land and
finally CGG Veritas where he held a variety of roles with those companies including Technical Manager of North America,
Technical Manager of North and South America and, ultimately, VP of Resources for the Global Land Division. In these
roles, Mr. Silvernagle managed all aspects of technical operations in both field and office locations. His assignments
included the diverse operating environments of Canada, the Canadian Arctic, the North Slope of Alaska, the U.S. Lower 48,
the Middle East, and South America. Mr. Silvernagle spent 10 years in the field in supporting roles for all aspects of crew
operations, and he has over 30 years of experience in the geophysical services industry.
Ryan Abney has served as our Vice President Finance since November 2016. Mr. Abney previously served as our Vice
President of Capital Markets and Investor Relations from September 2013 to November 2016. From 2010 to 2013, he was an
Investment Banker in Canaccord Genuity's Energy practice, which serves all sectors of the oil and natural gas industry, with
responsibility for the execution of capital markets and advisory transactions, including private and public equity and debt
issuances, and various strategic mandates, such as mergers and acquisitions, fairness opinions and restructurings and
workouts, with a primary focus on clients in the exploration and production and oilfield services sectors. Mr. Abney holds a
Bachelor of Business Administration degree in Finance from the University of St. Thomas in Houston, Texas.
ITEM 1A. RISK FACTORS
You should consider and read carefully all the risks and uncertainties described below, together with all of the other
information contained in this Annual Report on Form 10–K, including the consolidated financial statements and the related
notes appearing at the end of this Annual Report on Form 10–K. If any of the following risks actually occur, our business,
business prospects, stock price, financial condition, results of operations or cash flows could be materially adversely
affected. The risks below are not the only ones facing our company. Additional risks not currently known to us or that we
currently deem immaterial may also have a material adverse effect on us. This Annual Report on Form 10–K also contains
forward–looking statements, estimates and projections that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward–looking statements as a result of specific factors, including the risks
described below.
Risks Relating to Our Business
Our business largely depends on the levels of exploration and development activity in the oil and natural gas industry, a
historically cyclical industry. A decrease in this activity caused by low oil and natural gas prices, increased supply, and
reduced demand, such as has occurred over the last several years, has had an adverse effect on our business, liquidity and
results of operations.
Demand for our services depends upon the level of spending by oil and natural gas companies for exploration, production,
development and field management activities which depend, in part, on oil and natural gas supplies and prices. The markets
for oil and natural gas have historically been volatile and are likely to continue to be so in the future. In addition to the
market prices of oil and natural gas, our customers’ willingness to explore, develop and produce depends largely upon
prevailing industry conditions that are influenced by numerous factors over which our management has no control. A decline
in oil and natural gas exploration activities and commodity prices, as has occurred over the last several years, has adversely
affected the demand for our services and our results of operations.
Factors affecting the prices of oil and natural gas and our customers’ desire to explore, develop and produce include:
•
the level of supply and demand for oil and natural gas;
• expectations about future prices for oil and natural gas;
•
the worldwide political, military and economic conditions;
11
•
•
•
•
the ability of the Organization of Petroleum Exporting Countries to set and maintain production levels and prices for
oil;
the rate of discovery of new oil and natural gas reserves and the decline of existing oil and natural gas reserves;
the cost of exploring for, developing and producing oil and natural gas;
the ability of exploration and production companies to generate funds or otherwise obtain capital for exploration,
development and production operations;
•
technological advances affecting energy exploration, production and consumption;
• government policies, including environmental regulations and tax policies, regarding the exploration for, production
and development of oil and natural gas reserves, the use of fossil fuels and alternative energy sources and climate
change;
• weather conditions, including large–scale weather events such as hurricanes that affect oil and natural gas operations
over a wide area or affect prices; and
• changes in the Alaskan oil and gas tax credit system which may significantly affect the level of exploration spending
within Alaska and has negatively affected our current liquidity position.
The decreases in prices for oil and natural gas have led many E&P companies to reduce their capital expenditures, which
has resulted in diminished demand for our services and products and downward pressure on the prices we charge or the level
of work we do for our customers.
We cannot assure you that the exploration and development activities by our customers will be maintained at current
levels. Any significant decline in exploration or production–related spending by our customers, whether due to a decrease in
the prices for oil and natural gas or otherwise, would have a material adverse effect on our results of operations.
Additionally, increases in oil and natural gas prices may not increase demand for our products and services or otherwise have
a positive effect on our results of operations or financial condition.
Our revenues, operating results and cash flows can be subject to fluctuations from period to period.
Our revenues, operating results and cash flows may fluctuate from period to period. Factors that cause variations include
the timing of the receipt and commencement of contracts for seismic data acquisition, processing or interpretation and
customers’ budgetary cycles, all of which are beyond our control. In addition, in any given period, we could have idle crews
which result in a significant portion of our revenues, cash flows and earnings coming from a relatively small number of
crews. Lower crew utilization rates can be caused by land access permit and weather delays, seasonal factors such as holiday
schedules, shorter winter days or agricultural or hunting seasons, and crew repositioning and crew utilization and
productivity. Additionally, due to location, type of service or particular project, some of our individual crews may achieve
results that constitute a significant percentage of our consolidated operating results. Should any of our crews experience
changes in timing or delays due to one or more of these factors, our financial results could be subject to significant variations
from period to period. Combined with our fixed costs, these revenue fluctuations could also produce unexpected adverse
results of operations in any fiscal period.
Oil and natural gas prices, while showing improvement over the past year, have continued to be volatile and have resulted
in significant demand fluctuations for our services. There can be no assurance of future oil and gas price levels or stability.
The demand for our services will be adversely affected by a significant reduction in oil and natural gas prices and by climate
change legislation or material changes to U.S. energy policy. Because our business has high fixed costs, the negative effect
of one or more of these factors could trigger wide variations in our revenues, operating results and cash flows.
In addition to the above potential fluctuations in our revenue, we may also have significant third–party pass–through costs
that are reflected in our revenues but correspond to a very small administrative margin charged to the customer. Therefore,
our revenues for certain periods may include a large amount of these third–party charges and can cause our gross profit
margin to be lower.
12
Our profitability is determined, in part, by the utilization level and productivity of our crews and is affected by numerous
external factors that are beyond our control.
Our profitability is determined, in part, by the prices we receive for our services, the productivity of our crews and the
accuracy of our cost estimates. The productivity of our crews is partly a function of external factors, such as client
cancellation or delay of projects, operating delays from inclement weather, obtaining land access rights and other factors,
over which we have no control. In addition, cost estimates for our projects may be inadequate due to unknown factors
associated with the work to be performed and market conditions, resulting in cost over–runs. If our crews encounter
operational difficulties or delays, or if we have not correctly priced our services, our results of operation may vary and, in
some cases, may be adversely affected.
Our projects are performed on both a (i) turnkey basis, where a defined amount and scope of work is provided by us for a
fixed price and additional work, which is subject to customer approval, is billed separately, and (ii) term basis, where work is
provided by us for a fixed hourly, daily or monthly fee. The relative mix of turnkey and term agreements, as related to our
projects, can vary widely from time to time. The revenue, cost and gross profit realized on a turnkey contract can vary from
our estimated amount because of changes in job conditions, variations in labor and equipment productivity from the original
estimates, and the performance of subcontractors. In addition, if conditions exist on a particular project that were not
anticipated in the customer contract, such as excessive weather delays, community issues, governmental issues or equipment
failure, then the revenue timing and amount from a project can be affected substantially. Turnkey contracts may also cause
us to bear substantially all of the risks of business interruption caused by weather delays and other hazards. Those variations,
delays and risks inherent in billing customers at a fixed price may result in us experiencing reduced profitability or losses on
projects.
The significant fixed costs of our operations could result in operating losses.
We are subject to significant fixed operating costs, which primarily consist of depreciation (a non–cash item) and
maintenance expenses associated with our equipment, certain crew costs and interest expense on our outstanding
indebtedness. Extended periods of significant downtime or low productivity caused by reduced demand, weather
interruptions, equipment failures, permit delays or other causes could negatively affect our results and have a material
adverse effect on our financial condition and results of operations because we will not be able to reduce our fixed costs as fast
as revenues decline.
Our working capital needs are difficult to forecast and may vary significantly, which could cause liquidity issues and
require us to seek additional financing that we may not be able to obtain on satisfactory terms, or at all.
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, as we have done by the acquisition of assets from GEOK. Even with the addition of these assets, we currently
estimate that our capital expenditures for 2019 will not exceed $6.0 million, which is less than the $1.3 million we incurred in
2018. This amount will permit us to maintain the operational capability of our current fleet of equipment so that we can
execute ongoing projects without delay or increased costs but will not allow us to purchase any new technology or upgrade
existing capital assets.
We currently have $8.0 million of available borrowing capacity under our credit facility, but we cannot borrow this
amount without consent of lenders holding 66 ⅔% of the aggregate of advances and commitments under our credit facility.
In addition, we are also essentially at our borrowing limits under our senior loan facility and 6% Senior Secured Convertible
Notes due 2023 (the “2023 Notes”). While currently we do not have a working capital facility, we anticipate that we may be
able to put in place a modest working capital facility to cover our liquidity needs, including upfront expenditures for
upcoming projects, but such a facility may not be available to us on terms acceptable to us, or at all.
13
The most acute issue affecting our liquidity is the delay in receiving payments on our $52.8 million net receivable from
one customer. Our liquidity and cash flows have been adversely affected by failure to receive payment on this receivable and
may be further adversely affected by future events outside of our control relating to this receivable.
We continue to diligently pursue improving our capitalization and reducing our long–term debt, but liquidity issues may
continue to challenge us. Until we are able to finally resolve the issues described above, we are likely to continue to
experience liquidity and cash flow issues.
We face several risks regarding the collection of our largest accounts receivable and our related monetization efforts
under Alaska’s exploration tax credits (the “Tax Credits”) program.
As of December 31, 2018, we have a $52.8 million accounts receivable, net of allowance for doubtful accounts of $19.0
million, from one customer. This is our single largest accounts receivable, constitutes the majority of our outstanding
accounts receivable and is the largest single asset on our consolidated balance sheet as of December 31, 2018. We have
classified this receivable as long–term because of the length of time we expect it will take to collect on it.
In 2018, our customer was successful in licensing and selling the seismic data and we received $3.6 million; however, at
this time, we believe that it is unlikely that the customer will be able to fully satisfy the receivable directly. Our customer
had historically relied on the monetization of Tax Credits, which monetization was accomplished by receipt of payments
from Alaska or from third party financing sources. However, falling oil and natural gas prices have substantially reduced
Alaska’s revenue from production taxes resulting in Alaska paying only statutorily established minimum amount of
appropriations for Tax Credit certificates in the last several fiscal years rather than the amount to pay all the prior year’s Tax
Credit certificates. In an effort to satisfy the accounts receivable, our customer originally assigned to us $89.0 million of Tax
Credit certificates and applications. As of December 31, 2018, we have monetized approximately $17.6 million of Tax
Credit certificates and have an estimated $62.3 million of Tax Credit certificates and applications remaining for future
monetization, net of actual and estimated audit adjustments related to issued and anticipated Tax Credit certificates.
In February 2018, we were advised by Alaska that, so long as only the statutorily established minimum amount is paid
each year, we will not receive any payments until fiscal year 2021 and should not expect to be paid in full until fiscal year
2024. In June 2018, Alaska passed legislation allowing Alaska to issue bonds to pay its estimated $1.0 billion liability for
Tax Credit certificates. If issued, Alaska will use the proceeds from the bonds to purchase Tax Credit certificates. Seismic
companies will have two options from which to pick on a program–by–program basis. One option allows for the purchase of
the Tax Credit certificates at a 10% discount rate from the time Alaska would otherwise pay under the statutory minimum.
The second option allows for the purchase of the Tax Credit certificates at Alaska’s cost of capital (estimated to be
approximately 5.1%) but only if the seismic data is made publicly available.
In June 2018, based on assumptions made regarding the constitutionality of the bond issuance, the length of time until the
bonds could be issued, the data that we want to remain confidential, and the likelihood of a discount on our pending Tax
Credit application, we recorded a $19.0 million provision for doubtful accounts related to this receivable as the proceeds we
expect to receive from the bond issuance and any other potential future monetizations will not be sufficient to fully repay our
outstanding receivable.
While we continue to pursue other options to monetize the Tax Credits, at this time we believe that the most likely path to
monetize the Tax Credit certificates may be from proceeds that Alaska realizes from issuing its own bonds. This path has,
however, complexities and risks. A lawsuit was filed asserting constitutional challenges to Alaska’s ability to issue the
bonds; however, the Attorney General issued an opinion that the issuance of the bonds is not prohibited by the Alaskan
constitution and an Alaskan Superior Court judge threw out the lawsuit challenging the constitutionality of the issuance of the
bonds. An appeal of the Superior Court’s ruling to the Alaska Supreme Court has been made. The Revenue Department of
the State of Alaska has indicated, however, that until the courts have resolved the legal issues, which we estimate may take
up to an additional 18 months, it will not go into the bond markets.
As a result of the above, we face several risks regarding the collection of the accounts receivable and the related
monetization of the Tax Credits. We may need to record additional provisions for doubtful accounts should we realize
potentially higher effective discounts on the Tax Credits compared with what we have expected. While we believe that we
will get paid some amount of the Tax Credits, we cannot assure you when that will occur or how much. The longer it takes
to monetize the Tax Credits, the more it will have a negative impact on our liquidity and cash flows.
14
If we do not manage growth and contractions in our business effectively, our results of operations could be adversely
affected.
Historically, we have experienced significant growth but for the last several years we have contracted our business in
response to the decline in oil and natural gas exploration activities. Both growth and contraction have placed significant
demands on our personnel, management, infrastructure and support mechanisms and other resources. We must continue to
improve our operational, financial, management, legal compliance and information systems to keep pace with the growth of
or contractions in our business. We may also expand through the strategic acquisition of companies and assets. We must plan
and manage any acquisitions effectively to achieve revenue growth and maintain profitability in our evolving market. If we
fail to manage growth of or contractions in our business effectively, our ability to provide services could be adversely
affected, which could negatively affect our operating results.
We face intense competition in our business that could result in downward pricing pressure and the loss of market share.
Competition among seismic contractors historically has been, and likely will continue to be, intense. Competitive factors
have in recent years included price, crew experience, asset availability and capacity, technological expertise and reputation
for quality and dependability. We also face increasing competition from nationally owned companies in various international
jurisdictions that operate under less significant financial constraints than those we experience. Many of our competitors have
greater financial and other resources, more customers, greater market recognition and more established relationships and
alliances in the industry than we do. They and other competitors may be better positioned to withstand and adjust more
quickly to volatile market conditions, such as fluctuations in oil and natural gas prices and production levels, as well as
changes in government regulations. Additionally, the seismic data acquisition business is extremely price competitive and
has a history of protracted periods of months or years where seismic contractors under financial duress bid jobs at
unattractive pricing levels and therefore adversely affect industry pricing. Competition from those and other competitors
could result in downward pricing pressure, which could adversely affect our margins, and could result in the loss of market
share.
We derive a portion of our revenues from contracts awarded through a competitive bidding process which can involve
significant costs and risks. This effort may not result in awards of business, which could have adverse consequences on
our future profitability.
Many or our customers award business through a competitive bidding process, which results in greater competition and
increased pricing pressure. This competitive bidding process involves substantial costs and presents a number of risks,
including the:
•
substantial cost and managerial time and effort that we spend to prepare bids and proposals;
• need to accurately estimate the resources and costs that will be required to service any contracts we are awarded; and
• opportunity cost of not bidding on and winning other contracts we may have otherwise pursued.
Even if we are awarded contracts, we may fail to accurately estimate the resources and costs required to fulfill a contract,
or to resolve problems with our subcontractors or suppliers, which could negatively impact the profitability of any contract
award to us, particularly in the case of term contracts. In addition, following the award of a contract, we have experienced
and may continue to experience significant expense or delay, contract modification or contract rescission as a result of
customer actions that are beyond our control.
We have a history of losses and may not achieve consistent profitability in the future.
We have incurred substantial losses in prior years. In 2018 and 2017, we generated net losses of $82.7 million and $38.8
million, respectively. Our ability to be profitable in the future will depend on many factors beyond our control, but primarily
on the level of demand for seismic data acquisition services by E&P companies. Even if we do achieve profitability, we may
not be able to maintain or increase our level of profitability.
15
Our agreements with our customers may not adequately protect us from unforeseen events or address all issues that could
arise with our customers. The occurrence of unforeseen events or disputes with customers could result in increased
liability, costs and expenses for our projects.
We enter into master service agreements with many of our customers that allocate certain operational risks. Despite the
inclusion of risk allocation provisions in our agreements, our operations may be affected by a number of events that are
unforeseen or not within our control and our agreements may not adequately protect us from each possible event. If an event
occurs which we have not contemplated or otherwise addressed in our agreement we, and not our customer, will likely bear
the increased cost or liability.
To the extent our agreements do not adequately address those and other issues, or we are not able to successfully resolve
resulting disputes, we may incur increased liability, costs and expenses. This may have a material adverse effect on our
results of operations.
We operate under hazardous conditions that subject us and our employees to risk of damage to property or personal injury
and limitations on our insurance coverage may expose us to potentially significant liability costs.
Our activities are often conducted in dangerous environments and include hazardous conditions, including operation of
heavy equipment, the detonation of explosives, and operations in remote areas of developing countries. Operating in such
environments, and under such conditions, carries with it inherent risks, such as loss of human life or equipment, as well as the
risk of downtime or reduced productivity resulting from equipment failures caused by an adverse operating environment.
Those risks could cause us to experience injuries to our personnel, equipment losses, and interruptions in our business.
Although we maintain insurance, our insurance contains certain coverage exclusions and policy limits. There can be no
assurance that our insurance will be sufficient or adequate to cover all losses or liabilities or that insurance will continue to be
available to us on acceptable terms, or at all. Further, we may experience difficulties in collecting from insurers as such
insurers may deny all or a portion of our claims for insurance coverage. A claim for which we are not fully insured, or which
is excluded from coverage or exceeds the policy limits of our applicable insurance, could have a material adverse effect on
our financial condition.
Our operations are subject to weather and seasonality, which may affect our ability to timely complete projects.
Our seismic data acquisition services are performed outdoors, often in difficult or harsh climate conditions, and are
therefore subject to weather and seasonality. In Canada and Alaska, the primary season for seismic data acquisition is during
the winter, as many areas are only accessible when the ground is frozen. The weather conditions during this time of year can
affect the timing and efficiency of operations. In addition, this prime season can be shortened by warmer weather conditions.
In South America and Southeast Asia, our operations are affected by the periods of heavy rain in the areas where seismic
operations are conducted.
In all areas in which we operate, the weather is an uncontrollable factor that affects our operations at various times of the
year. Due to the unpredictability of weather conditions, there may be times when adverse conditions may cause our
operations to be delayed and result in additional costs and may negatively affect our results of operations. In addition, even if
we negotiate weather protection provisions in our contracts, we may not be fully compensated by our clients for delays
caused by inclement weather.
Our operations are subject to delays related to obtaining government permits and land access rights from third parties
which could result in delays affecting our results of operations.
Our seismic data acquisition operations could be adversely affected by our inability to obtain timely right of way usage
from both public and private land and/or mineral owners. We cannot begin surveys on property without obtaining any
required permits from governmental entities as well as the permission of the private landowners who own the land being
surveyed. In recent years, it has become more difficult, costly and time–consuming to obtain access rights of way as drilling
activities have expanded into more populated areas. Additionally, while landowners generally are cooperative in granting
access rights, some have become more resistant to seismic and drilling activities occurring on their property. In addition,
governmental entities do not always grant permits within the time periods expected. Delays associated with obtaining such
permits and rights of way may negatively affect our results of operations, as has occurred with the recent federal government
shutdown that delayed permitting on a proposed seismic shoot in Alaska.
16
Our backlog can vary significantly from time to time. Our backlog estimates are based on certain assumptions and are
subject to unexpected adjustments and cancellations and thus may not be timely converted to revenues in any particular
fiscal period, if at all, or be indicative of our actual operating results for any future period.
Our backlog estimates represent those projects for which a customer has executed a contract or signed a binding letter of
award. Our backlog can vary significantly from time to time, particularly if the backlog is made up of multi–year contracts
with some of our more significant customers. Backlog estimates are based on a number of assumptions and estimates
including assumptions related to foreign exchange rates and proportionate performance of contracts. The realization of our
backlog estimates is further affected by our performance under term rate contracts, as the early or late completion of a project
under term rate contracts will generally result in decreased or increased, as the case may be, revenues derived from those
projects. Contracts for services are also occasionally modified by mutual consent and often can be terminated for
convenience by the customer. Because of potential changes in the scope or schedule of our customers’ projects, and the
possibility of early termination of customer contracts, we cannot predict with certainty when or if our backlog will be
realized. Material delays, payment defaults or cancellations on the underlying contracts could reduce the amount of backlog
currently reported and, consequently, could inhibit the conversion of that backlog into revenues. In addition, worsening
overall market conditions could result in further reductions of backlog, which will impact our financial performance.
Capital requirements for the technology we use can be significant. If we are unable to finance these requirements, we may
not be able to maintain our competitive advantage.
Seismic data acquisition technologies historically have steadily improved and progressed, and we expect this trend to
continue. Manufacturers of seismic equipment may develop new systems that have competitive advantages relative to
systems now in use that either render the equipment we currently use obsolete or require us to make substantial capital
expenditures to maintain our competitive position. In order to remain competitive, we may need to continue to invest
additional capital to maintain, upgrade and expand our seismic data acquisition capabilities.
Our capital requirements, which are primarily the cost of equipment, historically have been significant. We attempt to
minimize our capital expenditures by restricting our purchase of equipment to equipment that we believe will remain highly
utilized, and we strategically rent equipment utilizing the most current technology to cover peak periods in equipment
demands. We may not be able to finance all our capital requirements, however, when and if needed, to acquire new
equipment. If we are unable to do so, there may be a material negative impact on our operations and financial condition.
Under our current business model, however, capital expenditures will be kept at minimum levels, other than for maintenance
expenditures, until we see improvement in the market for seismic services. While we own or can rent the equipment needed
for our current levels of business, long–term limiting our capital expenditures may result in an increased competitive
disadvantage.
A limited number of clients operating in a single industry account for a significant portion of our revenues, and the loss of
one of these clients could adversely affect our results of operations.
We derive our revenues from a relatively small number of E&P companies. Our largest customers can and typically do
change from year to year and our largest customers in any one year may not be indicative of our largest customers in the
future. If any of our customers were to terminate their contract with us on a large project or fail to contract for our services in
the future because they are acquired, alter their exploration or development strategy, experience financial difficulties, as a
result of concerns over our current cash flow and liquidity difficulties or for any other reason, and we were not able to replace
their business with business from other customers, our business, financial condition and results of operations could be
materially and adversely affected.
We may be held liable for the actions of our subcontractors.
We often work as the general contractor on seismic data acquisition surveys and consequently engage a number of
subcontractors to perform services and provide products. While we generally obtain contractual indemnification and
insurance covering the acts of those subcontractors and require the subcontractors to obtain insurance for our benefit, there
can be no assurance we will not be held liable for the actions of those subcontractors. In addition, subcontractors may cause
damage or injury to our personnel and property that is not fully covered by insurance or by claims against the subcontractors.
17
We, along with our customers, are subject to compliance with governmental laws and regulations that may expose us to
significant costs and liabilities and may adversely affect the demand for our services.
Our operations, and those of our customers, are subject to a variety of federal, provincial, state and local laws and
regulations relating to protection of the environment, particularly those relating to emissions to air, discharges of water,
treatment, storage and disposal of regulated materials and remediation of soil and groundwater contamination. Those laws
and regulations may impose numerous obligations that are applicable to our operations including the acquisition of permits
before commencing regulated activities and the limitation or prohibition of seismic activities in environmentally sensitive or
protected areas such as wetlands or wilderness areas.
Numerous governmental authorities, such as the U.S. Environmental Protection Agency (the “EPA”) and analogous state
agencies in the U.S. and governmental bodies with control over environmental matters in foreign jurisdictions, have the
power to enforce compliance with those laws and regulations and any permits issued under them, oftentimes requiring
difficult and costly actions. We may incur substantial costs, including fines, damages, criminal or civil sanctions,
remediation costs and natural resource damage claims, or experience interruptions in our operations for violations or
liabilities arising under these laws and regulations. Further, we may become liable for damages against which we cannot
adequately insure or against which we may elect not to insure because of high costs or other reasons. Our customers are
subject to similar environmental laws and regulations.
We expend financial and managerial resources to comply with all the laws and regulations applicable to our operations.
Any changes in environmental laws and regulations or re–interpretation of enforcement policies that result in more stringent
and costly regulations, or that change waste handling, storage, transport, disposal or remediation requirements could have a
material adverse effect on our results of operations and financial position. The fact that such laws or regulations change
frequently makes it impossible for us to predict the cost or impact of such laws and regulations on our future operations. The
costs of complying with applicable environmental laws and regulations are likely to increase over time and we cannot
provide any assurance that we will be able to remain in compliance with respect to existing or new laws and regulations or
that such compliance will not have a material adverse effect on our business, financial condition and results of operations, or
on the operations of our customers which could affect demand for our services. Although regulatory developments that may
occur in subsequent years could have the effect of reducing industry activity, we cannot predict the nature of any new
restrictions or regulations that may be imposed. We may be required to increase operating expenses or capital expenditures
in order to comply with any new restrictions or regulations.
In addition, as a result of the mobility of our equipment, operations in foreign jurisdictions and the utilization of a multi–
national work force, we and our customers are subject to various federal, provincial, state and local laws and regulations in
the U.S. and foreign jurisdictions relating to the import or export of equipment and the immigration and employment of non–
citizen employees or sub–contractors. Numerous governmental authorities, such as the U.S. Customs and Border Protection,
the Bureau of Industry and Security and the Office of Foreign Assets Control, and analogous governmental bodies in foreign
jurisdictions have laws and regulations which prohibit or restrict operations in certain jurisdictions and doing business with
certain persons in such jurisdictions, and we and our customers may be required to obtain and maintain licenses, permits,
visas and similar documentation for operations. We may incur substantial costs, including fines and damages, criminal or
civil sanctions for violations or liabilities arising under these laws and regulations.
Current and future legislation or regulation relating to climate change and hydraulic fracturing could negatively affect
the exploration and production of oil and natural gas and adversely affect demand for our services.
In response to concerns suggesting that emissions of certain gases, commonly referred to as “greenhouse gases” (“GHG”)
(including carbon dioxide and methane), may be contributing to global climate change, legislative and regulatory measures to
address the concerns are in various phases of discussion or implementation at the federal, state and international levels.
Many states, either individually or through multi–state regional initiatives, have already taken legal measures intended to
reduce GHG emissions, primarily through the planned development of GHG emission inventories and/or GHG cap and trade
programs.
This increasing focus on global warming may result in new environmental laws or regulations that may negatively affect
us, our suppliers and our customers. This could cause us to incur additional direct costs in complying with any new
environmental regulations, as well as increased indirect costs resulting from our suppliers, customers or both incurring
additional compliance costs that get passed on to us. Moreover, passage of climate change legislation or other legislative or
18
regulatory initiatives that regulate or restrict emissions of GHG may curtail production and demand for fossil fuels such as oil
and natural gas in areas where our customers operate and thus adversely affect future demand for our services. Reductions in
our revenues or increases in our expenses as a result of climate control initiatives could have adverse effects on our business,
financial position, results of operations and prospects.
Hydraulic fracturing is an important and commonly used process in the completion of oil and natural gas wells.
Hydraulic fracturing involves the injection of water, sand and chemical additives under pressure into rock formations to
stimulate oil and natural gas production. Due to public concerns raised regarding potential impacts of hydraulic fracturing on
groundwater quality, legislative and regulatory efforts at the federal level and in some states have been initiated to require or
make more stringent the permitting, reporting and compliance requirements for hydraulic fracturing operations.
These legislative and regulatory initiatives imposing additional reporting obligations on, or otherwise limiting, the
hydraulic fracturing process could make it more difficult or costly to complete oil and natural gas wells. Shale natural gas
and shale oil cannot be economically produced without extensive fracturing. In the event such initiatives are successful,
demand for our seismic acquisition services may be adversely affected.
We face various risks associated with increased activism against oil and natural gas exploration and development
activities.
Opposition toward oil and natural gas drilling and development activity has been growing globally and is particularly
pronounced in the United States. Companies in the oil and natural gas industry are often the target of activist efforts from
both individuals and non–governmental organizations regarding safety, human rights, environmental matters, sustainability,
and business practices. Anti–development activists are working to, among other things, reduce access to federal and state
government lands and delay or cancel certain operations such as offshore drilling and development. For example,
environmental activists have recently challenged lease sales, seismic acquisition activities and decisions to grant air quality
permits in the U.S. Gulf of Mexico for offshore drilling and have challenged permitting and lease sales in the Arctic National
Wildlife Refuge in Alaska.
Future activist efforts could result in the following:
•
reductions in governmental leasing permitting exploration and production activities;
• delay or denial of government permits or land access rights;
•
•
restrictions on the use of certain operating practices;
legal challenges or lawsuits;
• damaging publicity about us;
•
•
•
increased regulations;
increased costs of doing business;
reduction in demand for our services; and
• other adverse effects on our ability to provide our services.
Our need to incur costs associated with responding to these initiatives or complying with any resulting new legal or
regulatory requirements resulting from these activities that are substantial and not adequately provided for, could have a
material adverse effect on our business, financial condition and results of operations.
19
Our operations outside of the U.S. are subject to additional political, economic, and other risks and uncertainties that
could adversely affect our business, financial condition, results of operations, or cash flows, and our exposure to such
risks will increase as we expand our international operations.
Our operations outside of North America accounted for a substantial portion of our consolidated revenue. Our
international operations are subject to a number of risks inherent in any business operating in foreign countries, and
especially those operating in emerging markets. As we continue to increase our presence in those countries, our operations
will continue to encounter the following risks, among others:
• government instability or armed conflict, which can cause our potential customers to withdraw or delay investment in
capital projects, thereby reducing or eliminating the viability of some markets for our services;
• potential expropriation, seizure, nationalization or detention of assets;
•
•
•
•
•
•
risks relating to foreign currency, as described below;
import/export quotas or unexpected changes in regulatory environments and trade barriers;
civil uprisings, riots and war, which can make it unsafe to continue operations, adversely affect both budgets and
schedules and expose us to losses;
availability of suitable personnel and equipment, which can be affected by government policy, or changes in policy,
which limit the importation of qualified crew members or specialized equipment in areas where local resources are
insufficient, and legal restrictions or other limitations on our ability to dismiss employees;
laws, regulations, decrees and court decisions under legal systems that are not always fully developed and that may be
retroactively applied and cause us to incur unanticipated and/or unrecoverable costs, as well as delays which may
result in real or opportunity costs; and
terrorist attacks, including kidnappings of our personnel.
If any of those or other similar events should occur, it could have a material adverse effect on our financial condition and
results of operations.
We are subject to taxation in many foreign jurisdictions and the final determination of our tax liabilities involves the
interpretation of the statutes and requirements of taxing authorities worldwide. Our tax returns are subject to routine
examination by taxing authorities, and those examinations may result in assessments of additional taxes, penalties and/or
interest.
Our overall success as a global business depends, in part, upon our ability to succeed in differing economic, social and
political conditions. We may not succeed in developing and implementing policies and strategies that are effective in each
location where we do business, and we may experience project disruptions and losses, which could negatively affect our
profitability.
Economic and political conditions in Latin America pose numerous risks to our operations.
Our business operations in the Latin American region constitute a material portion of our business. As events in the
region have demonstrated, negative economic or political developments in one country in the region can lead to or exacerbate
economic or political instability elsewhere in the region. Furthermore, events in recent years in other developing markets
have placed pressures on the stability of the currencies of a number of countries in Latin America in which we operate,
including Brazil, Colombia and Peru. While certain areas in the Latin American region have experienced economic growth,
this recovery remains fragile.
20
Certain Latin American economies have experienced shortages in foreign currency reserves and have adopted restrictions
on the use of certain mechanisms to expatriate local earnings and convert local currencies into U.S. Dollars. Any such
shortages or restrictions may limit or impede our ability to transfer or to convert such currencies into U.S. Dollars and to
expatriate such funds for the purpose of making timely payments of interest and principal on our indebtedness. In addition,
currency devaluations in one country may have adverse effects in another country.
Some Latin American countries have historically experienced high rates of inflation. Inflation and some measures
implemented to curb inflation have had significant negative effects on the economies of these countries. Governmental
actions taken in an effort to curb inflation, coupled with speculation about possible future actions, have contributed to
economic uncertainty at times in most Latin American countries. These countries may experience high levels of inflation in
the future that could lead to further government intervention in the economy, including the introduction of government
policies that could adversely affect our results of operations. In addition, if any of these countries experience high rates of
inflation, we may not be able to adjust the price of our services sufficiently to offset the effects of inflation on our cost
structures. A high inflation environment would also have negative effects on the level of economic activity and employment
and adversely affect our business, results of operations and financial condition.
Our results of operations can be significantly affected by foreign currency fluctuations and regulations.
A portion of our revenues is derived in the local currencies of the foreign jurisdictions in which we operate. Accordingly,
we are subject to risks relating to fluctuations in currency exchange rates. In the future, and especially as we further expand
our operations in international markets, our customers may increasingly make payments in non–U.S. currencies. Fluctuations
in foreign currency exchange rates could affect our revenues, operating costs and operating margins. In addition, currency
devaluation can result in a loss to us if we hold deposits of that currency. Hedging foreign currencies can be difficult,
especially if the currency is not actively traded. We cannot predict the effect of future exchange rate fluctuations on our
operating results.
In addition, we are subject to risks relating to governmental regulation of foreign currency, which may limit our ability to:
•
•
•
transfer funds from or convert currencies in certain countries;
repatriate foreign currency received in excess of local currency requirements; and
repatriate funds held by our foreign subsidiaries to the United States at favorable tax rates.
As we continue to develop our operations in foreign countries, there is an increased risk that foreign currency controls
may create difficulty in repatriating profits from foreign countries in the form of taxes or other restrictions, which could
restrict our cash flow.
We may be exposed to liabilities under the U.S. Foreign Corrupt Practices Act (the “FCPA”), and any determination that
we violated the FCPA could have a material adverse effect on our business, operations and reputation.
As a U.S. corporation, we are subject to the regulations imposed by the FCPA and other laws that prohibit U.S.
companies and their intermediaries from making improper payments or offers of payments to foreign governments and their
officials and political parties for the purpose of obtaining or retaining business.
We operate in certain parts of the world that have experienced governmental corruption to some degree and, in certain
circumstances, strict compliance with anti–bribery laws may conflict with local customs and practices. Thus, we face the risk
of unauthorized payments or offers of payments by one of our employees or consultants, given that these parties may not
always be subject to our control. We could be held liable for actions taken by our strategic or local partners even though our
partners are not subject to the FCPA. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be
subject to other liabilities, which could negatively affect our business, operating results and financial condition.
A cyber incident could result in loss or corruption of customer data or information theft, data corruption, operational
disruption, and/or financial loss that affects us.
We have become increasingly dependent on our information systems and related infrastructure as well as cloud
application and services, to process and record our customers’ seismic data, process our financial and operating data,
communicate with our employees and for many other activities related to our business.
21
As dependence on digital technologies has increased, cyber–attacks, including deliberate attacks or unintentional events,
have also increased. A cyber–attack could include gaining unauthorized access to digital systems for purposes of
misappropriating assets or sensitive information, corrupting data, or causing operational disruption, or result in denial of
service on websites.
Our technologies, systems and networks may become the target of cyber–attacks or information security breaches that
could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of customer proprietary and other
information, or other disruption of our business operations. In addition, certain cyber incidents, such as surveillance, may
remain undetected for an extended period. A cyber incident involving our information systems and related infrastructure
could disrupt our business plans and negatively impact our operations, particularly if the incident affects our customers’ data.
Although to date we have not experienced any cyber–attacks, there can be no assurance that we will not be the target of
cyber-attacks in the future or suffer such losses related to any cyber incident. As cyber threats continue to evolve, we may be
required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate
and remediate any information security vulnerabilities.
The enactment of legislation implementing changes in U.S. or foreign tax laws affecting the taxation of international
business activities or the adoption of other tax reform policies could materially impact our financial position and results of
operations.
Changes to U.S. or foreign tax laws could impact the tax treatment of our foreign earnings. Due to the scope of our
international business operations, any changes in the U.S. or foreign taxation of these operations may increase our worldwide
effective tax rate and adversely affect our financial condition and operating results. The international scope of our operations
and our corporate and financing structure may expose us to potentially adverse tax consequences. We are subject to taxation
in and to the tax laws and regulations of multiple jurisdictions as a result of the international scope of our operations and our
corporate and financing structure. We are also subject to intercompany pricing laws, including those relating to the flow of
funds between our companies. Adverse developments in these laws or regulations, or any change in position regarding the
application, administration or interpretation of these laws or regulations in any applicable jurisdiction, could have a material
adverse effect on our business, financial condition and results of operations. In addition, the tax authorities in any applicable
jurisdiction, including the United States, may disagree with the positions we have taken or intend to take regarding the tax
treatment or characterization of any of our transactions, including the tax treatment or characterization of our indebtedness,
intercompany loans and guarantees. If any applicable tax authorities, including the U.S. tax authorities, were to successfully
challenge the tax treatment or characterization of any of our transactions, it could result in the disallowance of deductions and
the imposition of tax withholding.
Our continued success depends substantially on the continuing efforts of our senior executives and other key personnel,
and our business may be severely disrupted if we lose their services.
Our continued success depends upon the continued services of our senior executives and other key personnel. Our senior
executive and other key personnel possess many years of industry experience, are highly skilled and also have relationships
with oil and natural gas companies and others in the industry that are integral to our ability to market and sell our services. If
one or more of our senior executives or key personnel are unable or unwilling to continue in their present positions, it could
disrupt our business operations, and we may not be able to replace them easily or at all. In addition, competition for senior
executives and key personnel in our industry is intense, and we may be unable to retain our senior executives and key
personnel or attract and retain new senior executives and key personnel in the future, in which case our business may be
severely disrupted.
22
The requirements of being a public company increase our operating expenses and divert management’s attention.
As a public company, we are subject to the requirements of the Exchange Act, the Sarbanes–Oxley Act, the Dodd–Frank
Act and other applicable securities rules and regulations. Compliance with these rules and regulations require us to incur
significant additional legal, accounting and other expenses that we would not incur if we were not a public company.
The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our
business and operating results. The Sarbanes–Oxley Act and the rules subsequently implemented by the SEC and the national
securities exchanges, establish certain requirements for the corporate governance practices of public companies. For
example, as a result of becoming a public company, we have additional board committees and are required to maintain
effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if
required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard,
significant resources and management oversight are required. As a result, management’s attention has been and will continue
to be diverted from other business concerns, which could harm our business and operating results.
Because we are a smaller reporting company, to date our independent auditor has not been required to issue an attestation
report regarding our internal control over financial reporting in the annual reports on Form 10–K that we file with the SEC,
and we have been subject to scaled disclosure requirements. We will remain a smaller reporting company as long as of the
end of our second fiscal quarter each year (i) the market value of our securities held by non–affiliates (“public float”) is
below $250.0 million or (ii) we have annual revenues of less than $100.0 million and our public float is less than $700.0
million. If we cease to be a smaller reporting company, our expenses will further increase and additional time will be
required of our management to comply with those additional requirements.
Our substantial level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our
financial obligations.
As of December 31, 2018, we have $108.3 million in aggregate principal amount of long–term debt outstanding. Our
high level of indebtedness could affect our operations in several ways, including the following:
• make it more difficult for us to satisfy our debt obligations and increase the risk that we may default on our debt
obligations;
•
•
require us to use a substantial portion of our cash flow from operations to service our existing indebtedness, which
reduces the funds available for working capital, capital expenditures and other general corporate purposes;
limit our ability to access the capital markets to raise capital on favorable terms or to obtain additional financing for
working capital, capital expenditures, acquisitions, general corporate or other expenses or to refinance existing
indebtedness;
• place restrictions on our ability to obtain additional financing, make investments, lease equipment, sell assets or
engage in business combinations;
• heighten our vulnerability to downturns in our business, our industry or in the general economy and restrict us from
exploiting business opportunities or making acquisitions;
• place us at a competitive disadvantage compared to those of our competitors with lower levels of indebtedness in
relation to their overall size or less restrictive terms governing their indebtedness;
•
•
limit management’s discretion in operating our business; and
limit our flexibility in planning for, or reacting to, changes in our business, the industry in which we operate or the
general economy.
23
Our ability to service our indebtedness will depend upon, among other things, our future financial and operating
performance, which will be affected by a broad range of factors, including our ability to monetize our Tax Credits, prevailing
economic conditions and financial, business and other factors affecting us and our industry, many of which are beyond our
control. If our operating results are not sufficient to service our existing and any future indebtedness, we will be forced to
take actions such as reducing or delaying business activities or capital expenditures, selling assets or issuing equity, which
could materially and adversely affect our financial condition, results of operations and cash flows. We may not be able to
affect any of these actions on satisfactory terms or at all.
Despite our current level of indebtedness, we may still be able to incur substantially more debt. This could further
exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur additional debt in the future, subject to certain limitations, including debt
under our credit facility. If new debt is added to our current debt levels, the related risks that we now face could increase.
Our level of indebtedness could, for instance, prevent us from engaging in transactions that might otherwise be beneficial to
us or from making desirable capital expenditures. This could put us at a competitive disadvantage relative to other less
leveraged competitors that have more cash flow to devote to their operations. In addition, the incurrence of additional
indebtedness could make it more difficult to satisfy our existing financial obligations.
Our debt agreements impose or may impose significant operating and financial restrictions on us and our subsidiaries
that may prevent us from pursuing certain business opportunities and restrict our ability to operate our business.
Our debt agreements contain covenants that restrict our and our restricted subsidiaries’ ability to take various actions,
such as:
•
selling certain assets, including capital stock of restricted subsidiaries;
• declaring or paying dividends on our common stock;
• making certain investments;
•
incurring or guaranteeing additional indebtedness;
• prepaying subordinated indebtedness;
•
•
•
•
•
creating or incurring liens;
agreeing to payment restrictions affecting our restricted subsidiaries;
consolidating, merging, selling or otherwise disposing of all or substantially all of our assets;
entering into transactions with affiliates;
engaging in a business other than our current business and businesses related, ancillary or complementary, to our
current businesses or immaterial businesses; and
• designating certain of our subsidiaries as unrestricted subsidiaries.
In addition, our debt agreements restrict us and our restricted subsidiaries from taking or omitting to take certain actions
that would adversely affect or impair in any material respect the collateral securing our indebtedness.
We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us
by the restrictive covenants contained in our debt agreements. The requirement that we comply with these provisions may
materially adversely affect our ability to plan for or react to market conditions, take advantage of business opportunities we
believe to be desirable, obtain future financing, fund needed capital expenditures or withstand a continuing or future
downturn in our business.
24
If we are unable to comply with the restrictions and covenants in our debt agreements, there could be an event of default
under the terms of such agreements, which could result in an acceleration of repayment.
If we are unable to comply with the restrictions and covenants in our debt agreements, there could be an event of default
under the terms of those agreements. Our ability to comply with these restrictions and covenants may be affected by events
beyond our control. As a result, we cannot assure that we will be able to comply with these restrictions and covenants. In the
event of a default under our debt agreements, lenders could terminate their commitments to lend or accelerate the loans and
declare all amounts borrowed due and payable. Borrowings under other debt that contain cross–acceleration or cross–default
provisions may also be accelerated and become due and payable.
If any of those events occur, our assets might not be sufficient to repay in full all our outstanding indebtedness and we
may be unable to find alternative financing. Even if we could obtain alternative financing, it might not be on terms that are
favorable or acceptable to us. Additionally, we may not be able to amend our debt agreements or obtain needed waivers on
satisfactory terms or without incurring substantial costs. Failure to maintain existing or secure new financing could have a
material adverse effect on our liquidity and financial position.
Risks Relating to Our Common Stock
Prices for our common stock may be volatile, and investors in our common stock could incur substantial losses.
Prices of our common stock, like that of the securities of other energy companies, have been and may continue to be
highly volatile. Factors such as announcements concerning changes in prices of oil and natural gas, exploration and
development activities, the availability of capital, our cash flow and liquidity situation, our reverse stock splits and economic
and other external factors, as well as quarterly or annual fluctuations in our financial results, may have a significant effect on
the price of our common stock.
There are limited trading markets for our securities.
From time to time, there has been limited trading volume in our common stock. There can be no assurance that there will
continue to be an active trading market for our common stock or that any securities research analysts will provide research
coverage on our common stock. It is possible that such factors will adversely affect the market for our common stock.
In addition, there is currently no market for, and we do not intend to list, our outstanding warrants on any securities
exchange or any automated dealer quotation system. Accordingly, there may not be development of, or liquidity in, any
market for the warrants. If a market were to develop, the warrants could trade at prices that may be higher or lower than their
initial price depending upon many factors, including the price of our common stock, prevailing interest rates, our operating
results and markets for similar securities.
Ownership of our common stock is concentrated among our largest stockholders and their affiliates.
A small number of stockholders hold a majority of our common stock, warrants and 2023 Notes. These stockholders
have influence over all matters that require approval by our stockholders, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may limit your ability to influence corporate matters, and
as a result, actions may be taken that you may not view as beneficial. Furthermore, these stockholders may sell their shares
of common stock at any time. Such sales could be substantial and adversely affect the market price of our common stock.
We do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on
your investment is if the price of our stock appreciates.
We do not plan to declare dividends on shares of our common stock in the foreseeable future. In addition, restrictive
covenants in certain debt agreements to which we are, or may be, a party, may limit our ability to pay dividends or for us to
receive dividends from our operating companies, any of which may negatively impact the trading price of our common stock.
Consequently, investors must rely on sales of their shares of common stock after price appreciation, which may never occur,
as the only way to realize a return on their investment.
25
Provisions of our certificate of incorporation and bylaws could discourage potential acquisition proposals and could deter
or prevent a change in control.
Some provisions in our certificate of incorporation and bylaws, as well as Delaware statutes, may have the effect of
delaying, deferring or preventing a change in control. These provisions, including those providing for the possible issuance
of shares of our preferred stock and the right of the board of directors to amend the bylaws, may make it more difficult for
other persons, without the approval of our board of directors, to make a tender offer or otherwise acquire a substantial
number of shares of our common stock or to launch other takeover attempts that a stockholder might consider to be in his or
her best interest. These provisions could limit the price that some investors might be willing to pay in the future for shares of
our common stock.
Significant exercises of warrants or conversion of our 2023 Notes could adversely affect the market price of our common
stock.
As of December 31, 2018, we had 3.2 million shares of common stock issued and 3.1 million shares of common stock
outstanding; however, the total number of shares of our common stock issued and outstanding does not include 4.4 million
shares that may be issued upon the exercise of warrants or 10.4 million shares issuable upon the conversion of our 2023
Notes. The exercise of warrants and the conversion of our 2023 Notes could adversely affect the price of our common stock,
will reduce the percentage of common stock held by our current stockholders and may cause our current stockholders to
suffer significant dilution, which may adversely affect the market price of our common stock.
ITEM 2. PROPERTIES
We lease space for our principal executive offices in Houston, TX and Calgary, Alberta, Canada. We also lease
numerous warehouse facilities and field offices throughout the geographic areas in which we operate. Our leased properties
are subject to various lease terms and expirations.
As of December 31, 2018, our leased facilities categorized by geographic region are as follows:
Location
North America:
Offices
Warehouses
United States ..............................................................................................................
Canada........................................................................................................................
Mexico .......................................................................................................................
South America:
Peru ............................................................................................................................
Colombia....................................................................................................................
Bolivia........................................................................................................................
Asia Pacific:
Australia.....................................................................................................................
Singapore ...................................................................................................................
Other ..........................................................................................................................
4
1
2
1
2
1
1
1
1
3
2
—
2
2
1
1
—
—
We believe all properties that we currently occupy are suitable for their intended use. We believe that our facilities are
generally well maintained and adequate to meet our current and foreseeable requirements for the next several years.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we may be subject to legal proceedings involving contractual and employment
relationships, liability claims and a variety of other matters. Although the results of these other legal proceedings cannot be
predicted with certainty, we do not believe that the final outcome of these matters should have a material adverse effect on
our business, results of operations, cash flows or financial condition.
26
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock traded on the NASDAQ Global Market under the symbol “SAEX” until August 9, 2017 and now
trades on the NASDAQ Capital Market under the symbol “SAEX.”
At the close of business on March 19, 2019, based on information received from our transfer agent and brokers and
nominees, we had approximately 128 holders of record of our common stock. This is not the actual number of beneficial
owners of our common stock as some shares are held in “street names” by brokers and others on behalf of individual owners.
Dividend Policy
We have not declared or paid any cash dividends on our common stock, and we do not anticipate declaring or paying any
cash dividends to holders of our common stock in the foreseeable future. The decision to pay dividends on our common
stock is at the discretion of our board of directors and depends on our financial condition, results of operations, capital
requirements and other factors that our board of directors deems relevant.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with “Item 8.
Financial Statements and Supplementary Data” contained herein.
Overview
We are a full–service global provider of seismic data acquisition, logistical support, processing and integrated reservoir
geosciences services to customers in the oil and natural gas industry. Our business activities are primarily conducted in
North America, South America, Asia Pacific and West Africa. Our services include the acquisition of 2D, 3D, time–lapse 4D
and multi–component seismic data on land, in transition zones between land and water, and offshore in depths reaching 3,000
meters. In addition, we offer a full suite of logistical support, processing and integrated reservoir geoscience services. We
currently provide our services on a proprietary basis only to our customers and the seismic data acquired is owned by our
customers.
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.
Project visibility, while remaining constrained due to the uncertain sustainability of the recent rise in oil prices and
seismic data acquisition budgets, has improved. Despite the improved environment, market conditions remain challenging
and we continue to maintain a conservative approach. We have continued to explore ways to reduce costs and gain operating
efficiencies through internal restructuring.
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.
27
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 U.S. in which turnkey contracts are more common.
While the markets for oil and natural gas have been very volatile and are likely to continue to be so in the future, we
believe opportunities exist for us to enhance our market position by responding to our clients continuing desire for higher
resolution subsurface images. If economic conditions weaken such that our clients reduce their capital expenditures or if
there is a significant drop in oil and natural gas prices, these factors could result in diminished demand for our seismic
services, could cause downward pressure on the prices we charge and would affect our results of operations.
Current Developments
In February 2019, we borrowed an additional $9.7 million under our credit facility and now have $22.0 million
outstanding. We also extended the maturity date of our senior loan facility to January 4, 2021.
As of March 19, 2019, we have issued 0.7 million shares of common stock through the exercise of our Series C warrants,
Series D warrants and Series E warrants thus far in 2019.
Results of Operations
Net loss for 2018 was $82.7 million compared with $38.8 million for 2017. The significant factors in this change were an
increase of $34.4 million in selling, general and administrative (“SG&A”) expenses and decreases of $24.6 million in gross
(loss) profit, $13.2 million in other expense, net and $1.9 million in income taxes.
Revenue from services for 2018 decreased $32.4 million compared with 2017. In North America, revenue from services
increased $11.1 million due to an increase in the number of projects performed in Canada and the Lower 48 offset by a
decrease in the number of projects in Alaska. While activity in Canada increased when comparing 2018 with 2017 due to
marginal improvements in market conditions in Canada, activity in Alaska continued to decrease mainly due to uncertainties
and changes in Alaska’s legislation affecting oil and natural gas exploration activities. The increase in revenues in the Lower
48 is related to our purchase of assets from GEOK in July 2018.
Revenue from services in South America decreased $9.3 million due to a decrease in the amount of work performed in
Colombia and no active projects in Bolivia in 2018. Activity in Colombia in 2018 continued to decrease when compared
with 2017 due to a fewer number of active customers. Revenue from services in West Africa decreased $35.1 million due to
a large ocean bottom marine project in Nigeria that was completed in 2017. Revenue from services in Asia Pacific increased
$0.5 million due to projects in Australia and India offset by no active projects in New Zealand in 2018 when compared with
2017.
Gross (loss) profit for 2018 decreased $24.6 million compared with 2017. Gross (loss) profit as a percentage of revenue
from services was (2.7)% for 2018 compared with 17.4% for 2017. Gross (loss) profit as a percentage of revenue from
services decreased due to a decline in our revenue from services, resulting in a reduced ability to absorb certain fixed costs,
and tightening margins on projects. Although our cost of services primarily vary with our revenue from services, the
substantial decrease in revenue from services we have seen has caused significant decreases in our gross (loss) profit and
gross (loss) profit margins.
SG&A expenses for 2018 increased $34.4 million compared with 2017. The increase was primarily attributable to (i) a
$19.5 million provision for doubtful accounts, (ii) $8.2 million of higher equity–based compensation costs, (iii) $4.5 million
of additional costs related to our purchase of assets from GEOK and (iv) $2.0 million of legal and consultant costs related to
our restructuring, stock split and conversion of our Series A and Series B preferred stock.
Other expense, net for 2018 decreased $13.2 million compared with 2017 primarily due to a $15.5 million decrease in
interest expense offset by a $2.1 million increase in foreign currency loss. Of the $15.5 million decrease in interest expense,
$11.0 million related to lower amortization of debt issuance costs primarily from the extension of our senior loan facility in
September 2017 and $4.5 million related to the decrease in long–term debt outstanding from our debt exchange in January
2018. Of the $2.1 million increase in foreign currency loss, $3.5 million related to an increase in foreign currency losses in
Canada and Brazil offset by a $1.6 million decrease in foreign currency losses from the trading of Nigerian currency in 2017.
28
Income taxes for 2018 decreased $1.9 million compared with 2017 primarily due to fluctuations in earnings among the
various jurisdictions in which we operate, offset by increases in valuation allowances and increases in foreign tax rate
differentials. Our effective tax rates in 2018 and 2017 were 3.0% and 12.5%, respectively. Our effective tax rates differ
from our U.S. statutory rate due to the effects of differences between U.S. and foreign tax rates, net of federal benefit, and
recording of the valuation allowance against U.S. and foreign deferred tax assets.
Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations is based upon information reported in our
consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in
the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures about contingent assets
and liabilities. Certain of our accounting policies involve estimates and assumptions to such an extent that there is reasonable
likelihood that materially different amounts could have been reported under different conditions or if different assumptions
had been used. We base these estimates and assumptions on historical experience and on various other information and
assumptions that we believe to be reasonable at the time, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and assumptions about
future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as additional
information is obtained, as more experience is acquired, as our operating environment changes and as new events occur.
We have defined a critical accounting policy as one that is both important to the portrayal of either our financial condition
and results of operations and requires us to make difficult, subjective or complex assumptions or estimates about matters that
are uncertain. There are other policies within our consolidated financial statements that require us to make estimates and
assumptions, but they are not deemed critical as defined above. We believe that the following are the critical accounting
policies used in the preparation of our consolidated financial statements.
Revenue Recognition
Our services are provided under cancelable service contracts that typically have an original expected duration of one year
or less. These contracts are either fixed price agreements that provide for a fixed fee per unit of measure (“Turnkey”) or
variable price agreements that provide for a fixed hourly, daily or monthly fee during the term of the project (“Term”).
Under both types of agreements, we recognize revenue as the services are performed. We recognize revenue based upon
quantifiable measures of progress, such as square or linear kilometers surveyed, each unit of data recorded or other methods
using the total estimated revenue for the service contract.
We receive reimbursements for certain out–of–pocket expenses under the terms of the service contracts. The amounts
billed to clients are included at their gross amount in the total estimated revenue for the service contract.
Clients are billed as permitted by the service contract. Contract assets and contract liabilities are the result of timing
differences between revenue recognition, billing and cash collections. If billing occurs prior to the revenue recognition or if
billing exceeds the revenue recognized, the amount is considered deferred revenue and a contract liability. Conversely, if the
revenue recognition exceeds the billing, the exceeded amount is considered unbilled receivable and a contract asset. As
services are performed, those deferred revenue amounts are recognized as revenue.
In some instances, third party permitting, surveying, drilling, helicopter, equipment rental and mobilization costs that
directly relate to the contract are utilized to fulfill the contract obligations. These fulfillment costs are capitalized and
amortized consistent with how the related revenue is recognized unless we determine the costs are no longer recoverable, at
which time they are expensed.
Estimates for our total revenue and total fulfillment cost on any service contract are based on significant qualitative and
quantitative judgments. Our management considers a variety of factors such as whether various components of the
performance obligation will be performed internally or externally, cost of third party services, and facts and circumstances
unique to the performance obligation in making these estimates. As a significant change in one or more of these estimates
could affect the profitability of our contracts, we review and update the estimates during each reporting period. We recognize
these adjustments in revenues under the cumulative catch–up method which recognizes the impact of the adjustment on
revenue to date in the period the adjustment is identified. Revenue in future periods of performance is recognized using the
adjusted estimate.
29
Allowance for Doubtful Accounts
The determination of the collectability of amounts due from customers requires us to make judgments and estimates
regarding our customers’ ability to pay amounts due to us in order to determine the amount of valuation allowances required
for doubtful accounts. We monitor our customers’ payment history and current credit worthiness to determine that
collectability is reasonably assured. We also consider the overall business climate in which our customers operate. We
utilize the specific identification method for establishing and maintaining the allowance for doubtful accounts. Account
balances are charged off against the allowance after all means of collection have been exhausted and the potential for
recovery is considered remote. While the collectability of outstanding customer invoices is continually assessed, the cyclical
nature of our industry may affect our customers’ operating performance and cash flows, impacting our ability to collect on
the invoices. We believe that our allowance for doubtful accounts is adequate to cover potential bad debt losses under current
conditions; however, uncertainties regarding changes in the financial condition of our customers, either adverse or positive,
could impact the amount and timing of any additional provisions for doubtful accounts that may be required.
Impairment of Long–Lived Assets
We assess our long–lived assets, such and property and equipment and intangible assets, for possible impairment
whenever events or circumstances indicate that the recorded carrying value of the long–lived asset may not be recoverable. If
the carrying amount of the long–lived asset exceeds the sum of the estimated undiscounted future net cash flows, we
recognize an impairment loss equal to the difference between the carrying value and the fair value of the long–lived asset,
which is estimated through various valuation techniques including discounted cash flow models, quoted market prices and
third–party appraisals.
We assess our goodwill, all of which resides in our Canadian operations reporting unit (the “Reporting Unit”), at least
annually for impairment, or more frequently if facts and circumstances indicate that it is more likely than not impairment has
occurred. We have the option of performing either a qualitative or quantitative assessment to determine if impairment may
have occurred. If the qualitative assessment indicates that it is more likely than not that the fair value of the Reporting Unit is
less than its carrying amount, then we would be required to perform the two step impairment test.
Under the first step in the impairment test, we compare the fair value of the Reporting Unit with its carrying amount,
including goodwill. If the carrying amount of the Reporting Unit exceeds its fair value, the second step of the goodwill
impairment test is performed. Under the second step in the impairment test, the implied fair value of goodwill is compared
with its carrying amount. The implied fair value of goodwill is calculated by subtracting the estimated fair values of the
Reporting Unit’s assets net of liabilities from the fair value of the Reporting Unit. If the carrying amount of goodwill
exceeds its implied fair value, an impairment loss shall be recognized in an amount equal to that excess.
We determine the fair value of the Reporting Unit using a combination of the market approach and the income approach.
Under the market approach, the fair value of the Reporting Unit is based on the Guideline Public Company (“GPC”)
methodology using GPCs that are considered to be similar to us and whose stock are actively traded. Under the income
approach, the fair value of the Reporting Unit is based on the expected present value of the future net cash flows. Significant
assumptions associated with the calculation of the fair value include estimates of the appropriate valuation multiples for the
GPCs, future prices and costs, appropriate risk–adjusted discount rates and other relevant data. Given the nature of these
estimates and their application to specific assets and liabilities and time frames, it is not possible to reasonably quantify the
impact of changes in these assumptions.
Income Taxes
We use the liability method to determine our income tax provisions, under which current and deferred tax liabilities and
assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax liabilities
and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or
recovered. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. In determining the need for valuation allowances, we have
considered and made judgments and estimates regarding estimated future taxable income and ongoing prudent and feasible
tax planning strategies. These estimates and judgments include some degree of uncertainty and changes in these estimates
and assumptions could require us to adjust the valuation allowances for our deferred tax assets. The ultimate realization of
the deferred tax assets depends on the generation of sufficient taxable income in the applicable taxing jurisdictions.
30
We are subject to the jurisdiction of various domestic and foreign tax authorities. Our operations in these different
jurisdictions are taxed on various bases and determination of taxable income in any jurisdiction requires the interpretation of
the related tax laws and regulations and the use of estimates and assumptions regarding significant future events such as the
amount, timing and character of deductions, permissible revenue recognition methods under the tax law and the sources and
character of income and tax credits. Changes in tax laws, regulations, agreements and treaties, or our level of operations or
profitability in each taxing jurisdiction could have an impact on the amount of income taxes that we pay during any given
year.
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.
As of December 31, 2018, we had working capital of $2.8 million compared with $(3.0) million as of December 31, 2017.
The increase in working capital was related to an $18.7 million increase in accounts receivable, net partially offset by higher
accounts payable, accrued liabilities and the current portion of long–term debt.
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, as we have done by the acquisition of assets from GEOK. Even with the addition of these assets, we currently
estimate that our capital expenditures for 2019 will not exceed $6.0 million, which is less than the $1.3 million we incurred in
2018. This amount will permit us to maintain the operational capability of our current fleet of equipment so that we can
execute ongoing projects without delay or increased costs but will not allow us to purchase any new technology or upgrade
existing capital assets.
We currently have $8.0 million of available borrowing capacity under our credit facility, but we cannot borrow this
amount without consent of lenders holding 66 ⅔% of the aggregate of advances and commitments under our credit facility.
In addition, we are also essentially at our borrowing limits under our senior loan facility and 2023 Notes. While currently we
do not have a working capital facility, we anticipate that we may be able to put in place a modest working capital facility to
cover our liquidity needs, including upfront expenditures for upcoming projects, but such a facility may not be available to us
on terms acceptable to us, or at all.
The most acute issue affecting our liquidity is the delay in receiving payments on our $58.2 million net receivable from
one customer. Our liquidity and cash flows have been adversely affected by failure to receive payment on this receivable and
may be further adversely affected by future events outside of our control relating to this receivable. While we continue to
pursue other options to monetize the Tax Credits, at this time we believe that the most likely path to monetize the Tax Credit
certificates is if bonds are issued by Alaska. There can be no assurances, however, that the bonds will be issued or when
these expected payments will be received.
We continue to diligently pursue improving our capitalization and reducing our long–term debt, but liquidity issues may
continue to challenge us. Until we are able to finally resolve the issues described above, we could continue to experience
liquidity and cash flow issues.
Long–term Debt
As of December 31, 2018, we have $108.3 million in aggregate principal amount of long–term debt outstanding. For
additional information about our long–term debt, please see “Item 8. Financial Statements and Supplementary Data”
contained herein.
31
Cash Flows
Cash flows provided by (used in) by type of activity were as follows for the years ended December 31:
Operating activities ......................................................................................................... $
Investing activities ..........................................................................................................
Financing activities .........................................................................................................
(28,968) $
(22,201)
55,312
(4,553)
(760)
(3,274)
2018
2017
Operating Activities
Cash flows from operating activities for 2018 decreased $24.4 million when compared with 2017. The significant factors
in the change were the decrease in our revenues from services and the increase in our SG&A expenses offset by the decrease
in our cost of services and interest expense.
Investing Activities
In 2018, cash flows used in investing activities consisted of $21.7 million for the acquisition of assets from GEOK and
$1.3 million for the purchase of property and equipment offset by proceeds of $0.8 million from the sale of property and
equipment. In 2017, cash flows used in investing activities consisted of $2.7 million for the purchase of property and
equipment offset by proceeds of $1.9 million from the sale of property and equipment.
Financing Activities
In 2018, cash flows provided by financing activities consisted of $123.4 million of long–term debt borrowings offset by
$59.2 million of long–term debt repayments, $2.7 million of debt issuance costs, $3.2 million of stock issuance costs, $1.8
million for the purchase of treasury stock and $1.2 million of distributions to our noncontrolling interest.
In 2017, cash flows used in investing activities consisted of long–term debt repayments of $35.5 million, distribution to
our noncontrolling interest of $1.1 million and purchases of treasury stock of $0.1 million offset by $33.4 million of long–
term debt borrowings.
Off–Balance Sheet Arrangements
As of December 31, 2018, we did not have any off–balance sheet arrangements.
Recently Issued Accounting Pronouncements
Please see “Item 8. Financial Statements and Supplementary Data” contained herein for additional information.
32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of SAExploration Holdings, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of SAExploration Holdings, Inc. (a Delaware corporation)
and subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations,
comprehensive loss, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period
ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as
of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year
period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of
America.
Changes in Accounting Principles
As discussed in Note 2 to the consolidated financial statements, in the first quarter of 2018, the Company changed its method
of accounting for revenue due to the adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with
Customers. Also as discussed in Note 2 to the consolidated financial statements, in the first quarter of 2018, the Company
changed its method of accounting for income taxes due to the adoption of Accounting Standards Update 2016-16, Accounting
for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
We have served as the Company’s auditor since 2014.
/s/ Pannell Kerr Forster of Texas, P.C.
Houston, Texas
March 25, 2019
33
SAExploration Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Current assets:
ASSETS
Cash and cash equivalents............................................................................................ $
Restricted cash..............................................................................................................
Accounts receivable, net...............................................................................................
Deferred costs on contracts ..........................................................................................
Prepaid expenses and other current assets....................................................................
Total current assets.......................................................................................................
Property and equipment, net ...........................................................................................
Goodwill..........................................................................................................................
Intangible assets, net .......................................................................................................
Long-term accounts receivable, net ................................................................................
Deferred income taxes ....................................................................................................
Other assets .....................................................................................................................
Total assets ...................................................................................................................... $
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ......................................................................................................... $
Accrued liabilities.........................................................................................................
Income and other taxes payable ...................................................................................
Current portion of long-term debt ................................................................................
Deferred revenue ..........................................................................................................
Total current liabilities .................................................................................................
Long-term debt................................................................................................................
Other long-term liabilities ...............................................................................................
Commitments and contingencies ....................................................................................
December 31,
2018
2017
7,192 $
271
24,859
3,717
2,813
38,852
35,334
1,687
4,066
52,804
2,015
2,715
137,473 $
10,103 $
10,498
3,331
7,837
4,298
36,067
85,653
380
3,613
41
6,105
1,780
6,722
18,261
32,946
1,832
671
78,102
4,592
5,534
141,938
4,551
6,311
7,887
995
1,477
21,221
120,298
608
Stockholders' equity (deficit):
Common stock, 3,100,496 and 471,177 shares outstanding, respectively .................
Additional paid-in capital.............................................................................................
Accumulated deficit .....................................................................................................
Accumulated other comprehensive loss .......................................................................
Treasury stock, at cost, 111,245 and 1,901 shares, respectively..................................
SAExploration stockholders’ equity (deficit)...............................................................
Noncontrolling interest.................................................................................................
Total stockholders’ equity (deficit) ..............................................................................
Total liabilities and stockholders’ equity (deficit) .......................................................... $
—
232,661
(216,612)
(3,035)
(1,866)
11,148
4,225
15,373
137,473 $
—
133,742
(133,306)
(5,082)
(113)
(4,759)
4,570
(189)
141,938
The accompanying notes are an integral part of these consolidated financial statements.
34
SAExploration Holdings, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
Year Ended December 31,
2018
2017
Revenue from services .................................................................................................... $
Cost of services ...............................................................................................................
Depreciation and amortization ........................................................................................
Gross (loss) profit............................................................................................................
94,604 $
86,065
11,111
(2,572)
127,022
93,229
11,725
22,068
Selling, general and administrative expenses .................................................................
59,933
25,596
Operating loss .................................................................................................................
(62,505)
(3,528)
Other (expense) income, net:
Interest expense, net .....................................................................................................
Foreign exchange loss, net ...........................................................................................
Other expense, net ........................................................................................................
Total other expense, net................................................................................................
(13,858)
(3,417)
(491)
(17,766)
(29,363)
(1,308)
(272)
(30,943)
Loss before income taxes ................................................................................................
(80,271)
(34,471)
Income taxes ...................................................................................................................
2,424
4,313
Net loss............................................................................................................................
(82,695)
(38,784)
Less: net income attributable to noncontrolling interest .................................................
905
1,972
Net loss attributable to SAExploration ........................................................................... $
(83,600) $
(40,756)
Basic and diluted loss per common share ....................................................................... $
(102.25) $
(86.90)
Weighted average common shares outstanding (basic and diluted) ...............................
1,336
469
The accompanying notes are an integral part of these consolidated financial statements.
35
SAExploration Holdings, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(In thousands)
Net loss............................................................................................................................ $
Other comprehensive income (loss):
Foreign currency translation adjustment ......................................................................
Comprehensive loss ........................................................................................................
Less comprehensive income attributable to noncontrolling interest...............................
Comprehensive loss attributable to SAExploration ........................................................ $
Year Ended December 31,
2018
2017
(82,695) $
(38,784)
2,047
(80,648)
905
(81,553) $
(260)
(39,044)
1,972
(41,016)
The accompanying notes are an integral part of these consolidated financial statements.
36
SAExploration Holdings, Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(In thousands)
Common
Stock
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
SAExploration
Stockholders’
Equity (Deficit)
Noncontrolling
Interest
Total
Stockholders’
Equity (Deficit)
Balance at December 31, 2016 ............ $
Net (loss) income .................................
Other comprehensive income ..............
Equity-based compensation
cost ....................................................
Purchase of treasury stock ...................
Distribution to noncontrolling
interest...............................................
Loss of control of variable
interest entity.....................................
Balance at December 31, 2017 ............
Adoption of ASU 2016-16...................
Net (loss) income .................................
Other comprehensive income ..............
Equity-based compensation
cost ....................................................
Purchase of treasury stock ...................
Common stock issued in debt
exchange ...........................................
Discount on Series A preferred
stock issued in debt exchange ............
Accretion of discount on
Series A preferred stock....................
Accretion of Series A preferred
stock to redemption value ..................
Dividend on Series
A preferred stock...............................
Conversion of Series A
preferred stock ..................................
Common stock and Series E
warrants issued in conversion
of Series A preferred stock ...............
Series B preferred stock issued
in debt exchange ...............................
Discount on Series B preferred
stock issued in debt exchange ...........
Accretion of discount on Series
B preferred stock...............................
Conversion of Series
B preferred stock...............................
Common stock and Series D
warrants issued in conversion
of Series B preferred stock................
Series C warrants issued in
debt exchange....................................
Stock issuance costs.............................
Conversion option related to
6% convertible notes due
2023, net of allocated costs...............
Distribution to noncontrolling
interest...............................................
Balance at December 31, 2018 ............ $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
131,817
—
—
1,925
—
—
—
133,742
—
—
—
10,131
—
472
61,971
(61,971 )
21,376
(1,614 )
(15,427 )
54,045
10,791
(10,791 )
10,791
(22,981 )
22,981
4,810
(1,026 )
15,361
(92,550 ) $
(40,756 )
—
—
—
—
—
(133,306 )
294
(83,600 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,822 ) $
—
(260 )
$
—
—
—
—
—
—
—
(5,082 )
—
—
2,047
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(113 )
—
—
(113 )
—
—
—
—
(1,753 )
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
232,661
$
—
(216,612 ) $
$
—
(3,035 ) $
—
(1,866 ) $
$
34,445
(40,756 )
(260 )
1,925
(113 )
$
3,616
1,972
—
—
—
—
(1,095 )
—
(4,759 )
294
(83,600 )
2,047
10,131
(1,753 )
472
61,971
(61,971 )
21,376
(1,614 )
(15,427 )
54,045
10,791
(10,791 )
10,791
(22,981 )
22,981
4,810
(1,026 )
15,361
—
11,148
$
77
4,570
—
905
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(1,250 )
4,225
$
38,061
(38,784 )
(260 )
1,925
(113 )
(1,095 )
77
(189 )
294
(82,695 )
2,047
10,131
(1,753 )
472
61,971
(61,971 )
21,376
(1,614 )
(15,427 )
54,045
10,791
(10,791 )
10,791
(22,981 )
22,981
4,810
(1,026 )
15,361
(1,250 )
15,373
The accompanying notes are an integral part of these consolidated financial statements.
37
SAExploration Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net loss ......................................................................................................................... $
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization...................................................................................
Reserve for doubtful accounts ...................................................................................
Equity-based compensation cost ...............................................................................
Loss (gain) on disposal of property and equipment ..................................................
Amortization of loan issuance costs and debt discounts ...........................................
Payment in kind interest ............................................................................................
Unrealized loss (gain) on foreign currency transactions ...........................................
Gain on debt extinguishment.....................................................................................
Deferred income taxes ...............................................................................................
Changes in operating assets and liabilities:
Accounts receivable ................................................................................................
Deferred costs on contracts.....................................................................................
Prepaid expenses and other current assets ..............................................................
Accounts payable ....................................................................................................
Accrued liabilities ...................................................................................................
Income and other taxes payable..............................................................................
Deferred revenue.....................................................................................................
Other, net.................................................................................................................
Net cash used in operating activities...............................................................................
Cash flows from investing activities:
Asset purchase..............................................................................................................
Purchase of property and equipment ............................................................................
Proceeds from sale of property and equipment ............................................................
Net cash used in investing activities ...............................................................................
Cash flows from financing activities:
Long-term debt repayments..........................................................................................
Long-term debt borrowings..........................................................................................
Debt issuance costs.......................................................................................................
Stock issuance costs .....................................................................................................
Purchase of treasury stock............................................................................................
Distribution to noncontrolling interest .........................................................................
Net cash provided by (used in) financing activities ........................................................
Effect of exchange rate changes on cash, cash equivalents and restricted cash .............
Net change in cash, cash equivalents and restricted cash ...............................................
Cash, cash equivalents and restricted cash at the beginning of year...............................
Cash, cash equivalents and restricted cash at the end of year......................................... $
Year Ended December 31,
2018
2017
(82,695) $
(38,784)
11,564
19,522
10,131
308
5,565
—
3,333
(53)
2,614
(4,846)
(2,041)
2,326
5,819
4,270
(4,471)
24
(338)
(28,968)
(21,749)
(1,262)
810
(22,201)
(59,207)
123,411
(2,715)
(3,174)
(1,753)
(1,250)
55,312
(334)
3,809
3,654
7,463
$
12,099
—
1,925
(101)
16,602
4,848
(543)
—
530
21,766
6,546
(4,420)
(4,868)
(5,933)
(7,710)
(6,496)
(14)
(4,553)
—
(2,670)
1,910
(760)
(35,467)
33,401
—
—
(113)
(1,095)
(3,274)
245
(8,342)
11,996
3,654
The accompanying notes are an integral part of these consolidated financial statements.
38
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS
SAExploration Holdings, Inc. (“we,” “our” or “us) is a full–service provider of seismic data acquisition, logistical
support, processing and integrated reservoir geosciences services in North America, South America, Asia Pacific and West
Africa to customers in the oil and natural gas industry.
Our chief operating decision maker, our Chief Executive Officer, regularly reviews financial data by country to assess
performance and allocate resources, resulting in the conclusion that each country in which we operate represents a reporting
unit. As these reporting units are similar in terms of economic characteristics, nature of products, processes and type of
customers, we have concluded that our seismic data contract services operations comprise one single reportable segment.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Our consolidated financial statements include our accounts and those of our subsidiaries which are wholly–owned or
controlled by us. All significant intercompany accounts and transactions have been eliminated in consolidation. In the Notes
to Consolidated Financial Statements, except for Note 13 and Note 19, all dollar and share amounts in tabulations are in
thousands of dollars and shares, respectively, unless otherwise indicated.
On September 14, 2018, we effected a one–for–twenty reverse stock split of our common stock. As of the effective time
of the reverse stock split, every 20 shares of issued and outstanding common stock were converted into one share of common
stock, without any change in par value. Any fractional shares were cashed out based on the closing price per share on the
effective date of the reverse stock split. All references to shares of common stock, all per share data and all equity
compensation activity for all periods presented in the consolidated financial statements and notes to the consolidated financial
statements have been adjusted to reflect the reverse stock split on a retrospective basis.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We base our estimates and judgments on historical experience and on various other
assumptions and information that are believed to be reasonable under the circumstances. Estimates and assumptions about
future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events
occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. While
we believe that the estimates and assumptions used in the preparation of the consolidated financial statements are appropriate,
actual results could differ from those estimates.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less at the time of purchase to be cash
equivalents. All our cash and cash equivalents are maintained with several major financial institutions. Deposits with these
financial institutions may exceed the amount of insurance provided on such deposits; however, we have not experienced any
losses in such accounts and we believe we are not exposed to any significant default risk.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are recorded at the invoiced amount and do not bear interest. We monitor our customers’ payment
history and current credit worthiness to determine that collectability is reasonably assured. We also consider the overall
business climate in which our customers operate. We utilize the specific identification method for establishing and
maintaining the allowance for doubtful accounts. Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered remote.
39
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Property and Equipment
Property and equipment is capitalized at historical cost or the fair value of assets acquired (see Note 3) and is depreciated
using the straight–line method based on estimated economic lives. We expense costs for maintenance and repairs in the
period incurred. Significant improvements and betterments are capitalized if they extend the useful life of the asset.
Impairment of Long–Lived Assets
We assess our long–lived assets, such and property and equipment and intangible assets, for possible impairment
whenever events or circumstances indicate that the recorded carrying value of the long–lived asset may not be recoverable. If
the carrying amount of the long–lived asset exceeds the sum of the estimated undiscounted future net cash flows, we
recognize an impairment loss equal to the difference between the carrying value and the fair value of the long–lived asset,
which is estimated through various valuation techniques including discounted cash flow models, quoted market prices and
third–party appraisals.
We assess our goodwill, all of which resides in our Canadian operations reporting unit (the “Reporting Unit”), at least
annually for impairment, or more frequently if facts and circumstances indicate that it is more likely than not impairment has
occurred. We have the option of first performing a qualitative assessment to determine if impairment may have occurred. If
the qualitative assessment indicates that it is more likely than not that the fair value of the Reporting Unit is less than its
carrying amount, then we would be required to perform the two–step impairment test.
Under the first step in the impairment test, we compare the fair value of the Reporting Unit with its carrying amount,
including goodwill. If the carrying amount of the Reporting Unit exceeds its fair value, the second step of the goodwill
impairment test is performed. Under the second step in the impairment test, the implied fair value of goodwill is compared
with its carrying amount. The implied fair value of goodwill is calculated by subtracting the estimated fair values of the
Reporting Unit’s assets net of liabilities from the fair value of the Reporting Unit. If the carrying amount of goodwill
exceeds its implied fair value, an impairment loss shall be recognized in an amount equal to that excess.
We determine the fair value of the Reporting Unit using a combination of the market approach and the income approach.
Under the market approach, the fair value of the Reporting Unit is based on the Guideline Public Company (“GPC”)
methodology using GPCs that are considered to be similar to us and whose stock are actively traded. Under the income
approach, the fair value of the Reporting Unit is based on the expected present value of the future net cash flows.
Revenue Recognition
Our services are provided under cancelable service contracts that typically have an original expected duration of one year
or less. These contracts are either fixed price agreements that provide for a fixed fee per unit of measure (“Turnkey”) or
variable price agreements that provide for a fixed hourly, daily or monthly fee during the term of the project (“Term”).
Under both types of agreements, we recognize revenue as the services are performed. We recognize revenue based upon
quantifiable measures of progress, such as square or linear kilometers surveyed, each unit of data recorded or other methods
using the total estimated revenue for the service contract.
We receive reimbursements for certain out–of–pocket expenses under the terms of the service contracts. The amounts
billed to clients are included at their gross amount in the total estimated revenue for the service contract.
Clients are billed as permitted by the service contract. Contract assets and contract liabilities are the result of timing
differences between revenue recognition, billing and cash collections. If billing occurs prior to the revenue recognition or if
billing exceeds the revenue recognized, the amount is considered deferred revenue and a contract liability. Conversely, if the
revenue recognition exceeds the billing, the exceeded amount is considered unbilled receivable and a contract asset. As
services are performed, those deferred revenue amounts are recognized as revenue.
In some instances, third party permitting, surveying, drilling, helicopter, equipment rental and mobilization costs that
directly relate to the contract are utilized to fulfill the contract obligations. These fulfillment costs are capitalized and
amortized consistent with how the related revenue is recognized unless we determine the costs are no longer recoverable, at
which time they are expensed.
40
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Estimates for our total revenue and total fulfillment cost on any service contract are based on significant qualitative and
quantitative judgments. Our management considers a variety of factors such as whether various components of the
performance obligation will be performed internally or externally, cost of third party services, and facts and circumstances
unique to the performance obligation in making these estimates. As a significant change in one or more of these estimates
could affect the profitability of our contracts, we review and update the estimates during each reporting period. We recognize
these adjustments in revenues under the cumulative catch–up method which recognizes the impact of the adjustment on
revenue to date in the period the adjustment is identified. Revenue in future periods of performance is recognized using the
adjusted estimate.
Foreign Exchange Gains and Losses
Assets and liabilities of non–U.S. operations with a functional currency other than the U.S. dollar have been translated at
exchange rates in effect at the balance sheet dates, and revenues, expenses and cash flows have been translated at average
exchange rates for the respective periods. Any resulting translation gains and losses are included in accumulated other
comprehensive income (loss).
Gains and losses from foreign currency transactions, such as those resulting from transactions demoniated in a currency
other than the functional currency of the entity involved and those resulting from remeasurements of monetary items, are
included in our consolidated statements of operations.
Income Taxes
We use the liability method to determine our income tax provisions, under which current and deferred tax liabilities and
assets are recorded in accordance with enacted tax laws and rates. Under this method, the amounts of deferred tax liabilities
and assets at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or
recovered. Valuation allowances are established to reduce deferred tax assets when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Concentration of Credit Risk
Our revenues are derived from a concentrated customer base; however, we are not substantially dependent on any one
customer. Based on the nature of our contracts and customer projects, our significant customers can and typically do change
from year to year and the largest customers in any one year may not be indicative of the largest customers in the future.
In 2018 and 2017, we had four customers and three customers, respectively, that individually exceeded 10% of our
consolidated revenue from services and represented approximately 55% and 75%, respectively, of our consolidated revenue
from services.
Recently Adopted Accounting Pronouncements
On January 1, 2018, we adopted Accounting Standards Update (“ASU”) No. 2014–09, Revenue from Contracts with
Customers, and the related amendments. This ASU amended the existing accounting standards for revenue recognition and
requires companies to recognize revenue when control of the promised goods or services is transferred to a customer at an
amount that reflects the consideration a company expects to receive in exchange for those goods or services.
We elected to adopt ASU 2014–09 using the modified retrospective approach applied to those contracts that were not
completed as of January 1, 2018. Prior period amounts have not been adjusted and continue to be reflected in accordance
with our historical accounting. The adoption did not have a material impact on either our consolidated balance sheet or
consolidated statement of operations as of and for the year ended December 31, 2018.
On January 1, 2018, we adopted ASU 2016–16. Intra–Entity Transfers of Assets Other Than Inventory. ASU 2016–16
eliminated the deferral of tax effects of intra–entity asset transfers, other than inventory. As a result, the tax expense from the
intercompany sale of assets, other than inventory, and associated changes to deferred taxes are recognized when the sale
occurs even though the pre–tax effects of the transaction have not been recognized. We elected to adopt ASU 2016–16 using
the modified retrospective approach and recorded a $0.3 million cumulative effect adjustment to beginning accumulated
deficit.
41
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
On January 1, 2018, we adopted ASU 2017–01, Clarifying the Definition of a Business. ASU 2017–01 clarified the
definition of a business by adding guidance to assist entities with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The ASU provides a screen to determine when a set is not a business. If
the screen is not met, ASU 2017–01 (i) requires that to be considered a business, a set must include, at a minimum, an input
and a substantive process that together significantly contribute to the ability to create output and (ii) removes the evaluation
of whether a market participant could replace missing elements.
New Accounting Standards to be Adopted
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016–02, Leasing. The new
standard is intended to increase transparency and comparability among organizations by requiring the recognition of lease
assets and lease liabilities for virtually all leases and by requiring the disclosure of key information about leasing
arrangements. In July 2018, the FASB issued two amendments to ASU 2016–02. ASU 2018–10, Codification Improvements
to Topic 842, amends narrow aspects of the guidance in ASU 2016–02, and ASU 2018–11, Targeted Improvements, provides
a new optional transition method under which comparative periods presented in financial statements in the period of adoption
would not be restated. All these standards are effective for annual and interim periods beginning after December 15, 2018
and are to be applied using a modified retrospective approach. We adopted the new standards effective January 1, 2019 using
the optional transition method under ASU 2018–11.
The new standards provide for certain practical expedients when adopting the new guidance. We have elected the
practical expedient package outlined in ASU No. 2016–02 under which we can carryforward our previous classification of a
lease as either an operating or capital lease, and we do not have to reassess previously recorded initial direct costs.
Additionally, we made policy elections allowing us to exclude leases with original terms of 12 months or less from lease
assets and liabilities and to not separate nonlease components from the associated lease component and instead account for
both as a single lease component for all asset classes. We did not elect the practical expedient allowing us to use hindsight to
determine the lease term and to assess any impairment of lease assets during the lookback period.
We currently expect the adoption of the new standards to result in the recognition of right–of–use assets between a range
of approximately $7.5 million to $9.5 million and the corresponding lease liabilities between a range of approximately $7.5
million to $9.5 million. We do not expect the adoption of the new standards to have a material impact on our results of
operations or cash flows.
In January 2017, the FASB issued ASU 2017–04, Simplifying the Test for Goodwill Impairment. ASU 2017–04
simplifies how an entity is required to test goodwill for impairment by eliminating step two from the goodwill impairment
test, which measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the
carrying amount. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record
an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to
that reporting unit. ASU 2017–04 is to be applied prospectively and is effective for annual and interim impairment tests
performed in periods beginning after December 15, 2019. We will apply ASU 2017–04 to our goodwill impairment tests
after the adoption date and we do not expect the adoption of ASU 2017–04 to have a material impact on our consolidated
financial statements.
No other new accounting pronouncements issued or effective during the year ended December 31, 2018 have had or are
expected to have a material impact on our consolidated financial statements.
NOTE 3. ASSET PURCHASE
In June 2018, we entered into a stalking horse asset purchase agreement (the “Asset Purchase Agreement”) with
Geokinetics, Inc. (“GEOK”), pursuant to which we agreed to purchase substantially all of the assets of GEOK (the
“Purchased Assets”) and acquire certain liabilities related thereto in a transaction to be effected in GEOK’s bankruptcy
proceeding under Chapter 11 of Title 11 of the United States Bankruptcy Code.
In July 2018, the United States Bankruptcy Court for the Southern District of Texas approved the Asset Purchase
Agreement, and we completed the acquisition of the Purchased Assets for $18.4 million. In connection with the closing, we
entered into a new acquisition purchase money facility (the “PMF”) of approximately $23.4 million in aggregate principal
amount of borrowings, secured by the Purchased Assets, to fund the acquisition and pay related transaction costs.
Borrowings made under the PMF bore interest at a rate of 10.25% per annum. The PMF was repaid in full in September
2018.
42
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
The acquisition was accounted for as an asset acquisition, which requires that the total purchase price, including
transaction costs, be allocated to the assets acquired and the liabilities assumed based on their relative fair values.
The purchase price and the fair values of the acquired assets and assumed liabilities are as follows:
Purchase price ................................................................................................................................................ $
Transaction advisory fees and other acquisition costs ...................................................................................
Total purchase price ....................................................................................................................................... $
Accounts receivable ....................................................................................................................................... $
Property and equipment .................................................................................................................................
Intangible assets, net ......................................................................................................................................
Accrued liabilities ..........................................................................................................................................
Deferred revenue ............................................................................................................................................
Net assets acquired ......................................................................................................................................... $
18,411
3,338
21,749
8,589
12,484
3,642
(110)
(2,856)
21,749
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31:
Field operating equipment.........................................................
Transportation equipment..........................................................
Leasehold improvements...........................................................
Software.....................................................................................
Computer equipment .................................................................
Office equipment .......................................................................
Accumulated depreciation and amortization .............................
Property and equipment, net......................................................
Estimated
Useful Life
3 – 10 years
3 – 5 years
2 – 5 years
3 – 5 years
3 – 5 years
3 – 10 years
2018
2017
89,962 $
18,353
461
1,976
5,584
902
117,238
(81,904)
35,334 $
82,295
15,914
328
2,065
4,055
938
105,595
(72,649)
32,946
$
$
Depreciation expense relating to property and equipment was $11.4 million and $12.0 million in 2018 and 2017,
respectively. Additional depreciation expense not related to cost of services was $0.3 million in both 2018 and 2017 and is
included in “Selling, general and administrative expenses” in our consolidated statements of operations.
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Changes in the carrying value of goodwill were as follows for the years ended December 31:
Balance at beginning of year .......................................................................................... $
Foreign currency translation adjustment ........................................................................
Balance at end of year..................................................................................................... $
2018
2017
1,832 $
(145)
1,687 $
1,711
121
1,832
As of December 31, 2018, we have not recorded any impairments related to our goodwill and we believe that our
goodwill is recoverable; however, there can be no assurance that the goodwill will not be impaired in the future.
43
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Intangible Assets
Intangible assets are comprised of the following at December 31:
2018
Gross
Carrying
Amount
1,356
3,642
4,998
Accumulated
Amortization
(831)
$
(101)
(932)
$
$
$
2017
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
525 $
3,541
4,066 $
1,403 $
—
1,403 $
(732) $
—
(732) $
671
—
671
Customer relationships ... $
Technology .....................
$
Intangible assets are amortized on a straight–line basis with estimated useful lives ranging from 13 to 15 years.
Amortization expense was $0.2 million and $0.1 million in 2018 and 2017, respectively.
Amortization expense is expected to be $0.3 million for each of the five years in the period ended December 31, 2023 and
$2.6 million thereafter.
NOTE 6. LONG–TERM ACCOUNTS RECEIVABLE, NET
As of December 31, 2018, we have a $52.8 million accounts receivable, net of allowance for doubtful accounts of $19.0
million, from one customer. This is our single largest accounts receivable, constitutes the majority of our outstanding
accounts receivable and is the largest single asset on our consolidated balance sheet as of December 31, 2018. We have
classified this receivable as long–term because of the length of time we expect it will take for us to collect on it.
In 2018, our customer was successful in licensing and selling the seismic data and we received $3.6 million; however, at
this time, we believe that it is unlikely that the customer will be able to fully satisfy the receivable directly. Our customer
had historically relied on the monetization of exploration tax credits under an Alaska tax credit program (the “Tax Credits”),
which monetization was accomplished by receipt of payments from Alaska or from third party financing sources. However,
falling oil and natural gas prices have substantially reduced Alaska’s revenue from production taxes resulting in Alaska
paying only statutorily established minimum amount of appropriations for Tax Credit certificates in the last several fiscal
years rather than the amount to pay all the prior year’s Tax Credit certificates. In an effort to satisfy the accounts receivable,
our customer originally assigned to us $89.0 million of Tax Credit certificates and applications. As of December 31, 2018,
we have monetized approximately $17.6 million of Tax Credit certificates and have an estimated $62.3 million of Tax Credit
certificates and applications remaining for future monetization, net of actual and estimated audit adjustments related to issued
and anticipated Tax Credit certificates.
In February 2018, we were advised by Alaska that, so long as only the statutorily established minimum amount is paid
each year, we will not receive any payments until fiscal year 2021 and should not expect to be paid in full until fiscal year
2024. In June 2018, Alaska passed legislation allowing Alaska to issue bonds to pay its estimated $1.0 billion liability for
Tax Credit certificates. If issued, Alaska will use the proceeds from the bonds to purchase Tax Credit certificates. Seismic
companies will have two options from which to pick on a program–by–program basis. One option allows for the purchase of
the Tax Credit certificates at a 10% discount rate from the time the State would otherwise pay under the statutory minimum.
The second option allows for the purchase of the Tax Credit certificates at Alaska’s cost of capital (estimated to be
approximately 5.1%) but only if the seismic data is made publicly available.
In June 2018, based on assumptions made regarding the constitutionality of the bond issuance, the length of time until the
bonds could be issued, the data that we want to remain confidential, and the likelihood of a discount on our pending Tax
Credit application, we recorded a $19.0 million provision for doubtful accounts related to this receivable as the proceeds we
expect to receive from the bond issuance and any other potential future monetizations will not be sufficient to fully repay our
outstanding receivable.
44
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
While we continue to pursue other options to monetize the Tax Credits, at this time we believe that the most likely path to
monetize the Tax Credit certificates may be from proceeds that Alaska realizes from issuing its own bonds. This path,
however, has complexities and risks. A lawsuit was filed asserting constitutional challenges to Alaska’s ability to issue the
bonds; however, the Attorney General issued an opinion that the issuance of the bonds is not prohibited by the Alaskan
constitution and an Alaskan Superior Court judge threw out the lawsuit challenging the constitutionality of the issuance of
bonds. An appeal of the Superior Court’s ruling to the Alaska Supreme Court has been made. The Revenue Department of
the State of Alaska has indicated, however, that until the courts have resolved the legal issues, which we estimate may now
take up to an additional 18 months, it will not go into the bond markets.
NOTE 7. LONG–TERM DEBT, NET
Long–term debt, net consisted of the following as of December 31:
Credit facility:
Principal outstanding.................................................................................................... $
Unamortized debt issuance costs..................................................................................
Carrying amount...........................................................................................................
12,334 $
(125)
12,209
5,000
(599)
4,401
2018
2017
Senior loan facility - principal outstanding.....................................................................
29,000
29,995
6% senior secured convertible notes due 2023:
Principal outstanding....................................................................................................
Unamortized debt discount and debt issuance costs ....................................................
Carrying amount...........................................................................................................
60,000
(15,906)
44,094
10% senior secured notes due 2019:
Principal outstanding....................................................................................................
Unamortized debt issuance costs..................................................................................
Carrying amount...........................................................................................................
10% senior notes due 2019:
Principal outstanding....................................................................................................
Unamortized debt issuance costs..................................................................................
Carrying amount...........................................................................................................
Capital lease obligations .................................................................................................
—
—
—
6,957
(4)
6,953
1,234
Total debt ........................................................................................................................
Current portion of long-term debt ...................................................................................
Total long-term debt........................................................................................................ $
93,490
(7,837)
85,653 $
—
—
—
1,872
(25)
1,847
85,239
(189)
85,050
—
121,293
(995)
120,298
Debt Exchange
In January 2018, we consummated an exchange offer and consent solicitation (the “Exchange”) related to our Senior
Notes due 2019 (the “Senior Notes”). Pursuant to a restructuring support agreement with holders of approximately 85% of
the par value our of Senior Notes, we exchanged $78.0 million of our Senior Notes and $7 thousand of our Senior Secured
Notes due 2019 (the “Senior Secured Notes”) for (i) 0.04 million shares of common stock, (ii) 0.03 million shares of Series A
preferred stock, (iii) 0.9 million shares of Series B preferred stock, and (iv) 8.3 million Series C warrants. The Exchange was
accounted for as an extinguishment as we were legally released of our obligations upon delivery and acceptance of the
respective equity securities and we recognized a gain of $0.1 million.
45
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Credit Facility
As of December 31, 2018, we have a $30.0 million credit facility that expires in August 2021. Under the terms of the
credit facility, $22.0 million is immediately available with the remaining $8.0 million becoming available upon the consent of
lenders holding 66 ⅔% of the aggregate of advances and commitments under our credit facility. Borrowings under the credit
facility are secured primarily by substantially all our assets located in the United States, subject to certain exclusions. We
may use borrowing under the credit facility for working capital purposes and general corporate purposes.
The credit facility does not require any repayments of amounts outstanding until it expires in August 2021; however, the
credit facility does require a mandatory prepayment with the proceeds from any payment or monetization of the Tax Credits.
Borrowings under the credit facility bear interest at a rate of 11.75% through and including August 2020 and 12.75%
thereafter.
Senior Loan Facility
As of December 31, 2018, we have a $30.0 million senior loan facility that expires in January 2020. Borrowings under
the senior loan facility are secured primarily by substantially all the collateral securing the obligation under our credit facility.
This security interest is junior to the security interest in the collateral securing the obligations under our credit facility.
The senior loan facility does not require any repayments of amounts outstanding until in expires in January 2020;
however, the senior loan facility does require a mandatory prepayment with the proceeds from any payment or monetization
of the Tax Credits once the credit facility has had cumulative prepayments of $30.0 million.
Borrowings under the senior loan facility bear interest at a rate of 11.50% through and including August 2019 and
12.50% thereafter.
6% Senior Secured Convertible Notes due 2023
In September 2018, we issued $60.0 million of 6% Senior Secured Convertible Notes due 2023 (the “2023 Notes”) under
an indenture dated September 26, 2018 (the “2023 Indenture”). The 2023 Notes mature in September 2023, and interest is
payable quarterly in arrears on March 15, June 15, September 15 and December 15 of each year.
We may not redeem the 2023 Notes prior to October 1, 2021. After that date, we may redeem all or part of the 2023
Notes, at our option, if the last reported sale price of our common stock has been at least 150% of the conversion price then in
effect (i) on the trading day immediately preceding the date of which we provide notice of redemption and (ii) for at least 20
trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading
day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the
principal amount of the 2023 Notes to be redeemed, payable in cash, plus accrued and unpaid interest and any make whole
premium (as described in the 2023 Indenture).
In the event of a fundamental change, as defined in the 2023 Indenture, holders of the 2023 Notes may, subject to certain
restrictions, require us to repurchase for cash all or a portion of their notes equal to $1,000 or a multiple of $1,000 at a
fundamental change repurchase price equal to 100% of the principal amount of 2023 Notes, plus accrued and unpaid interest,
if any, to, but not including, the fundamental change repurchase date.
Upon the occurrence of an event of default, as defined in the 2023 Indenture, the trustee or the holders of at least 25% in
aggregate principal amount of the 2023 Notes then outstanding may declare 100% of the principal of, and accrued and unpaid
interest on, all the 2023 Notes to be due and payable immediately.
The 2023 Notes are convertible at the option of the holder into shares of common stock or, for certain holders (as defined
in the 2023 Indenture), warrants to purchase an equal number of shares of common stock at an exercise price of $0.0001 per
share, subject to customary adjustments. The initial conversion rate is 173.91304 shares of common stock or warrants per
$1,000 principal amount, representing an initial conversion price of approximately $5.75 per share. The conversion rate is
subject to adjustment upon the occurrence of certain events, as defined in the 2023 Indenture. We can satisfy the conversion
obligation, at our option, in either cash, shares of common stock, warrants or a combination thereof.
46
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
When the 2023 Notes were issued, we accounted for the debt and equity components of the 2023 Notes separately, as we
have the option to settle the conversion obligation in cash. At the date of issuance, we calculated the fair value of the 2023
Notes, excluding the conversion feature, based on the fair value of similar non–convertible debt instruments. The difference
between the cash proceeds and the estimated fair value represented the value which was assigned to the equity component
and recorded as a debt discount. The debt discount is being amortized using the effective interest rate method over the period
from issuance to the maturity date of September 26, 2023. The carrying amount of the equity component of the 2023 Notes
reported in additional paid in capital was initially valued at $15.4 million, which is net of $0.3 million of debt issuance costs
allocated to the equity component.
As the closing price of our common stock at December 31, 2018 was less than the initial conversion price for the 2023
Notes, the if–converted value of the 2023 Notes would be less than the principal amount.
In 2018, we recorded interest expense of $1.6 million related to the 2023 Notes, of which $1.0 million related to
contractual interest expense.
10% Senior Secured Notes due 2019
Our Senior Secured Notes were issued in July 2015 and were to mature in July 2019. Interest was payable semi–annually
in arrears on January 15 and July 15 of each year. We repaid in full our Senior Secured Notes in July 2018.
10% Senior Notes due 2019
In July 2016, we issued our Senior Notes under an indenture dated July 27, 2016 (the “Senior Notes Indenture”). The
Senior Notes mature in September 2019, and interest is payable quarterly in arrears on January 15, April 15, July 15 and
October 15 of each year.
We had the election to pay interest on the Senior Notes in kind with additional Senior Notes for any interest payment
dates through, and including, July 15, 2017 provided that, if we made this election, the interest on the Senior Notes for such
in kind payments would accrue at 1% higher that the cash interest rate of 10%. In 2017, we elected to pay interest in kind of
$4.8 million, which was capitalized within the Senior Notes balance.
Borrowings under the Senior Notes were secured primarily by substantially all the collateral securing the obligation under
our credit facility and our senior loan facility, but the collateral was released in conjunction with the Exchange.
We may redeem up to $35.0 million of the Senior Notes at a redemption price of 100% of the principal amount of the
Senior Notes out of proceeds from the payment or monetization of the Tax Credits provided that we have repaid in full our
credit facility and senior loan facility.
In the event of a change in control, as defined in the Senior Notes Indenture, holders of the Senior Notes will have the
right to require us to repurchase their notes for a cash purchase price equal to 101% of the principal amounts of the Senior
Notes, plus accrued and unpaid interest, if any, to, but not including, the repurchase date.
Upon the occurrence of an event of default, as defined within the Senior Notes Indenture, the trustee or the holders of at
least 25% in aggregate principal amount of the Senior Notes then outstanding may declare 100% of the principal of, and
accrued and unpaid interest on, all the Senior Notes to be due and payable immediately. In addition, an applicable premium,
as defined in the Senior Notes Indenture, would also become immediately due and payable.
Debt Compliance
The credit agreements and indentures for our credit facility, senior loan facility, 2023 Notes and Senior Notes contain
certain representations, warranties, covenants and other terms and conditions which are customary for agreements of these
types. As of December 31, 2018, we were in compliance with these covenants.
47
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Maturities of Long–Term Debt
The maturities of our long–term debt, including capital leases, for each of the five years in the period ending December
31, 2023 are $7.8 million, $29.4 million, $12.3 million, $0.0 million and $60.0 million, respectively.
NOTE 8. COMMITMENTS AND CONTINGENCIES
Litigation
We are involved in various disputes or legal actions involving contractual and employment relationships, liability claims,
and a variety of other matters arising in the ordinary course of business. We do not believe the outcome of such disputes or
legal actions will have a material effect on our consolidated financial statements.
Operating Leases
We lease automobiles, office equipment and warehouse and office space under operating lease agreements that expire at
various dates through 2024. Certain leases contain renewal options and escalation provisions and generally require us to pay
utilities, insurance, taxes and other operating expenses.
Rental expense, net of sublease income, for all operating leases was $5.4 million and $4.7 million for 2018 and 2017,
respectively.
As of December 31, 2018, future minimum annual rental commitments due under noncancelable leases for each of the
five years in the period ending December 31, 2023 are $4.6 million, $2.9 million, $1.4 million, $1.1 million and $0.9 million,
respectively, and $1.1 million in the aggregate thereafter
NOTE 9. WARRANTS
Series A and Series B
As of December 31, 2018, we have 0.2 million Series A warrants and 0.2 million Series B warrants outstanding, both
with an expiration date of July 27, 2021. The Series A warrants and Series B warrants entitle the holders to purchase 0.05
shares of our common stock, have exercise prices of $10.30 and $12.88, respectively, and become exercisable 30 days in
advance of their expiration date.
Series C
In January 2018, we issued 8.3 million Series C warrants as an element of the Exchange (see Note 7). Each Series C
warrant entitles the holder to purchase 0.05 shares of our common stock, has an exercise price of $0.0001 and has no
expiration date. The Series C warrants are immediately exercisable by the holder and are exercisable by us in connection
with a full redemption of the Series A preferred stock and Series B preferred stock provided that it does not result in a holder
owning 10% or more of our outstanding shares of common stock, or upon a change in control. The Series C warrants were
recorded at $4.8 million based on an allocation of the Exchange consideration to the various share classes and securities
based on their relative fair values.
In 2018, 0.4 million of the Series C warrants were exercised. As of December 31, 2018, there are 7.9 million Series C
warrants outstanding.
48
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Series D
In March 2018, we issued 14.1 million Series D warrants in connection with the conversion of the Series B preferred
stock. Each warrant entitles the holder to purchase 0.05 shares of our common stock, has an exercise price of $0.0001 and has
no expiration date. The Series D warrants are immediately exercisable by the holders and are exercisable us in connection
with a full redemption of the Series A preferred stock and Series B preferred stock, provided that it does not result in a holder
owning 10% or more of our outstanding shares of common stock, or upon a change in control. The Series D warrants were
recorded at their fair value of $23.0 million, which was based on the price of our common stock as of the date of the
conversion as the Series D warrants have a nominal strike price, no expiration date and no other relevant restrictions.
In 2018, 2.4 million of the Series D warrants were exercised. As of December 31, 2018, there are 11.7 million Series D
warrants outstanding.
Series E
In September 2018, we issued 94.8 million Series E warrants in connection with the conversion of the Series A preferred
stock. Each warrant entitles the holder to purchase 0.05 shares of our common stock, has an exercise price of $0.0001 and
has no expiration date. The Series E warrants are immediately exercisable by the holders and are exercisable by us in
connection with a full redemption of the Series A preferred stock, provided that it does not result in a holder owning 10% or
more of our outstanding shares of common stock, or upon a change in control. The Series E warrants were recorded at their
fair value of $54.0 million, which was based on the price of our common stock as of the date of the conversion as the Series
E warrants have a nominal strike price, no expiration date and no other relevant restrictions.
In 2018, 27.0 million of the Series E warrants were exercised. As of December 31, 2018, there are 67.8 million Series E
warrants outstanding.
NOTE 10. STOCKHOLDERS’ EQUITY
Preferred Stock
We are authorized to issue 1.0 million shares of preferred stock with a par value of $0.0001 per share with such
designations, rights and preferences as may be determined from time to time by our Board of Directors.
Series A
In January 2018, we issued 0.03 million shares of Series A preferred stock as an element of the Exchange (see Note 7).
The Series A preferred stock had an 8.0% dividend payable quarterly in arrears and accumulated whether or not earned or
declared beginning April 1, 2018. In 2018, we issued dividends in kind valued at $1.6 million. Each outstanding share of
Series A preferred stock was convertible into 163.573 shares of common stock or, if an election was made by an eligible
holder, into warrants representing the right to receive 163.573 shares of common stock. The Series A preferred stock was
recorded at $62.0 million, less stock issuance costs of $3.6 million, based on an allocation of the Exchange consideration to
the various share classes and securities based on their relative fair values.
We evaluated the nondetachable conversion option embedded in the Series A preferred stock and determined that a
beneficial conversion feature (“BCF”) existed as of the closing date of the Exchange. As the intrinsic value of the BCF
exceeded the value allotted to the Series A preferred stock, we separately recognized a discount of $62.0 million as a
reduction to the value of the Series A preferred stock.
In September 2018, all the shares of the Series A preferred stock were converted into 0.7 million shares of common stock
and 94.8 million Series E warrants with an exercise price of $0.0001. Upon conversion, the Series A preferred stock was
derecognized, and we fully recognized the value of the BCF as a deemed dividend. As of December 31, 2018, there were no
issued or outstanding shares of Series A preferred stock.
Series B
49
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
In January 2018, we issued 0.9 million shares of Series B preferred stock as an element of the Exchange (see Note 7).
The Series B preferred stock had no stated dividend and dividends were at the discretion of our Board of Directors. Each
outstanding share of Series B preferred stock was convertible into 1.08689 shares of common stock or, if an election was
made by an eligible holder, into warrants representing the right to receive 1.08689 shares of common stock. The Series B
preferred stock was senior to our common stock and junior to the Series A preferred stock in the event of our liquidation.
The Series B preferred stock was recorded at $10.8 million based on an allocation of the Exchange consideration to the
various share classes and securities based on their relative fair values. Similar to the Series A preferred stock, we determined
that a BCF existed for the Series B preferred stock. As the intrinsic value of the BCF exceeded the value allotted to the
Series B preferred stock, we separately recognized a discount of $10.8 million as a reduction in the value of the Series B
preferred stock.
In March 2018, all the shares of the Series B preferred stock were converted into 0.2 million shares of common stock and
14.1 million Series D warrants with an exercise price of $0.0001. Upon conversion, the Series B preferred stock was
derecognized, and we fully recognized the value of the BCF as a deemed dividend. As of December 31, 2018, there were no
issued or outstanding shares of Series B preferred stock.
Common Stock
As of December 31, 2018, we are authorized to issue 40.0 million shares of common stock with a par value of $0.0001
per share.
The following table presents the changes in the number of shares outstanding for the years ended December 31:
2018
2017
Shares issued:
Balance at beginning of year ........................................................................................
Issue of shares upon vesting of restricted stock units ..................................................
Issue of shares on exercises of stock options ...............................................................
Issue of shares in the Exchange....................................................................................
Issue of shares on the conversion of the Series A preferred stock ...............................
Issue of shares on the conversion of the Series B preferred stock ...............................
Issue of shares on exercises of Series C warrants ........................................................
Issue of shares on exercises of Series D warrants ........................................................
Issue of shares on exercises of Series E warrants ........................................................
Balance as of end of year .............................................................................................
Shares held as treasury stock:
Balance at beginning of year ........................................................................................
Purchase of treasury stock............................................................................................
Balance as of end of year .............................................................................................
Shares outstanding as of end of year...............................................................................
NOTE 11. VARIABLE INTEREST ENTITY
473
268
16
41
704
225
16
117
1,351
3,211
2
109
111
3,100
470
3
—
—
—
—
—
—
—
473
—
2
2
471
We have a 49.0% interest in a business venture with Kuukpik Corporation (“Kuukpik”) that performs contracts for the
acquisition and development of geophysical and seismic data and for geophysical and seismic services and any and all related
work anywhere on the North Slope of Alaska (onshore or offshore). The venture receives 10% of our gross revenues from all
North Slope of Alaska contracts and will expire in December 2020.
50
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
This venture meets the definition of a variable interest entity (“VIE”). Based on our power to influence the significant
business activities of the business venture and our responsibility to absorb contract losses, we are deemed to be the primary
beneficiary of this VIE; therefore, we have consolidated the operating results, assets and liabilities of this VIE, with
Kuukpik’s portion of equity presented as “Noncontrolling interest” on our consolidated balance sheets and Kuukpik’s portion
of net income presented as “Net income attributable to noncontrolling interest” on our consolidated statements of operations.
In August 2017, we completed our project with SAE Nigeria Limited (“SAE Nigeria”), which had previously meet the
definition of a VIE, and all amounts due to us from SAE Nigeria were repaid. As a result, we no longer hold a variable
interest in or have a controlling interest in SAE Nigeria and no longer include the results of SAE Nigeria in our consolidated
financial statements.
NOTE 12. REVENUE FROM SERVICES
Deferred Costs on Contracts
In some instances, we incur third party costs that directly relate to the contract to fulfill the contract obligations. These
fulfillment costs are capitalized and amortized consistent with how the related revenue is recognized. Changes in our
deferred costs on contracts are as follows for the year ended December 31, 2018:
Balance at beginning of year..................................................................................................................... $
Fulfillment costs incurred .........................................................................................................................
Amortization of fulfillment costs ..............................................................................................................
Balance at end of year ............................................................................................................................... $
1,780
9,047
(7,110)
3,717
Deferred Revenue
Typically, our mobilization services are paid by the customer at the beginning of the contract while the revenue is
recognized as control transfers to the customer, which can result in deferred revenue. Normally all other revenue is billed as
work progresses, which generally will not result in significant deferred revenue except in those cases where a large
mobilization is required for the contract. Changes in our deferred revenue are as follows for the year ended December 31,
2018:
Balance at beginning of year..................................................................................................................... $
Acquired from GEOK ...............................................................................................................................
Cash received, excluding amounts recognized as revenue from services.................................................
Amounts recognized as revenue from services.........................................................................................
Balance at end of year ............................................................................................................................... $
1,477
2,856
6,521
(6,556)
4,298
Disaggregated Revenue
The following table disaggregates our revenue by major source for the year ended December 31, 2018:
North
America
South
America
Asia
Pacific
Total
Type of contract:
Turnkey................................................... $
Term........................................................
Total ........................................................ $
58,184 $
8,283
66,467 $
22,412 $
912
23,324 $
3,846 $
967
4,813 $
84,442
10,162
94,604
51
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Remaining Performance Obligations
As of December 31, 2018, we had $184.9 million of remaining performance obligations.
We expect to recognize revenue of approximately 99% of these performance obligations in 2019 and the remaining
approximately 1% in 2020.
NOTE 13. EQUITY–BASED COMPENSATION
We have a long–term incentive plan for our directors, officers, employees, consultants and advisors. This plan allows for
the issuance of stock options (both incentive and non–qualified), stock appreciation rights (“SARs”), restricted stock awards
(“RSAs”), restricted stock units (“RSUs”), other stock–based awards and cash–based awards. As of December 31, 2018, we
have 2.8 million shares authorized for issuance under this plan, and 2.1 million shares remain available for grant.
Awards that expire or are cancelled without delivery of shares generally become available for issuance under this plan.
Shares that are used or withheld to satisfy tax obligations are not available for issuance under this plan. We can either issue
new shares, use shares held in treasury or purchase shares of our common stock to satisfy vesting of awards under this plan.
Stock Options
In 2016, we granted non–qualified stock options (“NQSOs”) to our senior management. The NQSOs were granted at an
exercise price equal to the market value of our common stock on the grant date, and the fair value of the NQSOs was
determined using a Black–Scholes option pricing model. The NQSOs have contractual terms of 10 years and were to vest in
three equal annual installments. We did not grant any stock options in 2018 or 2017.
In January 2018, our Board accelerated the vesting of the NQSOs that were outstanding as of December 31, 2017, causing
us to accelerate the recognition of $0.3 million in equity–based compensation costs.
Activity related to NQSOs is as follows:
Outstanding at January 1, 2018 ......................................................................................
Exercised.........................................................................................................................
Outstanding at December 31, 2018 ................................................................................
15,575 $
(15,575)
— $
Number of
Options
Weighted
Average
Exercise Price
203.80
203.80
—
The fair value of NQSOs vested in 2018 and 2017 was $0.8 million and $0.4 million, respectively.
Restricted Stock Units
An RSU is an award where each unit represents the right to receive the value of one share of our common stock at the
date of vesting. RSUs may be settled by, at our discretion, either the issuance of our common stock, cash or a combination
thereof based on the fair market value of the common stock on the date of exercise.
In January 2018, our Board accelerated the vesting of the RSUs that were outstanding as of December 31, 2017, causing
us to accelerate the recognition of $0.6 million in equity–based compensation costs.
In August 2018, our Board accelerated the vesting of a portion of the RSUs that were granted to our senior management
in 2018, causing us to accelerate the recognition of $5.1 million in equity–based compensation costs.
52
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Activity related to RSUs is as follows:
Number of
RSUs
Weighted
Average Grant
Date Fair
Value
Nonvested at January 1, 2018.........................................................................................
Granted ...........................................................................................................................
Vested .............................................................................................................................
Nonvested at December 31, 2018...................................................................................
10,383 $
622,274
(373,740)
258,917 $
157.00
22.78
23.86
26.60
The fair value of RSUs granted in 2018 was $14.2 million. No RSUs were granted in 2017. The fair value of RSUs
vested in 2018 and 2017 was $5.3 million and $0.3 million.
As of December 31, 2018, we had $5.1 million of unrecognized compensation cost related to unvested RSUs which is
expected to be recognized over a weighted average period of 2.1 years.
Additionally, as of December 31, 2018, we have 0.1 million RSUs that are vested but have not yet settled. These RSUs
were granted to our outside directors in 2018.
Equity–Based Compensation Cost
Equity–based compensation cost is measured at the date of grant based on the calculated fair value of the award and is
generally recognized on a straight–line basis over the requisite service period, including those with graded
vesting. Forfeitures are accounted for as they occur.
We recognized equity–based compensation costs of $10.1 million and $1.9 million in 2018 and 2017, respectively. These
costs are included in “Selling, general and administrative expenses” on our consolidated statements of operations.
NOTE 14. EMPLOYEE BENEFIT PLANS
We have a defined contribution 401(k) plan for all eligible employees of our U.S. operations and a Retirement Registered
Saving Plan for all eligible employees of our Canadian operations. These plans are discretionary and allow for the match of
each employee’s contributions up to the maximum allowed under these plans. For 2018 and 2017, we made no matching
contributions and had no expenses related to these plans.
NOTE 15. INCOME TAXES
In December 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted into law. The Act, among other things, reduced
the U.S. federal corporate tax rate from 35% to 21%, required companies to pay a transition tax of earnings of certain foreign
subsidiaries that were previously not subject to U.S. tax and created new income taxes on certain foreign sourced earnings.
Given the significant complexity of the Act and the lack of clear tax and accounting guidance for the Act, the SEC issued
Staff Accounting Bulletin (“SAB”) No. 118 which provides guidance of accounting for the tax effects of the Act and allows
for adjustments to provisional amounts during a measurement period of up to one year. In 2017, pursuant to SAB No. 118,
we made reasonable estimates related to (i) the remeaurement of U.S. deferred tax balances for the reduction in the tax rate,
(ii) the liability for the transition tax and (iii) the taxes accrued relating to the change in permanent reinvestment assertion for
unremitted earnings of certain foreign subsidiaries. As a result, we recognized a net provisional income tax benefit of $8.3
million in 2017 associated with these items, which was offset by a valuation allowance of the same amount.
In 2018, we revised these provisional amounts and recognized no additional income tax benefit. In determining the
measurement period adjustments, we assessed regulatory guidance that was issued to determine the impact on the provisional
estimates recognized in 2017. In addition, we gathered information and performed additional analysis on these estimates,
including, but not limited to, the amount of earnings and profits subject to the transition tax, the calculation of foreign tax
credits, the local tax treatment of future distributions of unremitted earnings and in regard to the remeasurement of U.S.
deferred taxes, the filing of our 2017 federal and state income tax returns.
53
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
As of December 31, 2018, we have completed our accounting for the tax effects of the Act.
The provision for income taxes is comprised of the following for the years ended December 31:
Current:
U.S................................................................................................................................ $
Foreign..........................................................................................................................
Total current ................................................................................................................. $
Deferred:
U.S................................................................................................................................ $
Foreign..........................................................................................................................
Total deferred ...............................................................................................................
Income taxes ................................................................................................................... $
— $
(190)
(190) $
— $
2,614
2,614
2,424 $
—
3,783
3,783
—
530
530
4,313
2018
2017
The geographic sources of our loss before income taxes are as follows for the years ended December 31:
U.S................................................................................................................................... $
Foreign ............................................................................................................................
Total ................................................................................................................................ $
2018
2017
(64,599) $
(15,672)
(80,271) $
(33,327)
(1,144)
(34,471)
The provision for income taxes differs from the amount computed by applying the U.S. statutory income tax rate to the
loss before income taxes for the reasons set forth below for the years ended December 31:
Taxes at the U.S. federal statutory income tax rate......................................................... $
Change in federal statutory income tax rate....................................................................
Nondeductible expenses..................................................................................................
Change in valuation allowance .......................................................................................
Effect of foreign operations ............................................................................................
Effect of U.S. operations.................................................................................................
Other................................................................................................................................
Provision for income taxes.............................................................................................. $
(16,857) $
—
3,134
21,579
(1,654)
(3,778)
—
2,424 $
(12,065)
8,272
1,398
5,299
1,865
—
(456)
4,313
2018
2017
54
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effects of our temporary
differences and net operating losses (“NOL”) are as follows for the years ended December 31:
Deferred tax assets:
Operating loss carryforwards ....................................................................................... $
Other accrued expenses ................................................................................................
Tax credit carryforwards ..............................................................................................
Other.............................................................................................................................
Total deferred tax asset.................................................................................................
Valuation allowance .....................................................................................................
Total deferred tax asset, net..........................................................................................
Deferred tax liabilities:
Property and equipment................................................................................................
Intangible assets ...........................................................................................................
Total deferred tax liabilities .........................................................................................
Net deferred tax asset ...................................................................................................... $
2018
2017
36,727 $
6,161
2,240
3,917
49,045
(44,233)
4,812
(1,822)
(975)
(2,797)
2,015 $
22,404
2,226
2,087
1,537
28,254
(22,651)
5,603
(671)
(340)
(1,011)
4,592
At December 31, 2018, we had approximately $1.4 million of foreign tax credits which will start to expire in 2022 under
applicable foreign law and $0.9 million of other credits, the majority of which will expire after 2038 under U.S. tax law.
As of December 31, 2018, we also had U.S. federal tax NOL carryforwards of $98.9 million, which begin to expire in
2034. These NOL carryforwards, subject to certain requirements and restrictions, including limitations on their use in the
event of future ownership changes, may be used to offset future taxable income and thereby reduce our U.S. federal income
taxes otherwise payable.
We record a valuation allowance when it is more likely than not that some portion of all the deferred tax assets will not be
utilized. The ultimate realization of the deferred tax assets depends on the ability to generate sufficient taxable income of the
appropriate character in the future and in the appropriate taxing jurisdictions. At December 31, 2018, $44.2 million of
valuation allowances are recorded against various deferred tax assets, including foreign NOLs of $11.2 million, U.S. federal
and tax credit carryforwards of $2.2 million and other U.S. NOL carryforwards of $4.8 million.
As of December 31, 2018, we have $1.3 million of deferred tax assets related to foreign NOLs without a valuation
allowance as we expect that the deferred tax assets will be realized within the carryforward period.
We have provided no deferred taxes for earnings of certain of our foreign subsidiaries as these earnings have been and,
under current plans, will continue to be permanently reinvested in these foreign subsidiaries.
At December 31, 2018, we had $0.2 million of tax liabilities for total gross unrecognized tax benefits related to uncertain
tax positions. The following table presents the changes in our gross unrecognized tax benefits for the years ended December
31:
Balance at beginning of year........................................................................................... $
Additions for tax positions taken in prior years ..............................................................
Balance at end of year ..................................................................................................... $
2018
2017
192 $
(23)
169 $
—
192
192
We do not expect to recognize any significant increases or decreases in unrecognized tax benefits during the next twelve–
month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in our provision for income
taxes.
We conduct business in more than 15 countries and are subject to income taxes in most taxing jurisdictions in which we
operate. We believe there are no jurisdictions in which the outcome of unresolved issues or claims is likely to be material to
our results of operations, financial position or cash flows. We further believe that we have made adequate provision for all
income tax uncertainties.
55
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
NOTE 16. LOSS PER COMMON SHARE
Our Series C warrants, Series D warrants and Series E warrants are considered to be participating securities as they are
entitled to dividends based on dividends paid on our common stock. Accordingly, beginning in 2018, we are now required to
apply the two–class method to calculate basic and diluted loss per share. Under the two–class method, basic loss per share is
computed by dividing net loss available to common stockholders, after deducting the amount allocated to participating
securities, by the weighted average number of common shares outstanding during each period. Diluted loss per share is
computed by dividing net loss available to common stockholders, after deducting the amount allocated to participating
securities, by the sum of the weighted average number of shares outstanding during each period and the dilutive potential
common shares outstanding during the period determined under the treasury stock method.
The computation of basic and diluted net loss per share is as follows for the years ended December 31:
Net loss attributable to SAExploration........................................................................................................... $
Amortization of discount on Series A and Series B preferred stock..............................................................
Accretion of Series A preferred stock to redemption value ...........................................................................
Dividends on Series A preferred stock...........................................................................................................
Allocation of earnings to participating securities (1).......................................................................................
Loss available to common stockholders of SAExploration ........................................................................... $
2018
(83,600)
(72,762)
21,376
(1,614)
—
(136,600)
Weighted average common shares outstanding (basic and diluted) ..............................................................
1,336
Loss per share available to common stockholders of SAExploration (basic and diluted) ............................. $
(102.25)
Potentially anti-dilutive shares excluded from diluted loss available to common stockholders
of SAExploration (2)......................................................................................................................................
15,083
2017
Net loss attributable to SAExploration........................................................................................................... $
(40,756)
Weighted average common shares outstanding (basic and diluted) ..............................................................
469
Net loss per share (basic and diluted)............................................................................................................. $
(86.90)
Potentially anti-dilutive shares excluded from diluted loss per share (2)........................................................
26
(1) Participating securities are not allocated losses as they do not participate in losses.
(2)
Includes warrants, unvested equity–based compensation and the shares underlying our 2023 Notes as their effect, if
included, would have been anti–dilutive.
56
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers
to fair values determined based on quoted prices in active markets for identical assets or liabilities. Level 2 refers to fair
values determined based on quoted prices for similar assets or liabilities in active markets or inputs that are observable to the
asset or liability, either directly or indirectly through market corroboration. Level 3 refers to fair values determined based on
unobservable inputs used in the measurement of assets and liabilities at fair value.
The estimated fair values of our financial instruments have been determined at discrete points in time based on relevant
market information. Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable,
accounts payable, accrued liabilities and long–term debt. The carrying amounts of our financial instruments, other than our
2023 Notes, Senior Secured Notes and Senior Notes, approximate fair value because of the short–term nature of the items.
As of December 31, 2018, the estimated aggregate fair value of our 2023 Notes and Senior Notes was $50.7 million,
which differs from the aggregate carrying value of $51.0 million. As our 2023 Notes are not actively traded, the fair value
determination of the 2023 Notes is categorized as Level 3 as the valuation was based on valuation techniques when
observable market data is not available. The fair value determination of our Senior Notes is categorized as Level 2 as this
valuation used dealer quoted prices in active markets obtained from independent third–party sources.
As of December 31, 2017, the estimated aggregate fair value of our Senior Secured Notes and Senior Notes was $32.3
million, which differs from the aggregate carrying value of $86.9 million. These fair value determinations are categorized as
Level 2 as these valuations used dealer quoted prices in active markets obtained from independent third–party sources.
NOTE 18. OTHER SUPPLEMENTAL INFORMATION
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash are recorded in our consolidated balance sheets as follows at December 31:
Cash and cash equivalents............................................................................................... $
Restricted cash ................................................................................................................
Total cash, cash equivalents and restricted cash ............................................................. $
2018
2017
7,192 $
271
7,463 $
3,613
41
3,654
Restricted cash primarily consists of cash collateral for labor claims, office rental and cash in another country restricted
by exchange control regulations.
Accounts Receivable, net
Total accounts receivable, net is comprised of the following at December 31:
Trade receivables ............................................................................................................ $
Other receivables.............................................................................................................
Total accounts receivable................................................................................................
Less: allowance for doubtful accounts............................................................................
Total accounts receivable, net .........................................................................................
Current accounts receivable, net .....................................................................................
Long-term accounts receivable, net ................................................................................ $
95,219 $
1,977
97,196
(19,533)
77,663
24,859
52,804 $
82,115
2,104
84,219
(12)
84,207
6,105
78,102
2018
2017
57
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Accrued Liabilities
Accrued liabilities are comprised of the following at December 31:
Accrued payroll liabilities ............................................................................................... $
Accrued interest ..............................................................................................................
Other accrued liabilities ..................................................................................................
Total accrued liabilities ................................................................................................... $
3,622 $
306
6,570
10,498 $
2,781
1,877
1,653
6,311
2018
2017
Other accrued liabilities primarily consist of accruals for project related expenses.
Supplemental Cash Flows Information
Supplemental cash flows information is as follows for the years ended December 31:
Cash paid for interest ...................................................................................................... $
Cash paid for income taxes .............................................................................................
9,412 $
2,487
6,154
7,668
2018
2017
Noncash Transactions
Noncash transactions are as follows at December 31:
Costs to issue stock included in prepaid expenses and other current assets ................... $
Costs for additions to property and equipment acquired in a capital lease.....................
Costs for additions to property and equipment in accounts payable...............................
Costs to issue debt included in accounts payable ...........................................................
1,442 $
1,504
—
—
—
—
49
550
2018
2017
NOTE 19. RELATED PARTY TRANSACTIONS
Mr. Hastings, our Chief Executive Officer and Chairman of the Board of Directors, owns and controls Speculative
Seismic Investments, LLC (“SSI”), which holds 1,350 shares of our common stock, and controls CLCH, LLC, which holds
1,201 shares of our common stock.
As of December 31, 2018, SSI is a lender under our senior loan facility in the principal amount of $0.6 million. Mr.
Hastings is also a lender under our credit facility in the principal amount of $0.8 million and was an initial purchaser of our
2023 Notes in the principal amount of $1.0 million.
58
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
NOTE 20. GEOGRAPHIC AND RELATED INFORMATION
The following table presents consolidated revenue from services based on the location of the services provided for the
years ended December 31, and long–lived assets, which includes property and equipment, goodwill, intangible assets and
other assets, by its geographic location at December 31:
Revenue from Services
2017
2018
Long-Lived Assets
2018
2017
North America:
United States.................................................... $
Canada .............................................................
Total.................................................................
45,657 $
20,810
66,467
40,504 $
14,459
54,963
39,068 $
3,888
42,956
South America:
Colombia .........................................................
Other ................................................................
Total.................................................................
Asia Pacific:
New Zealand....................................................
Other ................................................................
Total.................................................................
West Africa:
22,443
881
23,324
—
4,813
4,813
30,268
2,404
32,672
4,266
—
4,266
185
62
247
—
599
599
Nigeria .............................................................
Total.................................................................
Consolidated....................................................... $
—
—
94,604 $
35,121
35,121
127,022 $
—
—
43,802 $
NOTE 21. SUPPLEMENTAL GUARANTOR INFORMATION
33,647
3,625
37,272
1,396
1,844
3,240
—
471
471
—
—
40,983
Our 2023 Notes and Senior Notes are fully and unconditionally guaranteed, jointly and severally, by all our wholly–
owned U.S. subsidiaries (collectively, the “Guarantors”), and not by any of our foreign subsidiaries. Supplemental
condensed consolidating financial information, including such information for the Guarantors, is presented below.
The following financial information should be read in conjunction with the consolidated financial statements herein. The
financial information may not necessarily be indicative of financial position, results of operations or cash flows had the non–
guarantor subsidiaries operated as independent entities.
Investments in subsidiaries are presented using the equity method of accounting. The principal elimination entries
eliminate investments in subsidiaries and intercompany balances and transactions. Separate financial statements of the
Guarantors are not provided as the consolidating financial information contained herein provides a more meaningful
disclosure to allow investors to determine the nature of the assets held by, and the operations of, the combined groups.
59
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidated Balance Sheets
SAExploration
Holdings, Inc.
The
Guarantors
December 31, 2018
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Current assets:
ASSETS
Cash and cash equivalents .................................... $
Restricted cash ......................................................
Accounts receivable, net .......................................
Deferred costs on contracts ...................................
Prepaid expenses and other current assets ............
Total current assets ...............................................
Property and equipment, net.....................................
Investment in subsidiaries ........................................
Intercompany receivables.........................................
Goodwill...................................................................
Intangible assets, net.................................................
Long-term accounts receivable, net..........................
Deferred income taxes..............................................
Other assets...............................................................
Total assets ............................................................... $
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable .................................................. $
Accrued liabilities .................................................
Income and other taxes payable ............................
Current portion of long-term debt.........................
Deferred revenue...................................................
Total current liabilities ..........................................
28 $
—
—
—
63
91
—
(101,642)
183,675
—
—
—
—
2,448
84,572 $
4,223 $
—
16,520
3,491
460
24,694
32,839
33,628
—
—
3,541
52,804
—
239
147,745 $
2,941 $
271
8,339
226
2,290
14,067
2,495
7,499
—
1,687
525
—
2,015
28
28,316 $
— $
—
—
—
—
—
—
60,515
(183,675)
—
—
—
—
—
(123,160) $
289 $
906
210
6,953
—
8,358
6,572 $
6,761
359
884
4,298
18,874
3,242 $
2,831
2,762
—
—
8,835
— $
—
—
—
—
—
Intercompany payables.............................................
Long-term debt .........................................................
Other long–term liabilities........................................
—
73,094
300
126,678
12,559
—
56,998
—
80
(183,676)
—
—
Stockholders’ equity (deficit):
Common stock ......................................................
Additional paid–in capital.....................................
Accumulated deficit ..............................................
Accumulated other comprehensive loss................
Treasury stock, at cost...........................................
SAExploration stockholders’ equity (deficit) .......
Noncontrolling interest .........................................
Total stockholders’ equity (deficit) .......................
Total liabilities and stockholders’ equity (deficit).... $
—
232,661
(227,975)
—
(1,866)
2,820
—
2,820
84,572 $
—
43,861
(58,452)
—
—
(14,591)
4,225
(10,366)
147,745 $
168
22,109
(56,839)
(3,035)
—
(37,597)
—
(37,597)
28,316 $
(168)
(65,970)
126,654
—
—
60,516
—
60,516
(123,160) $
7,192
271
24,859
3,717
2,813
38,852
35,334
—
—
1,687
4,066
52,804
2,015
2,715
137,473
10,103
10,498
3,331
7,837
4,298
36,067
—
85,653
380
—
232,661
(216,612)
(3,035)
(1,866)
11,148
4,225
15,373
137,473
60
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
SAExploration
Holdings, Inc.
The
Guarantors
December 31, 2017
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Current assets:
ASSETS
Cash and cash equivalents .................................... $
Restricted cash ......................................................
Accounts receivable, net .......................................
Deferred costs on contracts ...................................
Prepaid expenses and other current assets ............
Total current assets ...............................................
Property and equipment, net.....................................
Investment in subsidiaries ........................................
Intercompany receivables.........................................
Goodwill...................................................................
Intangible assets, net.................................................
Long-term accounts receivable, net..........................
Deferred income taxes..............................................
Other assets...............................................................
Total assets.................................................. $
LIABILITIES AND STOCKHOLDERS'
(DEFICIT) EQUITY
Current liabilities:
Accounts payable .................................................. $
Accrued liabilities .................................................
Income and other taxes payable ............................
Current portion of long-term debt.........................
Deferred revenue...................................................
Total current liabilities ..........................................
8 $
—
—
—
3,162
3,170
—
(32,901)
134,502
—
—
—
—
5,352
110,123 $
1,782 $
1,885
10
995
—
4,672
Intercompany payables.............................................
Long-term debt .........................................................
Other long-term liabilities ........................................
—
115,897
300
Stockholders’ (deficit) equity
Common stock ......................................................
Additional paid–in capital.....................................
(Accumulated deficit) retained earnings ...............
Accumulated other comprehensive loss................
Treasury stock, at cost...........................................
SAExploration stockholders' (deficit) equity........
Noncontrolling interest .........................................
Total stockholders’ (deficit) equity ..........................
Total liabilities and stockholders’ (deficit) equity.... $
—
133,742
(144,375)
—
(113)
(10,746)
—
(10,746)
110,123 $
1,097 $
—
322
144
240
1,803
28,143
51,210
—
—
—
78,102
—
150
159,408 $
590 $
2,223
24
—
—
2,837
93,200
4,401
250
—
43,861
10,289
—
—
54,150
4,570
58,720
159,408 $
2,508 $
41
5,783
1,636
3,320
13,288
4,803
7,500
—
1,832
671
—
4,592
32
32,718 $
2,179 $
2,203
7,853
—
1,477
13,712
41,302
—
58
—
22,057
(39,329)
(5,082)
—
(22,354)
—
(22,354)
32,718 $
— $
—
—
—
—
—
—
(25,809)
(134,502)
—
—
—
—
—
(160,311) $
— $
—
—
—
—
—
(134,502)
—
—
—
(65,918)
40,109
—
—
(25,809)
—
(25,809)
(160,311) $
3,613
41
6,105
1,780
6,722
18,261
32,946
—
—
1,832
671
78,102
4,592
5,534
141,938
4,551
6,311
7,887
995
1,477
21,221
—
120,298
608
—
133,742
(133,306)
(5,082)
(113)
(4,759)
4,570
(189)
141,938
61
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Statements of Operations
SAExploration
Holdings, Inc.
The
Guarantors
Year Ended December 31, 2018
Other
Subsidiaries
Consolidating
Adjustments
Revenue from services.................................................. $
Cost of services .............................................................
Depreciation and amortization......................................
Gross loss ......................................................................
— $
—
—
—
48,346 $
42,284
8,247
(2,185)
46,258 $
43,781
2,864
(387)
Selling, general and administrative expenses ...............
14,743
34,221
10,969
Operating loss ...............................................................
(14,743)
(36,406)
(11,356)
Other income (expense), net .........................................
53
(13,483)
(4,336)
Loss before income taxes and equity in loss of
affiliates .....................................................................
(14,690)
(49,889)
(15,692)
Income taxes .................................................................
169
143
2,112
Loss before equity in loss of affiliates ..........................
(14,859)
(50,032)
(17,804)
— $
—
—
—
—
—
—
—
—
—
Total
Consolidated
94,604
86,065
11,111
(2,572)
59,933
(62,505)
(17,766)
(80,271)
2,424
(82,695)
Equity in loss of affiliates .............................................
(68,741)
(17,804)
—
86,545
—
Net loss .........................................................................
(83,600)
(67,836)
(17,804)
86,545
(82,695)
Less: net income attributable to noncontrolling
interest........................................................................
—
905
—
—
905
Net loss attributable to SAExploration ......................... $
(83,600) $
(68,741) $
(17,804) $
86,545 $
(83,600)
Comprehensive loss ...................................................... $
(83,600) $
(67,836) $
(15,757) $
86,545 $
(80,648)
Less: comprehensive income attributable to
noncontrolling interest ...............................................
—
905
—
—
905
Comprehensive loss attributable to SAExploration...... $
(83,600) $
(68,741) $
(15,757) $
86,545 $
(81,553)
62
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Revenue from services..............................................
Cost of services .........................................................
Depreciation and amortization..................................
Gross profit ...............................................................
Selling, general and administrative expenses ...........
Operating (loss) income............................................
$
SAExploration
Holdings, Inc.
—
—
—
—
$
The
Guarantors
Year Ended December 31, 2017
Other
Subsidiaries
Consolidating
Adjustments
75,625 $
51,244
8,019
16,362
51,397 $
41,985
3,706
5,706
3,943
(3,943)
11,052
10,601
5,310
(4,895)
Other expense, net.....................................................
(16,569)
(13,453)
(921)
Loss before income taxes and equity in loss of
affiliates..................................................................
(20,512)
(8,143)
(5,816)
Income taxes .............................................................
(5)
2,760
1,558
Loss before equity in loss of affiliates ......................
(20,507)
(10,903)
(7,374)
Total
Consolidated
127,022
93,229
11,725
22,068
25,596
(3,528)
(30,943)
(34,471)
4,313
(38,784)
— $
—
—
—
—
—
—
—
—
—
Equity in loss of affiliates .........................................
(20,249)
(7,297)
—
27,546
—
Net loss......................................................................
(40,756)
(18,200)
(7,374)
27,546
(38,784)
Less: net income (loss) attributable to
noncontrolling interest ...........................................
—
2,049
(77)
—
1,972
Net loss attributable to SAExploration ........................ $
(40,756)
$
(20,249) $
(7,297) $
27,546 $
(40,756)
Comprehensive loss ..................................................
$
(40,756)
$
(18,200) $
(7,634) $
27,546 $
(39,044)
Less: comprehensive income (loss) attributable to
noncontrolling interest ............................................
—
2,049
(77)
—
1,972
Comprehensive loss attributable to SAExploration..... $
(40,756)
$
(20,249) $
(7,557) $
27,546 $
(41,016)
63
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
Condensed Consolidating Statements of Cash Flows
SAExploration
Holdings, Inc.
The
Guarantors
Year Ended December 31, 2018
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Cash flows from operating activities:
Net cash used in operating activities..................... $
(1,853) $
(13,465) $
(13,650) $
— $
(28,968)
Cash flows from investing activities:
Asset purchase
Purchase of property and equipment.....................
Proceeds from sale of property and
equipment...........................................................
Investment in affiliate ...........................................
Net cash used in (provided by) investing
activities .............................................................
Cash flows from financing activities:
Long-term debt repayments ..................................
Long-term debt borrowings ..................................
Debt issuance costs ...............................................
Stock issuance costs ..............................................
Purchase of treasury stock ....................................
Intercompany lending ...........................................
Contribution from affiliate ....................................
Distribution to noncontrolling interest..................
Net cash provided by financing activities .............
Effect of exchange rate changes on cash, cash
equivalents and restricted cash ..............................
Net change in cash, cash equivalents and
restricted cash ........................................................
Cash, cash equivalents and restricted cash at
the beginning of year.............................................
Cash, cash equivalents and restricted cash at
the end of year ....................................................... $
—
—
—
—
—
(2,860)
60,000
(1,167)
(3,174)
(1,753)
(49,173)
—
—
1,873
—
20
8
(21,749)
(1,105)
260
(222)
(22,816)
(56,347)
63,411
(1,548)
—
—
35,141
—
(1,250)
39,407
—
3,126
1,097
—
(157)
550
—
393
—
—
—
—
—
14,032
222
—
14,254
(334)
663
2,549
—
—
—
222
222
—
—
—
—
—
—
(222)
—
(222)
—
—
—
28 $
4,223 $
3,212 $
— $
(21,749)
(1,262)
810
—
(22,201)
(59,207)
123,411
(2,715)
(3,174)
(1,753)
—
—
(1,250)
55,312
(334)
3,809
3,654
7,463
64
SAExploration Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
SAExploration
Holdings, Inc.
The
Guarantors
Year Ended December 31, 2017
Other
Subsidiaries
Consolidating
Adjustments
Total
Consolidated
Cash flows from operating activities:
Net cash provided by (used in) operating
activities ............................................................. $
Cash flows from investing activities:
Purchase of property and equipment.....................
Proceeds from sale of property and
equipment...........................................................
Net cash used in investing activities .....................
Cash flows from financing activities:
Long-term debt repayments ..................................
Long-term debt borrowings ..................................
Purchase of treasury stock ....................................
Intercompany lending ...........................................
Dividend payments to affiliates ............................
Distribution to noncontrolling interest..................
Net cash (used in) provided by financing
activities .............................................................
Effect of exchange rate changes on cash, cash
equivalents and restricted cash ..............................
Net change in cash, cash equivalents and
restricted cash ........................................................
Cash, cash equivalents and restricted cash at
the beginning of year.............................................
Cash, cash equivalents and restricted cash at
the end of year ....................................................... $
2,750 $
3,619 $
(6,180) $
(4,742) $
(4,553)
—
—
—
(614)
—
(113)
(4,069)
—
—
(1,931)
1,850
(81)
(34,836)
33,401
—
(3,359)
—
(1,095)
(739)
60
(679)
(17)
—
—
7,428
(4,742)
—
(4,796)
(5,889)
2,669
—
2
243
(2,046)
(2,349)
(3,947)
2,054
3,446
6,496
—
—
—
—
—
—
—
4,742
—
4,742
—
—
—
(2,670)
1,910
(760)
(35,467)
33,401
(113)
—
—
(1,095)
(3,274)
245
(8,342)
11,996
8 $
1,097 $
2,549 $
— $
3,654
NOTE 22. SUBSEQUENT EVENTS (UNAUDITED)
In February 2019, we borrowed an additional $9.7 million under our credit facility and now have $22.0 million
outstanding. We also extended the maturity date of our senior loan facility to January 4, 2021.
As of March 19, 2019, we have issued 0.7 million shares of common stock through the exercise of our Series C warrants,
Series D warrants and Series E warrants thus far in 2019.
We evaluated subsequent events for appropriate accounting and disclosure through the date these consolidated financial
statements were issued and determined that there were no other material items that required recognition or disclosure in our
consolidated financial statements.
65
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In accordance with Exchange Act Rule 13a–15 and 15d–15, we carried out an evaluation, under the supervision and with
the participation of management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness
of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as
of December 31, 2018 to provide reasonable assurance that information required to be disclosed in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission’s rules and forms. Our disclosure controls and procedures include controls and
procedures designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted
under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a–15(f) and 15d–15(f) under the Exchange Act. Our internal control over financial reporting was
designed by management, under the supervision of the Chief Executive Officer and Chief Financial Officer, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the United States of America, and includes those
policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with accounting principles generally accepted in the United States of America, and that our receipts and
expenditures are being made only in accordance with authorizations of our management and directors; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may
deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Based on our evaluation, management has concluded that our internal control over financial reporting was effective as of
December 31, 2018.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the three months ended December
31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
66
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information for this item is incorporated by reference to our definitive Proxy Statement in connection with our 2019
annual stockholders’ meeting.
ITEM 11. EXECUTIVE COMPENSATION
Information for this item is incorporated by reference to our definitive Proxy Statement in connection with our 2019
annual stockholders’ meeting.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information for this item is incorporated by reference to our definitive Proxy Statement in connection with our 2019
annual stockholders’ meeting.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information for this item is incorporated by reference to our definitive Proxy Statement in connection with our 2019
annual stockholders’ meeting.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information for this item is incorporated by reference to our definitive Proxy Statement in connection with our 2019
annual stockholders’ meeting.
67
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) List of documents filed as part of this annual report:
(1) Financial Statements
All financial statements of the Registrant as set forth under Item 8 of this Annual Report on Form 10–K.
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are either not required, not applicable or the information
required to be presented is included in our consolidated financial statements and related notes thereto.
(3) Exhibits
The exhibits listed below are filed or furnished as part of this Annual Report on Form 10–K:
2.1
2.2
2.3
2.4
2.5
2.6
3.1
3.2
Agreement and Plan of Reorganization dated as of December 10, 2012, by and among Trio Merger Corp., Trio
Merger Sub, Inc., SAExploration Holdings, Inc. and CLCH, LLC (incorporated by reference from Exhibit 2.1 to
SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on December 11, 2012)
First Amendment to Agreement and Plan of Reorganization dated as of May 23, 2013, by and among Trio Merger
Corp., Trio Merger Sub, Inc., SAExploration Holdings, Inc. and CLCH, LLC (incorporated by reference from
Exhibit 2.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on May 28, 2013)
Restructuring Support Agreement dated as of June 13, 2016, among SAExpoloration Holdings, Inc., the members
of management identified therein and the supporting holders identified therein (incorporated by reference from
Exhibit 10.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on June 13,
2016)
Restructuring Support Agreement dated as of December 19, 2017, by and among SAExploration Holdings, Inc.,
certain subsidiaries of SAExplorations Holdings, Inc., the members of management identified therein and the
supporting holders identified therein (incorporated by reference from Exhibit 10.1 to SAExploration Holdings,
Inc.’s Current Report on Form 8–K filed with the SEC on December 20, 2017)
Asset Purchase Agreement dated as of June 26, 2018 by and among Geokinetics Inc., Geokinetics Holdings USA,
Inc., Geokinetics Processing, Inc., Geokinetics USA, Inc., Advanced Seismic Technology, Inc., Geokinetics
International Holdings, Inc., Geokinetics International, Inc., Geokinetics (Australia) PTY Ltd., Geokinetics
Exploration, Inc. and SAExploration, Inc. (incorporated by reference from Exhibit 2.1 to SAExploration
Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on July 2, 2018)
Amendment No. 1, dated as of July 25, 2018, to Asset Purchase Agreement dated as of June 26, 2018 by and
among Geokinetics Inc., Geokinetics Holdings USA, Inc., Geokinetics Processing, Inc., Geokinetics USA, Inc.,
Advanced Seismic Technology, Inc., Geokinetics International Holdings, Inc., Geokinetics International, Inc.,
Geokinetics (Australia) PTY Ltd., Geokinetics Exploration, Inc. and SAExploration Acquisitions (U.S.), LLC.
(incorporated by reference from Exhibit 2.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed
with the SEC on July 30, 2018)
Third Amended and Restated Certificate of Incorporation (incorporated by reference from Exhibit 3.1 to
SAExploration Holdings, Inc.’s Current Report on Form 8–K/A filed with the SEC on September 9, 2016)
Certificate of Amendment to Third Amended and Restated Certificate of Incorporation (incorporated by reference
from Exhibit 3.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on March 8,
2018)
68
3.3
3.4
3.5
3.6
3.7
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
Second Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation of
SAExploration Holdings, Inc. (incorporated by reference from Exhibit 3.1 to SAExploration Holdings, Inc.’s
Current Report on Form 8–K filed with the SEC on September 19, 2018)
Third Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation of
SAExploration Holdings, Inc. (incorporated by reference from Exhibit 3.2 to SAExploration Holdings, Inc.’s
Current Report on Form 8–K filed with the SEC on September 19, 2018)
Fourth Certificate of Amendment to Third Amended and Restated Certificate of Incorporation of SAExploration
Holdings, Inc. (incorporated by reference from Exhibit 3.1 to SAExploration Holdings, Inc.’s Current Report on
Form 8–K filed with the SEC on November 29, 2018)
Second Amended and Restated By–Laws (incorporated by reference from Exhibit 3.2 to SAExploration Holdings,
Inc.’s Current Report on Form 8–K filed with the SEC on August 1, 2016)
Amendment No. 1 to Second Amended and Restated By–Laws (incorporated by reference from Exhibit 3.2 to
SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on March 8, 2018)
Specimen Common Stock Certificate (incorporated by reference from Exhibit 4.1 to SAExploration Holdings,
Inc.’s Current Report on Form 8–K filed with the SEC on June 28, 2013)
Indenture, dated July 27, 2016, by and among SAExploration Holdings, Inc., the guarantors named therein and
Wilmington Savings Fund Society, FSB, as trustee and noteholder collateral agent (incorporated by reference
from Exhibit 4.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 1,
2016)
Notation of Guarantee executed July 27, 2016, among SAExploration Sub, Inc., SAExploration, Inc.,
SAExploration Seismic Services (US), LLC and NES, LLC (incorporated by reference from Exhibit 4.3 to
SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 1, 2016)
First Supplemental Indenture, dated January 26, 2018, to Indenture dated July 27, 2016 by and among
SAExploration Holdings, Inc., the guarantors named therein and Wilmington Savings Fund Society, FSB, as
trustee and noteholder collateral agent (incorporated by reference from Exhibit 4.1 to SAExploration Holdings,
Inc.’s Current Report on Form 8–K filed with the SEC on February 1, 2018)
Indenture, dated as of September 26, 2018, between SAExploration Holdings, Inc., the Guarantors from time to
time party thereto and Wilmington Savings Fund Society, FSB, as Trustee and Collateral Trustee (incorporated by
reference from Exhibit 4.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on
October 2, 2018)
Warrant Agreement, dated as of July 27, 2016 between SAExploration Holdings, Inc. and Continental Stock
Transfer & Trust Company, as Warrant Agent (incorporated by reference from Exhibit 10.3 to SAExploration
Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 1, 2016)
Warrant Agreement, dated as of January 29, 2018, between SAExploration Holdings, Inc. and Continental Stock
Transfer & Trust Company, as Warrant Agent and the form of Series C Warrant Certificates (incorporated by
reference from Exhibit 10.2 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on
February 1, 2018)
Warrant Agreement, dated as of March 8, 2018, between SAExploration Holdings, Inc. and Continental Stock
Transfer & Trust Company, as Warrant Agent and the form of Series D Warrant Certificates (incorporated by
reference from Exhibit 10.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on
March 8, 2018)
Warrant Agreement dated as of September 6, 2018 between SAExploration Holdings, Inc. and Continental Stock
Transfer & Trust Company, as Warrant Agent and the form of Series E Warrant Certificates (incorporated by
reference from Exhibit 4.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on
September 11, 2018)
69
4.10
4.11
4.12
4.13
4.14
10.1
10.2
Registration Rights Agreement dated June 24, 2013, by and between SAExploration Holdings, Inc. and CLCH,
LLC (incorporated by reference from Exhibit 10.7 to SAExploration Holdings, Inc.’s Current Report on Form 8–
K filed with the SEC on June 28, 2013)
Registration Rights Agreement dated July 27, 2016, between SAExploration Holdings, Inc. and the holders
named therein (incorporated by reference from Exhibit 10.2 to SAExploration Holdings, Inc.’s Current Report on
Form 8–K filed with the SEC on August 1, 2016)
First Amendment dated as of August 25, 2016 to Registration Rights Agreement dated July 27, 2016, between
SAExploration Holdings, Inc. and the holders named therein (incorporated by reference from Exhibit 10.1 to
SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 25, 2016)
Registration Rights Agreement, dated January 29, 2018, by and among SAExploration Holdings, Inc. and the
holders named therein (incorporated by reference from Exhibit 10.1 to SAExploration Holdings, Inc.’s Current
Report on Form 8–K filed with the SEC on February 1, 2018)
Registration Rights Agreement, dated as of September 26, 2018, by and among SAExploration Holdings, Inc.
and the Purchasers party thereto (incorporated by reference from Exhibit 10.2 to SAExploration Holdings, Inc.’s
Current Report on Form 8–K filed with the SEC on October 2, 2018)
Form of Indemnification Agreement (incorporated by reference From Exhibit 10.8 to SAExploration Holdings,
Inc.’s Current Report on Form 8–K filed with the SEC on June 28, 2013)
Third Amended and Restated Credit and Security Agreement, dated as of September 26, 2018, among
SAExploration, Inc., as Borrower, the Guarantors from time to time party thereto, the Lenders from time to time
party thereto and Cantor Fitzgerald Securities, as ABL Agent (incorporated by reference from Exhibit 10.4 to
SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on October 2, 2018)
10.3*
Amendment No. 1 to Third Amended and Restated Credit and Security Agreement, dated as of January 25, 2019,
among SAExploration, Inc., as Borrower, the Guarantors from time to time party thereto, the Lenders from time
to time party thereto and Cantor Fitzgerald Securities, as ABL Agent
10.4
10.5
10.6
10.7
10.8
10.9
Term Loan and Security Agreement, dated as of June 29, 2016, by and among SAExploration Holdings, Inc., as
borrower, the guarantors named therein, as guarantors, the lenders, from time to time party thereto, as lenders and
Delaware Trust Company, as collateral agent and administrative agent (incorporated by reference from Exhibit
10.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on July 1, 2016)
Amended and Restated Intercreditor Agreement, dated as of June 29, 2016, by and among Wells Fargo Bank,
National Association, as lender and collateral agent, Wilmington Savings Fund Society, FSB, as trustee and
collateral agent, Delaware Trust Company, as administrative agent, collateral agent and, upon execution of an
additional indebtedness joinder and designation, the additional noteholder agent (incorporated by reference from
Exhibit 10.2 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on July 1, 2016)
Amendment No. 1 dated as of October 24, 2016 to Term Loan and Security Agreement, dated as of June 29, 2016
(incorporated by reference from Exhibit 10.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K
filed with the SEC on October 27, 2016)
Amendment No. 2 dated as of September 8, 2017 to Term Loan and Security Agreement (incorporated by
reference from Exhibit 10.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC
on September 14, 2017)
Amendment No. 3 dated as of February 28, 2018 to Term Loan and Security Agreement (incorporated by
reference from Exhibit 10.2 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC
on March 2, 2018)
Amendment No. 4 dated as of July 25, 2018 to Term Loan and Security Agreement (incorporated by reference
from Exhibit 10.2 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on July 30,
2018)
70
10.10
Amendment No. 5 dated as of September 26, 2018 to Term Loan and Security Agreement (incorporated by
reference from Exhibit 10.6 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC
on October 2, 2018)
10.11*
Amendment No. 6 dated as of January 25, 2019 to Term Loan and Security Agreement
10.12
10.13
10.14
10.15
10.16
10.17
10.18*
10.19
10.20
10.21+
10.22+
10.23+
Amendment No. 7 dated as of March 5, 2019 to Term Loan and Security Agreement (incorporated by reference
from Exhibit 10.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on March
8, 2019)
Security Agreement, dated July 27, 2016, by and among SAExploration Holdings, Inc., the guarantors named
therein and Wilmington Savings Fund Society, FSB, as noteholder collateral agent (incorporated by reference
from Exhibit 10.1 to SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August
1, 2016)
Additional Indebtedness Joinder and Designation, dated as of July 27, 2016, by and among Wells Fargo Bank,
National Association, as ABL Agent, Wilmington Savings Fund Society, FSB, as Existing Noteholder Agent,
Delaware Trust Company, as Term Agent, and Wilmington Savings Fund Society, FSB, as Additional
Noteholder Agent (incorporated by reference from Exhibit 4.4 to SAExploration Holdings, Inc.’s Current Report
on Form 8–K filed with the SEC on August 1, 2016)
Amendment No. 1, dated as of January 26, 2018, to Security Agreement dated July 27, 2016, by and among
SAExploration Holdings, Inc., the Guarantors named therein and Wilmington Savings Fund Society, FSB, as
noteholder collateral agent (incorporated by reference from Exhibit 10.3 to SAExploration Holdings, Inc.’s
Current Report on Form 8–K filed with the SEC on February 1, 2018)
Note Purchase Agreement, dated as of September 26, 2018, between SAExploration Holdings, Inc. and the
Purchasers party thereto (incorporated by reference from Exhibit 10.1 to SAExploration Holdings, Inc.’s Current
Report on Form 8–K filed with the SEC on October 2, 2018)
Pledge and Security Agreement, dated as of September 26, 2018, by and among SAExploration Holdings, Inc.
and certain of its subsidiaries in favor of Wilmington Savings Fund Society, FSB, as Collateral Trustee
(incorporated by reference from Exhibit 10.3 to SAExploration Holdings, Inc.’s Current Report on Form 8–K
filed with the SEC on October 2, 2018)
Amendment No. 1 to Pledge and Security Agreement, dated as of January 25, 2019 by and among SAExploration
Holdings, Inc. and certain of its subsidiaries in favor of Wilmington Saving Fund Society, FSB, as Collateral
Trustee
Intercreditor Agreement, dated as of September 26, 2018, among Cantor Fitzgerald Securities, as ABL Agent,
Delaware Trust Company, as Term Agent and Wilmington Savings Fund Society, FSB, as Convertible
Noteholder Trustee, and acknowledged and consented to by SAExploration Holdings, Inc. and certain of its
subsidiaries (incorporated by reference from Exhibit 10.5 to SAExploration Holdings, Inc.’s Current Report on
Form 8–K filed with the SEC on October 2, 2018)
Form of Director and Officer Indemnification Agreement (incorporated by reference from Exhibit 10.4 to
SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 1, 2016)
Amended and Restated Executive Employment Agreement, dated August 3, 2016, by and between
SAExploration Holdings, Inc. and Jeff Hastings (incorporated by reference from Exhibit 10.1 to SAExploration
Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 9, 2016)
First Amendment to Amended and Restated Executive Employment Agreement, dated August 3, 2016, by and
between SAExploration Holdings, Inc. and Jeff Hastings (incorporated by reference from Exhibit 10.2 to
SAExploration Holdings, Inc.’s Quarterly Report on Form 10–Q filed with the SEC on August 21, 2017)
Second Amendment to Amended and Restated Executive Employment Agreement, dated January 29, 2018, by
and between SAExploration Holdings, Inc. and Jeff Hastings (incorporated by reference from Exhibit 10.20 to
SAExploration Holdings, Inc.’s Annual Report on Form 10–K filed with the SEC on March 16, 2018)
71
10.24+
10.25+
10.26+
10.27+
10.28+
10.29+
10.30+
10.31+
10.32+
10.33+
10.34+
10.35+
10.36+
10.37+
10.38+
Amended and Restated Executive Employment Agreement, dated August 3, 2016, by and between
SAExploration Holdings, Inc. and Brian Beatty (incorporated by reference from Exhibit 10.2 to SAExploration
Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 9, 2016)
First Amendment to Amended and Restated Executive Employment Agreement, dated August 3, 2016, by and
between SAExploration Holdings, Inc. and Brian Beatty (incorporated by reference from Exhibit 10.2 to
SAExploration Holdings, Inc.’s Quarterly Report on Form 10–Q filed with the SEC on August 21, 2017)
Second Amendment to Amended and Restated Executive Employment Agreement, dated January 29, 2018, by
and between SAExploration Holdings, Inc. and Brian Beatty (incorporated by reference from Exhibit 10.23 to
SAExploration Holdings, Inc.’s Annual Report on Form 10–K filed with the SEC on March 16, 2018)
Amended and Restated Executive Employment Agreement, dated August 3, 2016, by and between
SAExploration Holdings, Inc. and Brent Whiteley (incorporated by reference from Exhibit 10.3 to SAExploration
Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 9, 2016)
First Amendment to Amended and Restated Executive Employment Agreement, dated August 3, 2016, by and
between SAExploration Holdings, Inc. and Brent Whiteley (incorporated by reference from Exhibit 10.2 to
SAExploration Holdings, Inc.’s Quarterly Report on Form 10–Q filed with the SEC on August 21, 2017)
Second Amendment to Amended and Restated Executive Employment Agreement, dated January 29, 2018, by
and between SAExploration Holdings, Inc. and Brent Whiteley (incorporated by reference from Exhibit 10.26 to
SAExploration Holdings, Inc.’s Annual Report on Form 10–K filed with the SEC on March 16, 2018)
Amended and Restated Executive Employment Agreement, dated August 3, 2016, by and between
SAExploration Holdings, Inc. and Mike Scott (incorporated by reference from Exhibit 10.4 to SAExploration
Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 9, 2016)
First Amendment to Amended and Restated Executive Employment Agreement, dated January 29, 2018, by and
between SAExploration Holdings, Inc. and Mike Scott (incorporated by reference from Exhibit 10.28 to
SAExploration Holdings, Inc.’s Annual Report on Form 10–K filed with the SEC on March 16, 2018)
Amended and Restated Executive Employment Agreement, dated August 3, 2016, by and between
SAExploration Holdings, Inc. and Darin Silvernagle (incorporated by reference from Exhibit 10.5 to
SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 9, 2016)
First Amendment to Amended and Restated Executive Employment Agreement, dated January 29, 2018, by and
between SAExploration Holdings Inc. and Darin Silvernagle (incorporated by reference from Exhibit 10.30 to
SAExploration Holdings, Inc.’s Annual Report on Form 10–K filed with the SEC on March 16, 2018)
Executive Employment Agreement, dated August 3, 2016, by and between SAExploration Holdings Inc. and
Ryan Abney (incorporated by reference from Exhibit 10.6 to SAExploration Holdings, Inc.’s Current Report on
Form 8–K filed with the SEC on August 9, 2016)
First Amendment to Executive Employment Agreement, dated November 10, 2016, by and between
SAExploration Holdings, Inc. and Ryan Abney (incorporated by reference from Exhibit 10.1 to SAExploration
Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on November 15, 2016)
Second Amendment to Executive Employment Agreement, dated January 29, 2018, by and between
SAExploration Holdings, Inc. and Ryan Abney (incorporated by reference from Exhibit 10.33 to SAExploration
Holdings, Inc.’s Annual Report on Form 10–K filed with the SEC on March 16, 2018)
Amended and Restated 2018 Long–Term Incentive Plan (incorporated by reference from Exhibit 10.1 to
SAExploration Holdings, Inc.’s Current Report on Form 8–K filed with the SEC on August 14, 2018)
Amendment to Amended and Restated 2018 Long–Term Incentive Plan (incorporated by reference from Exhibit
10.1 to SAExploration Holdings Inc.’s Current Report on Form 8–K filed with the SEC on October 19, 2018)
14.1
Code of Ethics
21.1*
List of subsidiaries
72
23.1*
31.1*
31.2*
Consent of Pannell Kerr Forster of Texas, P.C.
Rule 13a–14(a) Certification of Chief Executive Officer
Rule 13a–14(a) Certification of Chief Financial Officer
32.1**
Section 1350 Certification of Chief Executive Officer
32.2**
Section 1350 Certification of Chief Financial Officer
101*
Interactive Data Files
__________
* Filed herewith
** Furnished herewith
+ Management contract or compensatory plan or arrangement
73
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 25, 2019
SAExploration Holdings, Inc.
By:
/s/ Brent Whiteley
Brent Whiteley
Chief Financial Officer, General Counsel and Secretary
POWER OF ATTORNEY
The undersigned directors and officers of SAExploration Holdings, Inc. hereby constitute and appoint Jeff Hastings and
Brent Whiteley, and each of them, with full power to act without the other and with full power of substitution and
resubstitution, our true and lawful attorneys–in–fact with full power to execute in our name and behalf in the capacities
indicated below, this annual report on Form 10–K and any and all amendments thereto and to file the same, with all exhibits
thereto and other documents in connection therewith, with the Securities and Exchange Commission, and hereby ratify and
confirm all that such attorneys–in–fact, or any of them, or their substitutes shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of Securities Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE
TITLE
Chief Executive Officer and Chairman of the Board
(principal executive officer)
Chief Operating Officer and Director
March 25, 2019
DATE
March 25, 2019
/s/ Jeff Hastings
Jeff Hastings
/s/ Brian Beatty
Brian Beatty
/s/ Brent Whiteley
Brent Whiteley
Chief Financial Officer, General Counsel, and Secretary
(principal financial officer and principal accounting officer)
March 25, 2019
/s/ L. Melvin Cooper
L. Melvin Cooper
/s/ Gary Dalton
Gary Dalton
/s/ Michael Faust
Michael Faust
/s/ Alan B. Menkes
Alan B. Menkes
/s/ Jacob Mercer
Jacob Mercer
Director
Director
Director
Director
Director
March 25, 2019
March 25, 2019
March 25, 2019
March 25, 2019
March 25, 2019
74