saex-10q_20180630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10–Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

June 30, 2018

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

 

Commission File Number 001-35471

 

SAExploration Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

27-4867100

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

1160 Dairy Ashford Road, Suite 160, Houston, Texas, 77079

(Address of principal executive offices)

(Zip Code)

 

(281) 258-4400

(Registrant's telephone number, including area code)

 

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 filing requirements for the past 90 days. Yes      No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

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 definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

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 Exchange Act). Yes      No 

 

As of August 8, 2018, the registrant has 20,453,273 shares of common stock, $0.0001 par value, outstanding.

 

 

 


TABLE OF CONTENTS

 

 

 

 

 

 

 

 

Page

Part I. FINANCIAL INFORMATION

 

1

Item 1. Financial Statements

 

1

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017

 

1

Condensed Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2018 and 2017

 

2

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three Months and Six Months Ended June 30, 2018 and 2017

 

3

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2018

 

4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017

 

5

Notes to Unaudited Condensed Consolidated Financial Statements

 

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 4. Controls and Procedures

 

25

Part II. OTHER INFORMATION

 

25

Item 1A. Risk Factors

 

25

Item 6. Exhibits

 

27

Signatures

 

29

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS 

SAExploration Holdings, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except number of shares)

(Unaudited)

 

 

 

June 30,

2018

 

 

December 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,525

 

 

$

3,613

 

Restricted cash

 

 

16

 

 

 

41

 

Accounts receivable, net

 

 

12,564

 

 

 

6,105

 

Deferred costs on contracts

 

 

489

 

 

 

2,107

 

Prepaid expenses and other current assets

 

 

4,542

 

 

 

6,395

 

Total current assets

 

 

22,136

 

 

 

18,261

 

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization of $76,428 and

   $72,649, respectively

 

 

28,783

 

 

 

32,946

 

Goodwill

 

 

1,751

 

 

 

1,832

 

Intangible assets, net of accumulated amortization of $781 and $732, respectively

 

 

593

 

 

 

671

 

Long-term accounts receivable, net

 

 

59,117

 

 

 

78,102

 

Deferred income taxes

 

 

4,949

 

 

 

4,592

 

Other assets

 

 

3,855

 

 

 

5,534

 

Total assets

 

$

121,184

 

 

$

141,938

 

 

 

 

 

 

 

 

 

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,432

 

 

$

4,551

 

Accrued liabilities

 

 

7,444

 

 

 

6,311

 

Income and other taxes payable

 

 

5,268

 

 

 

7,887

 

Current portion of long-term debt

 

 

 

 

 

995

 

Deferred revenue

 

 

 

 

 

1,477

 

Total current liabilities

 

 

20,144

 

 

 

21,221

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

57,425

 

 

 

120,298

 

Other long-term liabilities

 

 

623

 

 

 

608

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine equity:

 

 

 

 

 

 

 

 

Series A preferred stock, 32,788 shares outstanding

 

 

32,788

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

Common stock, 15,231,852 and 9,424,334 shares outstanding, respectively

 

 

2

 

 

 

1

 

Additional paid-in capital

 

 

177,021

 

 

 

133,741

 

Accumulated deficit

 

 

(168,726

)

 

 

(133,306

)

Accumulated other comprehensive loss

 

 

(3,269

)

 

 

(5,082

)

Treasury stock, at cost, 363,361 and 38,024 shares, respectively

 

 

(288

)

 

 

(113

)

SAExploration stockholders’ equity (deficit)

 

 

4,740

 

 

 

(4,759

)

Noncontrolling interest

 

 

5,464

 

 

 

4,570

 

Total stockholders’ equity (deficit)

 

 

10,204

 

 

 

(189

)

Total liabilities, mezzanine equity and stockholders’ equity (deficit)

 

$

121,184

 

 

$

141,938

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

1


SAExploration Holdings, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months

Ended June 30,

 

 

Six Months

Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue from services

 

$

16,883

 

 

$

13,559

 

 

$

54,006

 

 

$

99,728

 

Cost of services

 

 

19,710

 

 

 

11,629

 

 

 

45,715

 

 

 

69,403

 

Depreciation and amortization

 

 

2,295

 

 

 

2,947

 

 

 

4,716

 

 

 

6,198

 

Gross (loss) profit

 

 

(5,122

)

 

 

(1,017

)

 

 

3,575

 

 

 

24,127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

25,763

 

 

 

6,358

 

 

 

32,140

 

 

 

12,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

(30,885

)

 

 

(7,375

)

 

 

(28,565

)

 

 

11,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other (expense) income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,346

)

 

 

(8,561

)

 

 

(5,487

)

 

 

(16,919

)

Foreign exchange loss, net

 

 

(2,005

)

 

 

(1,347

)

 

 

(2,179

)

 

 

(1,036

)

Other income (expense), net

 

 

9

 

 

 

(72

)

 

 

154

 

 

 

(85

)

Total other expense, net

 

 

(4,342

)

 

 

(9,980

)

 

 

(7,512

)

 

 

(18,040

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(35,227

)

 

 

(17,355

)

 

 

(36,077

)

 

 

(6,788

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income taxes

 

 

(1,881

)

 

 

485

 

 

 

(1,257

)

 

 

2,225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

(33,346

)

 

 

(17,840

)

 

 

(34,820

)

 

 

(9,013

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: net income attributable to noncontrolling interest

 

 

59

 

 

 

65

 

 

 

894

 

 

 

2,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to SAExploration

 

$

(33,405

)

 

$

(17,905

)

 

$

(35,714

)

 

$

(11,060

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share

 

$

(2.24

)

 

$

(1.91

)

 

$

(6.46

)

 

$

(1.18

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (basic

   and diluted):

 

 

14,981

 

 

 

9,359

 

 

 

12,830

 

 

 

9,359

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

2


SAExploration Holdings, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income

(In thousands)

(Unaudited)

 

 

 

Three Months

Ended June 30,

 

 

Six Months

Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net loss

 

$

(33,346

)

 

$

(17,840

)

 

$

(34,820

)

 

$

(9,013

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

1,225

 

 

 

(7

)

 

 

1,813

 

 

 

(72

)

Comprehensive loss

 

 

(32,121

)

 

 

(17,847

)

 

 

(33,007

)

 

 

(9,085

)

Less comprehensive income attributable to

   noncontrolling interest

 

 

59

 

 

 

65

 

 

 

894

 

 

 

2,047

 

Comprehensive loss attributable to SAExploration

 

$

(32,180

)

 

$

(17,912

)

 

$

(33,901

)

 

$

(11,132

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3


SAExploration Holdings, Inc.

Condensed Consolidated Statement of Changes in Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Treasury

Stock

 

 

Total

SAExploration

Stockholders’

Equity (Deficit)

 

 

Non-controlling Interest

 

 

Total

Stockholders’

Equity (Deficit)

 

Balance at December 31, 2017

 

$

1

 

 

$

133,741

 

 

$

(133,306

)

 

$

(5,082

)

 

$

(113

)

 

$

(4,759

)

 

$

4,570

 

 

$

(189

)

Adoption of ASU 2016-16

 

 

 

 

 

 

 

 

294

 

 

 

 

 

 

 

 

 

294

 

 

 

 

 

 

294

 

Net (loss) income

 

 

 

 

 

 

 

 

(35,714

)

 

 

 

 

 

 

 

 

(35,714

)

 

 

894

 

 

 

(34,820

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,813

 

 

 

 

 

 

1,813

 

 

 

 

 

 

1,813

 

Equity-based compensation

   expense

 

 

 

 

 

2,641

 

 

 

 

 

 

 

 

 

 

 

 

2,641

 

 

 

 

 

 

2,641

 

Purchase of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(175

)

 

 

(175

)

 

 

 

 

 

(175

)

Common stock issued in

   debt exchange

 

 

 

 

 

472

 

 

 

 

 

 

 

 

 

 

 

 

472

 

 

 

 

 

 

472

 

Discount on Series A

   preferred stock issued in

   debt exchange

 

 

 

 

 

61,971

 

 

 

 

 

 

 

 

 

 

 

 

61,971

 

 

 

 

 

 

61,971

 

Accretion of discount on

   Series A preferred stock

 

 

 

 

 

(56,635

)

 

 

 

 

 

 

 

 

 

 

 

(56,635

)

 

 

 

 

 

(56,635

)

Accretion of Series A preferred

   stock to redemption value

 

 

 

 

 

21,376

 

 

 

 

 

 

 

 

 

 

 

 

21,376

 

 

 

 

 

 

21,376

 

Dividend on Series A

   preferred stock

 

 

 

 

 

(1,119

)

 

 

 

 

 

 

 

 

 

 

 

(1,119

)

 

 

 

 

 

(1,119

)

Series B preferred stock

   issued in debt exchange

 

 

 

 

 

10,791

 

 

 

 

 

 

 

 

 

 

 

 

10,791

 

 

 

 

 

 

10,791

 

Conversion of Series B

   preferred stock

 

 

 

 

 

(10,791

)

 

 

 

 

 

 

 

 

 

 

 

(10,791

)

 

 

 

 

 

(10,791

)

Common stock and Series

   D warrants issued in

   conversion of Series B

   preferred stock

 

 

1

 

 

 

10,790

 

 

 

 

 

 

 

 

 

 

 

 

10,791

 

 

 

 

 

 

10,791

 

Series C warrants issued in

   debt exchange

 

 

 

 

 

4,810

 

 

 

 

 

 

 

 

 

 

 

 

4,810

 

 

 

 

 

 

4,810

 

Stock issuance costs

 

 

 

 

 

(1,026

)

 

 

 

 

 

 

 

 

 

 

 

(1,026

)

 

 

 

 

 

(1,026

)

Balance at June 30, 2018

 

$

2

 

 

$

177,021

 

 

$

(168,726

)

 

$

(3,269

)

 

$

(288

)

 

$

4,740

 

 

$

5,464

 

 

$

10,204

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4


SAExploration Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(34,820

)

 

$

(9,013

)

Adjustments to reconcile net loss to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,868

 

 

 

6,400

 

Equity-based compensation

 

 

2,641

 

 

 

1,265

 

Gain on disposal of property and equipment

 

 

(185

)

 

 

(83

)

Provision for doubtful accounts

 

 

19,120

 

 

 

 

Amortization of loan issuance costs and debt discounts

 

 

1,901

 

 

 

10,523

 

Payment in kind interest

 

 

 

 

 

4,469

 

Unrealized loss on foreign currency transactions

 

 

2,131

 

 

 

135

 

Gain on debt extinguishment

 

 

(53

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(6,605

)

 

 

17,288

 

Prepaid expenses and other current assets

 

 

445

 

 

 

(559

)

Deferred costs on contracts

 

 

1,627

 

 

 

8,208

 

Accounts payable

 

 

1,821

 

 

 

(4,424

)

Accrued liabilities

 

 

1,161

 

 

 

(2,233

)

Income and other taxes payable

 

 

(2,633

)

 

 

(6,863

)

Deferred revenue

 

 

(1,491

)

 

 

(7,975

)

Other, net

 

 

1

 

 

 

(14

)

Net cash (used in) provided by operating activities

 

 

(10,071

)

 

 

17,124

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(703

)

 

 

(2,218

)

Proceeds from sale of property and equipment

 

 

193

 

 

 

1,962

 

Net cash used in investing activities

 

 

(510

)

 

 

(256

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Long-term debt repayments

 

 

(995

)

 

 

(33,822

)

Long-term debt borrowings

 

 

15,000

 

 

 

30,845

 

Capital lease repayments

 

 

 

 

 

(55

)

Stock issuance costs

 

 

(2,179

)

 

 

 

Purchase of treasury stock

 

 

(175

)

 

 

 

Distribution to noncontrolling interest

 

 

 

 

 

(291

)

Net cash provided by (used in) financing activities

 

 

11,651

 

 

 

(3,323

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(183

)

 

 

(189

)

Net change in cash, cash equivalents and restricted cash

 

 

887

 

 

 

13,356

 

Cash, cash equivalents and restricted cash at the beginning of period

 

 

3,654

 

 

 

11,996

 

Cash, cash equivalents and restricted cash at the end of period

 

$

4,541

 

 

$

25,352

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

5


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 1.  BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of the Business

 

SAExploration Holdings, Inc. (“we,” “our” or “us) is an internationally–focused oilfield services company offering seismic data acquisition and logistical support services in North America, South America, West Africa and Southeast Asia to the oil and natural gas industry.

 

Basis of Presentation

 

Our unaudited condensed consolidated financial statements included herein include our accounts and those of our subsidiaries, which are wholly–owned or controlled by us, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  We believe that the presentations and disclosures herein are adequate to make the information not misleading. The unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) for a fair presentation of the interim periods.  The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year.  These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and the notes thereto included in Item 8 of our Annual Report on Form 10–K for the year ended December 31, 2017.

 

All intercompany accounts and transaction have been eliminated in consolidation.  In the Notes to Unaudited Condensed Consolidated Financial Statements, all dollar and share amounts in tabulations are in thousands of dollars and shares, respectively, unless otherwise indicated.  

 

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.  

 

 

 

 

 

 

 

 


6


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

The impact of the adoption on our unaudited condensed consolidated statements of operations was as follows:

 

 

 

Balances

Without Adoption of

ASU 2014-09

 

 

Impact of Adoption of ASU 2014-09

 

 

As Reported

 

Three months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Statement of operations:

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from services

 

$

15,889

 

 

$

994

 

 

$

16,883

 

Cost of services

 

 

19,093

 

 

 

617

 

 

 

19,710

 

Income taxes

 

 

(1,871

)

 

 

(10

)

 

 

(1,881

)

Net loss

 

 

(33,733

)

 

 

387

 

 

 

(33,346

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

Statement of operations:

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from services

 

$

52,635

 

 

$

1,371

 

 

$

54,006

 

Cost of services

 

 

44,465

 

 

 

1,250

 

 

 

45,715

 

Income taxes

 

 

(1,302

)

 

 

45

 

 

 

(1,257

)

Net loss

 

 

(34,896

)

 

 

76

 

 

 

(34,820

)

 

The impact of the adoption on our unaudited condensed consolidated balance sheet was as follows:

 

 

 

June 30, 2018

 

 

 

Balances

Without Adoption of

ASU 2014-09

 

 

Impact of Adoption of ASU 2014-09

 

 

As Reported

 

Balance Sheet:

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

$

11,193

 

 

$

1,371

 

 

$

12,564

 

Deferred costs on contracts

 

 

489

 

 

 

 

 

 

489

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Accrued liabilities

 

 

6,194

 

 

 

1,250

 

 

 

7,444

 

Income and other taxes payable

 

 

5,223

 

 

 

45

 

 

 

5,268

 

Stockholders' equity:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated deficit

 

 

(168,802

)

 

 

76

 

 

 

(168,726

)

 

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.

 

Summary of Significant Accounting Policies

 

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

7


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

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.

 

New Accounting Standards to be Adopted

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016–02, Leases.  The new standard establishes a right–of–use (“ROU”) model that required a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition.  Similarly, lessors will be required to classify leases as sales–type, finance or operating, with such classification affecting the pattern of income recognition.  Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract.  ASU 2016–02 is effective for annual and interim periods beginning after December 15, 2018, and is to be applied using the modified retrospective approach.  We plan to adopt ASU 2016–02 effective January 1, 2019 and are currently performing our preliminary scoping and assessment of the impact on our unaudited condensed consolidated financial statements.  We are also currently assessing the need for new systems and processes related to the adoption of ASU 2016–02.  

 

In February 2018, the FASB issued ASU 2018–02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.  ASU 2018–02 provides that the stranded tax effects from the Tax Cuts and Jobs Act on the balance of other comprehensive earnings may be reclassified to accumulated deficit and is effective for annual and interim periods beginning after December 15, 2018.  We plan to adopt ASU 2018–02 effective January 1, 2019 and are currently evaluating the impact on our unaudited condensed consolidated financial statements.

 

No other new accounting pronouncements issued or effective during the six months ended June 30, 2018 have had or are expected to have a material impact on our unaudited condensed consolidated financial statements.

 

NOTE 2.  LONG–TERM DEBT EXCHANGE

 

In January 2018, we consummated an exchange offer and consent solicitation (the “Exchange”) related to our 10% Second Lien Notes due 2019 (the “Second Lien Notes”).  Pursuant to a restructuring support agreement with holders of approximately 85% of the par value of our Second Lien Notes, we exchanged $78.0 million of our Second Lien Notes and $7 thousand of our 10% Senior Secured Notes due 2019 (the “Senior Notes”) for (i) 0.8 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.  We

8


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

accounted for the Exchange 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 (see Note 4).

 

We allocated the carrying value of the debt exchanged to the respective equity securities based on their relative fair value.  The Series A preferred stock was recorded at $62.0 million, less allocated stock issuance costs of $3.6 million.  The Series B preferred stock was recorded at $10.8 million, the Series C warrants were recorded at $4.8 million and the common stock was recorded at $0.5 million (see Note 6).  

 

NOTE 3.  CONCENTRATION OF CREDIT RISK

 

Our revenues are derived principally from uncollateralized sales to numerous companies in the oil and natural gas industry; therefore, our customers may be similarly affected by changes in economic and other conditions within the industry.  

 

As of June 30, 2018, we have a $78.1 million receivable from one customer, which represents 86.1% of our total accounts receivable.  This customer had historically relied on the monetization of exploration tax credits under a State of Alaska tax credit program (the “Tax Credits”).  In the past, the State of Alaska annually appropriated the amounts needed to pay all Tax Credit certificates for the prior fiscal year; however, falling oil and natural gas prices have substantially reduced Alaska’s revenue from production taxes resulting in significant Alaskan budget deficits.  As a result, appropriations in the last couple of years have been limited to the statutorily established minimum.

  

We have worked with our customer to monetize the Tax Credits and apply the resulting cash toward its receivable. As of June 30, 2018, we have monetized $14.9 million of these Tax Credit certificates from the sale of Tax Credit certificates to an Alaskan oil and natural gas producer to satisfy production taxes it owes to the State of Alaska, and the producer has committed to purchase an additional $2.7 million at a later date.

 

We have also pursued other paths to payment, including selling additional Tax Credit certificates into the secondary market at a discount or licensing or selling the seismic data.  To date, none of these third party paths to monetization have worked mainly because of the uncertainties about the timing and payment of Tax Credit certificates by the State of Alaska.  

  

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.

 

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.  While lawsuits have been filed asserting constitutional challenges to Alaska’s ability to issue the bonds, the Attorney General has issued an opinion that the issuance of the bonds is not prohibited by the Alaskan constitution.  The Revenue Department of the State of Alaska has indicated, however, that until the courts have resolved the legal issues, which it estimates may take six to 18 months, it will not go into the bond markets.

 

As of June 30, 2018, we determined that it is reasonable to estimate that we will receive approximately $56.5 million in proceeds from the issuance of the bonds.  We also expect an additional $2.7 million from the sale of the Tax Credit certificates to the Alaskan oil and natural gas producer.  As the proceeds we expect to receive will not be sufficient to fully repay the customer’s outstanding receivable, we have recorded a $19.0 million provision for doubtful accounts in the three months ended June 30, 2018.  

 

9


SAExploration Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

 

NOTE 4.  LONG–TERM DEBT

 

Long–term debt consisted of the following:

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Credit facility:

 

 

 

 

 

 

 

 

Principal outstanding

 

$

20,000

 

 

$

5,000

 

Unamortized debt issuance costs

 

 

(378

)

 

 

(599

)

Carrying amount

 

 

19,622

 

 

 

4,401

 

 

 

 

 

 

 

 

 

 

Senior loan facility - principal outstanding

 

 

29,000

 

 

 

29,995

 

 

 

 

 

 

 

 

 

 

10% senior secured notes due 2019:

 

 

 

 

 

 

 

 

Principal outstanding

 

 

1,865

 

 

 

1,872

 

Unamortized debt issuance costs

 

 

(17

)