SAEXPLORATION HOLDINGS, INC. Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the related notes thereto, as well as our
Annual Report on Form 10-K for the year ended
OVERVIEW
We are a full-service global provider of seismic data acquisition, logistical
support and processing services to customers in the oil and natural gas
industry. Our business activities are primarily conducted in
Our customers include major integrated oil companies, national oil companies and independent oil and natural gas exploration and production companies. Demand for our services depends on the level of spending by these customers for exploration, production, development and field management activities, which is influenced, in a large part, by oil and natural gas prices. Demand for our services is also impacted by long-term supply concerns based on national oil policies and other country-specific economic and geopolitical conditions. Significant fluctuations in oil and natural gas exploration activities and oil and natural gas prices have affected, and will continue to affect, demand for our services and our results of operations.
While our revenues are mainly affected by the level of customer demand for our services, our revenues are also affected by the bargaining power of our customers relating to our services, as well as the productivity and utilization levels of our data acquisition crews. Factors impacting productivity and utilization levels include client demand, oil and natural gas prices, whether we enter into turnkey or term contracts with our clients, the number and size of crews, the number of recording channels per crew, crew downtime related to inclement weather, delays in acquiring land access permits, agricultural or hunting activity, holiday schedules, short winter days, crew repositioning and equipment failure. To the extent we experience these factors, our operating results may be affected from quarter to quarter. Consequently, our efforts to negotiate more favorable contract terms in our supplemental service agreements, mitigate permit access delays and improve overall crew productivity may contribute to growth in our revenues.
Most of our client contracts are turnkey contracts. While turnkey contracts
allow us to capitalize on improved crew productivity, we also bear more risks
related to weather and crew downtime. We expect the percentage of turnkey
contracts to remain high as we continue our operations in the regions of the
COVID-19 Pandemic and Market Conditions
Demand for our services has declined, and will continue to decline, as long as
our customers continue to revise their capital budgets downward and adjust their
operations in response to lower oil prices and demand due to the COVID-19
pandemic. As of
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Throughout 2020 we have taken actions to mitigate the near and long-term financial impacts of the COVID-19 pandemic on our operating results to ensure adequate liquidity and capital resources are available to maintain our operations until conditions in the oil and natural gas industry and global economy improve. These actions include, but are not limited to the following:
• reducing our payroll costs through reductions in force;
• exiting unnecessary facilities and consolidating our operational footprint
to align the size of our operations with current demand;
• reducing discretionary expenses and deferring any non-essential capital
spending;
• deferring of U.S. employer taxes, as permitted under the Coronavirus Aid,
Relief, and Economic Security Act;
• applying for and receiving a $6.8 million loan pursuant to the Paycheck
Protection Program; and
• applying for and receiving benefits under the Canada Emergency Wage Subsidy
program.
We continue to evaluate market conditions and will continue to take necessary actions to further reduce our cost base and enhance liquidity should there be a further reduction in the demand for our services.
Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code
On
In connection with the Chapter 11 filing, we entered into a Restructuring
Support Agreement (as amended, the "RSA") with lenders of 100% of the principal
amount outstanding under our credit facility, lenders of approximately 82.4% of
the principal amount outstanding under our senior loan facility and holders of
100% of our 6.0% Senior Secured Convertible Notes due 2023 (the "2023 Notes")
(such lenders and holders referred to herein as the "Supporting Parties") and a
Backstop Commitment Agreement (as amended, the "BCA") with the Supporting
Parties (the "Backstop Parties"). On
As amended, the RSA contemplates the restructuring (the "Restructuring") of the
Debtors pursuant to the Plan, which contemplates (i) the entry into a new first
lien exit facility in an aggregate principal amount of
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Subject to
As a result of the filing of the Chapter 11 Cases, the principal and interest
due under our credit facility, our senior loan facility and our 2023 Notes
became immediately due and payable. However, any efforts to enforce such payment
obligations with respect to our credit facility, our senior loan facility and
our 2023 Notes are automatically stayed as a result of the filing of the Chapter
11 Cases, and the creditors' rights of enforcement in respect of such debt
instruments will be subject to the applicable provisions of the Bankruptcy Code
and orders of the
We expect to continue our operations without interruption during the pendency of the Chapter 11 Cases. For the duration of the Restructuring and after the Chapter 11 Cases, our operations and our ability to develop and execute our business plan are subject to risks and uncertainties associated with the Restructuring and Chapter 11 Cases.
Going Concern Uncertainty
Given the uncertainty surrounding the Chapter 11 Cases, there is substantial
doubt about our ability to continue as a going concern. The accompanying
unaudited condensed consolidated financial statements included herein have been
prepared on a going concern basis in accordance with generally accepted
accounting principles in
RESULTS OF OPERATIONS
Three Months Ended
Net loss for the three months ended
Revenue from services in the three months ended
Gross (loss) profit for the three months ended
SG&A expenses for the three months ended
Other expense, net for the three months ended
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Income taxes for the three months ended
Nine Months Ended
Net loss for the nine months ended
Revenue from services in the nine months ended
Revenue from services in
Gross (loss) profit for the nine months ended
SG&A expenses for the nine months ended
As previously disclosed, our former Chief Financial Officer and General Counsel
misappropriated
Other expense, net for the nine months ended
Income taxes for the nine months ended
LIQUIDITY AND CAPITAL RESOURCES
As of
We currently expect our ongoing capital and operating expenditures to exceed the revenue we expect to receive from our seismic data acquisition services for the foreseeable future due to, among other things, the significant uncertainty in the outlook for oil and natural gas development as a result of the significant decline in oil prices since the beginning of 2020 due to the COVID-19 pandemic and its impact on the worldwide economy and global demand for oil.
As a result of the foregoing, management, along with its legal and financial
advisors, explored various strategic alternatives to address our capital
structure, which included engaging in discussions with certain of our debt
holders with respect to potential deleveraging or restructuring transactions. We
have also attempted to manage operating costs by actively pursuing cost-cutting
measures to maximize liquidity consistent with current industry market
expectations. However, we were unable to negotiate an extension of the
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Accordingly, on
In connection with the Chapter 11 filing, the Debtors entered into the RSA with certain creditors to support a restructuring in accordance with the terms set forth in the Plan. As more fully disclosed in "- Overview - Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code" above and "Note 1 - General - Voluntary Reorganization Under Chapter 11 of the Bankruptcy Code" in the notes to the unaudited condensed consolidated financial statements, the Plan and the RSA contemplate a restructuring which would provide for the treatment of holders of certain claims and existing equity interests. Accordingly, our liquidity during the bankruptcy proceedings will come from cash on hand and net operating cash flows during the bankruptcy period.
As part of the RSA and the Plan, we have secured commitments for new first lien
exit facility in an aggregate principal amount of
There can be no assurance that we will have sufficient liquidity to continue to
fund our operations or allow us to continue as a going concern until the Plan is
confirmed by the
Long-term Debt
As of
Cash Flows
Cash flows provided by (used in) type of activity were as follows (in
thousands):
Nine Months
Ended September 30,
2020 2019
Operating activities $ 33,928 $ (1,375 )
Investing activities (636 ) (462 )
Financing activities (16,074 ) 7,546
Operating Activities
Cash flows from operating activities provided
Investing Activities
In the nine months ended
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Financing Activities
In the nine months ended
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). We have based our forward-looking statements on our current expectations
and estimates of future events and trends, which affect or may affect our
business and operations. Although we believe that these forward-looking
statements are based upon reasonable assumptions, they are subject to several
risks and uncertainties and are made in light of information currently available
to us. Many important factors, in addition to the risk factors identified in the
"Risk Factors" section included in Item 1A of our Annual Report on Form 10-K for
the year ended
Our forward-looking statements may be influenced by the following factors, among others:
• our ability to obtainBankruptcy Court approval with respect to motions or other requests made to theBankruptcy Court in the Chapter 11 Cases, including maintaining strategic control as debtor--in-possession; • our ability to negotiate, develop, confirm and consummate the Plan or another plan of reorganization with respect to the Chapter 11 Cases or other alternative restructuring transaction; • the effects of our bankruptcy filing on us and on the interests of various constituents; •Bankruptcy Court rulings in the Chapter 11 Cases in general; • the length of time that we will operate under Chapter 11 protection and the continued availability of operating capital during the pendency of the proceedings; • risks associated with third party motions in the Chapter 11 Cases, which may interfere with our ability to confirm and consummate a plan of reorganization; • the potential adverse effects of the Chapter 11 proceedings on our liquidity or results of operations; • the high costs of bankruptcy proceedings, including increased advisory costs to execute our reorganization; • the impact of our bankruptcy filing on our ability to access the public capital markets; • the effects of our bankruptcy filing on our ability to attract, motivate and retain key employees; • substantial doubt about our ability to continue as a going concern as ofSeptember 30, 2020 ; • the impact of the COVID-19 pandemic on our business, financial condition and results of operations; • fluctuations in the levels of exploration and development activity in the oil and natural gas industry; • delays, reductions or cancellations of project awards and our ability to realize revenue projected in our backlog; • the impact of the restatement of our previously issued consolidated financial statements; 28
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• the identified material weaknesses in our internal control over financial
reporting and our ability to remediate those material weaknesses;
• the outcome of the investigations by the SEC , the DOJ and the DOR with
respect to the circumstances giving rise to the restatement of our
previously issued consolidated financial statements, which could include
sanctions or other actions against us and our officers and directors, civil
lawsuits, and penalties;
• intense industry competition involving a competitive bidding process that
involves significant costs and risks;
• delays in permitting and land access rights;
• limited number of customers;
• credit and delayed payment risks related to our customers;
• the availability of liquidity and capital resources, including our need to
obtain additional working capital for upfront expenditures for upcoming
projects, and the potential impact this has on our business and
competitiveness;
• increases in the level of activism against oil and natural gas exploration
and development activities;
• need to manage rapid growth and contraction of our business;
• operational disruptions due to seasonality, weather and other external
factors;
• crew availability and productivity;
• whether we enter into turnkey or term contracts;
• high fixed costs of operations;
• substantial international business exposing us to currency fluctuations and
global factors, including economic, political and military uncertainties;
• risks relating to cyber incidents;
• need to comply with diverse and complex laws and regulations;
• costs and outcomes of pending and future litigation; and
• the time and expense required for us to respond to the SEC , DOJ and DOR
litigations and investigations and for us to complete our internal
investigation, which expenses have been and are likely to continue to be
material and are likely to have a material adverse impact on our cash
balance, cash flow and liquidity.
These words "expect," "anticipate," "believe," "estimate," "intend," "plan to,"
"ought," "could," "will," "should," "likely," "appear," "project," "forecast,"
"outlook" or other similar words or phrases are intended to identify
forward-looking statements. These statements discuss future expectations,
contain projections of results of operations or of financial condition or state
other "forward-looking" information. The forward-looking statements speak only
as of the date they were made and, except as required by law, we undertake no
obligation to update, amend or clarify any forward-looking statements because of
new information, future events or other factors. All our forward-looking
information involves risks and uncertainties that could cause actual results to
differ materially from the results expected. Although it is not possible to
identify all factors, these risks and uncertainties include the risk factors and
the timing of any of the risk factors identified in the "Risk Factors" section
included in Item 1A of our Annual Report on Form 10-K for the year ended
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