ITEM 1. FINANCIAL STATEMENTS
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1
. BASIS OF PRESENTATION AND
SUMMAR
Y 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.
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. The amendment to our third amended and restated certificate of incorporation also reduced the number of our authorized shares of common stock to 20.0 million shares. 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 unaudited condensed consolidated financial statements and notes to the unaudited condensed consolidated financial statements have been adjusted to reflect the reverse stock split on a retrospective basis.
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 September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from services
|
|
$
|
15,838
|
|
|
$
|
(835
|
)
|
|
$
|
15,003
|
|
Cost of services
|
|
|
16,825
|
|
|
|
(740
|
)
|
|
|
16,085
|
|
Income taxes
|
|
|
1,399
|
|
|
|
(35
|
)
|
|
|
1,364
|
|
Net loss
|
|
|
(25,237
|
)
|
|
|
(60
|
)
|
|
|
(25,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue from services
|
|
$
|
68,473
|
|
|
$
|
536
|
|
|
$
|
69,009
|
|
Cost of services
|
|
|
61,290
|
|
|
|
510
|
|
|
|
61,800
|
|
Income taxes
|
|
|
97
|
|
|
|
10
|
|
|
|
107
|
|
Net loss
|
|
|
(60,133
|
)
|
|
|
16
|
|
|
|
(60,117
|
)
|
The
impact of the adoption on our unaudited condensed consolidated balance sheet was as follows:
|
|
September 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
|
|
$
|
18,629
|
|
|
$
|
536
|
|
|
$
|
19,165
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities
|
|
|
6,381
|
|
|
|
510
|
|
|
|
6,891
|
|
Income and other taxes payable
|
|
|
5,571
|
|
|
|
10
|
|
|
|
5,581
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(194,049
|
)
|
|
|
16
|
|
|
|
(194,033
|
)
|
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.
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. ASU 2017–01 will be applied prospectively to any acquisitions.
Summary of Significant Accounting Policies
7
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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 a
mortized 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,
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 plan to adopt the new standards effective January 1, 2019 and we plan to elect the optional transition method under ASU 2018–11.
We have established an implementation team to evaluate and identify the impact of these standards on our financial position, results of operations and cash flows. We are currently assessing our leasing arrangements and implementing software to meet the reporting requirements of the standard. We anticipate that we will elect 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 anticipate that we will make the policy election allowing us to exclude leases with original terms of 12 months or less from lease assets and liabilities. We continue to assess 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, and we continue to assess certain policy elections required under the standard, including whether we will separate nonlease components from the associated lease component and how we will determine the incremental borrowing ra
te for leases with renewal options. Although we will recognize lease assets and
8
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
liabilities for leases
classified as operating
leases under previous guidance, we are not able to quantify the impact of the standard at this time.
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 nine months ended September 30, 2018 have had or are expected to have a material impact on our unaudited condensed consolidated financial statements.
NOTE 2. 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 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.
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
|
|
$
|
18,411
|
|
Transaction advisory fees and other acquisition costs
|
|
|
3,338
|
|
Total purchase price
|
|
$
|
21,749
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
8,589
|
|
Property and equipment
|
|
|
12,484
|
|
Intangible assets, net
|
|
|
3,642
|
|
Accrued liabilities
|
|
|
(110
|
)
|
Deferred revenue
|
|
|
(2,856
|
)
|
Net assets acquired
|
|
$
|
21,749
|
|
The intangible asset relates to GEOK’s intellectual property and will be amortized over a 15 year period. Amortization expense for the three months ended September 30, 2018 was $0.04 million and is included in “Selling, general and administrative expenses” on our unaudited condensed consolidated statements of operations.
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.
9
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
A
s of
September
30
, 2018,
we have a
$
59
.1 million
receivable
, net of an allowance for doubtful accounts of $19.0
million,
from one customer
, which represents
75.5
% 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 certifi
cates for the prior fiscal year
; however,
appropriations in the last couple of years have been
limited
to
the statutorily established minimum
due to substantially reduced revenue from production taxes resulting in significant Alaskan budget deficits
.
In June 2018, Alaska passed legislation allowing Alaska to issue bonds to pay its estimated $1.0 billion liability for 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.
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 September 30, 2018, we do not believe that an additional allowance for doubtful accounts is necessary, as we have determined that it is still reasonable to estimate that we will receive approximately $56.4 million in proceeds from the issuance of the bonds and an additional $2.7 million from the sale of the Tax Credit certificates to an Alaskan oil and natural gas producer.
10
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
NOTE
4
. LONG–TERM DEBT
Long–term debt consisted of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Credit facility:
|
|
|
|
|
|
|
|
|
Principal outstanding
|
|
$
|
15,000
|
|
|
$
|
5,000
|
|
Unamortized debt issuance costs
|
|
|
(157
|
)
|
|
|
(599
|
)
|
Carrying amount
|
|
|
14,843
|
|
|
|
4,401
|
|
|
|
|
|
|
|
|
|
|
Senior loan facility - principal outstanding
|
|
|
29,000
|
|
|
|
29,995
|
|
|
|
|
|
|
|
|
|
|
6% senior secured convertible notes due 2023:
|
|
|
|
|
|
|
|
|
Principal outstanding
|
|
|
60,000
|
|
|
|
—
|
|
Unamortized debt discount and debt issuance costs
|
|
|
(16,494
|
)
|
|
|
—
|
|
Carrying amount
|
|
|
43,506
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
10% senior secured notes due 2019:
|
|
|
|
|
|
|
|
|
Principal outstanding
|
|
|
—
|
|
|
|
1,872
|
|
Unamortized debt issuance costs
|
|
|
—
|
|
|
|
(25
|
)
|
Carrying amount
|
|
|
—
|
|
|
|
1,847
|
|
|
|
|
|
|
|
|
|
|
10% second lien notes due 2019:
|
|
|
|
|
|
|
|
|
Principal outstanding
|
|
|
6,961
|
|
|
|
85,239
|
|
Unamortized debt issuance costs
|
|
|
(7
|
)
|
|
|
(189
|
)
|
Carrying amount
|
|
|
6,954
|
|
|
|
85,050
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
94,303
|
|
|
|
121,293
|
|
Current portion of long-term debt
|
|
|
(6,954
|
)
|
|
|
(995
|
)
|
Total long-term debt
|
|
$
|
87,349
|
|
|
$
|
120,298
|
|
In January 2018, we consummated an exchange offer and consent solicitation (the “Exchange”) related to our Second Lien Notes due 2019 (the “Second Lien Notes”). Pursuant to a restructuring support agreement with holders of approximately 85% of the par value our of Second Lien Notes, we exchanged $78.0 million of our Second Lien Notes and $7 thousand of our Senior Secured Notes due 2019 (the “Senior 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.
In February 2018, the maturity dates of our credit facility and senior loan facility were extended to January 2020.
In July 2018, we amended our credit facility to, among other things, increase the aggregate maximum commitment to $30.0 million. We then borrowed the $10.0 million that was available under the credit facility to redeem our outstanding Senior Notes and for general corporate purposes.
In July 2018, we also entered into a Purchase Money Loan and Security Agreement (the “Purchase Money Credit Agreement”) to fund our acquisition of the Purchased Assets (see Note 2). The Purchase Money Credit Agreement provided for $23.4 million in borrowings secured on a first lien basis by the Purchased Assets. Borrowings made under the Purchase Money Credit Agreement bore interest at a rate of 10.25% per annum, and the Purchase Money Credit Agreement was to mature in October 2018, unless terminated earlier.
11
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
In September 2018, we issued 6.00% Senior Secured Convertible Notes due 2023 (the “2023 Notes”) under an indenture dated September 26, 2018 (the “Indenture”). The 2023 Notes mature on September 2
6, 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 Indenture).
In the event of a fundamental change, as defined in the 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 within the 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 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 Indenture. We can satisfy the conversion obligation, at our option, in either cash, shares of common stock, warrants or a combination thereof.
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.
Based on the closing price of our common stock of $10.30 at September 30, 2018, the if–converted value of the 2023 Notes exceeded the principal amount of $60.0 million by $47.5 million. We recorded interest expense of $0.1 million related to the 2023 Notes, of which $50 thousand related to contractual interest expense, in both the three months and nine months ended September 30, 2018.
In September 2018, we used a portion of the net proceeds from the issuance of the 2023 Notes to repay our credit facility, including a $0.3 million prepayment fee, and the Purchase Money Credit Agreement, including a $0.5 million prepayment fee. We subsequently terminated the Purchase Money Credit Agreement.
In September 2018, we also entered into a new amended and restated credit facility that provides for up to $30.0 million in borrowings, secured primarily by substantially all our assets located in the United States, subject to certain exclusions.
Borrowings under the new credit facility bear interest at a rate of 11.75% through and including August 2020 and 12.75% thereafter. The new credit facility matures on August 1, 2021. We then made a $15.0 million draw under the new credit facility for general corporate purposes.
12
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
The
credit agreement
s
and
indentures for our credit facility, senior loan facility
, 2023 Notes
and Second Lien Notes
contain certain representations, warr
anties, covenants and other terms and conditions which are customary for agreements of th
ese
type
s
. As of
September
30, 2018, we were in compliance with these covenants.
NOTE 5. COMMITMENTS AND CONTINGENCIES
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 unaudited condensed consolidated financial statements.
NOTE 6. 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 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 4). 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 the three months and nine months ended September 30, 2018, we issued dividends in kind valued at $0.5 million and $1.6 million, respectively. 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 recorded a deemed dividend of $5.3 million to recognize the remainder of the value of the BCF. As of September 30, 2018, there were no issued or outstanding shares of Series A preferred stock.
Series B
In January 2018, we issued 0.9 million shares of Series B preferred stock as an element of the Exchange (see Note 4). 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 September 30, 2018, there were no issued or outstanding shares of Series B preferred stock.
13
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Common Stock
As of September 30, 2018, we are authorized to issue 20.0 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:
|
|
2018
|
|
Shares issued:
|
|
|
|
|
Balance as of January 1
|
|
|
473
|
|
Issue of shares upon vesting of restricted stock units
|
|
|
268
|
|
Issue of shares on exercises of stock options
|
|
|
16
|
|
Issue of shares in the Exchange
|
|
|
41
|
|
Issue of shares on the conversion of the Series A preferred stock
|
|
|
704
|
|
Issue of shares on the conversion of the Series B preferred stock
|
|
|
225
|
|
Issue of shares on exercises of Series C warrants
|
|
|
15
|
|
Issue of shares on exercises of Series D warrants
|
|
|
117
|
|
Balance as of September 30
|
|
|
1,859
|
|
|
|
|
|
|
Shares held as treasury stock:
|
|
|
|
|
Balance as of January 1
|
|
|
2
|
|
Purchase of treasury stock
|
|
|
109
|
|
Balance as of September 30
|
|
|
111
|
|
|
|
|
|
|
Shares outstanding as of September 30
|
|
|
1,748
|
|
Warrants
Series A and Series B
As of September 30, 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 4). 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.
As of September 30, 2018, 0.3 million of the Series C warrants have been exercised, and there are 8.0 million Series C warrants outstanding.
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
14
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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 c
ommon 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.
As of September 30, 2018, 2.4 million of the Series D warrants have been exercised, and 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.
NOTE 7. VARIABLE INTEREST ENTITY
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.
This venture meets the definition of a variable interest entity (“VIE”). 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” in our unaudited condensed consolidated balance sheets and Kuukpik’s portion of net income presented as “Net income attributable to noncontrolling interest” in our unaudited condensed consolidated statements of operations.
NOTE 8. 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 a
mortized consistent with how the related revenue is recognized.
As of September 30, 2018, we had deferred costs on contracts of $0.4 million. In the three months and nine months ended September 30, 2018, we recognized $0.5 million and $6.8 million, respectively, of amortization related to these costs.
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. As of September 30, 2018, we have $2.0 million of deferred revenue. In the three months and nine months ended September 30, 2018, we recognized $1.1 million and $2.6 million, respectively, of revenue that was included in deferred revenue.
15
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Disaggregated
Revenue
The following table disaggregates our revenue by major source:
|
|
North America
|
|
|
South America
|
|
|
Southeast Asia
|
|
|
Other
|
|
|
Total
|
|
Three months ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnkey
|
|
$
|
10,779
|
|
|
$
|
1,224
|
|
|
$
|
692
|
|
|
$
|
208
|
|
|
$
|
12,903
|
|
Term
|
|
|
1,777
|
|
|
|
301
|
|
|
|
22
|
|
|
|
—
|
|
|
|
2,100
|
|
Total
|
|
$
|
12,556
|
|
|
$
|
1,525
|
|
|
$
|
714
|
|
|
$
|
208
|
|
|
$
|
15,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type of contract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turnkey
|
|
$
|
37,468
|
|
|
$
|
22,791
|
|
|
$
|
692
|
|
|
$
|
208
|
|
|
$
|
61,159
|
|
Term
|
|
|
7,527
|
|
|
|
301
|
|
|
|
22
|
|
|
|
—
|
|
|
|
7,850
|
|
Total
|
|
$
|
44,995
|
|
|
$
|
23,092
|
|
|
$
|
714
|
|
|
$
|
208
|
|
|
$
|
69,009
|
|
Remaining Performance Obligation
As of September 30, 2018, we had $173.2 million of remaining performance obligations. We expect to recognize revenue of approximately 31% of these performance obligations in 2018 and the remaining approximately 69% in 2019.
NOTE 9. EQUITY–BASED COMPENSATION
We grant various forms of equity–based compensation to our senior management and directors. These equity–based awards consist of non–qualified stock options and restricted stock units (“RSUs”).
In April 2018, we issued 0.5 million RSUs to our senior management. These RSUs vest as follows: (a) one–fourth on July 29, 2019, (b) one–fourth on January 29, 2020, and (c) one–half on January 29, 2021. The fair value of these RSUs on the date of grant was $13.8 million. In August 2018, our Board accelerated the vesting of the RSUs that were to vest on July 29, 2019 and January 29, 2020, causing us to accelerate the recognition of $5.1 million in equity–based compensation costs.
We recognized equity–based compensation costs of $6.5 million and $0.4 million in the three months ended September 30, 2018 and 2017, respectively, and $9.1 million and $1.6 million in the nine months ended September 30, 2018 and 2017, respectively. These costs are included in “Selling, general and administrative expenses” on our unaudited condensed consolidated statements of operations.
As of September 30, 2018, we had $5.7 million of unrecognized equity–based compensation cost, which is expected to be recognized over a weighted average period of 2.3 years.
NOTE 10. INCOME TAXES
Due to our history of losses and uncertainty of future taxable income, we established valuation allowances sufficient to fully offset net operating loss (“NOL”) carryforwards and other deferred tax assets. These valuation allowances will be maintained until positive evidence exists to support a conclusion that the benefit from certain of our NOL carryforwards and foreign tax credits may be realized.
We record income tax expense for interim periods on the basis of an estimated annual effective tax rate. The estimated annual effective tax rate is recomputed on a quarterly basis and may fluctuate due to changes in forecasted annual operating income, positive or negative changes to the valuation allowance for net deferred tax assets, and changes to actual or forecasted permanent book to tax differences.
16
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
In December 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (the “Act”), which significantly changed U.S. tax law. The Act lowered the U.S. statutory fede
ral income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income. The Act also created a new minimum tax on certain future foreign earnings.
In addition, t
he SEC
has
issued
Staff Accounting Bulletin 118, which allows a measurement period, not to exceed one year, to finalize the accounting for the income tax aspects of the Act.
Our effective tax rates were (5.7)% and (16.4)% for the three months ended September 30, 2018 and 2017, respectively, and (0.2)% and (22.3)% for the nine months ended September 30, 2018 and 2017, respectively. The changes in our effective tax rates and the primary reason why these effective tax rates differ from the applicable federal statutory rates are the fluctuations in earnings among the various jurisdictions in which we operate, increases in valuation allowances and foreign tax rate differentials.
We consider our foreign earnings to be permanently reinvested in operations outside the U.S. and have not provided for U.S. income taxes on these unrepatriated foreign earnings. We have provisionally recorded no tax expense in connection with the transition tax on the mandatory deemed repatriation of our foreign earnings based upon the aggregate tax losses of our foreign subsidiaries.
We are currently evaluating the impact of the Act on our unaudited condensed consolidated financial statements and, as a result, have not included a provisional estimate of the impact. However, we do not expect any impact from the remeasurement of certain deferred tax assets due to our full valuation allowance.
NOTE 11. 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 loss per share is as follows:
|
|
Three Months
Ended September 30,
|
|
|
Nine Months
Ended September 30,
|
|
|
|
2018
|
|
|
2018
|
|
Net loss attributable to SAExploration
|
|
$
|
(25,307
|
)
|
|
$
|
(61,021
|
)
|
Amortization of discount on Series A and Series B preferred stock
|
|
|
(5,336
|
)
|
|
|
(72,762
|
)
|
Accretion of Series A preferred stock to redemption value
|
|
|
—
|
|
|
|
21,376
|
|
Dividends on Series A preferred stock
|
|
|
(495
|
)
|
|
|
(1,614
|
)
|
Allocation of earnings to participating securities
(1)
|
|
|
—
|
|
|
|
—
|
|
Loss available to common stockholders of SAExploration
|
|
$
|
(31,138
|
)
|
|
$
|
(114,021
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted)
|
|
|
1,120
|
|
|
|
804
|
|
|
|
|
|
|
|
|
|
|
Loss per share available to common stockholders of SAExploration
(basic and diluted)
|
|
$
|
(27.80
|
)
|
|
$
|
(141.82
|
)
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from diluted loss available to common
stockholders of SAExploration
(2)
|
|
|
6,001
|
|
|
|
6,001
|
|
17
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
|
|
Three Months
Ended September 30,
|
|
|
Nine Months
Ended September 30,
|
|
|
|
2017
|
|
|
2017
|
|
Net loss attributable to SAExploration
|
|
$
|
(13,770
|
)
|
|
$
|
(24,830
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic and diluted)
|
|
|
470
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted)
|
|
$
|
(29.30
|
)
|
|
$
|
(52.94
|
)
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from diluted loss per share
(2)
|
|
|
26
|
|
|
|
26
|
|
(1)
|
Participating securities are not allocated losses as they do not participate in losses.
|
(2)
|
Includes warrants and unvested equity–based compensation.
|
NOTE 12. 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 Notes and Second Lien Notes, approximate fair value because of the short–term nature of the items.
As of September 30, 2018, the estimated aggregate fair value of our 2023 Notes and Second Lien Notes was $66.2 million, which differs from the aggregate carrying value of $50.5 million. As of December 31, 2017, the estimated aggregate fair value of our Senior Notes and Second Lien Notes was $32.3 million, which differs from the aggregate carrying value of $86.9 million. These fair values were estimated using dealer quoted period–end market prices. As these valuations used dealer quoted prices in active markets obtained from independent third–party sources, we have categorized our long–term debt as Level 2.
NOTE 13. OTHER SUPPLEMENTAL INFORMATION
Cash, Cash Equivalents and Restricted Cash
Cash, cash equivalents and restricted cash are recorded in our unaudited condensed consolidated balance sheet as follows:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Cash and cash equivalents
|
|
$
|
20,341
|
|
|
$
|
3,613
|
|
Restricted cash
|
|
|
—
|
|
|
|
41
|
|
Total cash, cash equivalents and restricted cash
|
|
$
|
20,341
|
|
|
$
|
3,654
|
|
Our restricted cash served as collateral for labor claims, office rental and cash in another country restricted by exchange control regulations.
18
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Accounts Receivable
, net
Total accounts receivable, net is comprised of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Trade receivables
|
|
$
|
93,370
|
|
|
$
|
82,115
|
|
Other receivables
|
|
|
4,042
|
|
|
|
2,104
|
|
Total accounts receivable
|
|
|
97,412
|
|
|
|
84,219
|
|
Less: allowance for doubtful accounts
|
|
|
(19,130
|
)
|
|
|
(12
|
)
|
Total accounts receivable, net
|
|
|
78,282
|
|
|
|
84,207
|
|
Current accounts receivable, net
|
|
|
19,165
|
|
|
|
6,105
|
|
Long-term accounts receivable, net
|
|
$
|
59,117
|
|
|
$
|
78,102
|
|
Accrued Liabilities
Accrued liabilities are comprised of the following:
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Accrued payroll liabilities
|
|
$
|
2,232
|
|
|
$
|
2,781
|
|
Accrued interest
|
|
|
235
|
|
|
|
1,877
|
|
Other accrued liabilities
|
|
|
4,424
|
|
|
|
1,653
|
|
Total accrued liabilities
|
|
$
|
6,891
|
|
|
$
|
6,311
|
|
Other accrued liabilities primarily consist of accruals for project related expenses.
Supplemental Cash Flows Information
Supplemental cash flows information is as follows:
|
|
Nine Months Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Cash paid for interest
|
|
$
|
6,961
|
|
|
$
|
2,978
|
|
Cash paid for income taxes
|
|
|
2,124
|
|
|
|
6,661
|
|
Noncash Transactions
Supplemental noncash transactions are as follows:
|
|
As of September 30,
|
|
|
|
2018
|
|
|
2017
|
|
Costs to issue stock included in prepaid expenses and other current assets
|
|
$
|
1,442
|
|
|
$
|
—
|
|
Costs for additions to property and equipment in accounts payable
|
|
|
26
|
|
|
|
113
|
|
Costs to issue debt included in accounts payable
|
|
|
1,096
|
|
|
|
775
|
|
Costs to issue stock included in accounts payable
|
|
|
995
|
|
|
|
—
|
|
NOTE 14. 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.
19
SAExploration Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
As of September 30, 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.
NOTE 15. SUBSEQUENT EVENTS
In October 2018, the holders of a majority of the shares of our common stock adopted resolutions by written consent, in lieu of a meeting of stockholders, to (i) amend our certificate of incorporation to increase the authorized number of shares of our common stock from 20.0 million to 40.0 million and (ii) amend our long–term incentive plan to increase the authorized number of shares of our common stock that may be issued under the plan to 2.7 million shares. The amendment to our long–term incentive plan will become effective 20 calendar days following the date that we mail an information statement to our stockholders, and the amendment to our certificate of incorporation will be filed and become effective 20 calendar days following the date we mail an information statement to our stockholders, or as soon thereafter as is reasonably practicable.
We evaluated subsequent events for appropriate accounting and disclosure through the date these unaudited condensed consolidated financial statements were issued and determined that there were no other material items that required recognition or disclosure in our unaudited condensed consolidated financial statements.
20