As Tobias tweeted recently:
Biggest movers today in the Small and Micro Screener were SAEX 8.6 percent, CVR 6.3 percent, and LAKE 5.8 percent.
So, I thought I’d take a look at SAExploration Holdings, Inc. (NASDAQ:SAEX) to find out why their share price is climbing.
SAExploration recently announced its consolidated financial results for the first quarter (“Q1”) ended March 31, 2016.
- Revenue of $90.2 million, up 13.1% from $79.7 million in 2015
- Gross profit, excluding depreciation expense, of $30.6 million, an increase of 20.6% from $25.4 million last year
- Gross margin, excluding depreciation expense, of 34.0%, up from 31.9% in 2015
- Adjusted EBITDA of $24.3 million, an increase of 42.0% from $17.1 million last year
- Adjusted EBITDA margin of 26.9%, up from 21.4% in 2015
- Income before income taxes of $17.3 million, up 234.8% from $5.2 million in 2015
- Diluted EPS of $0.82, an increase from $0.08 in 2015
- Contracted backlog of $125.8 million through 2017 and $427.9 million of bids outstanding
- Hired Jefferies LLC to act as their advisor
Brian Beatty, President and CEO of SAExploration, commented, “I am extremely proud of our employees, who have maintained their discipline and focus, despite the continued challenges we face in this demanding market environment. Through their dedication to excellence in the field, we achieved our best quarter on record in Q1 2016”.
“However, we are not without our own challenges, as we have been directly impacted by other casualties associated with this downturn. As we have previously disclosed, we are currently undergoing significant cash flow and liquidity difficulties related to a customer’s inability to timely pay its receivable”.
Mr. Beatty concluded, “Despite these difficulties, our backlog remains strong at $125.8 million. Our level of outstanding bids is improving, as customers continue to explore ways to enhance their current production. And, we continue to outperform our peers in most of our core markets”.
“We believe we will become a stronger company with meaningful earnings power, improved liquidity and an optimized balance sheet. Improvements should enable us to capitalize on the strong operating performance we have consistently demonstrated throughout this cycle.”
Revenues increased primarily due to an increase in activity in North America and South America. During Q1 2016, the company’s operations in Alaska experienced an increase in the overall amount of projects performed, Canada witnessed an improvement in the level of winter activity, and South America benefited from a major project in Bolivia compared to smaller projects in Peru and Colombia in Q1 2015.
Excluding depreciation expense, gross margins for Q1 2016 and Q1 2015 were 34.0% and 31.9% of revenues, respectively. The increase in gross profit as a percentage of revenues was primarily related to the continued improvement of field-level execution on projects in Alaska, Canada, Bolivia and Colombia.
Net income attributable to the Corporation for the quarter was $14.2 million, or $0.82 per diluted share, compared to $1.2 million, or $0.08 per diluted share, in Q1 2015. Net income was impacted by a number of factors during Q1 2016, including:
- Increased revenue and gross profit as a percentage of revenues
- Lower SG&A expenses
- Significant, primarily unrealized gains on foreign currency transactions in 2016, compared to significant, primarily unrealized losses on foreign currency transactions in 2015
- Proportionately lower provision for income taxes
As of March 31, 2016, SAExploration’s backlog was $125.8 million. Bids outstanding on the same date totaled $427.9 million. Approximately 99% of the backlog represents land-based projects, with the balance attributed to ocean-bottom marine projects.
The company expects approximately 66% of the projects in its backlog on March 31, 2016 to be completed during the last nine months of 2016, with the remainder in 2017. The estimation of realization from the backlog can be impacted by a number of factors, including deteriorating industry conditions, customer delays or cancellations, permitting or project delays and environmental conditions.
Cash Flow and Liquidity
At March 31, 2016, SAExploration had an account receivable of $87.7 million due from one customer, representing its largest account receivable and the single largest item affecting the company’s short-term liquidity, other than the general decline in its business due to the downturn in the business of oil and natural gas exploration and production companies.
As previously disclosed in the company’s Amended 10-K filed on April 29, 2016, this customer was relying on the tax credit program of the State of Alaska and also the monetization of the tax credits, and the related tax credit certificates which the State of Alaska issues, from third party financing sources to satisfy the account receivable. But, for several reasons there remains substantial uncertainty regarding the timing of reimbursement from the State of Alaska and the availability of third party financing to the customer, or SAExploration, in order for the company to get paid on the account receivable.
The company states, “We are exploring a range of transactions to address our current significant cash flow and liquidity difficulties and to recapitalize our balance sheet, but we may not be successful in implementing them, which would have a material and negative impact on us”.
“Recent developments in the State of Alaska and their consequences for the market for exploration tax credits have intensified the negative impact on our current liquidity and cash flow.”
As a contrarian investor, the Oil & Gas sector currently provides a number of stock picks like SAExploration. The company sits at #20 in the Small & Micro Cap Screener. It has an Enterprise Value of $143 million and operating earnings of $24 million, giving it an Acquirer’s Multiple of 5.96, and its trading on a P/E ratio of just 2.5.
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