ION Geophysical Corporation
Q1 2013 Earnings Call Transcript

Published: 1 May 2013

[Operator:]

Good day, ladies and gentlemen, thank you for standing by. Welcome to Ion Geophysical’s First Quarter Earnings Call. During today’s presentation, all parties will be in a listen-only-mode. Following the presentation, the conference will be opened for questions and instructions will be given at that time. This conference is being recorded today, May 1, 2013. I would now like to turn the conference over to Karen Abercrombie, Vice President of Corporate Communications. Please go ahead.

[Karen Abercrombie:]

Thank you, Ian. Good morning and welcome to Ion Geophysical Corporation’s First Quarter 2013 Earnings Conference Call. We appreciate you joining us today. As indicated on slide 2, our hosts today are Brian Hanson, President and Chief Executive Officer and Greg Heinlein, Senior Vice President and Chief Financial Officer. Before I turn over the call to them, I have a few items to cover. If you’d like to listen to a replay of today’s call, it’s available via webcast by going to the Investor Relations section of our website at iongeo.com or via recorded instant replay for the next couple of weeks. The information was provided in yesterday’s earnings release. I should also point out that we’ll be using some PowerPoint slides to accompany today’s call. They are accessible via a link on the Investor Relations page of our website. Information reported on this call speaks only as of today May 1, 2013 and therefore you are advised that time-sensitive information may no longer be accurate at the time of any replay. Before we begin, let me remind you that certain statements made by Ion during this call may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our current expectations and include known and unknown risks, uncertainties and other factors, many of which we are unable to predict or control that may cause our actual results or performance to differ materially from any future results or performance, expressed or implied by those statements. These risks and uncertainties include the risk factors disclosed by Ion from time-to-time in our filings with the SEC, including in our Annual Report on Form 10-K and then our quarterly reports on Form 10-Q. Furthermore as we start this call, please refer to the disclosure regarding forward-looking statements incorporated in our press release issued yesterday. And please note that the contents of our conference call this morning are covered by the statements. I’ll now turn over the call to Brian Hanson who will begin on slide four.

[Brian Hanson:]

Thanks Karen, and good morning everyone. As we reported yesterday, our first quarter revenues were $129.7 million, up 16% over first quarter 2012. Our GeoVentures and GXT data processing groups both delivered record revenues for our first quarter. Despite a solid showing on revenues, our overall results in the quarter were affected by few one-off items, which Greg will cover later in the call, which collectively reduced our earnings by approximately $0.06. Overall, we had some good wins and made solid progress in all areas of our business. I’d like to share some of the highlights with you. Our GeoVentures revenues were up 47% over first quarter 2012 driven by new ventures revenues, which were up 67% year-over-year. The outlook for new ventures is extremely positive, and I believe we are benefiting not only from increased E&P activity in international markets, but also from our strategy of providing E&P clients with integrated solutions that leverage our key technologies. Case in point, we have just completed acquisition of a new program Offshore West Australia, which includes about 12,000 kilometers of depth image 2D data. We went into the program knowing the area post significant imaging challenges. So, we designed our new patent pending WiBand processing technology into the program. The results of a preliminary test looked extremely promising and we believe this integrated approach to problem solving is a key differentiator for us. On our fourth quarter call, I mentioned that we have entered the 3D marine space with our first 3D program. The project, a large proprietary survey, Offshore Africa, is a substantial and very lucrative program for us, one that has spanned multiple quarters and is projected to have very good economics. Unfortunately, first quarter weather delays contributed to the earnings drag I mentioned previously that Greg will address, but in total, the program is excellent. We believe this program is strategic to our growth plans as it allows us to partner with E&P customers in key select areas bringing our full resources to bear through planning, permitting, acquiring, processing, and interpreting our findings. While our first new venture revenues were strong, our data library sales were impacted somewhat by delays in licensing rounds offshore Tanzania and Northeast Greenland. Every indication is that these sales will be realized later this year as we are extremely well positioned with high quality relevant data in both of these areas and also for the upcoming licensing rounds offshore Brazil. In fact about 40% of our data library sales in the first quarter were associated with the first of two Brazil licensing rounds this year, around 11 taking place this month. Our data processing business remained strong with 16% growth in revenues over first quarter of last year, a record first quarter in terms of revenue. Contributing to that success was our UK center which delivered a record first quarter positing a 75% increase in revenues year-over-year. One of the key drivers of our success there has been the uptake of WiBand, which is increasingly being incorporated into project work flows. We are continuing to benefit from international diversification and are opening a new processing center in Perth, Australia expanding our global footprint in the rapidly growing Asia-Pacific region. We have identified that market as underserved for our technologies. We are staffing up and we will be officially opening this new facility in late Q2 or very early third quarter bringing new opportunities not just for data processing, but for our new ventures and data library business as well. As we have transitioned Ion to being a service provider partnering with E&P customers over the last few years, our growth has been predominantly in international deepwater marine markets. However, I want to take a moment to share some highlights on the land side specifically regarding our activities in the North American unconventional plays. I should start off by saying that while we see unconventional reservoirs as a growth area for us, our exposure remains limited. That said we are seeing increasing demand for both the reprocessing of legacy land data and for the new land programs. And we have several data processing projects and multi-client programs underway in the North American unconventional plays. In terms of pure processing, our patented technology AZIM has driven significant reprocessing of existing surveys across North American unconventional plays, further strengthening our land processing performance. Chesapeake has adopted this technology in their exploration efforts with a new $3 million award to GXT in the Powder River basin following a $2.7 million award in the Mississippi line play in 2012. To-date our land processing group has processed over 250 land surveys totaling over 22,000 square miles. In addition to helping clients like Chesapeake at the most of the legacy data, we are seeing demand for new land programs. You might recall about a year ago, we launched our ResSCAN 3D seismic data programs for unconventional reservoirs managed by our GeoVentures group and imaged by our GXT data processing group. This is the unique and differentiated offering, unlike traditional data programs ResSCAN programs are designed to work with rock property and engineering parameters prediction in mind. The ResSCAN workflow fully leverages upfront geological petrophysical and rock physics analysis to establish which seismic attributes provide a predictive expression of key reservoir properties for a given shale play and more important impact in operator’s decisions regarding drilling and completions engineering. ResSCAN technology is a hydrocarbon phase agnostic meaning that it works equally well on gas or oil and conventional plays. We now have six programs encompassing about 1000 square miles completed are underway across the Marcellus, Niobrara and Mississippi lime shale plays. The combination of oil, gas and mix plays. Through these programs, we are proving the value of multi-component data as compared to traditional P-Wave for understanding rock properties and helping operators to focus their drilling plans on their most productive acreage, which is essential in today’s North American oil and gas price environment. The hydraulic fracturing market was estimated last year to be $37 million globally of which $31 billion was U.S. based. Industry reports note that in a typical well approximately 70% of production is coming from only 30% of frac stages, so there is substantial room for efficiency gains and cost savings. An industry survey of hydraulic fracturing market last year revealed that a quarter of frac jobs did not meet initial expectations. The most common reason cited was failure to understand the subsurface. The information we deliver through our ResSCAN programs has a potential to significantly improve efficiency by optimizing decisions around fracking. A new and integral component of ResSCAN workflow is the use of micro-seismic technology for fracture monitoring. The frac monitoring market segment estimated to be about $350 million market is faced with a challenge of recording very small signals in a high noise environment, and a shortcomings of current industry offerings when it comes to accurately locating and characterizing these events. To help meet this need, we developed a new micro-seismic offering that employs our proprietary ultra-high sensitivity, low-noise ION-SM-64 sensor deployed in shallow arrays. Our first two commercial monitoring projects are underway in Pennsylvania and Oklahoma and we are integrating the micro-seismic data with our ResSCAN 3D multi-component data and attribute volumes to provide operators with a better picture of the completions effectiveness and overall reservoir models. Coupled with our ResSCAN programs, we see the monitoring market as a growth area for us. Now, I’d like to return to the marine business. We continue to see significant growth and demand for seabed seismic driven by the need for higher quality seismic image complex targets for production and in abstracted areas containing a lot of infrastructure. Our VSO seabed system continues to deliver industry leading images, and Calypso, our next generation VSO system to be field tested this year will deliver VSO quality imaging along with significant increases in operating efficiencies, a high value road to market for our Calypso technologies via our recently announced joint venture with Georadar currently known as GeoRXT. Today, we own 30% of this joint venture and are very close to increasing our ownership to 50% in the very near future as indicated in this morning’s press release on our high yield offering. Whereas GeoRXT was restricted to operating only in certain geographic areas, we have removed this restriction and opened the doors to address the global market. The new JV company will be able to offer a fully integrated seabed seismic solution that can leverage ION strengths, including GeoVentures project origination and global relationships and GXT data processing and reservoir services along with the operational excellence and relationships that already exist in the GeoRXT team. We believe a fully integrated seabed seismic offering backed by two strong parents will be well positioned to succeed in the fast growing seabed seismic market. We anticipate that the new 50-50 joint venture will go to market with exclusive access to Calypso accelerating our ability to improve the technology and quickly integrated into operations with a fast feedback to engineering. We sold and shipped two arrays of VSO into the JV in Q1. We have spent the last two months working hand in hand with Georadar to market and qualify GeoRXT to participate in tender activity in Southeast Asia, the Middle East, Africa, India, and other areas. In our software segment, we experienced increased demand for our unique offshore 4D optimization services. Our 4D services revenue in Q1 increased 50% over Q1, 2012 and advanced bookings in 2013 indicated doubling of our AMP customer base over 2012. In addition, we grew sales of our industry leading Orca Command & Control software. Also in Q1, concept system secured a long-term fleet wide contract with a key marine customer for Orca. This agreement is yet another testament to our leadership in the streamer operational management market. In addition, the contractor customer’s fleet provides another platform for installing our 4D optimizer software further broadening our exposure to E&P operators. So, to sum it up, we remain confident in our full year outlook. Leveraging the momentum we have built in 2012, we are going into the rest of the year with a number of tailwinds. We are extremely well-positioned for upcoming licensing rounds and expiration to hotspots around the world and with the solid backlog of multi-client programs. Our business is increasingly international and the opening of our Perth Center should open up significant opportunities for our leading technologies and services in the fast growing Asia-Pacific markets. We are seeing increasing interest in and demand for our emerging technologies, including our WiBand broadband processing platform. We continue to gain traction for our land data processing services leveraging our (inaudible) technology and also for our new and differentiated ResSCAN programs. And with our seabed joint venture, we are well positioned to take full advantage of the growing market of seabed seismic. With that, I’ll turn the call over to Greg.

[Greg Heinlein:]

Thanks, Brian. Good morning everyone. Overall, our first quarter revenues were up 16% year-over-year. Our Solutions segment revenues of $89 million improved 35% over the prior year period. Compared to first quarter 2012, our software segment sales decreased slightly to approximately $9 million was flat in local currency, while our Systems segment revenues decreased 13% to $32 million. Our first quarter net income was $1.5 million or $0.01 per diluted share. Our overall results were adversely affected by a few items which I will cover in a little more detail. In Q1, we had incremental standby costs of approximately $6 million without corresponding revenue from our multiple quarter 3D acquisition program. The economics of this program are great in total, however, the first quarter was exposed to some extreme seasonal weather delays, which we do not expect will be repeated as we wrap up remainder of this survey in the second quarter. We also recorded nearly $3 million for bad debt expense primarily for a land customer bankruptcy, but fully expect that if they are unable to ultimately pay. The company that picks up their leases will pay for the data. And finally, we recorded $700,000 loss on our 30% share in the Seabed JV. Ironically the JV was profitable for the full quarter, unfortunately we were only able to book our portion of the earnings for the short period we owned them in the quarter, which was timed with some weather delays and crew change activity driving the loss. All of these items combined resulted and approximately $0.06 of earnings per share impact during the quarter. Now, let’s take a closer look at our Q1 performance starting on slide 11. Our Solutions segment revenues increased 35% due to increased performance in both our data processing and new ventures businesses. Our data processing revenues increased by 16% a best ever first quarter driven by continued improvement in Gulf of Mexico and our international expansion. We continued to smartly invest in hardware, software and processing talent in this business, given the faith our customers are placing in our processing division. Our new venture revenues increased by 67% also a best ever first quarter driven by work on the last 3D marine project discussed earlier as well as projects offshore Africa, Australia and in Artic. Our data library revenues were softer than expected as a result of the previously mention delays in offshore licensing rounds in Greenland and East Africa. Our quarterly library sales are always difficult to predict and this quarter it was no different. Our Solutions segment ended the quarter with a backlog of $129 million flat year-over-year and down $22 million from last quarter. The decline in backlog during the quarter was due to working through some of the large 3D marine proprietary program of Africa. We anticipate that our backlog will continue to build over the reminder of 2013, consistent with prior years. Operating margins for our solutions business were significantly lower this quarter attributed to the nearly $6 million incremental standby costs due to weather delays and a reserve recorded as a result of a customer bankruptcy for nearly $3 million. These events which impacted operating margins by 10 points are uncharacteristic for our solutions business and we expect our margins to return to historical norm as the year progresses. Turning to slide 12, our Software segment revenues in Q1 were relatively flat, which is pretty normal for the first quarter. This quarter dollar revenues and operating income were modestly impacted by the decline in the British pound. Moving on to slide 13, Systems segment revenues decline 13% year-over-year driven by lower demand for positioning products due to very modest capital spending by our contractor customers related to new vessel introductions. During the quarter we also saw a year-over-year decline in revenues in our land sensor business due to a large stream system sale in the first quarter of 2012. Unfortunately, the lumpy nature of our equipment business continues to impact our year-over-year comparisons. On a positive note, our OBC product sales during the first quarter increased significantly as we sold two arrays into our joint venture GeoRXT. Unfortunately we have to defer 30% of our margins over time from sales into the JV because of our current 30% ownership. INOVA continued to have success selling G3i and UNIVIB products introduced in 2012. As we indicated on our last call INOVA’s revenue in their fourth quarter was $59.6 million, relatively flat year-over-year. INOVA delivered an additional 38,500 channels of G3i cable based recording system in Q4, and made a few additional U.S. based vibrator sales. INOVA’s fourth quarter operating loss was $300,000, down from the same period in 2012 in which they had an operating income of $6.5 million. We estimate INOVA’s first quarter revenues to be in the range of approximately $21 million to $23 million with an operating loss of $7 million to $9 million. INOVA had a slow start to this year with sales plan – with several large sales planned for Q1 having shifted into Q2. As always the land equipment business is the lumpy business, but INOVA’s second quarter is giving every indication that it will be a strong one. Given what see at this point for the remainder of 2013, we continue to expect INOVA to be profitable for the full year. Turning to slide 15, we generated free cash flow of $17 million this quarter. Our cash balance stands at $67 million, up $5.6 million from the fourth quarter. Moving on to more details on the balance sheet on slide 16, the assets side of our balance sheet remains clean with limited debt and our most significant asset being our data library net book value of $225 million, up $48 million in the last 12 months and down slightly from year end. Our credit facility has $78 million of capacity outstanding. Turning to our last slide 17, despite a strong revenue, but weak earnings quarter in Q1, we remain confident that 2013 will result in solid year-over-year growth. As we look ahead of the second quarter we see upward momentum in our three core business segments. We expect to leverage the momentum in growth we delivered in 2012 through the remainder of 2013. With regard to our Seabed joint venture should we decide to increase our ownership in the JV to 50%, our investment in global relationships should enable us to develop the larger sustainable backlog to allow the revenue to expand internationally utilizing next generation Calypso. We view the Seabed market as an important strategic opportunity for Ion affording us the ability to solve some of our customers’ toughest challenges with our Seabed technology. We continue to expect our 2013 investment in multi-client data library to be in the range of $140 million to $160 million, consistent with 2012. Finally, I would like to address our announcement of the launch of our $175 million five-year notes offering. While we can’t say much during the marketing period, let me assure investors that we are simply terming out our floating rate revolver financing that we have relied on over the years. Interest rates are at generational lows and as we fund our growth, we felt it prudent to have more permanent financing. We intend to use the proceeds to pay down our revolver borrowings, invest into our Seabed joint venture and for general corporate purposes. In summary, we remain optimistic about our feature and this new source of capital will simply provide us with financial flexibility beyond our revolver, which matures in two years. In closing we would like to thank our customers for their continued faith in us and our employees who strive to give us competitive advantage every day. With that we will turn it back to the operator for question and answer.

[Operator:]

Thank you. (Operator Instructions) And our first question comes from the line of George Venturatos with Johnson Rice. Please go ahead.

[George Venturatos:]

Good morning Brian, good morning Greg.

[Brian Hanson:]

Good morning George.

[Greg Heinlein:]

Good morning George.

[George Venturatos:]

I wanted to start on the Seabed JV if we could, operationally just wanted to kind of get if you can provide anything in terms of your expectations, potentially if you do go forward in terms of number of crews working and likely location for those crews to be working. And then additionally just obviously you have some competitive advantages with Calypso, just wanted to see if you could shed a little more light in terms of operationally the efficiencies that it provides and also kind of the depth capabilities that I think are more in a sweet spot of what operators are looking for right now?

[Brian Hanson:]

Sure. George, let me press this by saying that we – upon completion of our high yield offering, we would anticipate that we are probably going to be closing on the heels of that for the JV. So, with that we would expect to have another call and get into a lot more detailer on the JV with you guys. So, kind of just a couple of high level comments for this call. One is when we look at the world and look at what markets are interesting, obviously South America remains interesting because of the breadth of the relationships that Georadar already has in that market, specifically Brazil are very strong, and they have other relationships just with the Georadar presents all the way up to South America. So, that is definitely one prime area. And what’s really nice is that there is a quite bit of deepwater, especially offshore Brazil, that the OBC system can be employed in. So, we think Calypso was extremely differentiated there, because they are operating right now in, call it, 1400 to 1600 meter depths. And truly there is not a system out there really rated for that. We are stretching our VSO capabilities today playing in that area, but Calypso was rated to 2,000 meters, so it will be very nicely positioned for that market. Most other seabed offerings, quite frankly, are playing in under 300 meters, and most of them are rated up to 700 meters. So, Calypso at 2,000 meters is quite a step to open up the market a bit. When I look at other geographic locations that are of interest, there is some really prime ones. And so West Africa is a really good market. It’s – there is a lot of over fields that reservoir management is more important than ever. It’s highly populated with a lot of infrastructure. And so just a combination of the superior image and the ability to maneuver around all the existing infrastructure, it just makes it a prime OBC market. So, that would be one of great interest to us. The other would be the Middle East. We have similar issues. There are fields in the Middle East that are 50, 60 years old and again reservoir management is very critical. They are shallow water environments. And so I think that’s a prime market. And another very interesting area is Southeast Asia. So, Petronas has a lot of pent-up demand for almost exactly the same type of applications where you have got over fields that they are trying to manage the reservoirs, and there is lot of infrastructure. We are just seeing this recurring pattern come around the world. And so there is interest in the number of markets, but I like those three specifically, because I think over time each of those markets will support a permanent crew. Now, that’s not going to happen overnight, because these are large projects. They are sort of multi-year planning horizons. And so it’s kind of a slow and steady evolution of the business in my mind. So, I can’t give you specifics on crews right now other than to say that over time I would expect that each of those markets could potentially support their own crew.

[George Venturatos:]

Perfect, thank you. And just wanted to touch on the new ventures side, obviously we have got very positive outlook there and then some of the strategic ways you are going about integrating solutions, I think you now offer a differentiated aspect to it. Can you talk maybe a little bit about how you are also I think long-term strategically kind of shifting to diversify kind of your exposure to the reservoir cycle. I think historically we have been more frontier focused but as you can potentially get more into the developmental phase as well?

[Brian Hanson:]

Yes. Certainly, that’s another really good question. We deliberately recognized, I’d say about 4 years ago that primarily what we did on the new ventures side was really early stage frontier expiration around basins of interest with our 2D program. But we also recognized that what we wanted to do was expand that business and have it actually cross the early stage expiration, expiration and ultimately production plays. And so we have been slowly diversifying it. So, if you think in terms of the current offering, we still are certainly one of the leaders in doing early stage frontier expiration with our 2D base and span work, but a couple of the areas that we have really branched in to get into more closer to the production side is both our ResSCAN offerings on the unconventional plays. And also we see tremendous opportunity around our seabed technology and putting that into kind of a multi-client model well. So, I see that shifting more and more into production. And also we see the expansion into 3D marine seismic as an opportunity to move away from that early stage frontier expiration and get into more of the decision-making round participation and lease rounds and ultimately drilling location kind of decisions.

[George Venturatos:]

Got you. Okay, great. I really appreciate the answer, Brian.

[Brian Hanson:]

Thanks George.

[Operator:]

Thank you. Our next question is from the line of Joe Maxa with Dougherty & Company. Please go ahead.

[Joe Maxa:]

Hi. Thank you. I want to explore a little more on the 3D seismic, I think in the past we’ve talked about that being a little more competitive market, it looks like you have some nice success or about to with this current program that’s going to wrap up in Q2. So, I’d like to talk about your differentiators again I think you hit on that a little bit and then where you see that going in the next 6 to 12 months?

[Brian Hanson:]

Yeah, hi Joe well the differentiators when you look at the almost a spectrum from planning through acquisition to processing and interpretation, in my mind the differentiators from our perspective is that we have a real strong geophysical skill set in the company. So, it starts with our ability to uniquely plan and help the oil company design the survey. And then we couple that with where we can’t to utilize the technology that we are building and so we’ll give our ultimate design is to give the contractors access to that technology to shoot the survey. And in this case the survey is actually being shot 100% with Ion Technology. And then we use the unique skill sets of our GXT processing business to create a very high quality output both from the processing and working on the interpretation side of the equation. So, what we are not doing is just going out there and doing turnkey 3D seismic and trying to compete with the contractors in the business who do that, what we’re trying to do is bundle together all of our capability and create more of an integrated offering so that the end product is superior. And so when an oil company – I think where we are going to be successful is when our customers ultimately feel that we are truly differentiated and we are going to give them something unique that’s when we are going to be successful. I would also say that its somewhat early stage given that we’ve just launched into the 3D business and so this being our first project and this one being on a proprietary basis, we also see opportunity to do some 3D on a multi-client and there will be more to come on that this year.

[Joe Maxa:]

I see that’s very helpful. And I’m also wondering on the data library sales, I mean you talked about your expectations are both bouncing back. Can you talk a little bit more about the delays in the two regions that you talked about and the confidence level that you will see that revenue return this year?

[Brian Hanson:]

Yeah, absolutely and so we always have a difficult time trying to predict library sales, but specific to these two regions we had higher expectations that were somewhat tempered given some current issues and let me give you a little bit of insight into them. So, on the Tanzania side basically it was more of a – it was just a delay of the launch of the Tanzania licensing round. And we’re expecting that that actual licensing round will probably be announced very shortly, high probability in second quarter and so that will put that data back in play. On the Northeast Greenland play I think there was a little bit of uncertainty in the market around in coming government and there – they made some statements that weren’t quite clear whether or not that we’re going to have another licensing round or whatever. But I think ultimately they are pretty much cleared up, if not close to being cleared up. So, that round will go ahead. I just think that created ambiguity in the press and in the market and so that had to be straightened out, so.

[Joe Maxa:]

So, that will round for sure going ahead and there are some, do you have time and rough expectations of when that may move forward?

[Brian Hanson:]

Not specifically and I can’t specifically say that they have come out and formally said that it will go ahead. But if you dig into all of the detail underneath that licensing round, it would be hard to imagine that would not go ahead.

[Joe Maxa:]

Got it. Okay, very good. Thanks a lot for your help.

[Brian Hanson:]

Thanks Joe.

[Operator:]

Thank you. (Operator Instructions) Our next question is from the line of Justin Baker with Sidoti & Company. Please go ahead.

[Justin Baker:]

Good morning gentlemen.

[Brian Hanson:]

Good morning, Justin.

[Greg Heinlein:]

Good morning, Justin.

[Justin Baker:]

I know that you mentioned that we’re going to have probably a follow up color as far as GeoRXT. So, just two really quick ones on that, Greg you had mention that you only got part of the quarter in your results are you able to tell us what the full quarter for GeoRXT was, so that we have some frame of reference there?

[Greg Heinlein:]

Again GeoRXT is a private company, so the results that will be known ultimately when we get 50%, we will probably give you better insight to that. But for the quarter they were profitable, so January, February they were profitable. Our ownership interest took place in March and so our 30% piece of that represented $700,000 loss. They had some downtime in March that we incurred.

[Justin Baker:]

Okay. And then you had mentioned having to defer 30% of the margins I think on that?

[Greg Heinlein:]

Yeah, that’s exactly. Whenever you are selling into a related party where you can recognize the revenues, part of the margins have to be deferred and so our ownership interest of 30% means we’ve had to push out five years useful life of the equipment 30% of the market.

[Justin Baker:]

Okay, great.

[Greg Heinlein:]

That obviously will go up to 50% deferral once we move our ownership interest to 30%.

[Justin Baker:]

Alright. Okay and then as far as the marine 3D just to kind of get a sense on this, are you able to give some basics in terms of maybe range of project sizes that you would expect to have margins we are going to compare here. And then also given the standby cost that you saw and this would you structure projects any differently in the future?

[Brian Hanson:]

Let me try and give you a little bit of a perspective on this just in the 3D arena we – obviously both 2D and 3D project sizes can range across the board, but generally speaking I think we would expect to see project sizes to be 2 to 3 times the size of a 2D project. But again it’s early stage and so we can’t claim to tell you that we know exactly how this is going to unfold. I would rather have a little bit of history under our belt and then be able to give you more specifics. And I’d even say that that’s the answer to the margin question too and we need a little in this and almost in any area of the business that you enter initially you are going to have some learnings and so there probably is – we are probably going have bump for too long road. The same way we did in the 2D projects, but in general we would expect that if we can’t make respectful to margins we are not going to be in the business. As far as the design of the program and standby costs, the reality is we fully expect that there are going to be hurdles like this and program was design accordingly. This program was – we took into consideration given it was multi-quarter program. The geographic area that they were working, the average wave height, the average wind speed, the typical weather conditions and we’ve recognized that there would be – wouldn’t downtime associated with it given that your spanning call at nine months. And so that in total in the program is planned for, however, the timing of it when it comes to revenue recognition and the recognition of the expense associated is lumpy and so the program in total is an excellent program and gives, it’s giving really good returns the way it already goes, because all that downtime was in the season where you had three cyclones back to back it gets pushed through one quarter.

[Justin Baker:]

Okay, thank you.

[Operator:]

Thank you. And we have no further questions at this time. I’ll turn it back to management for any closing remarks.

[Brian Hanson:]

Well, thank you for attending the call and we hope you are joining us on our next call which hopefully will be to discuss the GeoRXT joint venture.

[Operator:]

Ladies and gentlemen, this concludes the Ion Geophysical first quarter earnings conference call. I would like to thank you for your participation. You may now disconnect.