ION Geophysical Corporation
Q4 2013 Earnings Call Transcript

Published: 13 Feb 2014

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to ION Geophysical’s Fourth Quarter 2013 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded, today, February 13, 2014. I would now like to turn the conference over to Ms. Karen Abercrombie, Vice President of Corporate Communications. Please, go ahead.

[Karen Abercrombie:]

Thank you, Camille [ph]. Good morning, and welcome to ION Geophysical Corporation’s fourth quarter 2013 earnings conference call. We appreciate you joining us today. As indicated on slide two, our hosts today are Brian Hanson, President and Chief Executive Officer, and Greg Heinlein, Senior Vice President and Chief Financial Officer. Before I turn the call over to them, I have a few items to cover. We’ll be using PowerPoint slides to accompany today’s call. They are accessible via links on the Investor Relations Page of our website, iongeo.com. There you’ll also find a replay of today’s call following the call. As indicated on slide three, information reported on this call today speaks only as of today, February 13, 2014, and, therefore, you’re 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 during this call may constitute forward-looking statements, which 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 our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q. Furthermore, as we start this call, please refer to the disclosure regarding forward-looking statements incorporated into our press release issued yesterday, and please note that the contents of our call this morning are covered by these statements. I’ll now turn the call over to Brian Hanson who will begin on slide four.

[Brian Hanson:]

Thanks, Karen, and good morning everyone. I’m pleased to report we had a strong fourth quarter, with record revenues of $219 million, up 26% from the fourth quarter of 2012. And record operating income of $64 million, up 158% from fourth quarter of 2012. Our fourth quarter net income as reported was $20 million, or $0.12 per diluted share, which was impacted by our share of restructuring and special items from our INOVA and OceanGeo joint ventures. Excluding those items we delivered $0.33 per diluted share. Despite a very strong fourth quarter, 2013 was challenging. Our full year revenues were $549 million, up 4% from 2012. Our 2013 reported net income was a loss of $252 million, or $1.59 per share, impacted by several significant restructuring and special items discussed in detail during our third quarter call. Excluding these items our 2013 net income was $19 million, or $0.12 per diluted share. A couple of items in 2013 caused a significant drag on our full year results. First, we were impacted by cost overruns on our 3D marine program. In addition, we experienced cautious spending by our E&P customers, especially in terms of new venture underwriting. That said, our customers saw good value in our library as we had a record full quarter for data library sales in the fourth quarter. We have also seen the broadening of our customer base for our multi-client library. I’ll elaborate on that later. Now I’d like to walk through each of our businesses, highlighting our 2013 operational performance. After that, Greg will walk us through the financials. Then I’ll wrap up with our outlook for 2014. As you probably know, last month we increased our ownership in OceanGeo, our ocean bottom seismic acquisition joint venture with Georadar to 70%, up from the 30% we acquired a year ago. In December, OceanGeo was awarded a 510 square kilometer ocean bottom 3D seismic survey offshore Trinidad for Petrotrin. Work on the survey commenced in late December and is expected to take four to five months to complete. The ocean bottom seismic market has become one of the fastest growing segments, if not the fastest growing segment in the seismic business. We see this trend continuing as oil & gas companies seek higher quality seismic to better locate wells and manage the reservoirs. Ocean bottom seismic has strategic done [ph] in keeping with our strategy of leveraging our key technologies to provide integrated solutions to oil & gas companies, we intend to put our Calypso technology to work in our higher value service model through the JV. OceanGeo also leverages our entire infrastructure and enables us to provide an integrated full scope ocean bottom seismic solution, from survey planning and design, to data acquisition, processing and interpretation, something many players in the ocean bottom seismic arena can’t deliver. We are also putting the full business development muscle of the ION GeoVentures Group behind OceanGeo to help them identify and secure additional projects, and we’re confident that backlog will build. We’re excited about this next step. We believe we’re entering the lucrative ocean bottom seismic market at the right time and with the right mix of industry leading technology, expertise, software, and services in an integrated model. Now I’d like to shift gears and focus on our segment results starting with our GeoVentures multi-client business. 2013 was overall a good year for our multi-client business. Our full year multi-client revenues were $267 million, up 13% from 2012. Our results were driven by exceptionally strong fourth quarter data library sales, which were more than double our fourth quarter 2012 data library sales. Two hotspots for us in 2013 was East Africa, where we assisted the Tanzania Petroleum Development Corporation with managing their licensing round announced last October. Our involvement allowed us to fully leverage over 20,000 kilometers of relevant SPAN data making East Africa our top region for data sales in 2013. In addition, we saw strong library sales in the Gulf of Mexico, validation of the longevity and sustainability of our GulfSPAN library. We generated significant revenues from sales of our India and West Africa programs in anticipation of upcoming licensing rounds in those two regions. As we mentioned on our third quarter call, we are seeing a change in our marine multi-client revenue mix, specifically in expansion from our traditional multi-client customers, predominantly IOCs, to NOC and independents. We added 16 new customers in 2013. We have noted that our traditional IOC customers are taking a spending pause, acquiring exploration datasets as they focus on production, cash flow and return to investors in the short-term, while the NOCs and independents are positioning themselves to take advantage of this pause and capitalize on potential upcoming asset sales and licensing rounds. We noted in our third quarter call, with this phenomenon it would make it hard to predict the fourth quarter and the same may hold true for 2014. That said, the fact that our data library is being purchased by a broader group of companies confirms the value of our library. In 2013, the seismic industry saw a softening in new venture activity and underwriting which we believe was caused by E&P reductions in contractor surveys, resulting in excess marine seismic data acquisition capacity. This excess capacity created incentives for contractors to keep their fleets utilized in multi-client programs intensifying competition. As a result, we delayed on investments in new programs in 2013 sanctioning only when we saw sufficient underwriting levels. We see this continuing into at least the first half of 2014, likely making 2014 another back half year for ION. Our full year data processing revenues were up 4% over 2012, a record in terms of revenues for data processing business. During the year, we were awarded and performed a substantial amount of data processing work for national oil company, work for which we were not able to recognize revenues as the customer contract was still pending final execution at year-end. I’m happy to report this contract has now been executed, and therefore, we will recognize those revenues in the first quarter of 2014, although all the expense associated with these revenues was incurred in 2013. As a result, we expect our first quarter results to benefit by approximately $14 million to $16 million, associated with 2013 activity. During the year we saw continued customer updates of our WiBand Broadband Processing Technology. And we now have about 45 WiBand projects either complete or in progress around the world. To ensure capacity for our clients growing demand, we significantly upgraded our Houston high performance computing hub, moving to a new state-of-the-art facility that increased our throughput capacity by 50%. Additionally, we are continuing to investment in R&D and our data processing business to better position our technology for longer term growth. Our Software business finished the year with a record fourth quarter, and the second highest quarter in terms of revenue and operating income, driven by increased Orca software and hardware sales. During the fourth quarter, we signed a full year Orca contract renewal with a major marine contractor, reinforcing our leadership in our core command and control software business. We also saw a record annual revenue for our Concept Systems for the optimization services, tripling our services client list during the year. This past fall, we introduced our Narwhal Solution for ice management and announced our first two commercial Narwhal projects. In December we were awarded a patent supporting our technology, providing further differentiation in this emerging segment. Just this week Narwhal received one of the three 2014 Spotlight on Arctic Technology Awards for innovation at the Arctic Technology Conference in Houston. In the phase of consolidation in the market for our traditional command and control software, we are increasing our spend in software research and development to develop new oil company software solutions such as Narwhal. We anticipate our 2014 R&D spend to reach 15% of our software segment sales, approaching the range that is typical of software companies as opposed to service companies. In 2013, we restructured our systems business, making necessary adjustments for long-term competitiveness and profitability. As we mentioned in our third quarter call, we introduced refurbishment programs targeting our huge installed base of legacy towed streamer products to help expand margins. We reduced the cost structure of our legacy towed streamer product lines, shifting our focus, including a significant amount of R&D efforts to the seabed market where we will see the greatest opportunity for ION. We also streamlined the cost structure of our land sensor geophone business to allow us to be more competitive in the price sensitive geophone market. Overall, we reduced our systems division headcount by about one-third, and reduced our annualized operating expenses by about $12 million. The results of this restructuring program began to show up in our fourth quarter where we improved operating margins in our systems segment by approximately 13 percentage points. Last summer, we consolidated all of our marine systems personnel and operations from four buildings in Harahan, Louisiana into one state-of-the-art facility containing about a 120,000 square feet of office and manufacturing space. We believe this segment is now well positioned and equipped for profitability moving forward. With that, I’ll turn the call over to Greg.

[Greg Heinlein:]

Thanks, Brian. Good morning, everyone. Overall, our fourth quarter revenues were up 26% year-over-year, reaching a record level at nearly $219 million. Our Solutions segment revenues of $166 million improved 37% over the prior year period. Compared to fourth quarter 2012, our Software segment sales increased to $12 million, up 13%, while our Systems segment revenues decreased 2%, to $40 million. Our fourth quarter operating income was also a quarterly record, at $64 million, compared to $25 million in fourth quarter of 2012. Our fourth quarter net income was $20 million, or $0.12 per diluted share, and included certain restructuring and special items. Excluding the fourth quarter restructuring and special items, we delivered net income of $53 million, or $0.33 per diluted share. Turning to slide 11, our reported net income was primarily impacted by our share of restructuring and special items from our INOVA joint venture, and recognition of losses resulting from increase in our ownership interest in OceanGeo. During the third quarter, INOVA initiated the restructuring plan. Our share of INOVA charges totaled $19 million and relate to their impairment of intangible assets, write-down of excess and obsolete inventory, and rental equipment, and severance related charges. As a result of the restructuring, INOVA has reduced their operating cost by approximately $12 million per year. Off these costs savings, approximately half are due to reductions in the headcount, and the other half from reduced amortization and depreciation expenses resulting from the write-down of assets. Regarding OceanGeo, in terms of our increased influence for the joint venture during the fourth quarter, US GAAP necessitated we realize 70% of the JV losses, even though our 70% ownership and control did not become effective until January. Keep in mind, OceanGeo did not realize much revenue in the fourth quarter. As a result, that we recognize approximately $12 million of losses from OceanGeo in the quarter. The effect of this charge reduces the carrying value of the loan we granted during the quarter for which we expect to be fully repaid. Also important to note, is that our fourth quarter reported numbers include ongoing cost in our processing group to support the large national oil company contract, but $6 million of revenues were excluded during the quarter, and a total $16 million of revenues for the year were excluded. Had the revenue been recognizable to match the expenses, our Solutions segment margins would have increased by three percentage points. Now let’s take a closer look at our fourth quarter performance starting on slide 12. Our fourth quarter Solutions segment revenues increased 37% over fourth quarter 2012, attributable to a record $76 million in data library sales, up 131% over the fourth quarter of 2012. This increase was seen across the broad portfolio of library, particularly in areas offshore East and West Africa, East and West India, and the Gulf of Mexico. As we reported in the past, our data library has tremendous long-term value. For example, the fourth quarter $59 million or about three quarters of our $76 million in total library sales were from programs that are fully amortized. These high margin sales are from either older programs or new programs that have been fully amortized because underwriting and library revenues came in sooner than we modeled. A task related [ph] to our conservative approach to amortize in these costs. Our new venture revenues increased by 9%, however, we continue to experience an overall softening in new venture activity and underwriting. As we move into 2014, we will continue to manage our new venture activities for positive cash generation and we will only sanction new programs with sufficient underwriting. Our data processing business revenues were down 9% compared to fourth quarter 2012. As Brian mentioned, our 2013 results were impacted by cost to support a large contract without being able to recognize revenues. Our Solutions operating profit increased to $61 million, or 37% operating margins, up from $39 million, or 32% operating margins in the fourth quarter of 2012. This increase in operating profit and margins was driven by the increase in our fourth quarter data library sales. Turning to the next slide, our software segment achieved its best fourth quarter ever in terms of revenues, and second best of any quarter as revenues increased 13% compared to fourth quarter of 2012. Unlike the first three quarters of 2013 in which our software segment experienced declining revenues due to customer consolidations, we benefited in the fourth quarter from increased Orca software and hardware sales. Software segment operating profit increased to $7.2 million, or 60% of operating margins, compared to $6.6 million, or 62% operating margins in the fourth quarter of 2012. The decline in operating margins is due to our increase in research and development to create new oil company software solutions such as Narwhal. Moving to slide 14, Systems segment revenues decreased 2% to $40 million. Systems operating profit increased to $12 million, or 30% operating margins as adjusted compared to $7 million, or 17% operating margins as adjusted for the fourth quarter of 2012. This increase in our systems operating margins was primarily due to cost reductions taken in the third quarter. Turning to the next slide, INOVA’s revenue in the third quarter was $41 million, up 62% from the third quarter 2012. This improvement in revenues was primarily attributable to increased sales of cable systems and vibrator trucks. INOVA reported a third quarter net loss of $39 million, which included approximately $38 million of restructuring and special items. As a result of INOVA’s restructuring, they have reduced their annual operating cost by approximately $12 million, which will benefit INOVA in 2014. For INOVA’s fourth quarter, we estimated revenues to be in the range of approximately $39 million to $41 million, which would be an approximate 33% decrease from their fourth quarter one year ago. We expect INOVA to report a fourth quarter operating loss in the range of $3 million to $4 million. Turning to slide 16, as of December 31, our cash balance stands at $148.1 million. During the fourth quarter we generated $37 million of free cash flow due to the significant increase in revenues and collections in the fourth quarter. We also drew $35 million on a revolving line of credit, and provided OceanGeo with $15 million of working capital advances as they began to mobilize their vessels and crew for their Trinidad project which began in late December. Overall, we generated $25 million of cash flow excluding draws on our revolver. Turning to slide 17, at December 31, we had a $140 million available under our $175 million credit facility, which when combined with our cash on hand, brought our available liquidity at December 31 to $288 million. Our net debt decreased $25 million, to $72 million during the quarter, down from $97 million at September 30. This $25 million decline in net debt was due to the significant collections during the fourth quarter. In January, we drew down an additional $15 million from our revolver for general corporate purposes, bringing our current availability under our credit facility to $125 million. With that, I’ll turn it back to Brian.

[Brian Hanson:]

Thanks, Greg. While we ended the year on a high note, with a record quarter for both revenues and income from operations, we are taking a cautious view of 2014. Based on commodity prices, we anticipate oil companies will still be patient in their exploration spending. Oil industry analysts predict record level E&P spending, we believe we will see more exploration spending in the second half of the year. As a result, we expect our new venture programs to meet later in the first half of the year similar to 2013. Having said that we have a robust geographically diverse data library and remain well positioned for upcoming licensing rounds. Our new programs, offshore Labrador and [indiscernible] will be completing advance of licensing rounds in those areas. In Greenland, where we have about over 17,000 kilometers of 2D data, and 50,000 square kilometers of gravity gradiometry data, we’re well positioned for the ordinary round of words expected in first half of 2014. The recently announced India round, [indiscernible] has brought interest in our IndiaSPAN programs. We expect traction for our new 12,000 kilometer survey offshore Australia’s northwest shelf, where 31 blocks are on offer. And our involvement in managing the terms India license round has been extremely successfully, stimulating sales of data packages and also our other seismic data in the area. In closing, we’re taking a measured approach to 2014. We buckled down on our spending, we’ve come through our restructuring, and we are maintaining a pragmatic approach to our investments with a focus on generating positive free cash flow. Similar to 2013, we estimate we’ll spend $90 million to $110 million in multi-client investments in 2014 as we seek out the best opportunities around the globe. With that, we’ll turn the call back to the operator for Q&A.

[Operator:]

(Operator Instructions). Our first question is from the line of Joe Maxa with Dougherty and Company. Please go ahead.

[Joe Maxa:]

Thank you and congrats on a nice quarter.

[Brian Hanson:]

Thanks Joe.

[Greg Heinlein:]

Thanks Joe.

[Joe Maxa:]

Questions on the outlook regarding the new venture, software, first half, just looking back it looks like you actually had a strong first half last year, so I’m wondering what we’re seeing there. And along with that, would you expect your OceanGeo joint venture to offset perhaps some of the softness you’re discussing on this new venture area?

[Brian Hanson:]

Well, yes, Joe. First, speaking in terms of new ventures, we’re talking about programs we sanctioned, vessels floating, etcetera. And so the first half of 2013 actually was quite light. We had a concernable [ph] period but we didn’t have an active survey. And I expect the same thing in 2014, simply because although the IOCs are predicting they are going to have large exploration budgets, I think they will be cautious in actually spending the funding. So I think they are probably going to step back and watch commodity pricing and actually see how the year starts to unfold before they make commitments to projects. So I would think that the back half of the year will be more indicative of their appetite to fund some of these projects. Specific to OceanGeo, the reality is that OceanGeo should be a positive income contributor to ION in the first half of the year as a result of executing the Petrotrin job, the big elephant in the room is book – is building backlog for them so that they can have full years’ worth of revenues, and full years’ worth of contribution to our business. So that’s really our focus at this time with OceanGeo.

[Joe Maxa:]

Right. Okay, then let me just ask one on the data library outlook. It sounds like you’re positioned for some good orders. Potentially, it looks like a more – I don’t know, if we just call the normal year as far as while you may see that progress through the year but any type of help you can give us on what you’re seeing on the timing of some of these versus how lumpy it was in 2013?

[Brian Hanson:]

Yes, I have given up trying to give any guidance on data library sales because every year we’re simply being wrong. It really comes down to discretionary budgets and the willingness of our customers to commit to those sales and the timing of that, we can’t predict that.

[Joe Maxa:]

Alright. Thank you.

[Operator:]

Our next question is from the line of Georg Venturatos with Johnson Rice. Please go ahead.

[Georg Venturatos:]

Good morning, Brian. Good morning, Greg.

[Brian Hanson:]

Morning, Georg.

[Greg Heinlein:]

Morning Georg.

[Georg Venturatos:]

I wanted to start on the new venture side, obviously you guys kind of highlighted that $90 million to $110 million spend. You did highlight the continued softness in underwriting levels, I wanted to just make sure embedded within that expected spend, we’ve kind of maintained our risk profile that you guys have employed for the years. And also just wanted to get a sense of, kind of, where those underwriting levels have trended in the last few quarters versus where they were maybe a year ago.

[Brian Hanson:]

Yes, good question Georg. First of all, we have not relaxed our risk profile for anything, we’ve tightened up a little bit. So we’re not in the business for taking extraordinary risk. You guys have heard it from me before, I believe that the ultimate vote for the quality of a project is the – an oil company putting their check book [ph], and so – so we’re going to continue along that path. As far as underwriting levels, our underwriting levels have consistently remained high.

[Georg Venturatos:]

Okay, great to hear. Another one on the data processing side, obviously demand continues to be there for that business, you mentioned the increase in the throughput capacity, I just wanted to get a sense of the driver for that demand. Do you think it’s more market share gains on yearend or just absolute increased industry demands, just processing on more complex reservoirs?

[Brian Hanson:]

I actually think that our growth has been from a couple of things. One is, we’ve had geographic expansion this year, and so that’s helped growth. And we certainly have penetrated certain markets overseas that we had historically had either no presence or weak presence in. And the other area of growth has come from the expansion of the tool chips, so the WiBand side of the equation has generated additional revenue for us.

[Georg Venturatos:]

Great, thanks for the answers guys.

[Operator:]

(Operator Instructions). Our next question is from the line of Rudy Hokanson with Barrington Research. Please go ahead.

[Rudy Hokanson:]

I was wondering if you could talk a little bit more about your software development and also where you see some of your legacy software going in terms of market demand. What you might be doing to either make 2.0 or 3.0 or coming up with brand new software programs?

[Brian Hanson:]

Certainly. So let’s start with the legacy software Rudy, the legacy software really is in a couple of different camps. One is, our offering for the towed streamer product lines that are out there, the command and control software for the marine contractors. We pretty much have – we have an extremely high market share in that area. The product has evolved over the years and so, we continue to evolve that product from the perspective of features and functionality. So let’s say, it’s a product that continues to evolve and that’s part of our go-to-market strategy with our customers to continue to evolve it, and so that’s ongoing. It’s somewhat limited in its ability to grow further because of our high level of penetration. The other area of kind of the legacy business is the seabed business where we have a software offering there. And that quite frankly, we’ve come out with a new version of that software, it’s called Gator II, and we are in the process of converting the existing customers over to Gator II. And in addition, we’re seeing expansion in the seabed market overall, so we think we’re very well positioned there for growth in that product line. And then lastly, as we indicated on the call, we’re putting a considerable amount of R&D into software that’s focused on solutions for oil companies, let’s say tackle broader and larger challenges than just marine contractors shooting seismic. So we see that as a – we see Narwhal and some other things that we get in the kitty pretty interesting, and potentially significant growth opportunities for that business.

[Rudy Hokanson:]

Another question, in terms of your work on land, where is that progressing right now in terms of opportunities for growth of the high resolution work you’re trying to do?

[Brian Hanson:]

Today we – you know, we went into 2014 with a fairly nice book of business already put together and fully underwritten. We finished one of those surveys, and we have two more of those surveys that are underwritten and sanctioned and – so we expect to be shooting those well into the first half of the year.

[Rudy Hokanson:]

Okay. And then just on an accounting basis, Greg you mentioned that with – taking out a larger loss from OceanGeo in the fourth quarter, even though you didn’t have the ownership positioning and – that it was going to be netted against debt that they had taken or that you had loaned to them. Could you explain that just a little bit more and how it might affect the first quarter?

[Greg Heinlein:]

Sure, Rudy. We loaned – I disclosed roughly $15 million in the fourth quarter to them [ph] and the losses that they incurred from basically being in standby mode waiting to start a project required that we take the loss against that loan. And so what I was really trying to convey was that we had incurred the loss against the value of the loan, even though we expect to be fully repaid on it. In the first quarter, we will consolidate their results having a 70% ownership position, so on each line of the income statement, from revenue down to earnings will have their earnings flowing through our income statement. And then we’ll have 30% going to minority income for the outside partner. And we’re not providing any guidance as to what those results will be yet but that’s how it will be accounted for in the first quarter.

[Rudy Hokanson:]

And which line in the revenue was OceanGeo then appear or it will be broken up?

[Greg Heinlein:]

Yes, we’ll probably break out OceanGeo as a separate reporting segment, much like we do with solutions in software today.

[Rudy Hokanson:]

Okay, thank you very much.

[Greg Heinlein:]

Thanks, Rudy.

[Operator:]

Our next question is from the line of Celus Kamero [ph] with Tax World Fund. Please go ahead.

[Unidentified Analyst:]

Alright, thanks for the call. A quick question on what you’re seeing in the Arctic, I know you guys – that’s been sort of a midst of yours, it seems in the past, and with some of those drovers [ph] or flowing down there or getting out of the Arctic exploration, does that affect you guys at all?

[Brian Hanson:]

There has been a shift in activity in the Arctic as we know that companies like Shell and Starel [ph] are backed off through the near term plans in the Arctic. The Arctic really is a very long-term play, and one of the challenges with the Arctic is, just the considerable amount of technology that needs to be built over the next 10 to 20 years in order to make it a viable play. And so hearing news that one company and another company is speeding up or slowing down is not that concerning given the length of the program that is occurring up there. The shifts that’s occurred is that there is more focus on the rush in Arctic for 2014, 2015, and less focus on, call it the U.S. and Canadian Arctic. There was also a considerable amount of focus on northeast Greenland. And so it’s shifted a little bit as a lot of the areas in the Russian Arctic that are initially having seismic shot are in areas that can – for the most part be shot with conventional technology initially.

[Unidentified Analyst:]

Okay.

[Brian Hanson:]

But then we’ll require more advanced technology to get more and more into areas where there is near under ice conditions. So long-term, we don’t – we see Arctic still as a very strong business for us. For 2014, we see the shift more in areas around northeast Greenland and in the Russian Arctic, then the historical activity we’ve done in the American and Canadian.

[Unidentified Analyst:]

Okay. So you don’t expect really to be doing much there in 2014, any new seismic being shot or anything where you guys are participating?

[Brian Hanson:]

No, I don’t think we’re going to – I don’t think there is going to be any activity in our part in 2014 in the American and Canadian Arctic.

[Unidentified Analyst:]

Okay. Can you talk about the seabed business a little bit, you were saying that you’ve got a new version coming out and you’re seeing some expansion. What is that expansion sort of look like?

[Brian Hanson:]

Well, there is two things going on. In general, there is a considerable amount of activity that’s pimped up, that’s either going through a tendering process right now, or will be going into the tendering process for projects that oil companies want to – want to have executed around the world. And so we’re heavily involved in that business development process now, and expect to be able to build a backlog of business related to it. Separately, we have invested considerably in building out the next generation of seabed technology and ION has been building seabed technology since 2004. And the original system we had was a system called VectorSeis Ocean, VSO. And we’ve had a few cycles on the development of that system. A few years ago we embarked on a program to develop a completely new system that takes all the learning’s of VectorSeis Ocean but increases the size of the system and drives considerable increase in operational efficiencies on it. And really today ocean bottom seismic is – the data quality is exceptional, the challenge is reducing the cost of the – at applying surveys so that we can start competing with towed streamer and taking market share there. So we expect as we roll out our next generation technology, we’ll drive increase as an operational efficiency and be more competitive than we have been historically shooting surveys.

[Unidentified Analyst:]

Okay. Are you guys having any trouble finding vessels or anything like that to do to – since you don’t own your own, I mean, have people started to – had some of the companies you may lease from started to drive out anything or anything like that? Are you having any issues with that?

[Brian Hanson:]

No – yes, I’m going to answer that question two ways. On the ocean bottom side, we have our own long-term charters, so those vessels stay with us, we’ve locked them up for a period of years. On the multi-client side, where we put new venture programs together and grow them and secure 2D vessels, it’s actually the opposite. There is considerable supply in the market right now, and so it’s very favorable for us to secure those vessels.

[Unidentified Analyst:]

Okay, great. Okay, thanks so much.

[Brian Hanson:]

Welcome.

[Operator:]

Our next question is a follow-up from the line of Rudy Hokanson. Please go ahead.

[Rudy Hokanson:]

Thank you. I was just wondering if you could talk a little bit about Calypso, and where you are right now in terms of building out the number of units as you said I think a quarter ago or so that you were using sort of a downturn, it’s still an opportunity to build your capacity. And if you could also talk about what your finding – what you’ve been able to find with Calypso, thus far I realize it’s really early on this particular job but any kind of testing you’re gearing or improvements for where you feel you are in terms of progress on its capabilities?

[Brian Hanson:]

Sure. Let’s start with the manufacturing side of the equation. We have fully established a manufacturing facility, it’s up, it’s ready to go. We have secured all long lead time inventory items. So we’re ready to build arrays. We’ve completed one 12 kilometer array, that array right now sitting down at Trinidad, and is, literally at this time being deployed into the VSO spread. So we’ll be testing that for the next couple of weeks or few weeks. And based on the experience that we have down there, we’ll be kicking off manufacturing in our manufacturing facility on other arrays. So we expect them to slowly integrate those Calypso arrays into the existing VSO crew and get them up. As far as – so, we’re really close to firing up the press so to say and build up some Calypso inventory.

[Rudy Hokanson:]

Okay, thank you.

[Operator:]

There are no further questions at this time. I would now like to turn the call back over to Mr. Hanson for closing remarks.

[Brian Hanson:]

Okay. Well, thank you for attending our fourth quarter conference call. We look forward to talking to you on our first quarter call.

[Operator:]

Ladies and gentleman this concludes ION Geophysical’s fourth quarter 2013 earnings conference call. If you’d like to listen to a replay of today’s conference please dial 1800-406-7325, or 303-590-3030 with the access code of 466-5602. ACQ [ph] would like to thank you for your participation. You may now disconnect.