Seitel Announces Third Quarter 2012 Results

HOUSTON--(BUSINESS WIRE)--Seitel, Inc., a leading provider of seismic data to the oil and gas industry, today reported results for the third quarter and nine months ended September 30, 2012.

“We have generally experienced solid activity, especially in our ability to grow our market share in acquiring data for our library through underwritten new surveys”

Total revenue for the nine months ended September 30, 2012 was $170.1 million, an increase of $22.9 million, or 16%, from the 2011 nine month level of $147.2 million. Activity for new data acquisition continues to be strong with acquisition revenue for the first nine months of 2012 totaling $78.6 million, an increase of $28.9 million as compared to the same period in 2011. We continue to add data in the key active unconventional plays in North America including Eagle Ford, Utica/Marcellus, Niobrara, Granite Wash, Montney and Cardium. Total resale licensing revenue was $87.0 million for the first nine months of 2012 compared to $94.2 million in 2011. For the nine months of 2012, cash resales were $77.8 million and were comprised of $47.9 million, or 62%, from 3D data located in unconventional plays and $29.9 million from conventional 3D, 2D and offshore data. This compares to cash resales of $92.1 million in the same period last year which were comprised of $70.1 million, or 76%, from 3D data located in unconventional plays and $22.0 million from conventional 3D, 2D and offshore data. Solutions revenue was $4.6 million for the first nine months of 2012 compared to $3.3 million in the same period of 2011.

Total revenue for the third quarter of 2012 was $51.6 million compared to $52.2 million in the third quarter of 2011. Acquisition revenue was $25.1 million in the third quarter of 2012 compared to $14.7 million in the same period in 2011. Total resale licensing revenue was $24.8 million in the third quarter of 2012 compared to $36.3 million in the same period last year. Cash resales in the third quarter of 2012 were $15.5 million and were comprised of $12.2 million, or 79%, from 3D data located in unconventional plays and $3.3 million from conventional 3D, 2D and offshore data. This compares to cash resales in the third quarter of 2011 of $38.0 million that were comprised of $32.6 million, or 86%, from 3D data located in unconventional plays and $5.4 million from conventional 3D, 2D and offshore data. Solutions revenue was $1.7 million compared to $1.2 million in the same period last year.

For the nine months ended September 30, 2012, our net income was $17.1 million compared to a $9.6 million net loss for the same period last year. The increase in revenue was the primary reason for the improved results for the first nine months of this year. For the third quarter of 2012, our net income was $1.1 million compared to last year's net loss of $5.1 million which included a $7.9 million charge for early extinguishment of debt.

Cash EBITDA, generally defined as cash resales and solutions revenue less cash operating expenses (excluding various non-recurring items), was $63.8 million in the first nine months of 2012 compared to $77.1 million in the first nine months of last year.

"We have generally experienced solid activity, especially in our ability to grow our market share in acquiring data for our library through underwritten new surveys," commented Rob Monson, president and chief executive officer. "This is particularly true of our client underwriting partners working with us to acquire new data in unconventional plays as reflected in our strong acquisition revenue in the quarter and first nine months. While cash resales can fluctuate quarter to quarter depending on the overall industry environment, availability of new data and timing of client approval processes, we are encouraged about the cash resale pipeline for both the fourth quarter and going into 2013 as many of our new surveys are expected to be completed over the next several quarters. We continue to grow our resale opportunity list based on client land positions in our growing unconventional oriented data. We are confident that our quick new-survey payback and return on investment will continue as our fundamental business approach remains constant."

Selling, general and administrative (“SG&A”) expenses were $4.8 million for the third quarter of 2012 compared to $7.6 million in last year's third quarter. SG&A expenses were $20.6 million in the first nine months of 2012 compared to $23.1 million in the same period last year. SG&A expenses decreased between the periods primarily due to a decrease in annual cash incentive compensation.

We have focused investment in our seismic data library on areas that we believe will drive future growth in cash flows over many years. As a result, to date in 2012, approximately 2,300 square miles have been added to our data library with an additional 2,200 square miles in progress. Gross capital expenditures for the first nine months of 2012 were $144.4 million, of which $130.6 million related to new data acquisition. Total underwriting revenue for the first nine months of 2012 was $78.6 million. Our net cash capital expenditures totaled $66.0 million for the first nine months of 2012.

Our forecast of net cash capital expenditures for the last quarter of 2012 is $23.2 million bringing our total estimated net cash capital expenditures for the year to $89.2 million. Our current backlog of net cash capital expenditures related to acquisition programs is $39.4 million, of which we expect approximately half to be incurred in the remainder of 2012.

ABOUT SEITEL

Seitel is a leading provider of onshore seismic data to the oil and gas industry in North America with a leading position in many of the premier unconventional plays. Seitel's data products and services are critical for the exploration for, and development and management of, oil and gas reserves by oil and gas companies. Seitel has ownership in an extensive library of proprietary onshore and offshore seismic data that it has accumulated since 1982 and that it licenses to a wide range of oil and gas companies. Seitel believes that its library of onshore seismic data is the largest available for licensing in North America. Seitel's seismic data library includes both onshore and offshore 3D and 2D data. Seitel has ownership in over 47,000 square miles of 3D and approximately 1.1 million linear miles of 2D seismic data concentrated in the major active North American oil and gas producing regions. Seitel serves a market which includes over 1,600 companies in the oil and gas industry.

The press release contains “forward-looking statements” within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include all statements that do not relate solely to historical or current facts, and you can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “projects,” or “anticipates” or similar expressions that concern the strategy, plans or intentions of the Company. These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, actual results may differ materially from management expectations reflected in our forward-looking statements. These risks and uncertainties are described in the Company's filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K, a copy of which may be obtained from the Company without charge. Management undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

The press release also includes certain non-GAAP financial measures as defined under the SEC rules. Non-GAAP financial measures include cash resales, for which the most comparable GAAP measure is total revenue; cash EBITDA, for which the most comparable GAAP measure is income from operations; net cash capital expenditures, for which the most comparable GAAP measure is total capital expenditures; and cash operating expenses for which the most comparable GAAP measure is total operating expenses.

(Tables to follow)

SEITEL, INC. AND SUBSIDIARIES   CONDENSED CONSOLIDATED BALANCE SHEETS   (In thousands, except share and per share amounts)
	(Unaudited)
	September 30, 2012			December 31, 2011
ASSETS
Cash and cash equivalents	$	42,819		$	74,894
Receivables, net	49,097			56,489
Net seismic data library	164,052			120,694
Net property and equipment	5,138			5,039
Investment in marketable securities	-			262
Prepaid expenses, deferred charges and other	9,210			10,244
Intangible assets, net	22,543			26,814
Goodwill	209,163			205,838
Deferred income taxes	56			56
TOTAL ASSETS	$	502,078		$	500,330
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued liabilities	$	43,464		$	60,550
Income taxes payable	3,803			1,464
Debt:
Senior Notes	275,000			275,000
Notes payable	46			95
Obligations under capital leases	3,210			3,161
Deferred revenue	43,092			48,845
Deferred income taxes	1,499			1,375
TOTAL LIABILITIES	370,114			390,490
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock, par value $.001 per share; 100 shares authorized,
issued and outstanding at September 30, 2012 and December 31, 2011	-			-
Additional paid-in capital	398,530			398,011
Retained deficit	(292,080		)	(309,185		)
Accumulated other comprehensive income	25,514			21,014
TOTAL STOCKHOLDER'S EQUITY	131,964			109,840
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	$	502,078		$	500,330

SEITEL, INC. AND SUBSIDIARIES   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)   (In thousands)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
REVENUE	$	51,556		$	52,208		$	170,131		$	147,249
EXPENSES:
Depreciation and amortization		37,703			34,052			106,924			99,712
Cost of sales		104			13			352			68
Selling, general and administrative		4,845			7,637			20,642			23,127
		42,652			41,702			127,918			122,907
INCOME FROM OPERATIONS		8,904			10,506			42,213			24,342
Interest expense, net		(7,266	)		(7,198	)		(21,738	)		(27,622	)
Foreign currency exchange gains (losses)		1,051			(1,631	)		1,036			(1,174	)
Loss on early extinguishment of debt		-			(7,912	)		-			(7,912	)
Gain on sale of marketable securities		-			-			230			2,467
Other income		227			44			710			208
Income (loss) before income taxes		2,916			(6,191	)		22,451			(9,691	)
Provision (benefit) for income taxes		1,787			(1,080	)		5,346			(65	)
NET INCOME (LOSS)	$	1,129		$	(5,111	)	$	17,105		$	(9,626	)

Cash resales represent new contracts for data licenses from our library, including data currently in progress, payable in cash. We believe this measure, along with new data acquisition activity, is important in assessing overall industry and client activity. Cash resales are likely to fluctuate quarter to quarter as they do not require the longer planning and lead times necessary for new data creation. The following table summarizes the components of Seitel's revenue and shows how cash resales (a non-GAAP financial measure) are a component of total revenue, the most directly comparable GAAP financial measure (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012		2011
Acquisition revenue:
Cash underwriting	$	23,458	$	13,741		$	75,293	$	47,387
Underwriting from non-monetary exchanges		1,645		931			3,273		2,314
Total acquisition revenue		25,103		14,672			78,566		49,701
Resale licensing revenue:
Cash resales		15,512		37,999			77,810		92,147
Non-monetary exchanges		584		856			1,293		6,871
Revenue recognition adjustments		8,665		(2,531	)		7,859		(4,769	)
Total resale licensing revenue		24,761		36,324			86,962		94,249
Total seismic revenue		49,864		50,996			165,528		143,950
Solutions and other		1,692		1,212			4,603		3,299
Total revenue	$	51,556	$	52,208		$	170,131	$	147,249

The following table reconciles cash resales to revenue recognized for 3D data located in unconventional plays for the periods indicated (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Unconventional 3D data cash resales	$	12,222		$	32,576		$	47,861		$	70,110
Other revenue components:
Acquisition revenue		24,955			14,672			78,364			49,701
Non-monetary exchanges		-			733			-			6,606
Revenue recognition adjustments		7,813			(1,813	)		12,463			(3,407	)
Unconventional 3D data total revenue	$	44,990		$	46,168		$	138,688		$	123,010
Percentage of total cash resales		79	%		86	%		62	%		76	%
Percentage of total revenue		87	%		88	%		82	%		84	%

The following table reconciles cash resales to revenue recognized for conventional 3D, 2D and offshore data for the periods indicated (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012			2011
Conventional 3D, 2D and offshore data cash resales	$	3,290	$	5,423		$	29,949		$	22,037
Other revenue components:
Acquisition Revenue		148		-			202			-
Non-monetary exchanges		584		123			1,293			265
Revenue recognition adjustments		852		(718	)		(4,604	)		(1,362	)
Conventional 3D, 2D and offshore data total revenue	$	4,874	$	4,828		$	26,840		$	20,940

Cash EBITDA represents cash generated from licensing data from our seismic library net of recurring cash operating expenses. We believe this measure is helpful in determining the level of cash from operations we have available for debt service and funding of capital expenditures (net of the portion funded or underwritten by our customers). Cash EBITDA includes cash resales plus all other cash revenues other than from data acquisitions, plus gains on sales of marketable securities and cash distributions from investments obtained as part of licensing our seismic data, less cost of goods sold and cash selling, general and administrative expenses (excluding non-recurring corporate expenses such as severance and debt restructure costs). The following is a quantitative reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure, operating income (in thousands):

	Nine Months Ended September 30,
	2012			2011
Cash EBITDA	$	63,756		$	77,060
Add (subtract) other revenue components not included in cash EBITDA:
Acquisition revenue		78,566			49,701
Non-monetary exchanges		1,293			6,871
Revenue recognition adjustments		7,859			(4,769	)
Solutions non-cash revenue		20			69
Less:
Gain on sale of marketable securities		(230	)		(2,467	)
Cash distributions from investments		(400	)		-
Depreciation and amortization		(106,924	)		(99,712	)
Non-recurring corporate expenses		(994	)		(1,792	)
Non-cash operating expenses		(733	)		(619	)
Operating income	$	42,213		$	24,342

The following table summarizes the cash and non-cash components of our total operating expenses (cost of sales and selling, general and administrative (“SG&A”) expenses) for the three and nine months ended September 30, 2012 and September 30, 2011 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Cost of Sales	$	104	$	13	$	352	$	68
Cash SG&A expenses ^(1)		4,572		7,511		19,909		22,508
Cash operating expenses		4,676		7,524		20,261		22,576
Non-cash equity compensation expense		201		54		519		400
Non-cash rent expense		72		72		214		219
Total	$	4,949	$	7,650	$	20,994	$	23,195

(1)	Includes $0.1 million, $0.4 million, $0.9 million and $1.8 million of non-recurring corporate expenses for the three months ended September 30, 2012 and 2011 and for the nine months ended September 30, 2012 and 2011, respectively.

The following table summarizes our actual capital expenditures for the three and nine months ended September 30, 2012 and our estimate for the year ending December 31, 2012 (in thousands):

	Three Months Ended September 30, 2012			Nine Months Ended September 30, 2012			Estimate for Remainder of 2012			Total Estimate for 2012
New data acquisition	$	39,511		$	130,609		$	53,191		$	183,800
Cash purchases and data processing		8,205			9,339			1,961			11,300
Non-monetary exchanges		726			3,115			885			4,000
Property and equipment and other		203			1,371			129			1,500
Total capital expenditures		48,645			144,434			56,166			200,600
Less:
Non-monetary exchanges		(726	)		(3,115	)		(885	)		(4,000	)
Cash underwriting		(23,458	)		(75,293	)		(32,107	)		(107,400	)
Net cash capital expenditures	$	24,461		$	66,026		$	23,174		$	89,200