Wednesday, August 20, 2014 Last update: 12:33 AM
FreshNews.com - All Company Technology News Since 1996

ION reports first quarter results

Companies mentioned in this article: ION Geophysical Corporation

HOUSTON, April 30, 2014 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported first quarter 2014 net income, as adjusted of $6.4 million, or $0.04 per diluted share, on revenues of $144.7 million, compared to net income of $1.5 million, or $0.01 per diluted share, on revenues of $129.7 million in first quarter 2013. The following is a summary of the Company's first quarter 2014 financial highlights:

    --  Consolidated revenues increased 12% compared to first quarter 2013.
    --  The Company consolidated OceanGeo, reporting it under the Ocean Bottom
        Services segment. First quarter results included the revenues of
        OceanGeo for February and March, which included $20.6 million of revenue
        for work performed on a five-month project in Trinidad.
    --  Within the Solutions segment, the Company signed the single largest data
        processing contract in its history, which contributed $15 million to
        first quarter data processing revenues from work performed in 2013.
    --  The Software segment recorded the largest first quarter revenue in the
        Company's history.
    --  Consolidated gross margins were 39%, compared to 27% in first quarter
        2013, and operating margins were 14%, compared to 1% in first quarter
        2013.
    --  Cash and cash equivalents were $197.3 million, and the Company had
        $125.0 million available under its $175.0 million credit facility,
        resulting in a first quarter increase in total liquidity of $34.2
        million to $322.3 million at March 31, 2014.
    --  Adjusted EBITDA was $42.9 million, an increase of 67%, compared to $25.7
        million in first quarter 2013. A reconciliation of Adjusted EBITDA can
        be found in the financial tables of this press release.

Brian Hanson, ION's President and Chief Executive Officer, commented, "We are pleased with our first quarter financial results and significant free cash generation, as well as our progress in improving operations and accelerating development and commercial acceptance of our strategic technologies.

"We are also pleased with the recent court developments in our ongoing lawsuit with WesternGeco. This order reduces the total damages to $123.8 million, resulting in a partial reversal of our prior reserve of approximately $70 million. We believe this development contains our potential liability to a more reasonable amount, and allows us to put this behind us as we await the next steps through the appeal process.

"In our Solutions segment we signed the largest data processing contract in our history. Executing this customer agreement allowed us to recognize revenue from work completed for one of our largest customers, most of which we performed in 2013.

"Also during the first quarter, our Solutions group initiated a proprietary project off the coast of Antarctica, extending our Arctic solution for under ice acquisition down to the south regions. We started and completed the acquisition phase of the project during the quarter and are now processing the data.

"We are pleased to report that during the first quarter, OceanGeo made substantial progress on their five-month survey offshore Trinidad. We deployed and tested Calypso(®), our new ocean bottom cable system, during this survey and were pleased with the system's geophysical performance and the data acquired. Beyond this survey, we continue working to help OceanGeo build a pipeline of projects and gain new awards.

"Overall, our first quarter was a good start to the year, though our forward outlook is cautious pending more clarity around seismic spending and the willingness of clients to fund multi-client programs. We continue to manage the business to maximize cash generation, and the first quarter was a solid start towards that goal."

FIRST QUARTER 2014

Solutions segment revenues were $89.2 million, up slightly from first quarter 2013. Data processing revenues were $43.3 million, an increase of 38% over first quarter 2013. Data library revenues were $13.2 million, an increase of 40%, while new venture revenues were $32.7 million, a decrease of 32%, as the first quarter of 2013 included revenues from a large proprietary 3D marine program offshore Morocco.

Systems segment sales were $24.8 million, a decrease of 22%, reflecting a lack of ocean bottom cable system revenues in 2014. This decline was partially offset by an increase in repair and replacement marine positioning equipment revenues.

Software segment sales were a record first quarter at $10.0 million, an increase of 15% over first quarter 2013, primarily the result of increases in Orca(®) and Gator(®)( )licensing revenues.

The first quarter increase in gross and operating margins was driven primarily by four factors:

    --  reduced expenses from the Company's restructuring of its Systems segment
        in 2013;
    --  the recognition of data processing revenues following execution of a
        significant customer contract;
    --  higher margins on the mix of new venture programs in the Solutions
        segment; and
    --  the consolidation of OceanGeo during first quarter 2014.

The Company's operating margins in the first quarters of 2014 and 2013 were impacted by approximately $3 million of bad debt expenses related to customer bankruptcies.

Prior to the consolidation of OceanGeo in February, the Company recorded $0.7 million of equity earnings compared to equity losses of $0.7 million in first quarter 2013. Also, the Company recognized $2.4 million of equity losses related to INOVA Geophysical compared to equity earnings of $1.9 million in first quarter 2013. See the attached financial tables for the summarized financial results of INOVA.

The Company's interest expense was $4.8 million, compared to $1.1 million in first quarter 2013. The increase in interest expense was primarily related to the Company's issuance of $175 million of 8.125% Senior Secured Second Priority Notes in May 2013, compared to borrowings under the Company's revolver in 2013.

The Company's effective tax rate was 6.4%, compared to 40.0% in first quarter 2013. The Company's effective tax rate was impacted by the large one time gain from the reduction of the loss contingency related to the WesternGeco legal proceeding.

OUTLOOK

Greg Heinlein, ION's Senior Vice President and Chief Financial Officer, commented, "We continue to remain cautious in our expectations for 2014, with much of our focus on securing more work for OceanGeo. We currently expect investment in our data library for the year to be in the range of $90 million to $110 million. As the year progresses, we expect our effective tax rate to normalize in the 22% - 25% range. We remain focused on managing the business with an eye to driving shareholder value and increased cash generation during 2014."

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, May 1, 2014, at 10:00 a.m. Eastern Time that will include a slide presentation to be posted in the Investor Relations section of the ION website by 9:00 a.m. Eastern time. To participate in the conference call, dial 888-549-7750 at least 10 minutes before the call begins and ask for the ION conference call. A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until May 15, 2014. To access the replay, dial 800-406-7325 and use pass code 4678925#.

Investors, analysts and the general public will also have the opportunity to listen to the conference call live over the Internet by visiting www.iongeo.com. An archive of the webcast will be available shortly after the call on the Company's website.

About ION

ION Geophysical Corporation is a leading provider of geophysical technology, services, and solutions for the global oil & gas industry. ION's offerings are designed to allow E&P companies to obtain higher resolution images of the subsurface to reduce the risk of exploration and reservoir development, and to enable seismic contractors to acquire geophysical data safely and efficiently. Additional information about ION is available at www.iongeo.com.

Contact

Greg Heinlein
Senior Vice President and Chief Financial Officer
+1.281.552.3011

The information included herein contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may include future sales, earnings and market growth, timing of sales, future liquidity and cash levels, future estimated revenues and earnings, sales expected to result from backlog, benefits expected to result from the INOVA Geophysical and OceanGeo joint ventures and related transactions, expected outcome of litigation and other statements that are not of historical fact. Actual results may vary materially from those described in these forward-looking statements. All forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties. These risks and uncertainties include risks associated with pending and future litigation, including the risk that an unfavorable judgment in the lawsuit brought by WesternGeco could have a material adverse effect on the Company's financial results and liquidity; the timing and development of the Company's products and services and market acceptance of the Company's new and revised product offerings; the operation of the INOVA Geophysical and OceanGeo joint ventures; the Company's level and terms of indebtedness; competitors' product offerings and pricing pressures resulting therefrom; the relatively small number of customers that the Company currently relies upon; the fact that a significant portion of the Company's revenues is derived from foreign sales; that sources of capital may not prove adequate; the Company's inability to produce products to preserve and increase market share; collection of receivables; and technological and marketplace changes affecting the Company's product lines. Additional risk factors, which could affect actual results, are disclosed by the Company from time to time in its filings with the Securities and Exchange Commission ("SEC"), including its Annual Report on Form 10-K for the year ended December 31, 2013 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2014.

Tables to follow



            ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS

                (In thousands, except per share data)

                             (Unaudited)


                                        Three Months
                                        Ended March
                                                31,
                                          -------------

                                    2014                2013
                                    ----                ----

    Service revenues                      $110,696            $89,949

    Product revenues              34,002               39,788

    Total net revenues           144,698               129,737
                                 -------                -------

    Cost of services              72,071               69,273

    Cost of products              15,773               25,507

    Gross profit                  56,854               34,957
                                  ------               ------

    Operating expenses:

    Research, development and
     engineering                   9,039               9,290

    Marketing and sales            9,213               7,980

    General, administrative and
     other operating expenses     18,931               15,764
                                  ------               ------

    Total operating expenses      37,183               33,034
                                  ------               ------

    Income from operations        19,671               1,923

    Interest expense, net        (4,797)                (1,066)

    Equity in earnings (losses)
     of investments              (1,688)               1,116

    Other income, net             68,526               1,027
                                  ------               -----

    Income before income taxes    81,712               3,000

    Income tax expense             5,263               1,201
                                   -----               -----

    Net income                    76,449               1,799

    Net (income) loss
     attributable to
     noncontrolling interests       (470)                 76
                                    ----                 ---

    Net income attributable to
     ION                          75,979               1,875

    Preferred stock dividends          -                 338

    Net income applicable to
     common shares                         $75,979             $1,537
                                           =======             ======

    Net income per share:

    Basic                                    $0.46              $0.01
                                             =====              =====

    Diluted                                  $0.46              $0.01
                                             =====              =====

    Weighted average number of common
     shares outstanding:

    Basic                        163,847               156,465

    Diluted                      164,061               157,315



                ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

                         CONSOLIDATED BALANCE SHEETS

                               (In thousands)

                                 (Unaudited)


                                       March                December
                                        31,                     31,
                                          2014                  2013
                                          ----                  ----

                      ASSETS

    Current assets:

    Cash and cash equivalents                    $197,306             $148,056

    Accounts receivable, net            98,231                149,448

    Unbilled receivables                68,452                49,468

    Inventories                         54,709                57,173

    Prepaid expenses and other
     current assets                     25,605                24,772
                                        ------                ------

    Total current assets               444,303                428,917

    Deferred income tax asset           14,339                14,650

    Property, plant, equipment and
     seismic rental equipment, net      59,811                46,684

    Multi-client data library, net     243,083                238,784

    Equity method investments           47,466                53,865

    Goodwill                            56,111                55,876

    Intangible assets, net              10,566                11,247

    Other assets                        15,640                14,648
                                        ------                ------

    Total assets                                 $891,319             $864,671
                                                 ========             ========


              LIABILITIES AND EQUITY

    Current liabilities:

    Current maturities of long-
     term debt                                    $60,551               $5,906

    Accounts payable                    38,654                22,654

    Accrued expenses                    72,471                84,358

    Accrued multi-client data
     library royalties                  38,263                46,460

    Deferred revenue                    16,030                20,682
                                        ------                ------

    Total current liabilities          225,969                180,060

    Long-term debt, net of
     current maturities                180,462                214,246

    Other long-term liabilities        142,987                210,602
                                       -------                -------

    Total liabilities                  549,418                604,908

    Redeemable noncontrolling
     interests                           5,552                 1,878

    Equity:

    Common stock                         1,640                 1,637

    Additional paid-in capital         882,892                879,969

    Accumulated deficit               (530,178)               (606,157)

    Accumulated other
     comprehensive loss                (11,799)               (11,138)

    Treasury stock                      (6,565)               (6,565)
                                        ------                ------

    Total stockholders' equity         335,990                257,746

    Noncontrolling interests               359                   139
                                           ---                   ---

    Total equity                       336,349                257,885
                                       -------                -------

    Total liabilities and equity                 $891,319             $864,671
                                                 ========             ========


              ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (In thousands)

                              (Unaudited)


                                         Three Months
                                         Ended March
                                                 31,
                                           -------------

                                      2014                2013
                                      ----                ----

    Cash flows from operating
     activities:

    Net income                               $76,449              $1,799

    Adjustments to reconcile net income
     to cash provided by operating
     activities:

    Depreciation and
     amortization (other than
     multi-client data
     library)                        7,904               4,200

    Amortization of multi-
     client data library            16,326               18,592

    Stock-based compensation
     expense                         2,777               2,011

    Equity in (earnings) losses
     of investments                  1,688               (1,116)

    Reduction of accrual for
     loss contingency related
     to legal proceedings          (69,557)                 -

    Deferred income taxes             (884)              (6,150)

    Change in operating assets and
     liabilities:

    Accounts receivable             60,646               35,307

    Unbilled receivables           (18,945)              11,938

    Inventories                       (144)              1,381

    Accounts payable, accrued
     expenses and accrued
     royalties                      (5,359)               (13,373)

    Deferred revenue                (4,678)              (7,153)

    Other assets and
     liabilities                    (3,541)              2,155
                                    ------               -----

    Net cash provided by
     operating activities           62,682               49,591
                                    ------               ------

    Cash flows from investing
     activities:

    Cash invested in multi-
     client data library           (22,353)               (28,778)

    Purchase of property,
     plant, equipment and
     seismic rental assets          (1,997)              (3,774)

    Repayment of advances by
     INOVA Geophysical               1,000                  -

    Investment in and advances
     to OceanGeo B.V.               (3,683)              (9,500)

    Cash of OceanGeo B.V. upon
     acquiring a controlling
     interest                          609                  -

    Investment in convertible
     note                                -               (1,000)

    Other investing activities         605                  76
                                       ---                 ---

    Net cash used in investing
     activities                    (25,819)               (42,976)
                                   -------               -------

    Cash flows from financing
     activities:

    Borrowings under revolving
     line of credit                 15,000                  -

    Payments on notes payable
     and long-term debt             (2,755)              (848)

    Payment of preferred
     dividends                           -               (338)

    Proceeds from employee
     stock purchases and
     exercise of stock options         246                 716

    Other financing activities         (80)                350
                                       ---                 ---

    Net cash provided by (used
     in) financing activities       12,411               (120)
                                    ------                ----

    Effect of change in foreign
     currency exchange rates on
     cash and cash equivalents         (24)              (891)
                                       ---                ----

    Net increase in cash and
     cash equivalents               49,250               5,604

    Cash and cash equivalents
     at beginning of period        148,056               60,971
                                   -------               ------

    Cash and cash equivalents
     at end of period                       $197,306             $66,575
                                              ======             =======



            ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

                   SUMMARY OF SEGMENT INFORMATION

                           (In thousands)

                             (Unaudited)


                                  Three Months Ended
                                      March 31,
                                 -------------------

                                 2014                   2013
                                 ----                   ----

    Net revenues:

    Solutions:

    New Venture                         $32,738                $48,436

    Data Library               13,217                  9,448

    Total multi-client
     revenues                  45,955                  57,884

    Data Processing            43,286                  31,286

    Total                               $89,241                $89,170
                                        -------                -------

    Systems:

    Towed Streamer                      $11,851                $13,549

    Ocean Bottom Equipment          -                  6,765

    Other                      12,997                  11,533
                               ------                  ------

    Total                               $24,848                $31,847
                                        -------                -------

    Software:

    Software Systems                     $9,154                 $7,941

    Services                      885                    779
                                  ---                    ---

    Total                               $10,039                 $8,720

    Ocean Bottom Services               $20,570            $         -
                                        -------           --       ---

    Total                              $144,698               $129,737
                                         ======                 ======

    Gross profit:

    Solutions                           $33,011                $20,197

    Systems                    11,417                  8,380

    Software                    7,257                  6,380

    Ocean Bottom Services       5,169                     -
                                -----                   ---

    Total                               $56,854                $34,957
                                        =======                =======

    Gross margin:

    Solutions                      37%                    23%

    Systems                        46%                    26%

    Software                       72%                    73%

    Ocean Bottom Services          25%                    -  %

    Total                          39%                    27%
                                  ===                    ===

    Income from operations:

    Solutions                           $19,112                 $7,357

    Systems                     3,371                    934

    Software                    5,128                  5,161

    Ocean Bottom Services       4,162                     -

    Corporate and other       (12,102)                  (11,529)

    Total                               $19,671                 $1,923
                                        =======                 ======

    Operating margin:

    Solutions                      21%                     8%

    Systems                        14%                     3%

    Software                       51%                    59%

    Ocean Bottom Services          20%                    -  %

    Corporate and other           (8)%                   (9)%

    Total                          14%                     1%
                                  ===                    ===




            INOVA GEOPHYSICAL EQUIPMENT LIMITED

              SUMMARIZED FINANCIAL HIGHLIGHTS

                      (In thousands)

                        (Unaudited)


    The Company accounts for its 49% interest in INOVA
     Geophysical as an equity method investment and records
     its share of earnings and losses of INOVA Geophysical
     on a one fiscal quarter lag basis. The following table
     reflects the summarized financial information for
     INOVA Geophysical for the three months ended December
     31, 2013 and 2012:


                                Three Months
                                   Ended
                                December 31,
                                ------------

                           2013                2012
                           ----                ----

    Net revenues                  $40,176            $59,611

    Gross profit                   $4,948            $12,327

    Loss from operations          $(3,667)             $(250)

    Net income (loss)             $(4,951)            $3,742


            ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

           Reconciliation of Adjusted EBITDA to Net Income

                         (Non-GAAP Measure)

                           (In thousands)

                             (Unaudited)


    The term Adjusted EBITDA represents net income before
     interest expense, interest income, income taxes,
     depreciation and amortization and other similar non-cash
     charges including, without limitation, equity in
     (earnings) losses of investments and the reduction of
     accrual for loss contingency related to legal proceedings.
     Adjusted EBITDA is not a measure of financial performance
     under generally accepted accounting principles and should
     not be considered in isolation from or as a substitute for
     net income or cash flow measures prepared in accordance
     with generally accepted accounting principles or as a


                                      Three Months
                                       Ended March
                                               31,
                                         -------------

                                    2014                2013
                                    ----                ----

    Net income                             $76,449             $1,799

    Interest expense, net          4,797               1,066

    Income tax expense             5,263               1,201

    Depreciation and
     amortization expense         24,230               22,792

    Equity in (earnings)
     losses of investments         1,688                (1,116)

    Reduction of accrual for
     loss contingency related
     to legal proceedings        (69,557)                 -

    Adjusted EBITDA                        $42,870            $25,742
                                           =======              =====


                               ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

              Reconciliation of Restructuring and Special Items to Diluted Earnings per Share

                                            (Non-GAAP Measure)

                                   (In thousands, except per share data)

                                                Unaudited)


    The financial results are reported in accordance with GAAP. However, management
     believes that certain non-GAAP performance measures may provide users of this
     financial information additional meaningful comparisons between current results
     and results in prior operating periods. One such non-GAAP financial measure is
     income from operations or net income excluding certain charges or amounts. This
     adjusted income amount is not a measure of financial performance under GAAP.
     Accordingly, it should not be considered as a substitute for income from
     operations, net income or other income data prepared in accordance with GAAP.
     See the table below for supplemental financial data and the corresponding
     reconciliation to GAAP financials for the three months ended March 31, 2014:


                                  Three Months Ended March
                                          31, 2014
                                 -------------------------

                                     As                Special                              As
                                  Reported             Item                           Adjusted
                                 --------             --------                          --------

    Net revenues                            $144,698         $                  -                       $144,698

    Cost of
     sales                          87,844                  -                                  87,844

    Gross profit                    56,854                  -                                 56,854

    Operating
     expenses                       37,183                  -                                  37,183


    Income from
     operations                     19,671                  -                                  19,671

    Interest
     expense,
     net                            (4,797)                 -                                 (4,797)

    Equity in
     losses of
     investments                    (1,688)                 -                                 (1,688)

    Other income
     (expense),
     net                            68,526               (69,557)                       (1)        (1,031)

    Income tax
     expense                         5,263                  -                                   5,263

    Net income                      76,449               (69,557)                                  6,892

    Net (income)
     attributable
     to
     noncontrolling
     interest                         (470)                 -                                         (470)

    Net income
     applicable
     to common
     shares                                  $75,979                     $(69,557)                        $6,422
                                             =======                      =======                         ======

    Net income per share:

    Basic                                      $0.46                                                      $0.04

    Diluted                                    $0.46                                                      $0.04

    Weighted average
     number of common
     shares outstanding:

    Basic                          163,847                                                   163,847

    Diluted                        164,061                                                   164,061


    (1) Represents a reduction in the WesternGeco legal contingency due to the court order issued in April 2014.

SOURCE ION Geophysical Corporation