Attached files
| file | filename |
|---|---|
| 8-K - FORM 8-K - ION GEOPHYSICAL CORP | h82003e8vk.htm |
| EX-99.2 - EX-99.2 - ION GEOPHYSICAL CORP | h82003exv99w2.htm |
Exhibit 99.1
ION Reports First Quarter 2011 Results
HOUSTON — May 4, 2011 — ION Geophysical Corporation (NYSE: IO) today reported first
quarter 2011 revenues of $90.6 million, a 2% increase from revenues of $88.7 million in the first
quarter of 2010, and a 25% increase excluding the revenues of the Legacy Land Systems (INOVA)
segment. First quarter 2011 net income was $0.1 million, or $0.00 per diluted share, compared to a
net loss of ($71.8) million, or ($0.60) per share, in the first quarter of 2010, or a net loss of
($11.2) million, or ($0.09) per share after excluding the special items associated with the
formation of the land joint venture with BGP and the re-financing of our debts as shown in the
table at the end of the first quarter 2010 press release.
The first quarter 2011 results include non-cash, pre-tax charges of $4.2 million primarily
related to the impact of foreign currency exchange rates on intercompany receivables held by the
Software segment and non-cash stock-based compensation expense impacted by increases in ION’s stock
price during the first quarter. These two items reduced first quarter earnings by approximately
$0.03 per diluted share.
Bob Peebler, ION’s Chief Executive Officer, said, “Our first quarter was one of our strongest
first quarters in ION’s recent history due to a very solid start in both our marine systems and
multi-client businesses. This was significant as our first quarter has historically been the
weakest of each year. As we expected, our data processing business is still being impacted by the
Macondo incident, but as we reported last quarter, our pipeline of business strengthened in
December and is still building and we remain confident that we will experience a robust 2011. A
first quarter highlight of this business was the opening of our joint venture processing services
center in Brazil, which should give us better access to a strategically important market for
sub-salt depth imaging.
“The current turmoil in Libya significantly impacted our sensor geophone business and forced
us to put planned multi-million dollar first quarter sales into Libya on an indefinite hold.
Overall, I was pleased that, even with a slow start in both our data processing and sensor geophone
businesses, we still outperformed our internal plan and we continue to expect another solid growth
year for ION.
“Exploration budgets will likely continue to increase as oil prices are hovering above
$100/bbl and the global search for energy continues to heat up as energy demand is on the increase
due to the improving world economies.”
FIRST QUARTER 2011
Total revenues for the first quarter of 2011 increased to $90.6 million compared to $88.7
million a year ago. Excluding the revenues of the Legacy Land Systems (INOVA) segment, total first
quarter revenues increased 25%. Solutions, Systems and Software segment revenues increased by 20%,
49% and 9%, respectively, over the same period a year ago.
The Solutions group revenues increased to $57.9 million during the first quarter, compared to
$48.1 million for the same period a year ago. This increase was predominantly driven by customers’
strong interest in access to the Company’s multi-client programs in Northeast Greenland, East
Africa and Brazil, partially offset by decreased data processing sales that were impacted by
lagging effects of the slowdown in the Gulf of Mexico.
Systems segment sales increased to $24.0 million in the first quarter compared to $16.1
million in the same period of 2010, principally due to increased sales of towed streamer
positioning products as new vessels entering the market are outfitted with the latest marine
technology, including DigiBIRD® and DigiFIN®. Additionally, the Company’s
sensor geophone business was adversely affected by recent events in the Middle East and North
Africa as some contracted sales in this region were either cancelled or delayed.
Software segment sales increased to $8.7 million in the first quarter compared to $8.0 million
due to continued demand for the ORCA® software platform and the favorable impact of
foreign exchange rates. Excluding foreign currency effects, Software segment revenues increased
6%.
Consolidated gross margins for the first quarter of 2011 increased to 34% from 25% in the
first quarter of 2010. The increase in gross margins was attributable primarily to the contribution
of the Company’s lower margin land business to INOVA Geophysical in March 2010, which had a gross
margin of (6%) in the first quarter of
2010. Excluding the results of the legacy land business, the overall gross margin of the
Company’s remaining segments remained consistent with the prior period. Gross margins in the
Systems segment improved 17 percentage points, predominantly related to sales mix and cost
improvements, while Software and Solutions segment gross margins each decreased by 3% due to sales
mix.
As a percentage of revenue, after excluding the 2010 results of the legacy land business,
operating expenses declined to 28% of sales during the quarter compared to 34% in the prior year
period. Adjusted EBITDA increased 92% to $30.5 million compared to $15.9 million in the first
quarter of 2010.
The Company’s effective tax rate during the first quarter of 2011 was 24.6% (provision on
income) compared to (20.7%) (provision on a loss) for the same period of 2010. The effective tax
rate for the first quarter of 2010 included the impact of the formation of INOVA Geophysical.
Removing the impact of the INOVA Geophysical transactions, the effective tax rate for the first
quarter of 2010 would have been 29.1% (benefit on loss). The decrease in the effective tax rate is
attributable to lower expected tax expense in certain foreign jurisdictions for 2011.
The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment
on a one fiscal quarter-lag basis. As a result, the Company’s share of INOVA Geophysical’s fourth
quarter 2010 financial results is included in the Company’s first quarter results. For the first
quarter, the Company recognized a loss on its equity investment of approximately $0.9 million.
During the first quarter, the Company invested $80 million of excess cash in short-term
certificates of deposit. Total cash and cash equivalents plus these short-term investments were
$130.8 million as of March 31, 2011. Additionally, the Company has no outstanding balance
associated with its $100 million revolving credit facility, bringing total liquidity to greater
than $230 million.
OUTLOOK
Brian Hanson, Executive Vice President and Chief Financial Officer, commented, “While we
normally anticipate the first quarter to be the weakest of each year, ION was able to break even as
strong performances by our Solutions and Software segments, as well as the marine component of our
Systems segment, offset weak performances by our sensor geophone business and our share of INOVA
Geophysical.
As previously mentioned in our fourth quarter earnings call, we anticipate 2011 financial
performance to be significantly back-end loaded, which is consistent with our historical pattern
over the past several years. Not only is this a reflection of the natural budget/planning cycle of
our customers, but this year we are also seeing an increase in Solutions backlog to support a
stronger second half and we anticipate recognizing the revenue on the 12 streamer system sold to
BGP in the second half of the year.
Additionally, we are increasing our guidelines for 2011 investments in multi-client data
libraries by approximately $20 million for a full-year investment between $110 and $130 million. We
expect a majority of this investment to be incurred during the third and fourth quarters. We will
continue to invest in multi-client data libraries in strategic locations around the world; and we
expect these investments to help position us for stronger financial results in the second half of
2011.”
CONFERENCE CALL
The Company has scheduled a conference call for Thursday, May 5, 2011, at 10:00 a.m. Eastern
Time that will include a slide presentation. To participate in the conference call, dial
480-629-9869 at least 10 minutes before the call begins and ask for the ION conference call. The
earnings presentation slides can be accessed at
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9OTIxNzd8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1.
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9OTIxNzd8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1.
A replay of the call will be available approximately two hours after the live broadcast
ends and will be accessible until May 19, 2011. To access the replay, dial 303-590-3030 and use
pass code 4436712#.
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. Also, 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 allow E&P operators to obtain higher
resolution images of the subsurface to reduce the risk of exploration and reservoir development,
and enable seismic contractors to acquire geophysical data more efficiently. Additional
information about ION is available at www.iongeo.com.
CONTACTS:
R. Brian Hanson
Chief Financial Officer
+1.281.879.3672
R. Brian Hanson
Chief Financial Officer
+1.281.879.3672
Jack Lascar
DRG&L
+1.713.529.6600
DRG&L
+1.713.529.6600
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 include future sales and market growth, timing of sales,
future liquidity and cash levels, future estimated revenues and earnings, benefits expected to
result from the INOVA Geophysical joint venture and related transactions 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 the timing and
development of the Company’s products and services and market acceptance of the Company’s new and
revised product offerings; risks associated with the operation of the INOVA Geophysical joint
venture; risks associated with litigation; risks associated with the Company’s level and terms of
indebtedness; risks associated with 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; risks 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, 2010 and its Quarterly
Reports on Form 10-Q filed during 2011.
Tables to follow
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Product revenues |
$ | 32,387 | $ | 40,242 | ||||
Service revenues |
58,165 | 48,477 | ||||||
Total net revenues |
90,552 | 88,719 | ||||||
Cost of products |
14,639 | 30,491 | ||||||
Cost of services |
44,774 | 35,862 | ||||||
Gross profit |
31,139 | 22,366 | ||||||
Operating expenses: |
||||||||
Research, development and engineering |
5,839 | 8,999 | ||||||
Marketing and sales |
7,042 | 7,906 | ||||||
General and administrative |
12,187 | 16,438 | ||||||
Total operating expenses |
25,068 | 33,343 | ||||||
Income (loss) from operations |
6,071 | (10,977 | ) | |||||
Interest expense, net |
(1,615 | ) | (25,643 | ) | ||||
Loss on disposition of land division |
— | (38,115 | ) | |||||
Fair value adjustment of warrant |
— | 12,788 | ||||||
Equity in losses of INOVA Geophysical |
(860 | ) | — | |||||
Other income (expense) |
(2,999 | ) | 3,217 | |||||
Income (loss) before income taxes |
597 | (58,730 | ) | |||||
Income tax expense |
147 | 12,160 | ||||||
Net income (loss) |
450 | (70,890 | ) | |||||
Net loss attributable to noncontrolling interest |
25 | — | ||||||
Net income (loss) attributable to ION |
475 | (70,890 | ) | |||||
Preferred stock dividends |
338 | 875 | ||||||
Net income (loss) applicable to common shares |
$ | 137 | $ | (71,765 | ) | |||
Net income (loss) per share: |
||||||||
Basic |
$ | 0.00 | $ | (0.60 | ) | |||
Diluted |
$ | 0.00 | $ | (0.60 | ) | |||
Weighted average number of common shares outstanding: |
||||||||
Basic |
153,666 | 120,312 | ||||||
Diluted |
155,555 | 120,312 | ||||||
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| March 31, | December 31, | |||||||
| 2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 50,834 | $ | 84,419 | ||||
Short-term investments |
80,000 | — | ||||||
Accounts receivable, net |
63,436 | 77,576 | ||||||
Unbilled receivables |
40,997 | 70,590 | ||||||
Inventories |
80,395 | 66,882 | ||||||
Prepaid expenses and other current assets |
11,417 | 13,165 | ||||||
Total current assets |
327,079 | 312,632 | ||||||
Deferred income tax asset |
11,764 | 8,998 | ||||||
Property, plant and equipment, net |
21,702 | 20,145 | ||||||
Multi-client data library, net |
101,084 | 112,620 | ||||||
Investment in INOVA Geophysical |
94,898 | 95,173 | ||||||
Goodwill |
52,216 | 51,333 | ||||||
Intangible assets, net |
18,988 | 20,317 | ||||||
Other assets |
3,661 | 3,224 | ||||||
Total assets |
$ | 631,392 | $ | 624,442 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Notes payable and current maturities of long-term debt |
$ | 5,539 | $ | 6,073 | ||||
Accounts payable |
27,964 | 30,940 | ||||||
Accrued expenses |
41,788 | 54,799 | ||||||
Accrued multi-client data library royalties |
10,707 | 18,667 | ||||||
Deferred revenue and other current liabilities |
38,492 | 22,887 | ||||||
Total current liabilities |
124,490 | 133,366 | ||||||
Long-term debt, net of current maturities |
101,373 | 102,587 | ||||||
Other long-term liabilities |
7,764 | 8,042 | ||||||
Total liabilities |
233,627 | 243,995 | ||||||
Equity: |
||||||||
Cumulative convertible preferred stock |
27,000 | 27,000 | ||||||
Common stock |
1,550 | 1,529 | ||||||
Additional paid-in capital |
835,769 | 822,399 | ||||||
Accumulated deficit |
(447,911 | ) | (448,386 | ) | ||||
Accumulated other comprehensive loss |
(12,253 | ) | (15,530 | ) | ||||
Treasury stock |
(6,565 | ) | (6,565 | ) | ||||
Total stockholders’ equity |
397,590 | 380,447 | ||||||
Noncontrolling interest |
175 | — | ||||||
Total equity |
397,765 | 380,447 | ||||||
Total liabilities and equity |
$ | 631,392 | $ | 624,442 | ||||
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | 450 | $ | (70,890 | ) | |||
Adjustments to reconcile net income (loss) to cash provided by operating activities: |
||||||||
Depreciation and amortization (other than multi-client data library) |
3,953 | 11,238 | ||||||
Amortization of multi-client data library |
23,443 | 12,382 | ||||||
Stock-based compensation expense |
2,812 | 1,061 | ||||||
Amortization of debt discount |
— | 8,656 | ||||||
Write-off of unamortized debt issuance costs |
— | 10,121 | ||||||
Fair value adjustment of warrant |
— | (12,788 | ) | |||||
Loss on disposition of land division |
— | 38,115 | ||||||
Equity in losses of INOVA Geophysical |
860 | — | ||||||
Deferred income taxes |
(2,854 | ) | 8,179 | |||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
14,508 | 35,294 | ||||||
Unbilled receivables |
29,593 | (7,053 | ) | |||||
Inventories |
(13,404 | ) | (52 | ) | ||||
Accounts payable, accrued expenses and accrued royalties |
(22,701 | ) | (11,937 | ) | ||||
Deferred revenue |
15,537 | 3,913 | ||||||
Other assets and liabilities |
(371 | ) | 400 | |||||
Net cash provided by operating activities |
51,826 | 26,639 | ||||||
Cash flows from investing activities: |
||||||||
Purchase of property, plant and equipment |
(3,674 | ) | (1,268 | ) | ||||
Investment in multi-client data library |
(11,907 | ) | (5,215 | ) | ||||
Purchase of short-term investments |
(80,000 | ) | — | |||||
Proceeds from disposition of land division, net of fees paid |
— | 99,790 | ||||||
Other investing activities |
— | (3,168 | ) | |||||
Net cash provided by (used in) investing activities |
(95,581 | ) | 90,139 | |||||
Cash flows from financing activities: |
||||||||
Borrowings under revolving line of credit |
— | 85,000 | ||||||
Repayments under revolving line of credit |
— | (174,429 | ) | |||||
Net proceeds from issuance of debt |
— | 105,695 | ||||||
Net proceeds from issuance of common stock |
— | 38,039 | ||||||
Payments on notes payable and long-term debt |
(1,748 | ) | (139,211 | ) | ||||
Payment of preferred dividends |
(338 | ) | (875 | ) | ||||
Contribution from noncontrolling interest |
200 | — | ||||||
Proceeds from exercise of stock options |
11,793 | — | ||||||
Other financing activities |
(37 | ) | (28 | ) | ||||
Net cash provided by (used in) financing activities |
9,870 | (85,809 | ) | |||||
Effect of change in foreign currency exchange rates on cash and cash equivalents |
300 | (842 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
(33,585 | ) | 30,127 | |||||
Cash and cash equivalents at beginning of period |
84,419 | 16,217 | ||||||
Cash and cash equivalents at end of period |
$ | 50,834 | $ | 46,344 | ||||
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SEGMENT INFORMATION
(In thousands)
(Unaudited)
SUMMARY OF SEGMENT INFORMATION
(In thousands)
(Unaudited)
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Net revenues: |
||||||||
Systems: |
||||||||
Towed Streamer |
$ | 17,547 | $ | 10,234 | ||||
Ocean Bottom |
2 | 174 | ||||||
Other |
6,411 | 5,708 | ||||||
Total |
$ | 23,960 | $ | 16,116 | ||||
Software: |
||||||||
Software Systems |
$ | 8,427 | $ | 7,615 | ||||
Services |
272 | 356 | ||||||
Total |
$ | 8,699 | $ | 7,971 | ||||
Solutions: |
||||||||
Data Processing |
$ | 20,299 | $ | 23,965 | ||||
New Venture |
22,450 | 7,426 | ||||||
Data Library |
15,144 | 16,730 | ||||||
Total |
$ | 57,893 | $ | 48,121 | ||||
Legacy Land Systems (INOVA) |
$ | — | $ | 16,511 | ||||
Total |
$ | 90,552 | $ | 88,719 | ||||
Gross profit: |
||||||||
Systems |
$ | 12,245 | $ | 5,558 | ||||
Software |
5,578 | 5,369 | ||||||
Solutions |
13,316 | 12,423 | ||||||
Legacy Land Systems (INOVA) |
— | (984 | ) | |||||
Total |
$ | 31,139 | $ | 22,366 | ||||
Gross margin: |
||||||||
Systems |
51 | % | 34 | % | ||||
Software |
64 | % | 67 | % | ||||
Solutions |
23 | % | 26 | % | ||||
Legacy Land Systems (INOVA) |
— | % | (6 | %) | ||||
Total |
34 | % | 25 | % | ||||
Income (loss) from operations: |
||||||||
Systems |
$ | 6,080 | $ | 909 | ||||
Software |
4,853 | 4,806 | ||||||
Solutions |
5,812 | 5,565 | ||||||
Legacy Land Systems (INOVA) |
— | (9,623 | ) | |||||
Corporate and other |
(10,674 | ) | (12,634 | ) | ||||
Total |
$ | 6,071 | $ | (10,977 | ) | |||
Reconciliation of Adjusted EBITDA to Net Income (Loss)
(Non-GAAP Measure)
(In thousands)
(Unaudited)
(Non-GAAP Measure)
(In thousands)
(Unaudited)
Adjusted EBITDA is a Non-GAAP measurement that is presented as an additional indicator of
operating performance and is not a substitute for net income (loss) or net income (loss) per share
calculated under generally accepted accounting principles (GAAP). We believe that Adjusted EBITDA
provides useful information to investors because it is an indicator of the strength and performance
of our ongoing business operations, including our ability to service our debt. The calculation of
Adjusted EBITDA shown below is based upon amounts derived from the Company’s financial statements
prepared in conformity with GAAP.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2011 | 2010 | |||||||
Net income (loss) |
$ | 450 | $ | (70,890 | ) | |||
Interest expense, net |
1,615 | 25,643 | ||||||
Income tax expense |
147 | 12,160 | ||||||
Depreciation and amortization expense |
27,396 | 23,620 | ||||||
Equity in losses of INOVA Geophysical |
860 | — | ||||||
Loss on disposition of land division |
— | 38,115 | ||||||
Fair value adjustment of warrant |
— | (12,788 | ) | |||||
Adjusted EBITDA |
$ | 30,468 | $ | 15,860 | ||||
Reconciliation of Income (Loss) from Operations Excluding the
Legacy Land Systems (INOVA) Segment
(Non-GAAP Measure)
(In thousands)
(Unaudited)
Legacy Land Systems (INOVA) Segment
(Non-GAAP Measure)
(In thousands)
(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 our income (loss) from operations excluding our Legacy Land Systems
(INOVA) segment. This segment was contributed to our joint venture (INOVA Geophysical) on March
25, 2010. Therefore, beginning on March 26, 2010, this contributed business is no longer
consolidated into our results of operations. This adjusted income amount is not a measure of
financial performance under GAAP. Accordingly, it should not be considered as a substitute for
income (loss) from operations 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, 2010:
Months Ended March 31, 2010
| Excluding | ||||||||||||
| As | Legacy Land | As | ||||||||||
| Reported | Systems | Adjusted | ||||||||||
Net revenues |
$ | 88,719 | $ | (16,511 | ) | $ | 72,208 | |||||
Cost of sales |
66,353 | (17,495 | ) | 48,858 | ||||||||
Gross profit |
22,366 | 984 | 23,350 | |||||||||
Operating expenses: |
||||||||||||
Research, development and engineering |
8,999 | (4,181 | ) | 4,818 | ||||||||
Marketing and sales |
7,906 | (1,559 | ) | 6,347 | ||||||||
General and administrative |
16,438 | (2,899 | ) | 13,539 | ||||||||
Total operating expenses |
33,343 | (8,639 | ) | 24,704 | ||||||||
Income (loss) from operations |
$ | (10,977 | ) | $ | 9,623 | $ | (1,354 | ) | ||||
#####