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ION Reports Solid Third Quarter 2012 Results
Revenue increased 18%; net income increased 71%; EPS of $0.09

HOUSTON, Nov. 8, 2012 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported third quarter 2012 revenues of $136.3 million, an 18% increase from revenues of $115.7 million in third quarter 2011.  Gross margin reached 41% compared to 38% in third quarter 2011.  Third quarter net income increased to $14.9 million, or $0.09 per diluted share, compared to net income of $8.7 million, or $0.06 per diluted share, in third quarter 2011.  Adjusted EBITDA increased 41% to $56.8 million compared to $40.3 million in third quarter 2011 due to improved overall results of operations. 

The Company's third quarter results included abnormally high legal expenses resulting from two previously disclosed patent infringement lawsuits involving the Company, one brought by WesternGeco and the other brought against Sercel. Adjusting for these unusual legal expenditures, net of tax, the Company's net income for the third quarter would have been $17.4 million, or $0.11 per diluted share.

Brian Hanson, the Company's Chief Executive Officer, commented, "We are pleased with the solid results we delivered in the third quarter and year-to-date.  This quarter we generated significant growth in revenue and earnings as compared to the same quarter last year, led by the continued robust performance of our Solutions business.  On a year-to-date basis, total ION revenues are up 20%, with year-to-date growth across all three of our business segments.

"Our data processing business continues to improve in both revenues and profitability, with our sixth sequential quarterly improvement in revenue.  Additionally, our new WiBand broadband solution continues to gain momentum as we launched several commercial projects.  We finished the third quarter of 2012 with record data processing revenues and backlog.  Our investments in our international data processing infrastructure are paying off and we expect this growth to continue.

"Our GeoVentures division continues to perform exceptionally well, delivering record third quarter revenues, driven by a combination of strong library sales and an increase in new venture programs.  We completed acquisition on several new venture programs, including 2D programs offshore South America and East Africa, and our 3D gravity gradiometry program offshore Greenland.  Additionally, we completed acquisition on two ResSCANprograms in North America.  GeoVentures also finished the third quarter with record backlog.  Our overall Solutions backlog at the end of the quarter was $199 million, up 87% compared to the same period last year.

"Our Marine division continued to experience soft revenues attributable to modest capital spending by our contractor customers related to new vessel introductions during the third quarter and decreased towed streamer product sales.  However, we continued to realize healthy ocean-bottom equipment revenues in the third quarter partially offsetting the softness in our other marine and land sensor product lines.

"Our software business also had a record quarter driven by continued healthy Orca® software and hardware sales.  Additionally, we continue to experience solid growth in our on-board acquisition optimization services business model.

"INOVA reported revenues of $47.4 million in their second quarter of 2012, up 40% from their second quarter of 2011, driven by a 30,000 channel sale of their new wireless Hawk product, strong U.S.-based vibrator sales, and the delivery of an additional 9,000 channels of G3i (their new cable-based system) to BGP."    

THIRD QUARTER 2012
The 18% increase in total revenues over third quarter 2011 was led by strong growth in the Company's Solutions and Software businesses.  Solutions segment revenues increased 26% to $92.1 million compared to $73.2 million in third quarter 2011, driven by continued growth in data processing, robust multi-client activity offshore South America, East Africa, and Greenland, and acquisition in the Company's ResSCAN programs. Additionally, the Company experienced strong interest in its data library programs offshore Africa, South America, India, and in the Gulf of Mexico.

Software segment sales were $13.1 million compared to $10.2 million in third quarter 2011. Excluding foreign currency effects, Software segment revenues increased 30% due to demand for the Company's Orca and Gator® software and onboard acquisition optimization services. 

Systems segment sales decreased 4% to $31.1 million compared to $32.3 million in third quarter 2011, due primarily to decreased sales of towed streamer equipment products as compared to the same period last year, partially offset by growth in the Company's ocean-bottom cable product line.

Consolidated gross margins during the third quarter increased to 41% from 38% in third quarter 2011. The improvement was driven by the Solutions segment, which increased margins to 36% from 31%, led by data processing revenue growth and higher-margin new venture programs.

Third quarter consolidated operating margins increased to 18% compared to 16% in third quarter 2011, benefitting from higher gross margins in Solutions, partially offset by unusual legal expenses and continued investment in R&D.  Solutions operating margins improved to 24% from 19% due to growth in the data processing business and margin improvement in new venture programs.  Software segment operating margins remained at 70%, while Systems operating margins decreased slightly from 21% to 20% in the third quarter.  Excluding the impact of the unusual legal expenses, third quarter 2012 consolidated operating margins would have been 21%.

The Company's effective tax rate during the third quarter was 28.5% compared to 27.9% in third quarter 2011.  The increase in the effective tax rate was due to changes in the distribution of earnings between U.S. and foreign jurisdictions.

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 second quarter 2012 financial results is included in the Company's third quarter results.  For second quarter 2012, INOVA Geophysical reported revenues of $47.4 million, up 40% from $33.8 million in second quarter 2011.  INOVA Geophysical reported a net loss of $3.5 million for second quarter 2012, compared to a net loss of $9.8 million in second quarter 2011.  For third quarter 2012, the Company recognized losses on its INOVA equity investment of approximately $1.7 million compared to a loss of $4.8 million for the prior year period.  

The Company's total cash and cash equivalents were $47.5 million as of September 30, 2012.  Additionally, under its amended $175 million credit facility, the Company had $77.8 million of unused capacity as of September 30, 2012.

YEAR-TO-DATE 2012
Total revenues for the first nine months of 2012 increased 20% to $353.2 million compared to $294.7 million for the same period in 2011, with year-to-date growth across all business segments.

Solutions segment revenues for the first nine months of 2012 increased 28% to $230.2 million primarily as a result of continuing data processing expansion, robust international offshore new venture programs, and healthy library sales.  Software and Systems segment revenues during the period increased by 12% and 6%, respectively.

Consolidated gross margins for the period increased to 40% compared to 37% in the same period of 2011 due to the data processing expansion and multi-client program profitability improvements.

Consolidated operating margins for the first nine months of 2012 increased to 14% from 11% in the same period of 2011.  Solutions operating margins increased to 21% from 13% due to growth of data processing revenues as well as profitability improvements in the multi-client business.  Software segment operating margins increased to 67% from 64%, while Systems operating margins decreased from 26% to 18% in the first nine months of 2012, as compared to the same period of 2011. The decline in Systems operating margins was due primarily to the reduction in towed streamer equipment sales in the first nine months of 2012.  While overall consolidated gross margins have improved, operating expenses as a percent of revenues increased to 26.4% from 25.6%, driven by the abnormally high external legal expenses as well as continued investment in R&D for the Company's next generation technologies across its various business segments.  Excluding the impact of the unusual legal expenses, consolidated operating margins for the first nine months of 2012 would have been 16%.

The Company's effective tax rate during the first nine months of 2012 was 27.7%, relatively flat compared to 2011. 

For the first nine months of 2012, net income was $35.1 million, or $0.22 per diluted share, compared to net income of $11.4 million, or $0.07 per diluted share, in the first nine months of 2011.  Adjusting for the unusual legal expenditures, net of tax, net income for the first nine months of 2012 would have been $40.1 million, or $0.25 per diluted share.

OUTLOOK
Greg Heinlein, the Company's Chief Financial Officer, commented, "We delivered solid results with year-to-date revenues up 20% over last year and year-to-date earnings of $0.25 per diluted share, after adjusting for the unusually high legal expenses.

"Our third quarter represented another successful quarter this year of growing revenues and earnings.  While unplanned legal costs impacted this quarter's operating expenses, we remain confident in our ability to execute year-over-year revenue and earnings growth in spite of these headwinds.

"Our Solutions segment continues to drive successive quarterly improvements, between new venture underwriting and data library sales.  We continue to increase our focus on E&P company solutions, while improving our marine and land businesses with investments into newer products and new go-to-market strategies.

"INOVA had a strong second quarter, as reflected in our third quarter results.  We expect to record an equity loss in our fourth quarter, but continue to expect our INOVA equity income to be modestly profitable for the year.

"Based on our market outlook and robust pipeline of order activity, we are confidently investing in each of our businesses and remain positioned to achieve year-over-year improvement in both revenue and profitability for full year 2012."

CONFERENCE CALL
The Company has scheduled a conference call for Friday, November 9, 2012, 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 at 9:00 a.m. Eastern time.  To participate in the conference call, dial 480-629-9645 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 November 23, 2012.  To access the replay, dial 303-590-3030 and use pass code 4570327#.

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 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.

Contacts
Greg Heinlein
Chief Financial Officer
+1.281.552.3011

Jack Lascar
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 may include future sales 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 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 risks associated with litigation, including the lawsuit brought by WesternGeco; 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 joint venture; 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, 2011 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2012.

Tables to follow


 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 



 

                  

  Three Months Ended

       September 30,     

 

                  

   Nine Months Ended

       September 30,     


2012

2011

2012

2011




Product revenues

$   43,300

$   41,760

$  120,746

$  113,163

Service revenues

93,023

73,894

232,501

181,575

Total net revenues

136,323

115,654

353,247

294,738

Cost of products

21,229

21,568

60,327

53,831

Cost of services

59,136

50,028

149,863

132,079

Gross profit

55,958

44,058

143,057

108,828

Operating expenses:





Research, development and engineering

7,504

6,325

25,536

18,070

Marketing and sales

8,091

8,199

24,162

23,079

General and administrative

15,314

11,038

43,695

34,312

Total operating expenses

30,909

25,562

93,393

75,461

Income from operations

25,049

18,496

49,664

33,367

Interest expense, net

(1,237)

(1,382)

(4,119)

(4,184)

Equity in earnings (losses) of INOVA Geophysical

(1,684)

(4,811)

4,561

(9,844)

Other income (expense)

(936)

199

(727)

(2,303)

Income before income taxes

21,192

12,502

49,379

17,036

Income tax expense

6,037

3,484

13,666

4,716

Net income

15,155

9,018

35,713

12,320

Net income attributable to noncontrolling interest

42

34

436

103

Net income attributable to ION

15,197

9,052

36,149

12,423

Preferred stock dividends

338

338

1,014

1,014

Net income applicable to common shares

$   14,859

$     8,714

$   35,135

$   11,409

Net income per share:





Basic

$       0.10

$       0.06

$       0.23

$       0.07

Diluted

$       0.09

$       0.06

$       0.22

$       0.07

Weighted average number of common shares outstanding:





Basic

155,918

155,166

155,698

154,648

Diluted

162,852

162,227

162,680

156,095


 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 



   September 30,      

December 31,


2012

2011



      ASSETS



Current assets:



Cash and cash equivalents

$      47,479

$   42,402

Short-term investments

20,000

Accounts receivable, net

93,484

130,612

Unbilled receivables

66,526

25,628

Inventories

72,145

70,145

Prepaid expenses and other current assets

21,523

13,460

Total current assets

301,157

302,247

Deferred income tax asset

16,534

17,645

Property, plant, equipment and seismic rental equipment, net

39,246

24,771

Multi-client data library, net

212,457

175,768

Investment in INOVA Geophysical

77,119

72,626

Goodwill

55,422

53,963

Intangible assets, net

15,791

17,716

Other assets

10,121

9,322

Total assets

$    727,847

$  674,058




                LIABILITIES AND EQUITY



Current liabilities:



Current maturities of long-term debt

$        2,878

$     5,770

Accounts payable

25,537

22,296

Accrued expenses

76,678

61,384

Accrued multi-client data library royalties

20,854

15,318

Deferred revenue

21,537

33,802

Total current liabilities

147,484

138,570

Long-term debt, net of current maturities

101,433

99,342

Other long-term liabilities

7,423

7,719

Total liabilities

256,340

245,631




Redeemable noncontrolling interest

2,155

2,615




Equity:



Cumulative convertible preferred stock

27,000

27,000

Common stock

1,560

1,555

Additional paid-in capital

847,130

843,271

Accumulated deficit

(387,463)

(423,612)

Accumulated other comprehensive loss

(12,869)

(16,193)

Treasury stock

(6,565)

(6,565)

Total stockholders' equity

468,793

425,456

 Noncontrolling interests

559

356

Total equity

469,352

425,812

Total liabilities and equity

$    727,847

$  674,058





 

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 



 

  Nine Months Ended

      September 30,    


2012

2011









Cash flows from operating activities:



Net income

$   35,713

$   12,320

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



Depreciation and amortization (other than multi-client library)

11,532

10,649

Amortization of multi-client library

66,911

55,166

Stock-based compensation expense

4,473

4,177

Equity in (earnings) losses of INOVA Geophysical

(4,561)

9,844

Deferred income taxes

795

(7,254)

Change in operating assets and liabilities:



Accounts receivable

37,526

(10,842)

Unbilled receivables

(40,898)

25,212

Inventories

(8,540)

(30,539)

Accounts payable, accrued expenses and accrued royalties

22,812

(1,108)

Deferred revenue

(12,316)

19,046

Other assets and liabilities

(2,115)

(527)

Net cash provided by operating activities

111,332

86,144

Cash flows from investing activities:



Investment in multi-client data library

(105,600)

(91,594)

Purchase of property, plant and equipment

(11,892)

(9,024)

Investment in seismic rental equipment

(1,674)

Maturity (net purchases) of short-term investments

20,000

(28,000)

Investment in convertible notes

(2,000)

(6,500)

Other investing activities

50

Net cash used in investing activities

(101,166)

(135,068)

Cash flows from financing activities:



Payments on long-term debt

(2,776)

(4,880)

Repayment of term loan

(98,250)

Borrowings under amended revolving line of credit

148,250

Payments under amended revolving line of credit

(51,000)

Cost associated with debt amendment

(1,313)

Payment of preferred dividends

(1,014)

(1,014)

Proceeds from exercise of stock options

563

13,047

Other financing activities

338

665

Net cash (used in) provided by financing activities

(5,202)

7,818

Effect of change in foreign currency exchange rates on cash and cash equivalents

113

(23)

Net increase (decrease) in cash and cash equivalents

5,077

(41,129)

Cash and cash equivalents at beginning of period

42,402

84,419

Cash and cash equivalents at end of period

$   47,479

$   43,290





 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

SUMMARY OF SEGMENT INFORMATION

(In thousands)

(Unaudited)

 



Three Months Ended

     September 30,     

Nine Months Ended

     September 30,    


2012

2011

2012

2011

Net revenues:





Solutions:





New Venture

$   40,817

$   35,597

$   91,355

$   67,819

Data Library

22,756

15,166

55,259

48,862

Total multi-client revenues

63,573

50,763

146,614

116,681

Data Processing

28,546

22,416

83,601

63,349

Total

$   92,119

$   73,179

$  230,215

$  180,030






Systems:





Towed Streamer

$   17,529

$   22,219

$   47,060

$   60,000

Ocean Bottom

7,969

13,104

509

Other

5,616

10,065

30,475

25,210

Total

$   31,114

$   32,284

$   90,639

$   85,719






Software:





Software Systems

$   12,186

$     9,476

$   30,107

$   27,444

Services

904

715

2,286

1,545

Total

$   13,090

$   10,191

$   32,393

$   28,989






Total

$  136,323

$  115,654

$  353,247

$  294,738






Gross profit:





Solutions

$   33,142

$   22,600

$   81,031

$   47,106

Systems

12,731

13,397

37,777

40,752

Software

10,085

8,061

24,249

20,970

Total

$   55,958

$   44,058

$  143,057

$  108,828






Gross margin:





Solutions

36%

31%

35%

26%

Systems

41%

41%

42%

48%

Software

77%

79%

75%

72%

Total

41%

38%

40%

37%






Income from operations:





Solutions

$   22,341

$   13,897

$   49,381

$   22,751

Systems

6,335

6,852

16,070

21,989

Software

9,186

7,117

21,547

18,409

Corporate and other

(12,813)

(9,370)

(37,334)

(29,782)

Total

$  25,049

$    18,496

$  49,664

$  33,367






Operating margin:





Solutions

24%

19%

21%

13%

Systems

20%

21%

18%

26%

Software

70%

70%

67%

64%

Corporate and other

(9%)

(8%)

(11%)

(10%)

Total

18%

16%

14%

11%






Reconciliation of Adjusted EBITDA to Net Income

(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 or net income per share calculated under generally accepted accounting principles (GAAP). Additionally, Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The Company believes that Adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of the Company's ongoing business operations, including its ability to service 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

September 30,


Nine Months Ended

September 30,


2012


2011


2012


2011









Net income

$    15,155


$      9,018


$                35,713


$     12,320

Interest expense, net

1,237


1,382


4,119


4,184

Income tax expense

6,037


3,484


13,666


4,716

Depreciation and amortization expense

32,700


21,591


78,443


65,815

Equity in (earnings) losses of INOVA Geophysical

1,684


4,811


(4,561)


9,844

Adjusted EBITDA

$    56,813


$    40,286


$     127,380


$    96,879


 

 

 

SOURCE ION Geophysical Corporation

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Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

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