EX-99.1 2 ex991earningsrelease1q-14.htm EARNINGS RELEASE Ex 99.1 Earnings Release 1Q-14

                                            
ION reports first quarter results
Revenues of $144.7 million and first quarter adjusted diluted EPS of $0.04
Results exclude a gain of $0.42 per diluted share from partial reversal of a litigation reserve

HOUSTON – April 30, 2014 – 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.

1


“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.

2


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.

3



Tables to follow

4


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




5


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) 
 
March 31,
2014
 
December 31,
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


6


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



7


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
 %


8


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





9


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 measure of profitability or liquidity. Additionally, Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included Adjusted EBITDA as a supplemental disclosure because its management believes that Adjusted EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates.
 
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



10


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 Reported
 
Special Item
 
As 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.


11