ION reports fourth quarter and year end 2014 results

HOUSTON, Feb. 11, 2015 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported a fourth quarter 2014 net loss of $180.9 million, or $(1.10) per share, which included restructuring and special items totaling $170 million that reduced reported earnings per share by $(1.03).  Excluding these restructuring and special items, ION's fourth quarter 2014 net loss was $11.0 million on revenues of $136.8 million, or $(0.07) per share, compared to an adjusted net income of $53.4 million on revenues of $218.7 million, or $0.33 per diluted share, in fourth quarter 2013.

During the quarter, the Company recorded $170 million of restructuring charges and special items as detailed below, with $2 million requiring a use of cash:

• $109 million of charges impacted cost of sales, of which $101 million was primarily related to a write-down of the multi-client data library within the Solutions segment and $8 million related to inventory write-downs and severance-related charges within the Systems segment;
• $33 million of charges impacted operating expenses, of which $25 million was primarily related to the impairment of goodwill within the Systems segment, $2 million was associated with the write-down of intangible assets within the Solutions segment, and $6 million was primarily attributable to the write-down of receivables due from INOVA Geophysical within the Corporate and Other segment;
• $34 million of charges impacted equity earnings, primarily due to the full write-down of the Company's equity method investment in INOVA Geophysical; and
• $6 million of gains impacted other income, income tax expense and non-controlling interests, primarily related to the Company's sale of a cost method investment.

A reconciliation of the restructuring and special items can be found in the tables at the end of this press release.

At December 31, 2014, the Company's cash and cash equivalents were $173.6 million.  The Company generated net cash flows before financing activities of $81.0 million during 2014, compared to a use of cash before financing activities of $11.4 million in 2013.  Full year 2014 Adjusted EBITDA was $108.3 million, compared to $154.3 million in 2013.  A reconciliation of Adjusted EBITDA can be found in the tables of this press release.

Brian Hanson, the Company's President and Chief Executive Officer, commented, "Our fourth quarter and full year results were significantly impacted by the continued slowdown in exploration spending by E&P companies.  The slowdown has been greater than we originally expected, but our decision over a year ago to conservatively manage our business has been evident through our ability to generate positive cash flows throughout 2014.  While managing for cash, we have narrowed our focus and continue to strategically invest in high potential technologies.

"During the fourth quarter we initiated a restructuring plan to rightsize our segments, with the exception of our Ocean Bottom Services segment, reducing our workforce by approximately 10%.  This reduction should result in an annual cash savings of approximately $15 million.  This restructuring is a significant move to better integrate and align our entire workforce with our strategy of providing solutions directly to E&P companies.

"In light of the expected prolonged slowdown, we recorded several charges that impacted our fourth quarter results.  These charges included a write-down of data library investments associated with our Arctic and onshore North America programs, and a full impairment of goodwill associated with our marine equipment operations.  Also, we wrote down our investment in INOVA Geophysical and are evaluating strategic options related to our ongoing participation in the joint venture.

"We are pleased with our continued penetration into the ocean bottom services market through OceanGeo.  Our investment in and success with OceanGeo and ocean bottom services has positioned us to participate in the less volatile production phase of seismic activity.  During the fourth quarter, OceanGeo completed acquisition of a survey offshore West Africa and was awarded and completed another survey in an adjacent area with a new customer.  During 2014, as we increased our ownership in OceanGeo to 100%, we upgraded our vessels for more efficient operations.  OceanGeo is ready to take advantage of continued demand for ocean bottom seismic, especially in West Africa, where demand is especially high.

"Looking ahead, we expect 2015 exploration budgets across the E&P industry to be down an estimated 25% to 35% compared to 2014. Consistent with 2014, we will continue to maximize cash and to exercise spending discipline across all of our businesses, funding new programs once we have obtained adequate levels of industry underwriting and continuing to invest in key strategic technologies and market opportunities."

Within the Solutions segment, new venture revenues were $22.2 million, a 64% decrease from fourth quarter 2013; data library revenues were $36.1 million, a 52% decrease; and data processing revenues were $21.9 million, a 25% decrease.  All businesses within the Solutions segment were impacted by the continued softness of exploration spending.  Data library revenues were also impacted by the record sales in fourth quarter 2013 that were not repeated in 2014.

The decrease in Systems segment revenues was primarily due to a reduction in sales of new marine positioning system and land geophone strings compared to fourth quarter 2013.

Software segment revenues were down compared to record fourth quarter revenues in 2013, primarily due to lower Orca^® licensing revenues.  While Software segment revenues were down year over year, the segment generated overall gross and operating margins, as adjusted, of 66% and 41%, respectively, during the quarter. 

Ocean Bottom Services segment revenues were $31.8 million, related to work performed on OceanGeo's projects offshore West Africa, which were completed during the fourth quarter.

Excluding the impact of restructuring and special items, consolidated gross margins were 34%, compared to 47% in fourth quarter 2013, and operating margins were 4%, compared to 30% in the earlier period.  The decrease in gross and operating margins was driven primarily by the decrease in revenues within the Solutions and Systems segments, which more than offset the uplift in margins provided by the Ocean Bottom Services segment.

The Company recognized $40.5 million of equity losses, which included the full write-down of its investment in INOVA Geophysical, compared to equity losses of $19.4 million in fourth quarter 2013.  INOVA Geophysical experienced a 70% decline in revenues year over year, a result of a soft land seismic equipment market and reduced purchases by BGP, the majority partner in the joint venture.  See the attached financial tables for the summarized financial results of INOVA.

The Company's fourth quarter 2013 results included equity losses of $12.4 million related to OceanGeo. In late January 2014, the Company increased its ownership interest to 70%, and subsequently to 100% in July, at that time taking over direct management of OceanGeo.

Income tax expense was $6.3 million for fourth quarter 2014, related to income from the Company's non-U.S. businesses, including OceanGeo.  This foreign tax expense has not been offset by the tax benefits on losses within the U.S. and other jurisdictions, from which the Company cannot currently benefit, resulting in an income tax expense on a consolidated pre-tax loss.

Within the Solutions segment, new venture revenues were $98.6 million, down 36% year over year; data library revenues were $66.2 million, down 41%; and data processing revenues were $113.1 million, down 6%.  All businesses within the Solutions segment were impacted by the continued softness of exploration spending throughout 2014.  The decline in data processing was partially offset by $15.0 million of revenues recognized in 2014 that related to work performed for a customer in 2013.  

The decrease in Systems segment revenues was primarily due to (i) lower sales of new marine positioning systems; (ii) a lack of ocean bottom cable systems sales in 2014 compared to 2013; (iii) reduced land geophone string sales; partially offset by (iv) additional marine repair and replacement revenues.

Software segment revenues were up slightly compared to 2013.  The Software segment experienced record revenues in the first half of 2014, which were mostly offset by a reduction in revenues in the fourth quarter.  The Software segment generated gross and operating margins, as adjusted, of 72% and 51%, respectively, during 2014. 

Ocean Bottom Services segment revenues were $103.2 million, related to work performed on OceanGeo's project in Trinidad, completed in May, and from its projects offshore West Africa that were completed in the fourth quarter.

Excluding the impact of restructuring and special items, consolidated gross margins were 34%, compared to 35% in 2013, and operating margins were 5%, compared to 11% in 2013.  The decreases in gross and operating margins were primarily due to the decrease in revenues within the Solutions segment, which more than offset the uplift in margins provided by the Ocean Bottom Services segment.

The Company recognized $50.2 million of equity losses related to INOVA Geophysical, which included the full write-down of the remaining balance of its investment, compared to equity losses of $22.5 million in 2013.  Also, prior to the consolidation of OceanGeo in late January of this year, the Company recorded $0.7 million of equity earnings, compared to equity losses of $19.8 million in 2013.

Income tax expense was $20.6 million for 2014, related to income from the Company's non-U.S. businesses, including OceanGeo.

The Company reported a net loss of $128.3 million, or $(0.78) per share, compared to a net loss of $251.9 million, or $(1.59) per share, in 2013.  Both periods included special items related to the WesternGeco legal matter and certain restructuring and other special items.  Excluding these special items, in 2014, the Company reported a net loss of $34.1 million, or $(0.21) per share, compared to net income of $19.3 million, or $0.12 per diluted share, in 2013.

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, February 12, 2015, 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 (877) 407-0672 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 February 26, 2015.  To access the replay, dial (877) 660-6853 and use pass code 13598876#.

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 is a leading provider of technology-driven solutions to the global oil & gas industry.  ION's offerings are designed to help companies reduce risk and optimize assets throughout the E&P lifecycle. For more information, visit www.iongeo.com.

Contact

Steve Bate
Executive 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 OceanGeo and the INOVA Geophysical joint venture 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 the Company does not prevail in its appeal of the judgment in the lawsuit with WesternGeco and that the ultimate outcome of the lawsuit 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 OceanGeo and 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, 2013 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2014.

Tables to follow

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 September 30, 2014 and 2013 and the twelve-month periods from October 1 to September 30, 2014 and 2013:

Reconciliation of Adjusted EBITDA to Net Income (Loss)

(Non-GAAP Measure)

(In thousands)

(Unaudited)

The term Adjusted EBITDA represents net income (loss) before interest expense, interest income, income taxes, depreciation and amortization, gains on sale of cost method investments and the Source product line, and other non-cash charges including, without limitation, equity in (earnings) losses of investments, accrual for (reduction of) loss contingency related to legal proceedings and the impairment and write-down of assets. 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 (loss) 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.

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 (loss) from operations or net income (loss) excluding certain charges or amounts. This adjusted income (loss) amount is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for income (loss) from operations, net income (loss) 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 and twelve months ended December 31, 2014 and 2013:

SOURCE ION Geophysical Corporation