ION Reports Improved Third Quarter 2010 Results

HOUSTON, Nov. 3, 2010 /PRNewswire-FirstCall/ -- ION Geophysical Corporation (NYSE: IO) today reported third quarter 2010 revenues of $121.6 million, resulting in net income of $11.9 million, or $0.08 per diluted share.  In the third quarter of 2009, ION's net loss was ($6.8) million, or ($0.06) per share, on revenues of $102.4 million. After excluding the special charges incurred in the first quarter of 2010 associated with the formation of the land joint venture with BGP and the refinancing of its debt, ION reported a positive net income for the nine months ended September 30, 2010 of $1.4 million, or $0.01 per diluted share.  These first quarter special charges are discussed in more detail in a table at the end of this press release.

Bob Peebler, ION's Chief Executive Officer, said, "The third quarter marked a turning point in our recovery from one of the most difficult periods in ION's history beginning with the financial crisis in the fall of 2008.  For the first time since the third quarter of 2008, we had quarterly results that were sufficiently strong to make ION profitable year-to-date. As previously disclosed, our goal this year was to achieve profitability for ION, including accounting for our 49% share of the expected losses of our joint venture, INOVA Geophysical, and this quarter was a major step toward this goal.  

"Our third quarter results were highlighted by the solid performance of all our business units. Most notable was the strong performance of our multi-client business, which rebounded from dismal second quarter revenues of only $8 million to revenues of $59 million this quarter. This marks one of the strongest performances for this division since the third quarter of 2008. The most significant contribution to this quarter's success was the completion of three new venture projects in the Arctic that were largely underwritten by our oil & gas company customers. This recent expansion of our ArcticSPAN™ program, including the acquisition of 6,500 km of regional seismic data in the Danmarkshavn basin offshore Northeast Greenland, has demonstrated the effectiveness of ION's technology and services in this challenging region and established our leadership position in the Arctic multi-client business. As a result of the new technologies developed during these Arctic projects, we have been able to expand the Arctic operational season beyond the traditional one or two months, allowing for increased productivity. We expect to see more normal fourth quarter capital expenditures by our customers for our data libraries, which are primarily located in the regional exploration hotspots around the world. Additionally, the global diversity in our data library portfolio has helped to minimize our exposure to the recent events in the Gulf of Mexico.  

"Once again, our data processing group delivered another strong performance and we have sufficient backlog to carry us into 2011. We have seen a decrease in requests for bids in the deep water processing market, but we believe our current sales pipeline includes sufficient opportunities in other parts of the world to help offset any potential slowdown in Gulf of Mexico activity. It's not yet certain if there will be any reduction in deep water processing activity during 2011, but we believe it is prudent to continue our efforts to expand global coverage.

"Our marine group continues to deliver strong performance driven by the transition of the global towed streamer market from our legacy software product, SPECTRA®, to our latest software platform, Orca®, and by the shipment of a large order of source and positioning equipment to BGP, which will be recognized in the fourth quarter. With BGP's additional purchases of ION's marine equipment, we are beginning to see additional value and benefit from the creation of our joint venture, INOVA Geophysical. We also continue to see strong demand for DigiFIN™ and expect to end the year with solid DigiFIN sales.

"As expected, the land equipment business of INOVA Geophysical is still weak, but we are starting to see signs of improvement. We expect the land acquisition business to bottom out in 2010, followed by strengthening of the market in 2011 and beyond, and we expect similar strengthening in the land equipment business as the market improves. In addition, we believe that INOVA Geophysical is well positioned for strong future growth with demand for FireFly® gaining momentum and with the introduction of a new cable-based system engineered with significant feedback from BGP, which will begin early field tests next year.

"In summary, we are on a solid path to achieve our goal of profitability for 2010 and to position ION for further recovery and growth in 2011."

THIRD QUARTER 2010

Total revenues for the third quarter of 2010 increased 19% to $121.6 million compared to $102.4 million a year ago. Excluding the 2009 third quarter revenues of the Legacy Land Systems (INOVA) segment, total revenues increased 28%.  The Solutions and Software segments experienced higher revenues by 73% and 20%, respectively, while the Systems segment experienced a 31% decrease in revenues.  A reconciliation of results excluding the Legacy Land Systems (INOVA) segment can be found in the financial tables of this press release.

The Solutions group generated $86.7 million in revenues compared to $50.2 million in the same period a year ago. The increase was due to the timing of new venture programs, primarily in the Arctic regions, that were substantially completed during the third quarter. Increases in data processing revenues and data library sales also contributed to the overall improvement in Solutions revenues for the quarter.

The Software segment's revenues increased to $9.1 million in the third quarter compared to $7.6 million a year ago, as a result of the continued success of converting vessels to the Orca software platform.

The Systems segment generated sales of $25.7 million in the third quarter compared to $37.2 million in the same period of 2009, a decrease of $11.5 million primarily due to lower sales of land geophones and towed streamer source and positioning products.

Consolidated gross margins for the third quarter of 2010 increased to 40% from 34% in the third quarter of 2009 and from 37% in the second quarter of 2010. The increase in gross margin compared to the third quarter of 2009 was due to the contribution of the Company's lower margin land business to INOVA Geophysical in March 2010, which had a gross margin of (42%) for the three months ended September 30, 2009.  The Solutions and Software segments' gross margins each increased by 4% in the third quarter of 2010 compared to the same quarter of 2009.  

Adjusting for the Legacy Land Systems (INOVA) segment's 2009 results, operating expenses for the third quarter of 2010 decreased by $2.2 million compared to the prior year period.  As a percentage of revenue, operating expenses during the quarter improved to 21% compared to 29% in the prior year period.  Adjusted EBITDA for the third quarter increased to $52.3 million compared to $27.5 million in the third quarter of 2009.  A reconciliation of Adjusted EBITDA to reported earnings can be found in the financial tables of this press release.

For the three months ended September 30, 2010, the Company recorded a benefit of $3.9 million related to alternative minimum tax.  This benefit was partially offset by $3.5 million of foreign currency exchange losses primarily associated with intercompany balances held by the Company's United Kingdom operations for a net increase to earnings of $0.4 million.

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 results is included in the Company's financial results for the three months ended September 30, 2010.  For the three months ended September 30, 2010, the Company recognized a loss on its equity investment of approximately $8.0 million.  

YEAR-TO-DATE 2010

Consolidated revenues for the first nine months of 2010 decreased 4% to $285.7 million compared to $298.5 million for the same period of 2009. Excluding the results of the Legacy Land Systems (INOVA) segment in 2009 and 2010, revenues for the first nine months increased 7% or $16.5 million. The Solutions segment revenues increased $36.5 million or 27% over prior year, while the Software segment revenues increased 13% or $3.1 million. Systems segment revenues decreased $23.2 million to $71.6 million primarily as a result of softness in both land geophone sales and general marine purchasing activity.  Gross margins for the first nine months of 2010 improved to 35% compared to 33% for the same period of 2009. Excluding the 2009 and first quarter 2010 results of the Legacy Land Systems (INOVA) segment, operating expenses as a percentage of revenues for the first nine months of 2010 decreased to 27% compared to 34% in the prior year period. The Company's effective tax rate during the first nine months of 2010 was 27.7% (provision on a loss) compared to 23.6% (benefit on a loss) for 2009. The increase in the effective tax rate relates primarily to the transactions involved in the completion of the INOVA Geophysical joint venture transaction and to changes in the distribution of earnings between U.S. and foreign jurisdictions.

Income from operations for the first nine months of 2010 totaled $18.4 million compared to a loss of ($53.6) million in the prior period. Excluding the first quarter 2010 results of the Legacy Land Systems (INOVA) segment, income from operations was $28.0 million.  

Excluding the after-tax impact of the special items for both periods as noted in the tables below, the Company reported a net income of $1.4 million, or $0.01 per diluted share, for the first nine months of 2010, compared to a net loss of ($31.0) million, or ($0.29) per share, for the first nine months of 2009. Including the special items, the Company reported a net loss of ($58.8) million, or ($0.42) per share, for the first nine months of 2010, compared to ($61.9) million, or ($0.57) per share, in 2009. Adjusted EBITDA for the period increased 66% to $84.2 million compared to $50.8 million in 2009.

OUTLOOK

Brian Hanson, Executive Vice President and Chief Financial Officer, commented, "As previously mentioned in our second quarter earnings call, we expected the second half of 2010 to be considerably better than the first half and we clearly made significant progress during the third quarter. We achieved profitability for ION, excluding one-time charges, for the first nine months of 2010 and expect to remain profitable through the end of the year. Our current expectations are that the momentum we are experiencing during the second half of 2010 will likely continue into 2011."

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, November 4, 2010, at 10:00 a.m. Eastern Time.  To participate in the conference call, dial 480-629-9820 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 18, 2010.  To access the replay, dial 303-590-3030 and use pass code 4375413#.

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 web cast 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.

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 economic downturn and the volatile credit environment; risks associated with the operation of the INOVA Geophysical joint venture; 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, 2009 and its Quarterly Reports on Form 10-Q filed during 2010.

Tables to follow

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.

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 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 nine months ended September 30, 2010 and 2009:

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 nine months ended September 30, 2010 and for the three and nine months ended September 30, 2009:

SOURCE ION Geophysical Corporation