ION reports second quarter 2016 results

HOUSTON, Aug. 3, 2016 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported a second quarter 2016 net loss of $25.3 million, or $(2.22) per share, on revenues of $36.2 million, compared to a net income of $56.1 million, or $5.11 per diluted share, on revenues of $36.8 million in second quarter 2015.  Excluding special items related to severance charges and the Company's debt exchange in the second quarter 2016, the Company's adjusted net loss was $21.2 million, or $(1.85) per share, compared to an adjusted net loss of $44.7 million, or $(4.07) per share in second quarter 2015.  A reconciliation of special items to the 2016 and 2015 financial results can be found in the financial tables of this press release.

At June 30, 2016, the Company's total liquidity was $64.3 million, consisting of cash and cash equivalents of $52.4 million and $11.9 million remaining availability on its maximum $40.0 million revolving credit facility.  While the Company had borrowings of only $15.0 million under its revolving credit facility at June 30, 2016, the remaining available amount was temporarily reduced due to a decline in the eligible account and unbilled receivables that collateralize the facility. 

The Company consumed cash before financing activities of $17.2 million in second quarter 2016, compared to $25.5 million in the prior year period.  The Company reported an Adjusted EBITDA for second quarter 2016 of $(3.3) million, compared to $(29.4) million one year ago.  During the first half 2016, the Company consumed cash before financing activities of $21.3 million, compared to $53.0 million in first half 2015.   First half 2016 Adjusted EBITDA was $(20.5) million, compared to $(67.5) million in first half 2015.   A reconciliation of Adjusted EBITDA to the closest comparable GAAP numbers can be found in the financial tables of this press release.

In April, the Company completed its bond exchange offer, retiring $26 million in principal value of its $175 million high yield bonds, using $15 million of cash, before fees.  The Company also issued $121 million of new notes, extending the maturity date to December 2021, with the interest rate increasing by 1%, to 9.125%.

Brian Hanson, ION's President and Chief Executive Officer, commented, "The year is unfolding as we initially expected.  We've had a slow start but anticipate revenues increasing as the year progresses.  We're beginning to see early signs of a recovery, indicating the down cycle may have reached its bottom.

"Looking to the second half of the year, we anticipate our revenues will increase in part from the completion of our OBS survey offshore Nigeria, our continued work on our industry-funded new venture programs in the southern Gulf of Mexico, and traditional behavior of spending on data libraries in the fourth quarter.

"During the second quarter, we mobilized our ocean bottom crew and vessels and began acquisition on a survey offshore Nigeria.   We expect completion of the data acquisition in the third quarter and are very pleased with the production and data quality we and our customer are seeing.  We continue to work on two tenders with other customers in the region and hope to mobilize to these projects toward the end of the year.  Although we expect a short gap in timing between projects, we have demonstrated our ability to quickly ramp down and up our crew and vessels, minimizing our cash burn between projects.

"Our total cash consumption for the first half of the year was in line with our expectations given our slow start, the ramp up of our OBS crew and vessels and our use of cash to complete the debt exchange in late April.  We expect that with the anticipated increase in revenues during the third and fourth quarters, we will generate positive cash flows in the second half of the year, and we expect our revolving credit facility availability to increase based on higher levels of accounts receivables.

"Despite our first half financial results, we are pleased to have our OBS crew back at work and to have completed our financial restructurings.  We expect our second half to be stronger than the first, and we believe our current liquidity, coupled with our operational and financial restructurings, will enable us to maintain our core capabilities as we continue to weather this deep industry downturn."

SECOND QUARTER 2016

The Company's segment revenues for the second quarter were as follows (in thousands):

Within the Solutions segment, new venture revenues were $4.6 million, a 26% increase from second quarter 2015; data library revenues were $6.3 million, a 16% decrease; and data processing revenues were $7.8 million, a 31% decrease.  All businesses within the Solutions segment continue to be impacted by the slowdown in exploration spending.  The new venture revenues in the current quarter primarily relate to activities on industry-funded programs in the southern Gulf of Mexico.

Systems segment revenues reflected only repair and replacement revenues, as there were no new system sales during the second quarter 2016.  Systems segment revenues continue to be impacted by reduced activity by seismic contractors, as numerous vessels have been taken out of service.

The decrease in Software segment revenues was primarily due to lower Orca^® licensing revenues and a decline in service revenues.  While Software segment revenues were down 34% year over year, the segment generated positive gross and operating margins of 62% and 20%, respectively, during the quarter.

In the Ocean Bottom Services (OBS) segment, the Company's OBS crew ramped up for a survey offshore Nigeria.  A majority of the revenues on this project will be recognized in the third quarter, as acquisition on this project did not begin until late June.  The OBS segment's gross margin of 66% in the second quarter was favorably impacted by lease amendments executed with the vessel owners, which reduced a portion of idle vessel expenses previously accrued. 

Consolidated operating expenses were $21.4 million, down 30% from $30.6 million in second quarter 2015.  Operating margin was (46)%, compared to (111)% in the prior year quarter.  While total second quarter revenues were down only 2% versus second quarter 2015, the decrease in operating expenses and improvement in operating margins resulted from the Company's ongoing cost reduction efforts.

YEAR-TO-DATE 2016

The Company's segment revenues for the first six months of the year were as follows (in thousands):

Within the Solutions segment, new venture revenues were $7.9 million, a 9% decrease from the first six months of 2015; data library revenues were $10.5 million, a 9% increase; and data processing revenues were $13.2 million, a 43% decrease.  All businesses within the Solutions segment were impacted by the slowdown in exploration spending.

The decrease in Systems segment revenues resulted from a reduction in new marine positioning system sales and repair and replacement revenues, attributable to reduced activity by seismic contractors, as they have taken vessels out of service.

Software segment revenues were down primarily due to lower Orca licensing revenues and a decline in service revenues.  While Software segment revenues were down 44% year over year, the segment generated positive gross and operating margins of 60% and 22%, respectively, during the first six months of 2016. 

The Ocean Bottom Services segment was impacted by the Company's OBS crew going back to work in second quarter 2016 on a survey offshore Nigeria, whereas the crew was idle throughout all of 2015.

Consolidated operating expenses were $42.6 million, down 31% from the $61.5 million in the first half 2015.  Operating margin was (79)%, compared to (113)% in the prior year period.  The decrease in operating expenses was the result of the Company's ongoing cost reduction efforts, which had a positive impact on operating margin, more than offsetting the impact from the decline in revenues.

For the first six months of 2016, the Company reported a net loss of $60.4 million, or $(5.48) per share, compared to net income of $0.8 million, or $0.07 per diluted share, in the first six months of 2015. Excluding special items in both periods, the Company reported an adjusted net loss of $56.2 million, or $(5.10) per share, compared to an adjusted net loss of $96.2 million, or $(8.77) per share, in the prior year period.

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, August 4, 2016, 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 August 18, 2016.  To access the replay, dial (877) 660-6853 and use pass code 13640095#.

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, 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 performance of OceanGeo; 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, 2015 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2016.

Tables to follow

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
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 charges, and other non-cash charges including a reduction for loss contingency related to legal proceedings and loss on extinguishment of debt. 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.

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
Reconciliation of Special Items to Diluted Income (Loss) 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 adjusted loss from operations or adjusted net income (loss), which excludes 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 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 six months ended June 30, 2016 and 2015:

SOURCE ION Geophysical Corporation