ION reports third quarter 2015 results

Revenues of $66.7 million and adjusted EPS of $(0.10)

Nov 04, 2015, 16:45 ET from ION Geophysical Corporation

HOUSTON, Nov. 4, 2015 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported third quarter 2015 net loss of $20.4 million, or $(0.12) per share.  The third quarter results were impacted by special items totaling $3.5 million, or $(0.02) per share, primarily related to severance charges.  Excluding special items, the Company's third quarter adjusted net loss was $16.9 million, or $(0.10) per share, on revenues of $66.7 million, compared to a net loss of $24.5 million, or $(0.15) per share, on revenues of $106.5 million in third quarter 2014.  A reconciliation of special items to 2015 and 2014 can be found in the financial tables of this press release.

At September 30, 2015, the Company's total liquidity was $128.2 million consisting of cash and cash equivalents of $88.2 million and the $40.0 million available on the Company's recently amended revolving credit facility.  The Company consumed cash before financing activities of $80.5 million during the first nine months of 2015 and generated cash before financing activities of $36.0 million in the prior year period.  The Company reported a positive Adjusted EBITDA for third quarter 2015 of $7.5 million, compared to $13.0 million one year ago.  Year-to-date 2015 Adjusted EBITDA was $(60.0) million, compared to $83.0 million in the prior year period.  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 indicated on our second quarter earnings call that we anticipated our third quarter revenues to be up over the first two quarters primarily as a result of beginning data acquisition on our industry-funded MexicoSPANTM program.  We completed acquisition in late October and are currently processing the data.  Our clients are very pleased with the quality of the fast track data we have delivered so far.

"However, the virtual shutdown in exploration spending continues to have a negative impact on all parts of our business, and we are managing through this downturn by employing strict cost controls and spending discipline.  During the quarter, we reduced our employee headcount by an additional 25% and implemented additional cost control measures.  A majority of the reductions occurred in September and therefore had minimal cash savings impact on our third quarter.  Once complete later this year, these additional cost controls will yield an estimated $40 million in annualized savings.   While we have taken out cost across the company, we have appropriately scaled our businesses to reflect our current revenue streams while still maintaining all of our core capabilities.  Consistent with our asset light strategy, we are ready to scale up or down as business dictates.

"In light of the current economic environment, we were successful in amending our credit facility with PNC bank.  The amended credit facility has improved financial covenants, and we had full availability on the maximum $40.0 million borrowing capacity at the end of September.

"Looking ahead, we believe that the exploration landscape in 2016, as it impacts our business, will be similar to 2015.  Our objective during this period is to maintain our strategic capabilities and advance our key R&D initiatives while minimizing our cash burn.   We believe we have moved quickly and cut deep, as we currently do not expect to see early signs of recovery in our area of the industry until 2017."

THIRD QUARTER 2015

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

Three Months Ended September 30,

2015

2014

% Change

Solutions

$

52,645

$

45,859

15%

Systems

7,290

24,695

(70)%

Software

6,739

11,010

(39)%

Ocean Bottom Services

24,976

(100)%

Total

$

66,674

$

106,540

(37)%

Within the Solutions segment, new venture revenues were $26.7 million, a 44% increase from third quarter 2014; data library revenues were $15.3 million, an increase of over 350%; and data processing revenues were $10.7 million, a 56% decrease.  While all businesses within the Solutions segment continue to be impacted by the slowdown in exploration spending, the increase in new venture and data library revenues was primarily related to the Company's acquisition of its industry-funded MexicoSPANTM program and increased sales of its South American data libraries.

The decrease in Systems segment revenues was primarily due to 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.

The decrease in Software segment revenues was primarily due to lower Orca® licensing revenues and, to a lesser extent, the effects of foreign currency translation.  While Software segment revenues were down 39% year over year, the segment generated positive gross and operating margins of 65% and 36%, respectively, during the quarter. 

The Company's Ocean Bottom Services segment was impacted by OceanGeo's crew being idle, resulting in a lack of revenue generation in third quarter 2015.

Consolidated gross margins were 17%, compared to 27% in third quarter 2014, and operating margins were (19)%, compared to (5)% in the prior year quarter.  The decreases in gross and operating margins were driven by the significant decline in revenues within the Systems segment, the lack of revenues generated in the Ocean Bottom Services segment and, to a lesser extent, the decline in revenues within the Software segment.  These decreases were partially offset by the increase in revenues within the Solutions segment and by the Company's ongoing cost reduction efforts.

As the Company wrote its investment in INOVA Geophysical down to zero at the end of last year, the Company did not record any losses on its share of the joint venture in third quarter 2015, compared to its share of losses of $5.6 million in third quarter 2014.

YEAR-TO-DATE 2015

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

Nine Months Ended September 30,

2015

2014

% Change

Solutions

$

93,994

$

197,734

(52)%

Systems

27,733

71,948

(61)%

Software

22,320

31,582

(29)%

Ocean Bottom Services

71,454

(100)%

Total

$

144,047

$

372,718

(61)%

Within the Solutions segment, new venture revenues were $35.3 million, a 54% decrease from the first nine months of 2014; data library revenues were $24.9 million, a 17% decrease; and data processing revenues were $33.7 million, a 63% decrease.  All businesses within the Solutions segment were impacted by the slowdown in exploration spending.  Also, a portion of the year-over-year decline in data processing revenues was due to $15.0 million of revenues recognized in the first quarter 2014 for work performed in 2013 that did not recur in 2015.  

The decrease in Systems segment revenues was primarily due to 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, to a lesser extent, the effects of foreign currency translation.  While Software segment revenues were down 29% year over year, the segment generated positive gross and operating margins of 64% and 35%, respectively, during the first nine months of 2015. 

The Company's Ocean Bottom Services segment was impacted by OceanGeo's crew being idle, resulting in a lack of revenue generation in the first nine months of 2015.

Consolidated gross margins were (10)%, compared to 33% in the first nine months of 2014, and operating margins were (70)%, compared to 5% in the prior year period.  The decreases in gross and operating margins were driven by the significant decline in revenues within the Solutions and Systems segments and, to a lesser extent, the Software segment, and from the lack of revenues generated in the Company's Ocean Bottom Services segment.

For the first nine months of 2015, the Company reported a net loss of $19.6 million, or $(0.12) per share, compared to net income of $52.6 million, or $0.32 per diluted share, in the first nine months of 2014.  Both periods included special items related to the reductions in the accrual for the WesternGeco legal matter, in addition to restructuring and other special items.  Excluding these special items, in the first nine months of 2015, the Company reported an adjusted net loss of $113.2 million, or $(0.69) per share, compared to an adjusted net loss of $23.1 million, or $(0.14) per share, in the prior year period.

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, November 5, 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 November 19, 2015.  To access the replay, dial (877) 660-6853 and use pass code 13621442#.

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, 2014 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2015.

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,

2015

2014

2015

2014

Service revenues

$

53,515

$

71,923

$

96,918

$

272,386

Product revenues

13,159

34,617

47,129

100,332

Total net revenues

66,674

106,540

144,047

372,718

Cost of services

47,883

60,285

132,234

200,697

Cost of products

7,683

17,032

26,628

47,716

Gross profit (loss)

11,108

29,223

(14,815)

124,305

Operating expenses:

Research, development and engineering

6,537

10,910

21,496

30,254

Marketing and sales

6,904

8,480

23,375

27,610

General, administrative and other operating expenses

10,541

15,182

40,566

48,334

Total operating expenses

23,982

34,572

85,437

106,198

Income (loss) from operations

(12,874)

(5,349)

(100,252)

18,107

Interest expense, net

(4,854)

(5,048)

(14,086)

(14,779)

Equity in losses of investments

(5,558)

(9,027)

Other income (expense), net

(346)

(622)

98,035

73,970

Income (loss) before income taxes

(18,074)

(16,577)

(16,303)

68,271

Income tax expense

2,082

8,345

3,597

14,261

Net income (loss)

(20,156)

(24,922)

(19,900)

54,010

Net (income) loss attributable to noncontrolling interests

(227)

381

322

(1,384)

Net income (loss) attributable to ION

$

(20,383)

$

(24,541)

$

(19,578)

$

52,626

Net income (loss) per share:

Basic

$

(0.12)

$

(0.15)

$

(0.12)

$

0.32

Diluted

$

(0.12)

$

(0.15)

$

(0.12)

$

0.32

Weighted average number of common shares outstanding:

Basic

164,755

164,149

164,672

164,021

Diluted

164,755

164,149

164,672

164,326

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS

September 30,  2015

December 31,  2014

Current assets:

Cash and cash equivalents

$

88,239

$

173,608

Accounts receivable, net

21,587

114,325

Unbilled receivables

32,387

22,599

Inventories

34,683

51,162

Prepaid expenses and other current assets

10,124

13,662

Total current assets

187,020

375,356

Deferred income tax asset

5,706

8,604

Property, plant, equipment and seismic rental equipment, net

77,081

69,840

Multi-client data library, net

135,907

118,669

Goodwill

26,809

27,388

Intangible assets, net

5,306

6,788

Other assets

9,380

10,612

Total assets

$

447,209

$

617,257

LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt

$

6,612

$

7,649

Accounts payable

27,950

36,863

Accrued expenses

54,302

65,264

Accrued multi-client data library royalties

12,443

35,219

Deferred revenue

5,575

8,262

Total current liabilities

106,882

153,257

Long-term debt, net of current maturities

179,666

182,945

Other long-term liabilities

39,830

143,804

Total liabilities

326,378

480,006

Redeemable noncontrolling interest

1,200

1,539

Equity:

Common stock

1,648

1,645

Additional paid-in capital

892,007

887,749

Accumulated deficit

(753,987)

(734,409)

Accumulated other comprehensive loss

(13,564)

(12,807)

Treasury stock

(6,565)

(6,565)

Total stockholders' equity

119,539

135,613

Noncontrolling interest

92

99

Total equity

119,631

135,712

Total liabilities and equity

$

447,209

$

617,257

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Nine Months Ended September 30,

2015

2014

Cash flows from operating activities:

Net income (loss)

$

(19,900)

$

54,010

Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:

Depreciation and amortization (other than multi-client data library)

19,660

20,989

Amortization of multi-client data library

24,531

46,014

Stock-based compensation expense

4,174

7,058

Reductions of accrual for loss contingency related to legal proceedings

(101,978)

(69,557)

Equity in losses of investments

9,027

Gain on sale of Source product line

(6,522)

Deferred income taxes

5,992

(1,536)

Change in operating assets and liabilities:

Accounts receivable

92,424

71,540

Unbilled receivables

(9,837)

(8,036)

Inventories

464

(4,272)

Accounts payable, accrued expenses and accrued royalties

(43,676)

(31,324)

Deferred revenue

(2,576)

(4,153)

Other assets and liabilities

(5,274)

3,738

Net cash (used in) provided by operating activities

(35,996)

86,976

Cash flows from investing activities:

Cash invested in multi-client data library

(28,152)

(57,340)

Purchase of property, plant, equipment and seismic rental assets

(17,601)

(6,842)

Repayment of advance to INOVA Geophysical

1,000

Net investment in and advances to OceanGeo B.V. prior to its consolidation

(3,074)

Net proceeds from sale of Source product line

14,394

Other investing activities

1,262

928

Net cash used in investing activities

(44,491)

(50,934)

Cash flows from financing activities:

Borrowings under revolving line of credit

15,000

Payments under revolving line of credit

(50,000)

Payments on notes payable and long-term debt

(5,431)

(11,737)

Costs associated with issuance of debt

(146)

(2,126)

Acquisition of non-controlling interest

(6,000)

Other financing activities

94

423

Net cash used in financing activities

(5,483)

(54,440)

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

601

189

Net decrease in cash and cash equivalents

(85,369)

(18,209)

Cash and cash equivalents at beginning of period

173,608

148,056

Cash and cash equivalents at end of period

$

88,239

$

129,847

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

SUMMARY OF SEGMENT INFORMATION

(In thousands)

(Unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Net revenues:

Solutions:

New Venture

$

26,650

$

18,446

$

35,315

$

76,499

Data Library

15,302

3,262

24,948

30,104

Total multi-client revenues

41,952

21,708

60,263

106,603

Data Processing

10,693

24,151

33,731

91,131

Total

$

52,645

$

45,859

$

93,994

$

197,734

Systems:

Towed Streamer

$

4,426

$

13,666

$

12,273

$

35,782

Other

2,864

11,029

15,460

36,166

Total

$

7,290

$

24,695

$

27,733

$

71,948

Software:

Software Systems

$

5,869

$

9,922

$

19,396

$

28,384

Services

870

1,088

2,924

3,198

Total

$

6,739

$

11,010

$

22,320

$

31,582

Ocean Bottom Services

$

$

24,976

$

$

71,454

Total

$

66,674

$

106,540

$

144,047

$

372,718

Gross profit (loss):

Solutions

$

11,294

$

5,927

$

(6,954)

$

51,207

Systems

1,366

10,123

7,425

31,288

Software

4,399

8,326

14,197

23,388

Ocean Bottom Services

(5,951)

4,847

(29,483)

18,422

Total

$

11,108

$

29,223

$

(14,815)

$

124,305

Gross margin:

Solutions

21

%

13

%

(7)

%

26

%

Systems

19

%

41

%

27

%

43

%

Software

65

%

76

%

64

%

74

%

Ocean Bottom Services

%

19

%

%

26

%

Total

17

%

27

%

(10)

%

33

%

Income (loss) from operations:

Solutions

$

768

$

(5,960)

$

(40,766)

$

11,733

Systems

(1,295)

2,917

(2,660)

9,835

Software

2,444

6,227

7,874

16,985

Ocean Bottom Services

(7,289)

1,677

(34,856)

12,333

Corporate and other

(7,502)

(10,210)

(29,844)

(32,779)

Total

$

(12,874)

$

(5,349)

$

(100,252)

$

18,107

Operating margin:

Solutions

1

%

(13)

%

(43)

%

6

%

Systems

(18)

%

12

%

(10)

%

14

%

Software

36

%

57

%

35

%

54

%

Ocean Bottom Services

%

7

%

%

17

%

Corporate and other

(11)

%

(10)

%

(21)

%

(9)

%

Total

(19)

%

(5)

%

(70)

%

5

%

 

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, gain on sale of Source product line, and other similar non-cash charges including, without limitation, equity in losses of investments and the reductions 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 September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

Net income (loss)

$

(20,156)

$

(24,922)

$

(19,900)

$

54,010

Interest expense, net

4,854

5,048

14,086

14,779

Income tax expense

2,082

8,345

3,597

14,261

Depreciation and amortization expense

20,736

18,961

44,191

67,003

Reductions of accrual for loss contingency related to legal proceedings

(101,978)

(69,557)

Equity in losses of investments

5,558

9,027

Gain on sale of Source product line

(6,522)

Adjusted EBITDA

$

7,516

$

12,990

$

(60,004)

$

83,001

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES Reconciliation of Special Items to Diluted Earnings (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 income (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 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 nine months ended September 30, 2015 and the nine months ended September 30, 2014:

Three Months Ended September 30, 2015

As Reported

Special

Items

As Adjusted

Net revenues

$

66,674

$

$

66,674

Cost of sales

55,566

(2,168)

(1)

53,398

Gross profit

11,108

2,168

13,276

Operating expenses

23,982

(1,711)

(1)

22,271

Loss from operations

(12,874)

3,879

(8,995)

Interest expense, net

(4,854)

(4,854)

Other expense, net

(346)

(295)

(2)

(641)

Income tax expense

2,082

122

2,204

Net loss

(20,156)

3,462

(16,694)

Net income attributable to noncontrolling interest

(227)

(227)

Net loss attributable to ION

$

(20,383)

$

3,462

$

(16,921)

Net income (loss) per share:

Basic

$

(0.12)

$

(0.10)

Diluted

$

(0.12)

$

(0.10)

Weighted average number of common shares outstanding:

Basic

164,755

164,755

Diluted

164,755

164,755

 

Nine Months Ended September 30, 2015

Nine Months Ended September 30, 2014

As Reported

Special

Items

As Adjusted

As Reported

Special Items

As Adjusted

Net revenues

$

144,047

$

$

144,047

$

372,718

$

$

372,718

Cost of sales

158,862

(3,981)

(3)

154,881

248,413

248,413

Gross profit (loss)

(14,815)

3,981

(10,834)

124,305

124,305

Operating expenses

85,437

(3,233)

(3)

82,204

106,198

106,198

Income (loss) from operations

(100,252)

7,214

(93,038)

18,107

18,107

Interest expense, net

(14,086)

(14,086)

(14,779)

(14,779)

Equity in losses of investments

(9,027)

(9,027)

Other income (expense), net

98,035

(100,360)

(4)

(2,325)

73,970

(76,079)

(5)

(2,109)

Income tax expense

3,597

269

(6)

3,866

14,261

(357)

(6)

13,904

Net income (loss)

(19,900)

(93,415)

(113,315)

54,010

(75,722)

(21,712)

Net (income) loss attributable to noncontrolling interest

322

(172)

150

(1,384)

(1,384)

Net income (loss) attributable to ION

$

(19,578)

$

(93,587)

$

(113,165)

$

52,626

$

(75,722)

$

(23,096)

Net income (loss) per share:

Basic

$

(0.12)

$

(0.69)

$

0.32

$

(0.14)

Diluted

$

(0.12)

$

(0.69)

$

0.32

$

(0.14)

Weighted average number of common shares outstanding:

Basic

164,672

164,672

164,021

164,021

Diluted

164,672

164,672

164,326

164,021

(1)   

Represents severance charges related to the third quarter 2015 restructurings.

(2)   

Represents a gain on disposal of the Company's Denver land processing operations in the third quarter 2015.

(3)   

In addition to note (1) , the nine months ended September 30, 2015 includes severance and facility charges related to the first half 2015 restructurings.

(4)   

In addition to note (2), the nine months ended September 30, 2015 includes an additional partial reduction in the WesternGeco legal contingency from the second quarter 2015.

(5)   

The nine months ended September 30, 2014 was impacted by the first quarter reduction of $69.6 million in the WesternGeco legal contingency, in addition to a second quarter non-recurring gain on the sale of the marine source product line of $6.5 million (before tax).

(6)   

As the Company maintains a valuation allowance for substantially all its deferred tax assets, a majority of these special items have no associated net tax effect.

 

SOURCE ION Geophysical Corporation



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