Text Size
Print Page
Print This Page
E-mail Page
Email This Page

ION reports third quarter 2018 results

10/31/2018 4:15:52 PM

License round delay and Mexico election key drivers in year-over-year revenue decline
Delayed program sales set stage for potentially strong fourth quarter and 2019

HOUSTON, Oct. 31, 2018 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported revenues of $47.2 million in the third quarter 2018, a 23% decrease compared to revenues of $61.1 million one year ago.  ION's net loss was $7.5 million, or $(0.54) per share, compared to a net income of $4.9 million, or $0.41 per diluted share in the third quarter 2017.  Excluding special items in the third quarter 2018, the Company reported an Adjusted net loss of $7.3 million, or $(0.52) per share.  A reconciliation of special items to the financial results can be found in the tables of this press release.

The Company reported Adjusted EBITDA of $13.0 million for the third quarter 2018, a decrease from the Adjusted EBITDA of $27.1 million one year ago.  A reconciliation of Adjusted EBITDA to the closest comparable GAAP numbers can be found in the tables of this press release.

Net cash flows from operations were $(7.1) million during the third quarter 2018, compared to $6.2 million in the third quarter 2017.  Total net cash flows, including investing and financing activities, were $(14.3) million, compared to $(3.2) million one year ago.  At September 30, 2018, the Company had total liquidity of $72.8 million, consisting of $30.0 million of cash on hand, and nothing drawn on the $42.8 million of available borrowing capacity under its recently amended maximum $50.0 million revolving credit facility.  The key terms of the amended revolving credit facility are highlighted below.

Brian Hanson, ION's President and Chief Executive Officer, commented, "We are disappointed with our third quarter results as the originally anticipated improvement in deal flow was impacted by three key factors.  First, the Panama license round has yet to be announced.  Second, the recently elected president in Mexico has caused the E&P industry to pause spending on new acreage and seismic data in Mexico until there is better clarity on international investment after he takes office in December.  Third, the continued E&P company disciplined focus on procurement is restricting exploration spending and pushing deals into the fourth quarter.  As expected, some of the delayed second quarter transactions closed during the third quarter.  While sales from our Panama and Mexico programs were pushed out, we saw strong commitments and an acceleration of activity in Brazil with our Picanha 3D reimaging program.  Pent up demand for data is continuing to build a strong pipeline of opportunities for the fourth quarter and 2019.  While long-term oil and gas fundamentals remain strong, near-term exploration spending continues to be lumpy and unpredictable."

For the first nine months of 2018, the Company reported revenues of $105.5 million and a net loss of $51.8 million, or $(3.81) per share, compared revenues of $139.7 million and a net loss of $28.8 million, or $(2.43) per share in the first nine months of 2017.  Excluding special items in both periods, the Company reported an Adjusted net loss of $47.8 million, or $(3.52) per share in the first nine months of 2018, compared to an Adjusted net loss of $23.8 million, or $(2.01) per share in the first nine months of 2017.  First nine months of 2018 Adjusted EBITDA was $5.2 million, compared to $40.7 million in the first nine months of 2017.

Net cash flows from operations were $(7.3) million, compared to $9.7 million in the first nine months of 2017.  Total net cash flows, including investing and financing activities, were $(22.0) million, compared to $(12.8) million in the first nine months of 2017.  Net cash flows for the first nine months of 2018 reflect the $47.0 million of net proceeds received from the Company's first quarter equity offering.  A portion of those proceeds were used to retire the $28.5 million of third lien notes.  The Company also repaid the $10.0 million of outstanding indebtedness under its revolving credit facility during the first quarter.  As a result of the Company's 2018 debt repayments, only $1.3 million of current debt remained outstanding at September 30, 2018, and the Company's remaining long-term debt is $120.6 million of second lien notes that mature in December 2021.

During the third quarter the Company extended the maturity date on its revolving credit facility by approximately four years.  The credit facility was originally scheduled to mature in August 2019, but will now mature in August 2023, subject to the successful retirement or extension of the maturity date of the Company's second lien notes.  As part of the amendment, the Company increased the size of the credit facility from a maximum of $40.0 million to a maximum of $50.0 million.  Also, the overall borrowing base of the credit facility was increased, by raising the amount of borrowing capacity attributable to the Company's multi-client data library and by including certain foreign receivables that are now eligible as collateral under the credit facility.

THIRD QUARTER 2018

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


Three Months Ended September 30,




2018


2017


% Change

E&P Technology & Services

$

36,321



$

52,054



(30)

%

Operations Optimization

10,879



9,041



20

%

Ocean Bottom Integrated Technologies






Total

$

47,200



$

61,095



(23)

%

Within the E&P Technology & Services segment, new venture revenues were $18.2 million, a decrease of 58% from the third quarter 2017.  New venture revenues experienced significant declines compared to the third quarter 2017, the result of the continued delay of the Panama license round announcement, political change in Mexico prompting E&P companies to pause new venture activity and the continued focus on cash preservation within E&P companies restricting exploration spending.  While sales from these two programs were pushed out, new venture revenues were positively impacted by an acceleration of activity in Brazil and strong commitments to the Picanha 3D reimaging program.  Partially offsetting the overall decline in new ventures was an increase in data library and Imaging Services revenues.  Data library revenues were $14.0 million, an increase of 177%, attributable to sales of the recently completed phase of the Brazil 3D reimaging program, along with India 2D data library sales.  Imaging Services revenues were $4.1 million, an increase of 20%, propelled by a continued increase in proprietary ocean bottom nodal imaging projects.

Within the Operations Optimization segment, Optimization Software & Services revenues were $5.5 million, a 46% increase from the third quarter 2017.  The increase in Optimization Software & Services revenues was due to the continued increase in subscription-based software revenues and hardware sales of ION's Gator™ ocean bottom command and control system.  Devices revenues were $5.4 million, a 2% increase from the third quarter 2017.   Devices continues to be impacted by reduced towed streamer seismic contractor activity.

The Ocean Bottom Integrated Technologies segment contributed no revenues during the third quarter.

Consolidated gross margin for the quarter was 35%, compared to 49% in the third quarter 2017.  Gross margin in E&P Technology & Services was 33%, compared to 55% one year ago.  The decrease in E&P Technology & Services gross margin was result of the decline in new venture revenues.  Operations Optimization gross margin was 53%, compared to 45% one year ago.  The gross margin increase in the Operations Optimization segment was due to the increase in higher margin software revenues.

Consolidated operating expenses, as adjusted, were $18.7 million, down 8% from $20.2 million in the third quarter 2017.  Operating margin, as adjusted, was (5)%, compared to 16% in the third quarter 2017.  The decline in operating margin was the result of the decrease in new venture revenues within the E&P Technology & Services segment.

YEAR-TO-DATE 2018

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


Nine Months Ended September 30,




2018


2017


% Change

E&P Technology & Services

$

76,077



$

109,246



(30)

%

Operations Optimization

29,374



30,406



(3)

%

Ocean Bottom Integrated Technologies






Total

$

105,451



$

139,652



(24)

%

Within the E&P Technology & Services segment, new venture revenues were $40.1 million, a decrease of 43%, data library revenues were $21.6 million, a decrease of 15%, and Imaging Services revenues were $14.4 million, a 7% increase from the first nine months of 2017.  The change in new venture and Imaging Services revenues during the first nine months is fairly consistent with the changes described in the preceding section.  The decrease in data library revenues was due to the first half of the year performance, as the increase in revenues in the third quarter 2018 were not substantial enough to overcome the first half of the year decline.

Within the Operations Optimization segment, Optimization Software & Services revenues were $15.1 million, a 21% increase compared to the first nine months of 2017.  Devices revenues were $14.3 million, a 20% decrease from the first nine months of 2017.

The Ocean Bottom Integrated Technologies segment contributed no revenues during the first nine months of the year.

Consolidated gross margin was 21%, compared to 37% in the first nine months of 2017.  Gross margin in E&P Technology & Services was 15%, down from 41% in the first nine months of 2017.  The gross margin decrease in E&P Technology & Services was the result of the decline in new venture revenues.  Operations Optimization gross margin was 51%, a slight increase compared to the first nine months of 2017.

Consolidated operating expenses, as adjusted, were $55.4 million, down 7% from $59.4 million in the first nine months of 2017.  Operating margin, as adjusted, was (32)%, compared to (5)% in the first nine months of 2017.  The decrease in operating margin was due to the decline in new venture revenues.

Income tax expense was $3.3 million for the first nine months of 2018, primarily related to the results from the Company's non-U.S. businesses.  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.

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, November 1, 2018, 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 15, 2018.  To access the replay, dial (877) 660-6853 and use pass code 13683452#.

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 develops and leverages innovative technologies, creating value through data capture, analysis and optimization to enhance critical decision-making, enabling superior returns.  For more information, visit iongeo.com.

Contact
Steve Bate
Executive Vice President and Chief Financial Officer
+1.281.552.3011

The information 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 information 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 risks associated with the timing and development of ION Geophysical Corporation's products and services; pricing pressure; decreased demand; changes in oil prices; and political, execution, regulatory, and currency risks. These risks and uncertainties also include risks associated with the WesternGeco litigation and other related proceedings. We cannot predict the outcome of this litigation or the related proceedings. For additional information regarding these various risks and uncertainties, including the WesternGeco litigation, see our Form 10-K for the year ended December 31, 2017, filed on February 8, 2018. Additional risk factors, which could affect actual results, are disclosed by the Company in its fillings with the Securities and Exchange Commission ("SEC"), including its Form 10-K, Form 10-Qs and Form 8-Ks filed during the year. The Company expressly disclaims any obligation to revise or update any forward-looking statements.

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,


2018


2017


2018


2017

Service revenues

$

37,105



$

52,615



$

77,943



$

110,897


Product revenues

10,095



8,480



27,508



28,755


Total net revenues

47,200



61,095



105,451



139,652


Cost of services

25,924



26,392



70,286



73,518


Cost of products

4,801



4,594



13,354



14,306


Gross profit

16,475



30,109



21,811



51,828


Operating expenses:








Research, development and engineering

5,030



4,396



13,544



11,998


Marketing and sales

5,209



5,645



16,314



15,062


General, administrative and other operating expenses

8,688



10,132



29,564



32,316


Total operating expenses

18,927



20,173



59,422



59,376


Income (loss) from operations

(2,452)



9,936



(37,611)



(7,548)


Interest expense, net

(3,022)



(3,959)



(9,769)



(12,664)


Other income (expense), net

91



722



(616)



(4,154)


Income (loss) before income taxes

(5,383)



6,699



(47,996)



(24,366)


Income tax expense

2,079



1,686



3,305



3,670


Net income (loss)

(7,462)



5,013



(51,301)



(28,036)


Net income attributable to noncontrolling interest

(74)



(78)



(527)



(812)


Net income (loss) attributable to ION

$

(7,536)



$

4,935



$

(51,828)



$

(28,848)


Net income (loss) per share:








Basic

$

(0.54)



$

0.42



$

(3.81)



$

(2.43)


Diluted

$

(0.54)



$

0.41



$

(3.81)



$

(2.43)


Weighted average number of common shares outstanding:








Basic

14,003



11,890



13,586



11,862


Diluted

14,003



12,071



13,586



11,862


 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


ASSETS

September 30,
2018


December 31,
2017

Current assets:




Cash and cash equivalents

$

30,043



$

52,056


Accounts receivable, net

23,624



19,478


Unbilled receivables

25,724



37,304


Inventories

15,129



14,508


Prepaid expenses and other current assets

5,854



7,643


Total current assets

100,374



130,989


Deferred income tax asset

4,058



1,753


Property, plant, equipment and seismic rental equipment, net

49,968



52,153


Multi-client data library, net

83,254



89,300


Goodwill

23,590



24,089


Other assets

2,713



2,785


Total assets

$

263,957



$

301,069


LIABILITIES AND EQUITY




Current liabilities:




Current maturities of long-term debt

$

1,335



$

40,024


Accounts payable

31,872



24,951


Accrued expenses

33,556



38,697


Accrued multi-client data library royalties

28,235



27,035


Deferred revenue

10,327



8,910


Total current liabilities

105,325



139,617


Long-term debt, net of current maturities

119,449



116,720


Other long-term liabilities

12,269



13,926


Total liabilities

237,043



270,263


Equity:




Common stock

140



120


Additional paid-in capital

951,811



903,247


Accumulated deficit

(906,749)



(854,921)


Accumulated other comprehensive loss

(19,591)



(18,879)


Total stockholders' equity

25,611



29,567


Noncontrolling interest

1,303



1,239


Total equity

26,914



30,806


Total liabilities and equity

$

263,957



$

301,069


 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Three Months Ended
September 30,


Nine Months Ended
September 30,


2018


2017


2018


2017

Cash flows from operating activities:








Net income (loss)

$

(7,462)



$

5,013



$

(51,301)



$

(28,036)


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








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

2,124



4,169



6,902



13,199


Amortization of multi-client data library

12,987



12,312



32,544



34,245


Stock-based compensation expense

465



525



2,508



1,694


Accrual for loss contingency related to legal proceedings







5,000


Deferred income taxes

(444)



32



(2,310)



(900)


Change in operating assets and liabilities:








Accounts receivable

(8,279)



(20,275)



(4,383)



(18,200)


Unbilled receivables

(10,857)



(6,856)



13,156



(12,398)


Inventories

(201)



391



(646)



831


Accounts payable, accrued expenses and accrued royalties

1,062



7,070



(9,567)



1,011


Deferred revenue

1,924



1,571



1,479



7,092


Other assets and liabilities

1,561



2,251



4,294



6,156


Net cash (used in) provided by operating activities

(7,120)



6,203



(7,324)



9,694


Cash flows from investing activities:








Cash invested in multi-client data library

(6,129)



(8,094)



(19,911)



(16,576)


Purchase of property, plant, equipment and seismic rental assets

(86)



(106)



(510)



(1,021)


Proceeds from sale of fixed assets and rental assets

197





197




Net cash used in investing activities

(6,018)



(8,200)



(20,224)



(17,597)


Cash flows from financing activities:








Payments under revolving line of credit





(10,000)




Payments on notes payable and long-term debt

(372)



(1,163)



(30,071)



(4,320)


Costs associated with issuance of debt

(565)





(565)




Net proceeds from issuance of stock

(220)





46,999




Dividend payment to non-controlling interest





(200)




Other financing activities

(43)



39



(924)



(257)


Net cash (used in) provided by financing activities

(1,200)



(1,124)



5,239



(4,577)


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

32



(102)



296



(271)


Net decrease in cash, cash equivalents and restricted cash

(14,306)



(3,223)



(22,013)



(12,751)


Cash, cash equivalents and restricted cash at beginning of period

44,712



43,905



52,419



53,433


Cash, cash equivalents and restricted cash at end of period

$

30,406



$

40,682



$

30,406



$

40,682


The following table is a reconciliation of cash and cash equivalents to total cash, cash equivalents and restricted cash:


September 30,


2018


2017

Cash and cash equivalents

$

30,043



$

40,225


Restricted cash included in prepaid expenses and other current assets

60



154


Restricted cash included in other long-term assets

303



303


Total cash, cash equivalents and restricted cash shown in statement of cash flows

$

30,406



$

40,682


 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

SUMMARY OF SEGMENT INFORMATION

(In thousands)

(Unaudited)



Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Net revenues:








E&P Technology & Services:








New Venture

$

18,218



$

43,542



$

40,069



$

70,477


Data Library

13,956



5,044



21,629



25,360


Total multi-client revenues

32,174



48,586



61,698



95,837


Imaging Services

4,147



3,468



14,379



13,409


Total

36,321



52,054



76,077



109,246


Operations Optimization:








Devices

5,356



5,260



14,275



17,929


Optimization Software & Services

5,523



3,781



15,099



12,477


Total

10,879



9,041



29,374



30,406


Ocean Bottom Integrated Technologies








Total

$

47,200



$

61,095



$

105,451



$

139,652


Gross profit (loss):








E&P Technology & Services

$

12,139



$

28,533



$

11,626



$

44,464


Operations Optimization

5,736



4,055



14,980



15,100


Ocean Bottom Integrated Technologies

(1,400)



(2,479)



(4,795)



(7,736)


Total

$

16,475



$

30,109



$

21,811



$

51,828


Gross margin:








E&P Technology & Services

33

%


55

%


15

%


41

%

Operations Optimization

53

%


45

%


51

%


50

%

Ocean Bottom Integrated Technologies

%


%


%


%

Total

35

%


49

%


21

%


37

%

Income (loss) from operations:








E&P Technology & Services

$

6,578



$

22,695



$

(4,422)



$

27,952


Operations Optimization

1,963



998



3,992



5,569


Ocean Bottom Integrated Technologies

(2,811)



(4,432)



(8,566)



(12,300)


Support and other

(8,182)



(9,325)



(28,615)



(28,769)


Income (loss) from operations

(2,452)



9,936



(37,611)



(7,548)


Interest expense, net

(3,022)



(3,959)



(9,769)



(12,664)


Other income (expense), net

91



722



(616)



(4,154)


Income (loss) before income taxes

$

(5,383)



$

6,699



$

(47,996)



$

(24,366)


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 charges including, without limitation, changes in the loss contingency reserve related to legal proceedings and stock appreciation rights expense.  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 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.  Additionally, due to the recent changes in the Company's stock price and impact of reflecting its stock appreciation awards at their fair value, the Company is presenting Adjusted EBITDA, excluding the impact of stock appreciation awards, to assist in the comparability to its prior year results.


Three Months Ended September 30,


Nine Months Ended September 30,


2018


2017


2018


2017

Net income (loss)

$

(7,462)



$

5,013



$

(51,301)



$

(28,036)


Interest expense, net

3,022



3,959



9,769



12,664


Income tax expense

2,079



1,686



3,305



3,670


Depreciation and amortization expense

15,111



16,481



39,446



47,444


Accrual for loss contingency related to legal proceedings







5,000


Stock appreciation rights expense

275





4,013




Adjusted EBITDA

$

13,025



$

27,139



$

5,232



$

40,742


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
Reconciliation of Special Items to Net 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 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 tables below for supplemental financial data and the corresponding reconciliation to GAAP financials for the three months ended September 30, 2018 and the nine months ended September 30, 2018 and 2017:


Three Months Ended September 30, 2018


As Reported


Special
Items


As Adjusted

Net revenues

$

47,200



$



$

47,200


Cost of sales

30,725





30,725


Gross profit

16,475





16,475


Operating expenses

18,927



(275)


(1)

18,652


Loss from operations

(2,452)



275



(2,177)


Interest expense, net

(3,022)





(3,022)


Other income, net

91





91


Income tax expense

2,079





2,079


Net loss

(7,462)



275



(7,187)


Net income attributable to noncontrolling interest

(74)





(74)


Net loss attributable to ION

$

(7,536)



$

275



$

(7,261)


Net loss per share:






Basic

$

(0.54)





$

(0.52)


Diluted

$

(0.54)





$

(0.52)


Weighted average number of common shares outstanding:






Basic

14,003





14,003


Diluted

14,003





14,003


 


Nine Months Ended September 30, 2018


Nine Months Ended September 30, 2017


As Reported


Special

Items


As Adjusted


As Reported


Special
Items


As Adjusted

Net revenues

$

105,451



$



$

105,451



$

139,652



$



$

139,652


Cost of sales

83,640





83,640



87,824





87,824


Gross profit

21,811





21,811



51,828





51,828


Operating expenses

59,422



(4,013)


(1)

55,409



59,376





59,376


Loss from operations

(37,611)



4,013



(33,598)



(7,548)





(7,548)


Interest expense, net

(9,769)





(9,769)



(12,664)





(12,664)


Other income (expense), net

(616)





(616)



(4,154)



5,000


(2)

846


Income tax expense

3,305





3,305



3,670





3,670


Net loss

(51,301)



4,013



(47,288)



(28,036)



5,000



(23,036)


Net income attributable to noncontrolling interest

(527)





(527)



(812)





(812)


Net loss attributable to ION

$

(51,828)



$

4,013



$

(47,815)



$

(28,848)



$

5,000



$

(23,848)


Net loss per share:












Basic

$

(3.81)





$

(3.52)



$

(2.43)





$

(2.01)


Diluted

$

(3.81)





$

(3.52)



$

(2.43)





$

(2.01)


Weighted average number of common shares outstanding:












Basic

13,586





13,586



11,862





11,862


Diluted

13,586





13,586



11,862





11,862




(1)

Represents stock appreciation right awards expense in the third quarter of 2018 and for the nine months ended September 30, 2018

(2)

Represents an accrual related to the WesternGeco legal contingency during the first quarter 2017

 

Cision View original content:http://www.prnewswire.com/news-releases/ion-reports-third-quarter-2018-results-300741558.html

SOURCE ION Geophysical Corporation

Return to Press Releases