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First Quarter EPS of ($0.09), excluding special items

HOUSTON, May 5, 2010 /PRNewswire via COMTEX/ –ION Geophysical Corporation (NYSE: IO) today reported first quarter 2010 revenues of $88.7 million, resulting in a net loss of ($11.2) million, or ($0.09) per share, excluding certain special items described below. In the first quarter of 2009, ION’s net loss was ($10.4) million, or ($0.10) per share, on revenues of $106.9 million, excluding special items. During the first quarter of 2010, ION incurred $44.1 million, before tax, or $0.51 per share, after tax, of charges associated with the formation of the land joint venture with BGP and the re-financing of our debts. These special charges are provided in more detail in a table at the end of this press release. Including these special items, loss per share for the first quarter was ($0.60). In the first quarter of 2009, including special items, ION’s net loss was ($38.4) million, or ($0.39) per share.


Bob Peebler, ION’s Chief Executive Officer, said, “The results for the quarter were within the range of our internal expectations. We had a weak start in our land equipment business, and similarly, a relatively slow start for our marine equipment business. This was not surprising since equipment sales are tied to our contractor customers’ activity and typically lags any pick-up in their business. The land business’ weakness was further compounded by the fact that our Chinese customers, including BGP, generated no sales for ION during the quarter due to the timing of the impending INOVA Geophysical joint venture that closed at the end of the quarter. The good news is that most leading indicators for future equipment sales are improving, including contractor activity and our pipeline of future business opportunities. We expect that the first quarter will be the low point for the year, with improvement going forward in both land and marine equipment sales.


“On the positive side, our marine software, data processing, and multi-client businesses all finished the first quarter stronger than the prior year period, which suggests we are in the early stages of a rebound. In addition to seeing growing signs of improved future business, the biggest news for the quarter was our completion of the INOVA Geophysical land joint venture with BGP. As previously discussed, we believe this is a transformational event for the company. The cash infusion from BGP allowed us to significantly de-leverage and improve our balance sheet. In addition, our two companies are now much better aligned as a result of the joint venture and BGP taking an ownership position in ION.”


FIRST QUARTER 2010


Total revenues in the first quarter of 2010 decreased 17% to $88.7 million compared to $106.9 million a year ago. The Land Imaging Systems and Marine Imaging Systems segments experienced lower revenues compared to prior year. ION Solutions segment revenues increased by 2% over the prior year, while the Data Management Solutions division experienced a 10% increase in revenues compared to the prior year.


During the first quarter of 2010, the ION Systems group generated sales of $40.6 million compared to $59.9 million in the same period in 2009. Land Imaging Systems’ revenues decreased to $18.9 million compared to $34.2 million in the first quarter of 2009. The lower results for the first quarter were primarily caused by the lack of sales to the Company’s Chinese customers during the first quarter due to the impending formation of the joint venture. Marine Imaging Systems’ revenues decreased to $13.7 million compared to $18.5 million a year ago, mainly due to lower DigiBIRD(TM) positioning product sales. However, partially offsetting the decrease was the continued market demand for DigiFIN(R) as customers continue to retrofit their existing fleets with the latest streamer control technology. Data Management Solutions’ revenues increased to $8.0 million for the first quarter compared to $7.2 million a year ago as a result of the continued success of converting the high end 3D vessels to the ORCA(R) software platform.


The ION Solutions group generated $48.1 million in revenues compared to $47.0 million in the same period a year ago. The increase was primarily driven by continued robust data processing revenues and by increased data library sales, partially offset by a reduction in new venture program revenues compared to a year ago. As seen throughout 2009 and into 2010, ION’s data processing services group continues to grow and to generate strong revenues.


Consolidated gross margins for the first quarter of 2010 decreased to 25% from 32% in the first quarter of 2009. The decrease in the gross margin percentage was primarily due to the impact of rental equipment depreciation in the Land Imaging Systems segment and the product mix in the ION Solutions group. However, the gross margins in the Marine Imaging Systems and Data Management Solutions divisions remained consistent with those of 2009.


Excluding the 2009 special items, operating expenses for the first quarter of 2010 decreased by $5.8 million compared to the prior year period. As a percentage of revenue, operating expenses during the first quarter were stable at 38% compared to 37% in the prior year period. Adjusted EBITDA for the first quarter decreased to $15.9 million compared to $18.0 million in the first quarter of 2009. A reconciliation of Adjusted EBITDA to reported earnings can be found in the financial tables of this press release.


The Company’s effective tax rate during the first quarter of 2010 was (20.7%) (provision on a loss) compared to 27.1% (benefit on a loss) for the same period in 2009. The change in effective tax rate relates primarily to the tax impact on the special charges related to the closing of the joint venture transaction with BGP. Removing the impact of these special charges of $44.1 million, before tax, the effective tax rate was 29.1% (benefit on a loss).


OUTLOOK


Brian Hanson, Executive Vice President and Chief Financial Officer, commented, “As mentioned last quarter, our plan is to return ION to a profitable business this year, excluding any one-time charges related to the formation of the joint venture, and to set the stage for a much improved 2011. Our current expectations are that we will experience increasing momentum in all of our businesses as the year unfolds, which will likely carry into 2011. We are not yet positioned to give formal guidance for next year, but assuming the world economies continue to heal and oil prices stay above $70 per barrel, we expect a much stronger 2011.”


CONFERENCE CALL


ION has scheduled a conference call for Thursday, May 6, 2010, at 10:00 a.m. Eastern Time. To participate in the conference call, dial 480-629-9726 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 May 20, 2010. To access the replay, dial 303-590-3030 and use pass code 4285993#.


Investors, analysts and the general public will also have the opportunity to listen to the conference call live over the Internet by visiting http://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 http://www.iongeo.com/.

CONTACTS:
R. Brian Hanson
Chief Financial Officer
+1.281.879.3672

Jack Lascar
DRG&E
+1.713.529.6600


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 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 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 line. 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.

Tables to follow

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

Three Months Ended
March 31,
———
2010 2009
—- —-

Product revenues $40,242 $59,476
Service revenues 48,477 47,414
—— ——
Total net revenues 88,719 106,890
—— ——-

Cost of products 30,491 40,031
Cost of services 35,862 33,163
—— ——
Gross profit 22,366 33,696
—— ——

Operating expenses:
Research, development and engineering 8,999 11,465
Marketing and sales 7,906 9,763
General and administrative 16,438 19,000
Impairment of intangible assets – 38,044
— ——
Total operating expenses 33,343 78,272
—— ——
Loss from operations (10,977) (44,576)
Interest expense, net, including $18.8 million of
non-recurring items in 2010 (25,643) (6,933)
Loss on disposition of land division (38,115) –
Fair value adjustment of the warrant 12,788 –
Other income (expense) 3,217 (22)
—– —
Loss before income taxes (58,730) (51,531)
Income tax expense (benefit) 12,160 (13,963)
—— ——-
Net loss (70,890) (37,568)
Preferred stock dividends 875 875
— —
Net loss applicable to common shares $(71,765) $(38,443)
======== ========

Earnings per share:
Basic and diluted net loss per share $(0.60) $(0.39)
====== ======

Weighted average number of common shares outstanding:
Basic and diluted 120,312 99,743
======= ======

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

March 31, December 31,
2010 2009
—- —-
ASSETS

Current assets:
Cash and cash equivalents $46,344 $16,217
Restricted cash 1,185 1,469
Accounts receivable, net 61,112 111,046
Current portion notes receivable – 13,367
Unbilled receivables 28,708 21,655
Inventories, net 53,545 202,601
Deferred income tax asset 6,827 6,001
Prepaid expenses and other current assets 6,598 23,145
—– ——
Total current assets 204,319 395,501
Deferred income tax asset 15,652 26,422
Property, plant and equipment, net 18,245 78,555
Multi-client data library, net 123,538 130,705
Equity method investment 119,000 –
Goodwill 50,705 52,052
Intangible assets, net 24,650 61,766
Other assets 6,962 3,185
—– —–
Total assets $563,071 $748,186
======== ========

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Notes payable and current maturities of long-
term debt $7,950 $271,132
Accounts payable 18,282 40,189
Accrued expenses 45,390 65,893
Accrued multi-client data library royalties 17,628 18,714
Fair value of the warrant – 44,789
Deferred revenue and other current
liabilities 14,417 13,802
—— ——
Total current liabilities 103,667 454,519
Long-term debt, net of current maturities 106,502 6,249
Non-current deferred income tax liability 5,456 1,262
Other long-term liabilities 8,960 3,688
—– —–
Total liabilities 224,585 465,718

Stockholders’ equity:
Cumulative convertible preferred stock 68,786 68,786
Common stock 1,426 1,187
Additional paid-in capital 774,804 666,928
Accumulated deficit (482,438) (411,548)
Accumulated other comprehensive loss (17,527) (36,320)
Treasury stock (6,565) (6,565)
—— ——
Total stockholders’ equity 338,486 282,468
——- ——-
Total liabilities and stockholders’ equity $563,071 $748,186
======== ========

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
———
2010 2009
—- —-
Cash flows from operating activities:
Net loss $(70,890) $(37,568)
Adjustments to reconcile net loss to cash
provided by operating activities:
Depreciation and amortization (other than
multi-client library) 11,238 10,643
Amortization of multi-client library 12,382 13,899
Stock-based compensation 1,660 2,035
Bad debt expense 131 2,377
Amortization of debt discount 8,656 –
Write-off of unamortized debt issuance
costs 10,121 –
Fair value adjustment of the warrant (12,788) –
Deferred income taxes 8,179 (15,380)
Loss on disposition of land division 38,115 –
Impairment of intangible assets – 38,044
Change in operating assets and liabilities:
Accounts and notes receivable 35,294 46,645
Unbilled receivables (7,053) (6,956)
Inventories (52) (18,337)
Accounts payable, accrued expenses and
accrued royalties (12,536) (52,551)
Deferred revenue 3,913 1,158
Other assets and liabilities 269 7,152
— —–
Net cash provided by (used in) operating
activities 26,639 (8,839)
—— ——

Cash flows from investing activities:
Purchase of property, plant and equipment (1,268) (1,580)
Investment in multi-client data library (5,215) (18,296)
Cash, net of fees, from disposition of
land division 102,848 –
Cash balances of the disposed land
division contributed to INOVA
Geophysical (3,058) –
Other investing activities (3,168) 143
—— —
Net cash provided by (used in) investing
activities 90,139 (19,733)
—— ——-

Cash flows from financing activities:
Net proceeds from issuance of debt 105,695 –
Net proceeds from issuance of common
stock 38,039 –
Borrowings under revolving line of credit 85,000 32,000
Repayments under revolving line of credit (174,429) –
Payments on notes payable and long-term
debt (139,211) (14,873)
Payment of preferred dividends (875) (875)
Other financing activities (28) 257
— —
Net cash (used in) provided by financing
activities (85,809) 16,509
——- ——

Effect of change in foreign currency
exchange rates on cash and cash equivalents (842) (437)
—- —-
Net increase in cash and cash equivalents 30,127 (12,500)
Cash and cash equivalents at beginning of period 16,217 35,172
—— ——
Cash and cash equivalents at end of period $46,344 $22,672
======= =======

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SEGMENT INFORMATION
(In thousands)
(Unaudited)
Three Months Ended
March 31,
———
2010 2009
—- —-
Net revenues:
Land Imaging Systems $18,926 $34,182
Marine Imaging Systems 13,699 18,453
Data Management Solutions 7,973 7,246
—– —–
Total ION Systems Division 40,598 59,881
ION Solutions Division 48,121 47,009
—— ——
Total $88,719 $106,890
======= ========

Gross margin percentages:
Land Imaging Systems (5.9%) 17.0%
Marine Imaging Systems 41.6% 43.8%
Data Management Solutions 67.3% 68.0%
—- —-
Total ION Systems Division 24.5% 31.4%
ION Solutions Division 25.8% 31.7%
—- —-
Total 25.2% 31.5%
==== ====

Income (loss) from operations:
Land Imaging Systems $(10,609) $(4,747)
Marine Imaging Systems 1,892 2,761
Data Management Solutions 4,806 4,430
—– —–
Total ION Systems Division (3,911) 2,444
ION Solutions Division 5,565 5,206
Corporate (12,631) (14,182)
Impairment of intangible assets – (38,044)
— ——-
Total $(10,977) $(44,576)
======== ========

Reconciliation of Adjusted EBITDA to Net Income (Loss)
(Non-GAAP Measure)
(In thousands)
(Unaudited)


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.

Three Months Ended
March 31,
———
2010 2009
—- —-

Net loss $(70,890) $(37,568)
Interest expense, net 25,643 6,933
Income tax expense (benefit) 12,160 (13,963)
Depreciation and amortization
expense 23,620 24,542
Impairment of intangible assets – 38,044
Loss on disposition of land division 38,115 –
Fair value adjustment of the warrant (12,788) –
——- —
Adjusted EBITDA $15,860 $17,988
======= =======

Reconciliation of Special Charges to Diluted Earnings Per Share
(Non-GAAP Measure)
(In thousands, except per share amounts)
(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 amount is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for operating income (loss), 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 months ended March 31, 2010 and 2009:

Three Months Ended March 31, 2010
———————————

Write-off Adjustments
As Loss on of Debt of As
Reported Disposition Costs* the Warrant Adjusted
——– ———– ——- ———– ——–

Net revenues $88,719 $- $- $- $88,719
Cost of sales 66,353 – – – 66,353
—— — — — ——
Gross profit 22,366 – – – 22,366
Operating
expenses 33,343 – – – 33,343
—— — — — ——
Loss from
operations (10,977) – – – (10,977)
Interest
expense, net (25,643) – 10,121 8,656 (6,866)
Loss on
disposition
of land
division (38,115) 38,115 – – –
Fair value
adjustment of
the warrant 12,788 – – (12,788) –
Other income 3,217 – – – 3,217
Income tax
expense
(benefit) 12,160 (19,954) 3,542 – (4,252)
—— ——- —– — ——
Net loss (70,890) 58,069 6,579 (4,132) (10,374)
Preferred
stock
dividends 875 – – – 875
— — — — —
Net loss
applicable to
common shares $(71,765) $58,069 $6,579 $(4,132) $(11,249)
======== ======= ====== ======= ========

Basic and
diluted
earnings per
share $(0.60) $(0.09)
====== ======

Weighted
average
number of
basic and
diluted
common shares
outstanding 120,312 120,312

* Relates to the write-off of unamortized debt issuance costs relating to
our first quarter 2010 re-financings.

Three Months Ended March 31, 2009
———————————

As Impairment Restructuring As
Reported Charges Charges Adjusted
——– ——- ——- ——–

Net revenues $106,890 $- $- $106,890
Cost of sales 73,194 – (517) 72,677
—— — —- ——
Gross profit 33,696 – 517 34,213
Operating expenses 78,272 (38,044) (1,081) 39,147
—— ——- —— ——
Loss from
operations (44,576) 38,044 1,598 (4,934)
Interest expense,
net (6,933) – – (6,933)
Other expense (22) – – (22)
Income tax expense
(benefit) (13,963) 11,033 559 (2,371)
——- —— — ——
Net loss (37,568) 27,011 1,039 (9,518)
Preferred stock
dividends 875 – – 875
— — — —
Net loss
applicable to
common shares $(38,443) $27,011 $1,039 $(10,393)
======== ======= ====== ========

Basic and diluted
earnings per
share $(0.39) $(0.10)
====== ======

Weighted average
number of basic
and diluted
common shares
outstanding 99,743 99,743


SOURCE ION Geophysical Corporation