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–Company Updates 2009 Guidance
HOUSTON, Aug 05, 2009 /PRNewswire-FirstCall via COMTEX/ — ION Geophysical Corporation (NYSE: IO) today reported second quarter 2009 revenues of $100.5 million, resulting in a net loss of ($5.5 million), or ($0.05) per diluted share, excluding after-tax foreign currency exchange losses totaling ($5.7) million, or ($0.06) per diluted share. The non-cash foreign currency exchange losses relate mainly to the Company’s United Kingdom and Canadian operations. Including the foreign currency exchange losses, ION’s net loss for the quarter was ($11.3) million, or ($0.11) per diluted share. In the second quarter of 2008, ION’s net income was $15.4 million, or $0.16 per diluted share, on revenues of $180.7 million.

Bob Peebler, ION’s Chief Executive Officer, said, “Our second quarter operating results reflected the continuing impact of the economic downturn in several of our markets. We remain affected by the substantial cuts in capital expenditures for exploration and production among oil and gas companies and the cautious approach taken by many of our contractor customers resulting from the continued volatility in economic conditions and commodity prices. These factors resulted in a material decline in seismic activity during the period, especially in North America and Russia.

“However, despite the decreases in our revenues, our gross margins increased over prior year. In the second quarter of 2009, our gross margins were 33% compared to 32% last year, primarily as a result of improved product sales mix mainly in our Marine Imaging Systems and Data Management Solutions divisions.

“Our Marine division generated better results sequentially, but we are starting to experience weaker marine activity. The performance of our Land Imaging Systems division continues to be adversely affected by weakness in the land seismic markets in North America and Russia.

“Despite the current challenging operating conditions, our Data Management Solutions (Concept Systems) group experienced a very good quarter, and we continue to benefit from our technology offerings, including strong demand for marine Intelligent Acquisition(TM) [IA] technologies as well as for our data processing services in our ION Solutions division.

“We are pleased to have recognized the first sale of our fully commercialized FireFly(R) system to the world’s largest land contractor and to report that the purchaser is pleased with the performance of the system. In addition, after completing the original survey, we have now been awarded a production survey with a 6,100 station FireFly system that is being used by a super major to image the Haynesville shale in northeast Texas. We are also proceeding with a second survey using an 8,000 station FireFly system with Compania Mexicana de Exploraciones (Comesa), an oilfield services company majority owned by PEMEX, the national oil company of Mexico.

“We continue to expect a challenging year for the rest of 2009, except in data processing business and in our Data Management Systems division, where our backlog remains solid through 2009 as oil companies continue to focus on extracting additional insights from previously acquired data sets through data reprocessing.

“In this challenging environment, we continue to focus on cash generation and cost reduction, while maintaining our long-term commitment to continued technology development in order to better position ourselves when the seismic markets recover.”

SECOND QUARTER 2009

Total revenues in the second quarter of 2009 decreased 44% to $100.5 million compared to $180.7 million a year ago. While all of the Company’s segments experienced quarter-over-quarter revenue declines, the Marine Imaging Systems and Data Management Solutions divisions showed sequential improvement.

During the second quarter of 2009, the ION Systems group generated sales of $63.9 million compared to $105.8 million in the same period in 2008. Marine Imaging Systems’ revenues decreased to $24.2 million compared to $50.4 million a year ago, mainly due to the decrease in VectorSeis(R) Ocean system sales compared to last year. Market demand for DigiFIN(TM) remained strong during the second quarter as customers continue to retrofit their existing fleets with the latest streamer control technology. Land Imaging Systems’ revenues decreased to $30.4 million compared to $45.8 million in the second quarter of 2008. Despite the inclusion of ARAM’s operating results, the division continues to be adversely impacted by the continuing economic recession and depressed credit markets, which resulted in reduced sales of systems, geophones and vibroseis trucks in North America and Russia. However, partially offsetting this decline was the recognition of the first fully commercialized sale of the Company’s FireFly system. The FireFly system has continued to gain market acceptance through several projects with major oil and gas companies. Data Management Solutions’ revenues decreased to $9.2 million for the second quarter compared to $9.6 million a year ago, due entirely to changes in foreign currency exchange rates as the pound sterling weakened significantly against the dollar compared to last year. Removing the effect of the exchange rates, Data Management Solutions’ revenues increased by 21% compared to prior year.

The ION Solutions group generated $36.7 million in revenues compared to $74.9 million in the same period a year ago. The decrease was primarily driven by lower multi-client data library and new venture program sales, partially offset by continued strong data processing revenues.

Consolidated gross margins for the second quarter of 2009 increased to 33% from 32% in the second quarter of 2008, primarily due to favorable product mix in both the Marine Imaging Systems and the Data Management Solutions’ groups. This improvement in margins was achieved despite lower gross margins in the remaining business units and the increased amortization charges related to the September 2008 ARAM acquisition.

Operating expenses as a percentage of revenues for the second quarter of 2009 increased to 33% compared to 21% in the prior year period. General and administrative expenses as a percentage of revenues for the second quarter of 2009 increased to 13.5% compared to 7.9% in the prior period. Both increases were driven entirely by lower revenue as general and administrative expenses overall decreased year over year. Adjusted EBITDA (net income (loss) before net interest expense, taxes, depreciation and amortization and impairment of intangible assets) for the second quarter decreased to $12.6 million compared to $50.8 million in the second quarter of 2008. A reconciliation of Adjusted EBITDA to reported earnings can be found in the financial tables of this press release.

YEAR-TO-DATE 2009

Consolidated revenues for the first six months of 2009 decreased 35% to $207.4 million compared to $320.8 million for the same period in 2008. Revenues decreased across all segments due to continued volatility in commodity prices, continued tightening of credit markets and continued decline in seismic activity in the North American and Russian markets. Notwithstanding the significant decrease in revenues, gross margin for the first six months of 2009 decreased slightly to 32% compared to 33% for 2008. Strong margin improvements in the Marine Imaging Systems and Data Management Solutions groups were partially offset by lower gross margin in the Land Imaging Systems and ION Solutions groups.

Operating expenses, excluding the impairment of intangible assets of $38.0 million and severance charges of $1.3 million, as a percentage of revenues for the first six months of 2009 increased to 35% compared to 24% in the prior year period, solely as a result of lower revenues. Excluding the above items, total operating expenses for the first six months of 2009 decreased by $4.2 million when compared with 2008, which did not include the costs related to the ARAM business. Additionally, total operating expenses for 2009 included an additional $2.6 million of bad debt expense. Based upon the recent cost reduction measures initiated in the fourth quarter of 2008, the Company expects to continue to incur lower operating expenses for the remainder of 2009 than were incurred last year and generate savings of approximately $43 million on an annualized basis.

The Company’s effective tax rate during the first six months of 2009 was 25.6% (benefit on a loss) compared to 18.3% (provision on income) for 2008. The increase in effective tax rate relates primarily to the Company’s tax benefit related to further impairment of intangible assets, which is taxed at 29%. The inclusion of this benefit at the higher tax rate increased the Company’s overall effective tax rate for the first six months of 2009.

Loss from operations for the first half of 2009 totaled ($44.8) million compared to income of $30.0 million in the prior period. For the first six months of 2009, including the impact of the first quarter impairment of intangible assets of $38.0 million and the foreign currency exchange losses of $6.7 million, the Company reported a net loss of ($49.7) million, or ($0.49) per diluted share, compared to net income of $23.1 million, or $0.24 per diluted share, in 2008. Excluding the after-tax impact of the first quarter impairment and the foreign currency exchange losses, the Company reported a net loss of ($17.4) million, or ($0.17) per diluted share for the first six months of 2009. Adjusted EBITDA for the period was $30.6 million compared to $77.7 million in 2008.

OUTLOOK

The following statements are based on the Company’s current expectations. These statements are forward looking and actual results may differ materially. Factors affecting these forward-looking statements are detailed below.

Brian Hanson, Executive Vice President and Chief Financial Officer, commented, “Based upon our second quarter results, our current expectations for results during the remainder of 2009, the interest expense resulting from our recent $20 million secured financing with ICON Capital, Inc., and the impact on EPS of our recent private placement of 18.5 million shares of our common stock, we are updating our overall guidance for 2009. We now anticipate 2009 consolidated revenues to range between $450 million and $500 million. Mainly as a result of the ARAM acquisition, and as adjusted for the write down of intangible assets in the first quarter, we now expect to book between $16 million and $18 million of non-cash amortization in 2009, which is an increase from the $14 million we incurred in 2008. We are anticipating interest and preferred dividend expense of between $29 million and $31 million related to our outstanding debt. Consolidated gross margin percentage is expected to be down slightly from 2008 as a result of product sales mix, ranging from 30% to 33% due to the increase in amortization of intangibles partially offset by higher margin products, such as FireFly, DigiFIN, DigiSTREAMER(TM) and Orca(R). At the same time, we recognize that our consolidated gross margin is highly sensitive to the overall sales mix of our portfolio of products and services. Operating expenses as a percentage of revenues are expected to range between 28% and 30% in 2009, excluding the special charges incurred in the first quarter. During the first half of 2009, we significantly reduced our sales, general and administrative and R&D spending for the year while at the same time continuing to fund key strategic programs and focusing on the adoption of our latest technology to position ION for the expected recovery. With lowered revenue guidance, we now anticipate generating approximately $90 million to $115 million of Adjusted EBITDA in 2009. Based upon these assumptions, and excluding the special charges in the first quarter, we anticipate 2009 earnings (losses) to be between ($0.19) and ($0.09) per diluted share with an effective tax rate of 20% to 22%. Including these special charges, we anticipate 2009 losses to be between ($0.50) and ($0.39) per diluted share with an effective tax rate of 25% to 27%.

“Additionally, we re-paid our $40.8 million bridge loan in the second quarter, which carried the highest effective interest rate. This payment, combined with a new amendment to our revolving credit facility, provides additional leverage in our liquidity position. We also entered into a $20.0 million secured equipment term loan with ICON ION, LLC (“ICON”). We received $12.5 million from ICON on June 29, 2009 and $7.5 million on July 20, 2009. As of the end of the second quarter, none of our remaining principal debt facilities are scheduled to mature prior to 2013.”

CONFERENCE CALL

ION has scheduled a conference call for Thursday, August 6, 2009, at 10:00 a.m. Eastern Time. To participate in the conference call, dial 480-248-5085 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 20, 2009. To access the replay, dial 303-590-3030 and use pass code 4118276#.

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.

    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 statements concerning estimated revenues, earnings and earnings per share for fiscal 2009, and estimated gross margins, Adjusted EBITDA and operating expenses as a percentage of revenue for fiscal 2009, future sales and market growth, future liquidity and cash levels, 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 integration of ARAM’s business; 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; the 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, 2008.

                                   Tables to follow

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

                                   Three Months Ended    Six Months Ended
                                        June 30,             June 30,
                                        --------             --------
                                    2009       2008      2009       2008
                                    ----       ----      ----       ----

     Product revenues             $63,291   $104,360  $122,767   $197,394
     Service revenues              37,219     76,305    84,633    123,430
                                   ------     ------    ------    -------
       Total net revenues         100,510    180,665   207,400    320,824
                                  -------    -------   -------    -------

     Cost of products              41,876     72,637    81,907    132,254
     Cost of services              25,593     50,007    58,756     82,155
                                   ------     ------    ------     ------
       Gross profit                33,041     58,021    66,737    106,415
                                   ------     ------    ------    -------

     Operating expenses:
       Research, development
        and engineering            10,750     11,850    22,215     24,009
       Marketing and sales          8,938     12,222    18,701     23,378
       General and administrative  13,556     14,213    32,556     28,997
       Impairment of intangible
        assets                          -          -    38,044          -
                                      ---        ---    ------        ---
        Total operating expenses   33,244     38,285   111,516     76,384
                                   ------     ------   -------     ------
     Income (loss) from
      operations                     (203)    19,736   (44,779)    30,031
     Interest expense              (6,861)      (652)  (14,278)    (1,139)
     Interest income                  512        540       996      1,077
     Other income (expense)        (6,381)       253    (6,403)       505
                                    -----        ---     -----        ---
       Income (loss) before
        income taxes              (12,933)    19,877   (64,464)    30,474
     Income tax expense
      (benefit)                    (2,542)     3,524   (16,505)     5,583
                                    -----      -----    ------      -----
       Net income (loss)          (10,391)    16,353   (47,959)    24,891
     Preferred stock dividends        875        908     1,750      1,818
                                      ---        ---     -----      -----
       Net income (loss)
        applicable to
        common shares            $(11,266)   $15,445  $(49,709)   $23,073
                                 ========    =======  ========    =======

     Earnings per share:
       Basic net income (loss)
        per share                  $(0.11)     $0.16    $(0.49)     $0.25
                                   ======      =====    ======      =====
       Diluted net income
        (loss) per share           $(0.11)     $0.16    $(0.49)     $0.24
                                   ======      =====    ======      =====

     Weighted average number
      of common shares
      outstanding:
       Basic                      105,121     94,222   102,447     94,095
       Diluted                    105,121    102,272   102,447     98,047


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

                                                    June 30,    December 31,
                                                      2009          2008
                                                      ----          ----

                         ASSETS
     Current assets:
       Cash and cash equivalents                     $36,608       $35,172
       Restricted cash                                 6,447         6,610
       Accounts receivable, net                       87,915       150,565
       Current portion notes receivable                8,352        11,665
       Unbilled receivables                           27,360        36,472
       Inventories, net                              227,250       262,519
       Prepaid expenses and other current assets      14,351        20,386
                                                      ------        ------
         Total current assets                        408,283       523,389
     Notes receivable                                  5,970         4,438
     Deferred income tax asset                        15,693        11,757
     Property, plant, equipment and seismic rental
      equipment, net                                  89,749        59,129
     Multi-client data library, net                  113,097        89,519
     Goodwill                                         52,984        49,772
     Intangible assets, net                           64,528       107,443
     Other assets                                     19,880        15,984
                                                      ------        ------
         Total assets                               $770,184      $861,431
                                                    ========      ========

           LIABILITIES AND STOCKHOLDERS' EQUITY

     Current liabilities:
       Notes payable and current maturities of
        long-term debt                               $26,646       $38,399
       Accounts payable                               55,903        94,586
       Accrued expenses                               67,315        77,046
       Accrued multi-client data library royalties    17,924        28,044
       Deferred revenue and other current
        liabilities                                   18,503        18,159
                                                      ------        ------
         Total current liabilities                   186,291       256,234
     Long-term debt, net of current maturities       243,970       253,510
     Non-current deferred income tax liability         3,555        22,713
     Other long-term liabilities                       3,840         3,904
                                                       -----         -----
         Total liabilities                           437,656       536,361

     Stockholders' equity:
       Cumulative convertible preferred stock         68,786        68,786
       Common stock                                    1,183           996
       Additional paid-in capital                    737,119       694,261
       Accumulated deficit                          (426,261)     (376,552)
       Accumulated other comprehensive loss          (41,735)      (55,859)
       Treasury stock                                 (6,564)       (6,562)
                                                     -------       -------
         Total stockholders' equity                  332,528       325,070
                                                     -------       -------
         Total liabilities and stockholders' equity $770,184      $861,431
                                                    ========      ========


                    ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
                            SUMMARY OF SEGMENT INFORMATION
                                   (In thousands)
                                    (Unaudited)

                                    Three Months Ended    Six Months Ended
                                          June 30,             June 30,
                                          --------             --------
                                      2009       2008      2009       2008
                                      ----       ----      ----       ----
    Net revenues:
      Land Imaging Systems          $30,415    $45,820   $64,597    $95,708
      Marine Imaging Systems         24,224     50,368    42,677     84,856
      Data Management Solutions       9,217      9,596    16,463     18,762
                                      -----      -----    ------     ------
        Total ION Systems            63,856    105,784   123,737    199,326
      ION Solutions                  36,654     74,881    83,663    121,498
                                     ------     ------    ------    -------
      Total                        $100,510   $180,665  $207,400   $320,824
                                   ========   ========  ========   ========

    Income (loss) from
     operations:
      Land Imaging Systems          $(6,130)    $1,320  $(10,877)    $4,615
      Marine Imaging Systems          7,743     11,181    10,504     21,182
      Data Management Solutions       5,818      5,468    10,248     10,676
                                      -----      -----    ------     ------
          Total ION Systems           7,431     17,969     9,875     36,473
      ION Solutions                   3,928     16,070     9,134     22,297
      Corporate                     (11,562)   (14,303)  (25,744)   (28,739)
      Impairment of intangible
       assets                             -          -   (38,044)         -
                                        ---        ---    ------        ---
      Total                           $(203)   $19,736  $(44,779)   $30,031
                                      =====    =======  ========    =======


                      ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
                              SUMMARY OF CASH FLOWS
                                  (In thousands)
                                    (Unaudited)

                                                           Six Months Ended
                                                                June 30,
                                                                --------
                                                             2009      2008
                                                             ----      ----

     Cash flows from operating activities                 $37,952   $13,542
     Cash flows from investing activities                 (47,814)  (64,700)
     Cash flows from financing activities                  10,493    33,207
     Other changes in cash flows                              805       327
                                                              ---       ---
     Net increase (decrease) in cash and cash equivalents   1,436   (17,624)
     Cash and cash equivalents at beginning of period      35,172    36,409
                                                           ------    ------
     Cash and cash equivalents at end of period           $36,608   $18,785
                                                          =======   =======


              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 principals (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         Six Months Ended
                                     June 30,                  June 30,
                                     --------                  --------
                               2009            2008      2009          2008
                               ----            ----      ----          ----

    Net income (loss)       $(10,391)        $16,353  $(47,959)      $24,891
    Interest expense           6,861             652    14,278         1,139
    Interest income             (512)           (540)     (996)       (1,077)
    Income tax expense
     (benefit)                (2,542)          3,524   (16,505)        5,583
    Depreciation and
     amortization expense     19,219          30,779    43,761        47,173
    Impairment of
     intangible assets             -               -    38,044             -
                                 ---             ---    ------           ---
      Adjusted EBITDA        $12,635         $50,768   $30,623       $77,709
                             =======         =======   =======       =======



SOURCE ION Geophysical Corporation

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