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Second quarter revenues down 46% compared to one year ago

Delayed sales in second quarter build momentum for a strong second half

HOUSTON, Aug. 1, 2018 /PRNewswire/ — ION Geophysical Corporation (NYSE: IO) today reported revenues of $24.7 million in the second quarter 2018, a 46% decrease compared to revenues of $46.0 million one year ago.  ION’s net loss was $25.9 million, or $(1.86) per share, compared to a net loss of $10.4 million, or $(0.88) per share in the second quarter 2017.  Excluding special items in the second quarter 2018, the Company reported an Adjusted net loss of $23.4 million, or $(1.68) 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 $(7.9) million for the second quarter 2018, a decrease from the Adjusted EBITDA of $13.6 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 $(0.8) million during the second quarter 2018, compared to $1.7 million in the second quarter 2017.  Total net cash flows, including investing and financing activities, were $(6.4) million, which are comparable to one year ago.  At June 30, 2018, the Company had $44.3 million of cash on hand, and nothing drawn from its $23.3 million of available borrowing capacity under its revolving credit facility.

Brian Hanson, ION’s President and Chief Executive Officer, commented, “We are disappointed with the quarterly results, where a number of deals in our pipeline did not close.  The opportunities did not disappear; the timing of the decision slipped, setting the potential for a strong back half of the year.  For example, we experienced a decrease in multi-client revenues partially due to a delayed license round that resulted in certain customers pushing their commitments to our program to the second half of 2018.  For this reason, and based on heightened activity and momentum, we still believe that 2018 will be a significant improvement on 2017 on a full-year basis.  All key leading indicators and metrics of our business are up including our multi-client sales pipeline, license round activity, imaging services tenders, Marlin deployments, the number of active ocean bottom crews and oil and gas reserve replenishment  becoming a greater priority than capital efficiency for our oil and gas customers.  I encourage you to join our earnings call for more details about the upward trajectory of our business.”

For the first half of 2018, the Company reported revenues of $58.3 million, a net loss of $44.3 million, or $(3.31) per share, compared revenues of $78.6 million, a net loss of $33.8 million, or $(2.85) per share in the first half of 2017.  Excluding special items in both periods, the Company reported an Adjusted net loss of $40.6 million, or $(3.03) per share, compared to an Adjusted net loss of $28.8 million, or $(2.43) per share in the first half of 2017.  First half of 2018 Adjusted EBITDA was $(7.8) million, compared to $13.6 million in the first half of 2017.

Net cash flows from operations were $(0.2) million, compared to $3.5 million in the first half of 2017.  Total net cash flows, including investing and financing activities, were $(7.7) million, compared to $(9.5) million in the first half of 2017.  Net cash flows for the first half of 2018 reflect the $47.2 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 $0.5 million of current debt remained outstanding at June 30, 2018, and the Company’s remaining long-term debt is $120.6 million of second lien notes that mature in December 2021.

SECOND QUARTER 2018

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

Three Months Ended June 30,

2018

2017

% Change

E&P Technology & Services

$

15,188

$

33,882

(55)%

Operations Optimization

9,555

12,119

(21)%

Ocean Bottom Integrated Technologies

Total

$

24,743

$

46,001

(46)%

Within the E&P Technology & Services segment, multi-client revenues were $9.9 million, a decrease of 67%, with both new venture and data library revenues experiencing significant declines compared to the second quarter 2017.  The decrease in multi-client revenues was partially due to a delay in a key bid round announcement.  The delayed announcement resulted in many customers pushing their commitments to the Company’s program to the second half of 2018.  Imaging Services revenues were $5.3 million, a 28% increase, due to an increase in proprietary ocean bottom nodal imaging projects.

Within the Operations Optimization segment, Optimization Software & Services revenues were $4.8 million, an 8% increase from the second quarter 2017.  The increase in Optimization Software & Services revenues was due to an increase in subscription-based software revenues and hardware sales of its Gator™ ocean bottom command and control software and from a positive impact due to changes in foreign currencies.  Devices revenues were $4.8 million, a 38% decrease from the second quarter 2017.  Devices continues to be impacted by reduced towed streamer seismic contractor activity, resulting in further declines in new system sales as well as repair and replacement revenues.

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

Consolidated gross margin for the quarter was (6)%, compared to 34% in the second quarter 2017.  Gross margin in E&P Technology & Services was (32)%, compared to 35% one year ago.  The decrease in E&P Technology & Services gross margin was result of the decline in revenues.  Operations Optimization gross margin was 52%, consistent with the second quarter 2017.

Consolidated operating expenses, as adjusted, were $18.5 million, down 4% from $19.2 million in the second quarter 2017.  Operating margin, as adjusted, was (81)%, compared to (8)% in the second quarter 2017.  The decline in operating margin was the result of the decrease in revenues.

YEAR-TO-DATE 2018

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

Six Months Ended June 30,

2018

2017

% Change

E&P Technology & Services

$

39,756

$

57,192

(30)%

Operations Optimization

18,495

21,365

(13)%

Ocean Bottom Integrated Technologies

Total

$

58,251

$

78,557

(26)%

Within the E&P Technology & Services segment, multi-client revenues were $29.5 million, a decrease of 38%, with new venture revenues decreasing 19% and data library revenues decreasing 62% from the first six months of 2017.  Imaging Services revenues were $10.2 million, a 3% increase.  The change in revenues during the first six months is fairly consistent with the changes described in the aforementioned section.

Within the Operations Optimization segment, Optimization Software & Services revenues were $9.6 million, a 10% increase compared to the first six months of 2017.  Devices revenues were $8.9 million, a 30% decrease from the first six months of 2017.

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

Consolidated gross margin was 9%, compared to 28% in the first six months of 2017.  Gross margin in E&P Technology & Services was (1)%, down from 28% in the first six months of 2017.  The decrease in E&P Technology & Services gross margin was result of the decline in revenues.  Operations Optimization gross margin was 50%, compared to 52% in the first six months of 2017.

Consolidated operating expenses, as adjusted, were $36.8 million, down 6% from $39.2 million in the first six months of 2017.  Operating margin, as adjusted, was (54)%, compared to (22)% in the first six months of 2017.  The decrease in operating margin was due to the decline in revenues.

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, August 2, 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 August 16, 2018.  To access the replay, dial (877) 660-6853 and use pass code 13681609#.

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.

ContactSteve BateExecutive 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 June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Service revenues

$

15,752

$

34,454

$

40,838

$

58,282

Product revenues

8,991

11,547

17,413

20,275

Total net revenues

24,743

46,001

58,251

78,557

Cost of services

22,033

24,827

44,362

47,126

Cost of products

4,227

5,556

8,553

9,712

Gross profit (loss)

(1,517)

15,618

5,336

21,719

Operating expenses:

Research, development and engineering

4,259

4,107

8,514

7,602

Marketing and sales

6,007

4,931

11,105

9,417

General, administrative and other operating expenses

10,736

10,152

20,876

22,184

Total operating expenses

21,002

19,190

40,495

39,203

Loss from operations

(22,519)

(3,572)

(35,159)

(17,484)

Interest expense, net

(2,911)

(4,241)

(6,747)

(8,705)

Other income (expense), net

84

192

(707)

(4,876)

Loss before income taxes

(25,346)

(7,621)

(42,613)

(31,065)

Income tax expense

154

2,402

1,226

1,984

Net loss

(25,500)

(10,023)

(43,839)

(33,049)

Net income attributable to noncontrolling interest

(366)

(418)

(453)

(734)

Net loss attributable to ION

$

(25,866)

$

(10,441)

$

(44,292)

$

(33,783)

Net loss per share:

Basic

$

(1.86)

$

(0.88)

$

(3.31)

$

(2.85)

Diluted

$

(1.86)

$

(0.88)

$

(3.31)

$

(2.85)

Weighted average number of common shares outstanding:

Basic

13,928

11,875

13,374

11,847

Diluted

13,928

11,875

13,374

11,847

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

ASSETS

June 30,
 2018

December 31,
 2017

Current assets:

Cash and cash equivalents

$

44,349

$

52,056

Accounts receivable, net

15,375

19,478

Unbilled receivables

15,046

37,304

Inventories

14,925

14,508

Prepaid expenses and other current assets

5,961

7,643

Total current assets

95,656

130,989

Deferred income tax asset

3,614

1,753

Property, plant, equipment and seismic rental equipment, net

48,442

52,153

Multi-client data library, net

82,576

89,300

Goodwill

23,543

24,089

Intangible assets, net

1,082

1,666

Other assets

731

1,119

Total assets

$

255,644

$

301,069

LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt

$

459

$

40,024

Accounts payable

26,173

24,951

Accrued expenses

28,936

38,697

Accrued multi-client data library royalties

27,988

27,035

Deferred revenue

8,402

8,910

Total current liabilities

91,958

139,617

Long-term debt, net of current maturities

117,159

116,720

Other long-term liabilities

12,606

13,926

Total liabilities

221,723

270,263

Equity:

Common stock

140

120

Additional paid-in capital

951,349

903,247

Accumulated deficit

(899,213)

(854,921)

Accumulated other comprehensive loss

(19,634)

(18,879)

Total stockholders’ equity

32,642

29,567

Noncontrolling interest

1,279

1,239

Total equity

33,921

30,806

Total liabilities and equity

$

255,644

$

301,069

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Cash flows from operating activities:

Net loss

$

(25,500)

$

(10,023)

$

(43,839)

$

(33,049)

Adjustments to reconcile net loss to cash provided by operating activities:

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

2,255

4,353

4,778

9,030

Amortization of multi-client data library

9,764

12,675

19,557

21,933

Stock-based compensation expense

1,231

535

2,043

1,169

Accrual for loss contingency related to legal proceedings

5,000

Deferred income taxes

(1,749)

977

(1,866)

(932)

Change in operating assets and liabilities:

Accounts receivable

13,980

(2,681)

3,896

2,075

Unbilled receivables

3,094

(194)

24,013

(5,542)

Inventories

(281)

714

(445)

440

Accounts payable, accrued expenses and accrued royalties

(474)

(3,571)

(10,629)

(6,059)

Deferred revenue

(2,826)

(1,672)

(445)

5,521

Other assets and liabilities

(306)

537

2,733

3,905

Net cash (used in) provided by operating activities

(812)

1,650

(204)

3,491

Cash flows from investing activities:

Cash invested in multi-client data library

(4,542)

(5,119)

(13,782)

(8,482)

Purchase of property, plant, equipment and seismic rental assets

(363)

(866)

(424)

(915)

Net cash used in investing activities

(4,905)

(5,985)

(14,206)

(9,397)

Cash flows from financing activities:

Payments under revolving line of credit

(10,000)

Payments on notes payable and long-term debt

(555)

(1,451)

(29,699)

(3,157)

Net proceeds from issuance of stock

47,219

Dividend payment to non-controlling interest

(200)

(200)

Other financing activities

(306)

(10)

(881)

(296)

Net cash provided by (used in) financing activities

(1,061)

(1,461)

6,439

(3,453)

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

377

(578)

264

(169)

Net decrease in cash, cash equivalents and restricted cash

(6,401)

(6,374)

(7,707)

(9,528)

Cash, cash equivalents and restricted cash at beginning of period

51,113

50,279

52,419

53,433

Cash, cash equivalents and restricted cash at end of period

$

44,712

$

43,905

$

44,712

$

43,905

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

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Cash and cash equivalents

$

44,349

$

43,272

$

44,349

$

43,272

Restricted cash included in prepaid expenses and other current assets

60

330

60

330

Restricted cash included in other long-term assets

303

303

303

303

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

$

44,712

$

43,905

$

44,712

$

43,905

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

SUMMARY OF SEGMENT INFORMATION

(In thousands)

(Unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Net revenues:

E&P Technology & Services:

New Venture

$

8,125

$

19,986

$

21,851

$

26,935

Data Library

1,725

9,710

7,673

20,316

Total multi-client revenues

9,850

29,696

29,524

47,251

Imaging Services

5,338

4,186

10,232

9,941

Total

15,188

33,882

39,756

57,192

Operations Optimization:

Devices

4,761

7,679

8,919

12,669

Optimization Software & Services

4,794

4,440

9,576

8,696

Total

9,555

12,119

18,495

21,365

Ocean Bottom Integrated Technologies

Total

$

24,743

$

46,001

$

58,251

$

78,557

Gross profit (loss):

E&P Technology & Services

$

(4,856)

$

11,921

$

(513)

$

15,931

Operations Optimization

4,933

6,258

9,244

11,045

Ocean Bottom Integrated Technologies

(1,594)

(2,561)

(3,395)

(5,257)

Total

$

(1,517)

$

15,618

$

5,336

$

21,719

Gross margin:

E&P Technology & Services

(32)

%

35

%

(1)

%

28

%

Operations Optimization

52

%

52

%

50

%

52

%

Ocean Bottom Integrated Technologies

%

%

%

%

Total

(6)

%

34

%

9

%

28

%

Income (loss) from operations:

E&P Technology & Services

$

(10,206)

$

6,353

$

(11,000)

$

5,257

Operations Optimization

1,243

3,022

2,029

4,571

Ocean Bottom Integrated Technologies

(2,926)

(3,860)

(5,755)

(7,868)

Support and other

(10,630)

(9,087)

(20,433)

(19,444)

Loss from operations

(22,519)

(3,572)

(35,159)

(17,484)

Interest expense, net

(2,911)

(4,241)

(6,747)

(8,705)

Other income (expense), net

84

192

(707)

(4,876)

Loss before income taxes

$

(25,346)

$

(7,621)

$

(42,613)

$

(31,065)

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
Reconciliation of Adjusted EBITDA to Net Loss
(Non-GAAP Measure)
(In thousands)
(Unaudited)

The term Adjusted EBITDA represents net 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 increase 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 June 30,

Six Months Ended June 30,

2018

2017

2018

2017

Net loss

$

(25,500)

$

(10,023)

$

(43,839)

$

(33,049)

Interest expense, net

2,911

4,241

6,747

8,705

Income tax expense

154

2,402

1,226

1,984

Depreciation and amortization expense

12,019

17,028

24,335

30,963

Accrual for loss contingency related to legal proceedings

5,000

Stock appreciation rights expense

2,495

3,738

Adjusted EBITDA

$

(7,921)

$

13,648

$

(7,793)

$

13,603

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
Reconciliation of Special Items to Net 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 June 30, 2018 and the six months ended June 30, 2018 and 2017:

Three Months Ended June 30, 2018

As Reported

Special
Items

As Adjusted

Net revenues

$

24,743

$

$

24,743

Cost of sales

26,260

26,260

Gross profit (loss)

(1,517)

(1,517)

Operating expenses

21,002

(2,495)

(1)

18,507

Loss from operations

(22,519)

2,495

(20,024)

Interest expense, net

(2,911)

(2,911)

Other income, net

84

84

Income tax expense

154

154

Net loss

(25,500)

2,495

(23,005)

Net income attributable to noncontrolling interest

(366)

(366)

Net loss attributable to ION

$

(25,866)

$

2,495

$

(23,371)

Net loss per share:

Basic

$

(1.86)

$

(1.68)

Diluted

$

(1.86)

$

(1.68)

Weighted average number of common shares outstanding:

Basic

13,928

13,928

Diluted

13,928

13,928

 

Six Months Ended June 30, 2018

Six Months Ended June 30, 2017

As Reported

Special

Items

As Adjusted

As Reported

Special
Items

As Adjusted

Net revenues

$

58,251

$

$

58,251

$

78,557

$

$

78,557

Cost of sales

52,915

52,915

56,838

56,838

Gross profit

5,336

5,336

21,719

21,719

Operating expenses

40,495

(3,738)

(1)

36,757

39,203

39,203

Loss from operations

(35,159)

3,738

(31,421)

(17,484)

(17,484)

Interest expense, net

(6,747)

(6,747)

(8,705)

(8,705)

Other income (expense), net

(707)

(707)

(4,876)

5,000

(2)

124

Income tax expense

1,226

1,226

1,984

1,984

Net loss

(43,839)

3,738

(40,101)

(33,049)

5,000

(28,049)

Net income attributable to noncontrolling interest

(453)

(453)

(734)

(734)

Net loss attributable to ION

$

(44,292)

$

3,738

$

(40,554)

$

(33,783)

$

5,000

$

(28,783)

Net loss per share:

Basic

$

(3.31)

$

(3.03)

$

(2.85)

$

(2.43)

Diluted

$

(3.31)

$

(3.03)

$

(2.85)

$

(2.43)

Weighted average number of common shares outstanding:

Basic

13,374

13,374

11,847

11,847

Diluted

13,374

13,374

11,847

11,847

(1)

 Represents stock appreciation right awards expense in the first and second quarters of 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-second-quarter-2018-results-300690499.html

SOURCE ION Geophysical Corporation