Revenues increase 26% quarter over quarter
Earnings per diluted share nearly doubles to $0.27, excluding special items
EBITDA nearly doubles for both the third quarter and year-to-date 2008
HOUSTON, Nov. 4 /PRNewswire-FirstCall/ — ION Geophysical Corporation
(NYSE: IO) today announced third quarter 2008 net income of $24.9 million, or
$0.25 per diluted share, on revenues of $218.5 million compared to net income
of $12.6 million, or $0.14 per diluted share, on revenues of $173.6 million
for the same period a year ago. Third quarter earnings included several
special items totaling approximately $2.6 million, of which $1.2 million, or
approximately $0.01 per diluted share, related to the quarterly fair value
adjustment of the Company’s preferred stock redemption features and $0.9
million, or approximately $0.01 per diluted share, related to charges incurred
as part of the acquisition of ARAM Systems and Canadian Seismic Rentals
(“ARAM”) in the latter part of the third quarter. The remaining $0.5 million
special item was due to the impact of Hurricane Ike, which directly hit the
Houston area in September and caused extensive power outages and other
infrastructural damage across the region. Excluding the impact of these
special items, the Company reported third quarter earnings of $0.27 per
diluted share on revenues of $218.5 million for 2008.
Bob Peebler, President and Chief Executive Officer of ION, stated, “We are
very pleased with our record third quarter revenues and improved
profitability. We had another excellent quarter in our Marine Imaging Systems
division driven by strong sales of positioning systems and DigiFIN(TM)
streamer technology and the delivery of most of the remaining portion of the
fifth VectorSeis(R) Ocean (VSO) system to RXT.
“We are also delighted by the continued record performance of our ION
Solutions group, including our new venture sales related to the Company’s
programs off the coasts of Alaska, South America and West Africa and continued
strength in data processing.
“In our land division, gross margins continue to improve, driven by
reductions in cable system and vibroseis vehicle costs and higher margins from
ARAM system sales. We continue to be on track for FireFly(R)
commercialization later this year with most of the emphasis now on
international markets, due to working capital issues affecting North American
“We realize that, along with the rest of the industry, we will likely be
affected by the current turbulence in the financial markets, resulting in the
ensuing slowdown of the economy and the decline in commodity prices. We
believe that our strategy of building competitive advantage through our
technology by investing $164.0 million over the last five years in technology
R&D will serve us well during this period as oil companies look for
significant productivity improvements to offset lower commodity prices. We
believe our industry is in a short-term down cycle that will likely last
through 2009 and could extend into 2010, but we put that in context of a
longer term trend of growing demand for oil and gas. This longer-term trend
will continue to put pressure on oil companies to increase reserves through
exploration and enhanced oil recovery. Geophysical technologies that provide
enhanced efficiency and productivity, whether in reducing dry holes drilled,
improving field operations or making older reservoirs more productive, will be
more valuable now that oil and service companies will be challenged to find
ways to improve profitability.”
THIRD QUARTER 2008
Total revenues in the third quarter increased 26% to $218.5 million
compared to $173.6 million a year ago. The increased revenues were the results
of strong sales in all of the Company’s segments, including Marine Imaging
Systems, Land Imaging Systems and ION Solutions.
The ION Systems group generated sales of $141.0 million, increasing 11%
compared to the same period in 2007. Marine Imaging Systems revenues
increased 32% to $49.0 million compared to $37.1 million a year ago, as demand
for the Company’s DigiFIN(TM) streamer positioning and seabed products
remained strong. Additionally, a portion of the fifth VSO acquisition system
was delivered in the third quarter, which continues to demonstrate the success
and acceptance of VSO technology. Land Imaging Systems’ revenues increased to
$81.6 million compared to $79.1 million in the third quarter of 2007. The
third quarter of 2007 included the delivery of five systems to Oil and Natural
Gas Corporation Ltd. (ONGC) for $22.8 million. In the third quarter of 2008,
Land Imaging Systems continued to have strong vibroseis truck sales. The
third quarter financial results include ARAM’s operating results for the last
12 days of the quarter. Data Management Solutions’ revenues were essentially
flat at $10.4 million for the third quarter compared to $10.9 million a year
The ION Solutions group had another record quarter, generating $77.5
million in revenues compared to $46.5 million in the same period a year ago.
The 67% increase was primarily driven by robust new venture program sales off
the coasts of Alaska, East Africa and South America, combined with strong data
library revenues in the African region.
Consolidated gross margin for the third quarter of 2008 improved to 33%
from 30% in the third quarter of 2007, primarily due to improvements in the
Land Imaging Systems and Data Management Solutions segments. Overall, ION
Systems continued to see notable margin improvements in Scorpion(R) cable
systems, vibroseis vehicle sales and the addition of higher margin ARAM land
systems. ION Solutions experienced a slight deterioration in margin rates,
driven by product mix when compared to 2007.
Operating expenses as a percent of revenues for the third quarter of 2008
dropped to 19% compared to 21% in the prior year period. General and
administrative expenses as a percentage of revenues remained stable for the
third quarter of 2008 at approximately 7%.
Income from operations in the third quarter increased over 85% to $31.6
million compared to $16.9 million in the third quarter of 2007. Adjusted
EBITDA (earnings before net interest expense, taxes, depreciation and
amortization and the fair value adjustment of preferred stock redemption
features) for the third quarter doubled to $69.6 million compared to $34.3
million in the third quarter of 2007. A reconciliation of Adjusted EBITDA to
reported earnings can be found at the end of this press release.
Consolidated revenues for the first nine months of 2008 increased 7% to
$539.4 million compared to $503.8 million for the same period in 2007. The
revenues in 2008 included strong DigiFIN sales, new venture and multi-client
data library sales and the delivery of the majority of the fifth VSO system.
Gross margin for the first nine months of 2008 improved substantially to 33%
compared to 27% for 2007. Strong margin improvements were realized across the
majority of the segments, with the largest improvements occurring in the ION
Solutions and Land Imaging segments.
Operating expenses as a percentage of revenues for year-to-date 2008 and
2007 were stable at approximately 21%. These expenses mainly relate to
salaries associated with increased headcount, increased bonus expense related
to continued strong performance and legal and accounting professional fees
related to the Company’s international expansion initiatives. Research and
development expenses for the period were approximately 7% of revenue,
consistent with the prior year. The Company’s effective tax rate year-to-date
was 15.5% for 2008 compared to 16.0% for 2007.
Income from operations for year-to-date 2008 totaled $61.6 million, an
increase of 80% over 2007. For the first nine months of 2008, the Company
reported net income of $48.0 million, or $0.49 per diluted share, compared to
net income of $22.8 million, or $0.26 per diluted share, in 2007. Adjusted
EBITDA for the period was $145.4 million compared to $75.9 million in 2007.
ACQUISITION OF ARAM
On September 18, 2008, the Company completed the acquisition of all of the
outstanding shares of ARAM Systems and Canadian Seismic Rentals (“ARAM”).
Founded in 1971, ARAM designs, manufactures, sells and leases land seismic
data acquisition systems, specializing in analog cabled systems. As a result
of the acquisition, the operations of ARAM are combined with the Company’s
operations commencing as of September 19, 2008 through the end of the quarter.
Due to consolidating ARAM with the Company’s Land Imaging Systems group, the
Company will not be reporting separate ARAM results in the future.
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, “While we normally anticipate the final quarter to be the strongest
of the year, the current economic environment has made the visibility into the
market and economy difficult. Based on our year-to-date results and our
current pipeline of business, we expect 2008 consolidated revenues to range
between $780 and $830 million and earnings to be between $0.70 and $0.80 per
diluted share. This outlook assumes that we will not likely see the normal
high level of year-end spending due to both oil and gas companies and our
contractor customers taking a more conservative approach going forward. We
will hold a 2009 guidance call in late December upon the completion of our
The Company has scheduled a conference call for Wednesday, November 5,
2008, at 10:00 a.m. Eastern Time. To participate in the conference call, dial
303-242-0003 at least 10 minutes before the call begins and ask for the ION
conference call. A replay of the call will be available approximately two
hours after the live broadcast ends and will be accessible until November 19,
2008. To access the replay, dial 303-590-3000 and use pass code 11121267#.
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.
ION 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 statements concerning estimated revenues, earnings and
earnings per share for fiscal 2008, and estimated gross margins, Adjusted
EBITDA and operating expenses as a percentage of revenue for fiscal 2008,
future sales and market growth, 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 of indebtedness; risks
associated with competitor’s 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, including its Annual
Report on Form 10-K for the year ended December 31, 2007.
Tables to follow ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Product revenues $140,332 $126,246 $337,726 $385,587 Service revenues 78,197 47,306 201,627 118,166 Total net revenues 218,529 173,552 539,353 503,753 Cost of products 92,347 89,407 224,601 278,924 Cost of services 53,561 31,498 135,716 86,810 Gross profit 72,621 52,647 179,036 138,019 Operating expenses: Research, development and engineering 13,498 12,449 37,507 37,530 Marketing and sales 12,062 10,906 35,440 31,151 General and administrative 15,487 12,428 44,484 35,024 Total operating expenses 41,047 35,783 117,431 103,705 Income from operations 31,574 16,864 61,605 34,314 Interest expense (1,592) (1,764) (2,731) (5,017) Interest income 40 273 1,117 1,412 Other income (expense) 743 (823) 1,075 (1,470) Fair value adjustment of preferred stock redemption features (1,147) - (974) - Income before income taxes 29,618 14,550 60,092 29,239 Income tax expense 3,760 1,322 9,343 4,671 Net income 25,858 13,228 50,749 24,568 Preferred stock dividends and accretion 925 589 2,743 1,780 Net income applicable to common shares $24,933 $12,639 $48,006 $22,788 Earnings per share: Basic net income share $0.26 $0.16 $0.51 $0.28 Diluted net income share $0.25 $0.14 $0.49 $0.26 Weighted average number of common shares outstanding: Basic 95,823 81,047 94,676 80,607 Diluted 102,653 97,780 102,127 97,426 ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) September 30, December 31, 2008 2007 ASSETS Current assets: Cash and cash equivalents $32,189 $36,409 Restricted cash 5,344 7,052 Accounts receivable, net 180,026 188,029 Notes receivable, net 25,473 5,454 Unbilled receivables 65,578 22,388 Inventories 254,803 128,961 Prepaid expenses and other current assets 25,523 12,717 Total current assets 588,936 401,010 Notes receivable 6,753 - Non-current deferred income tax asset 3,351 2,872 Property, plant and equipment, net 63,961 36,951 Multi-client data library, net 83,004 59,689 Investments at cost 4,954 4,954 Goodwill 306,041 153,145 Intangible and other assets, net 170,749 50,528 Total assets $1,227,749 $709,149 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term debt $190,534 $14,871 Accounts payable 86,599 44,674 Accrued expenses 74,629 66,911 Accrued multi-client data library royalties 30,586 29,962 Deferred revenue 12,037 21,278 Deferred income tax liability 5,165 2,792 Total current liabilities 399,550 180,488 Long-term debt, net of current maturities 124,316 9,842 Non-current deferred income tax liability 37,505 3,384 Other long-term liabilities 4,115 4,195 Fair value of preferred stock redemption features 2,188 - Total liabilities 567,674 197,909 Cumulative convertible preferred stock 68,785 35,000 Stockholders' equity: Common stock 994 948 Additional paid-in capital 624,924 559,255 Accumulated deficit (34,833) (82,839) Accumulated other comprehensive income 6,766 5,460 Treasury stock (6,561) (6,584) Total stockholders' equity 591,290 476,240 Total liabilities and stockholders' equity $1,227,749 $709,149 ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES SUMMARY OF SEGMENT INFORMATION (In thousands) (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Net revenues: Land Imaging Systems $81,562 $79,055 $177,270 $242,804 Marine Imaging Systems 49,016 37,099 133,872 116,925 Data Management Solutions 10,408 10,917 29,170 28,097 Total ION Systems 140,986 127,071 340,312 387,826 ION Solutions 77,543 46,481 199,041 115,927 Total $218,529 $173,552 $539,353 $503,753 Income (loss) from operations: Land Imaging Systems $11,216 $5,663 $15,831 $16,681 Marine Imaging Systems 14,063 9,912 35,245 32,077 Data Management Solutions 6,820 5,948 17,496 12,686 Total ION Systems 32,099 21,523 68,572 61,444 ION Solutions 14,019 7,443 36,316 7,432 Corporate (14,544) (12,102) (43,283) (34,562) Total $31,574 $16,864 $61,605 $34,314 Reconciliation of Adjusted EBITDA to Net Income (Non-GAAP Measures) (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 or net income 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 Nine Months Ended September 30, September 30, 2008 2007 2008 2007 Net income applicable to common shares $24,933 $12,639 $48,006 $22,788 Interest expense 1,592 1,764 2,731 5,017 Interest income (40) (273) (1,117) (1,412) Income tax expense 3,760 1,322 9,343 4,671 Depreciation and amortization expense 38,250 18,885 85,423 44,835 Fair value adjustment of preferred stock redemption features 1,147 - 974 - Adjusted EBITDA $69,642 $34,337 $145,360 $75,899
Reconciliation of Special Items Adjustments to Diluted Earnings Per Share
(Non-GAAP Measures) (In thousands, except per share data) (Unaudited) Three Months Ended September 30, 2008 Amount Fair value adjustment of preferred stock redemption features $1,147 ARAM acquisition-related items 920 Hurricane Ike charges 525 Total $2,592 Diluted EPS $0.25 Impact of special items $0.02 Diluted EPS, excluding special items $0.27 Weighted Average number of diluted common shares outstanding 102,653
SOURCE ION Geophysical Corporation
CONTACT: R. Brian Hanson, Chief Financial Officer of ION Geophysical
Corporation, +1-281-879-3672; or Jack Lascar of DRG&E, +1-713-529-6600, for
ION Geophysical Corporation
/Web site: http://www.iongeo.com