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Third Quarter Highlights:

– Revenues of $78.6 million, an 18% increase over third quarter 2015

– Net income of $1.7 million, or $0.14 per diluted share

– Adjusted EBITDA of $24.4 million compared to $7.5 million one year ago

– Generated net cash flows of $10.1 million compared to $(28.8) million in third quarter 2015

– Total liquidity of $78.4 million at September 30

HOUSTON, Nov. 2, 2016 /PRNewswire/ — ION Geophysical Corporation (NYSE: IO) today reported third quarter 2016 net income of $1.7 million, or $0.14 per diluted share, on revenues of $78.6 million, compared to a net loss of $20.4 million, or $(1.86) per share, on revenues of $66.7 million in third quarter 2015.  In comparison, excluding special items, the Company’s third quarter 2015 adjusted net loss was $16.9 million, or $(1.54) per share.  A reconciliation of special items to the financial results can be found in the financial tables of this press release.

Adjusted EBITDA for third quarter 2016 more than tripled to $24.4 million, compared to $7.5 million a year ago.  A reconciliation of Adjusted EBITDA to the closest comparable GAAP numbers can be found in the financial tables of this press release.  The Company generated cash of $10.1 million in third quarter 2016, compared to $(28.8) million in the prior year period.    

Brian Hanson, ION’s President and Chief Executive Officer, commented, “As we stated in our second quarter earnings call, we expected higher revenues and positive cash generation in the back half of 2016, both of which are reflected in our third quarter results.  Our revenues for the third quarter exceeded our total revenues for the first half of the year, driven in part by our Ocean Bottom Services (OBS) crew going back to work and by a sizable increase in multi-client data library sales spread across our geographically diverse portfolio.

“Our $12 million of income from operations during the quarter represents the first time since second quarter 2014 that we have been profitable at the operating income line.  This indicates that the $95 million of annual savings from our cost reduction initiatives has rightsized our business to reflect current market conditions.

“With a significant improvement in our third quarter Adjusted EBITDA, our year-to-date Adjusted EBITDA became positive.  Also, during the quarter we generated positive net cash flows, a significant improvement over the cash we consumed a year ago.  We expect this momentum to carry into the fourth quarter, driven in part by normal year-end spending on data libraries by our customers.

“During the third quarter, we successfully completed our OBS survey offshore Nigeria.  Our overall performance on this survey exceeded our own expectations, especially given that our crew and vessels had been stacked for almost a year, a strong testament to the dedication and experience of our OBS crew and management.  At the completion of the project, we cold-stacked our crew and vessels while we actively pursue tenders for longer-term work in the region.  We are starting to see signs of recovery in the OBS market and believe we are well positioned for our crew to go back to work in the near-term.”

For the first nine months of 2016, the Company reported a net loss of $58.7 million, or $(5.21) per share, on revenues of $137.4 million, compared to net loss of $19.6 million, or $(1.78) per share, on revenues of $144.0 million in the first nine months of 2015.  Excluding special items in both periods, the Company reported an adjusted net loss of $54.5 million, or $(4.83) per share, compared to an adjusted net loss of $113.2 million, or $(10.31) per share, in the prior year period. 

Adjusted EBITDA in the first nine months of 2016 was $3.9 million, compared to $(60.0) million in the first nine months of 2015.  The Company consumed cash of $(22.4) million, of which $(14.3) million related to financing activities, during the first nine months of 2016, compared to $(85.4) million in the first nine months of 2015.

At September 30, 2016, the Company’s total liquidity was $78.4 million, consisting of cash and cash equivalents of $62.5 million and $15.9 million remaining availability on its maximum $40.0 million revolving credit facility.  While the Company had borrowings of only $15.0 million under its revolving credit facility at September 30, 2016, the remaining available amount has been temporarily reduced due to a decline in the eligible receivables that collateralize the facility. 

THIRD QUARTER 2016

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

Three Months Ended September 30,

2016

2015

% Change

E&P Technology & Services

$

36,037

$

52,645

(32)%

E&P Operations Optimization

12,601

14,029

(10)%

Ocean Bottom Services

29,984

100%

Total

$

78,622

$

66,674

18%

Within the E&P Technology & Services segment, data library revenues were $21.5 million, a 41% increase from third quarter 2015; new venture revenues were $8.4 million, a 69% decrease; and Imaging Services (formerly referred to as data processing) revenues were $6.1 million, a 43% decrease.  The increase in data library sales was spread across the Company’s multi-client portfolio.  Both new venture and Imaging Services revenues continue to be impacted by the slowdown in exploration spending.  During third quarter 2015, the E&P Technology & Services segment began data acquisition on its industry-funded MexicoSPANprogram, for which there were no comparable new venture programs in third quarter 2016.

Within the E&P Operations Optimization segment, Devices (formerly referred to as Systems) revenues were $8.7 million, a 19% increase from third quarter 2015.  While Devices continues to be impacted by reduced seismic contractor activity, the revenue increase was driven by sales of replacement devices.  Optimization Software & Services (formerly referred to as Software) revenues were $3.9 million, a 42% decrease from third quarter 2015, primarily due to lower Orca® licensing revenues and, to a lesser extent, the effects of foreign currency.

Ocean Bottom Services (OBS) segment revenues were $30.0 million, as the Company completed its survey offshore Nigeria. The Company is actively pursuing tenders for long-term work for 2017.

Consolidated gross margin was 40%, compared to 17% in third quarter 2015.  All three segments experienced an improvement in gross margin, with E&P Technology & Services at 36%, E&P Operations Optimization at 54% and Ocean Bottom Services at 40%.  The improvement in Ocean Bottom Services was the result of the crew going back to work, while the improvement in the other segments was the result of the Company’s previous cost cutting initiatives more than offsetting the decline in revenues.  

Consolidated operating expenses were $19.9 million, down 17% from $24.0 million in third quarter 2015.  Operating margin was 15%, compared to (19)% in the prior year quarter.  The improvement in operating margins was the result of the increase in revenues, combined with the savings from the Company’s previous cost reduction efforts.

YEAR-TO-DATE 2016

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

Nine Months Ended September 30,

2016

2015

% Change

E&P Technology & Services

$

67,673

$

93,994

(28)%

E&P Operations Optimization

33,349

50,053

(33)%

Ocean Bottom Services

36,417

100%

Total

$

137,439

$

144,047

(5)%

Within the E&P Technology & Services segment, data library revenues were $32.1 million, a 29% increase from the first nine months of 2015; new venture revenues were $16.3 million, a 54% decrease; and Imaging Services revenues were $19.3 million, a 43% decrease.  Even though the segment recorded higher data library revenues compared to the first nine months of 2015, all businesses within the E&P Technology & Services segment continue to be impacted by the slowdown in exploration spending.

Within the E&P Operations Optimization segment, Devices revenues, comprised primarily of repair and replacement revenues, were $20.7 million, a 25% decrease from the first nine months of 2015.  Optimization Software & Services revenues were $12.7 million, a 43% decrease from the first nine months of 2015, primarily due to lower Orca licensing revenues and, to a lesser extent, the effects of foreign currency.

The Ocean Bottom Services (OBS) segment was positively impacted by the Company’s OBS crew going back to work during the second and third quarters of 2016, whereas the crew was idle throughout all of 2015.

Consolidated gross margin was 20%, compared to (10)% in the first nine months of 2015.  The E&P Technology & Services gross margin improved to (1)%, Ocean Bottom Services improved to 31%, while E&P Operations Optimization experienced a slight decline in gross margin to 50% during the first nine months of 2016.  The improvement in Ocean Bottom Services was the result of the crew going back to work in 2016, while the improvement within E&P Technology & Services was the result of the Company’s prior cost cutting initiatives more than offsetting the decline in revenues.  

Consolidated operating expenses were $62.5 million, down 27% from $85.4 million expended in the first nine months of 2015.  Operating margin was (25)%, compared to (70)% in the prior year period.  The decrease in operating expenses due to the Company’s cost reduction efforts had a positive impact on operating margin, more than offsetting the impact from the decline in revenues.

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, November 3, 2016, at 10:00 a.m. Eastern Time that will include a slide presentation to be posted in the Investor Relations section of the ION website by 9:00 a.m. Eastern Time.  To participate in the conference call, dial (877) 407-0672 at least 10 minutes before the call begins and ask for the ION conference call.  A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until November 17, 2016.  To access the replay, dial (877) 660-6853 and use pass code 13646464#.

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 is a leading provider of technology-driven solutions to the global oil & gas industry.  ION’s offerings are designed to help companies reduce risk and optimize assets throughout the E&P lifecycle. For more information, visit www.iongeo.com.

Contact
Steve BateExecutive Vice President and Chief Financial Officer
+1.281.552.3011

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 may include future sales, earnings and market growth, timing of sales, future liquidity and cash levels, future estimated revenues and earnings, sales expected to result from backlog, benefits expected to result from OceanGeo, expected outcome of litigation 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 risks associated with pending and future litigation, including the risk that the Company does not prevail in its appeal of the judgment in the lawsuit with WesternGeco and that the ultimate outcome of the lawsuit could have a material adverse effect on the Company’s financial results and liquidity; the timing and development of the Company’s products and services and market acceptance of the Company’s new and revised product offerings; the performance of OceanGeo; the Company’s level and terms of indebtedness; 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; 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 lines.  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, 2015 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2016.

Tables to follow

 

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

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Service revenues

$

65,914

$

53,515

$

104,500

$

96,918

Product revenues

12,708

13,159

32,939

47,129

Total net revenues

78,622

66,674

137,439

144,047

Cost of services

40,694

47,883

93,706

132,234

Cost of products

6,163

7,683

16,045

26,628

Gross profit (loss)

31,765

11,108

27,688

(14,815)

Operating expenses:

Research, development and engineering

4,231

6,537

14,601

21,496

Marketing and sales

4,680

6,904

13,374

23,375

General, administrative and other operating expenses

10,990

10,541

34,566

40,566

Total operating expenses

19,901

23,982

62,541

85,437

Income (loss) from operations

11,864

(12,874)

(34,853)

(100,252)

Interest expense, net

(4,607)

(4,854)

(14,043)

(14,086)

Other income (expense), net

(2,027)

(346)

(3,624)

98,035

Income (loss) before income taxes

5,230

(18,074)

(52,520)

(16,303)

Income tax expense, net

3,316

2,082

5,865

3,597

Net income (loss)

1,914

(20,156)

(58,385)

(19,900)

Net (income) loss attributable to noncontrolling interests

(215)

(227)

(272)

322

Net income (loss) attributable to ION

$

1,699

$

(20,383)

$

(58,657)

$

(19,578)

Net income (loss) per share:

Basic

$

0.14

$

(1.86)

$

(5.21)

$

(1.78)

Diluted

$

0.14

$

(1.86)

$

(5.21)

$

(1.78)

Weighted average number of common shares outstanding:

Basic

11,786

10,984

11,269

10,978

Diluted

11,907

10,984

11,269

10,978

 

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

ASSETS

September 30,
 2016

December 31,
 2015

Current assets:

Cash and cash equivalents

$

62,536

$

84,933

Accounts receivable, net

34,686

44,365

Unbilled receivables

23,680

19,937

Inventories

33,308

32,721

Prepaid expenses and other current assets

9,910

14,807

Total current assets

164,120

196,763

Property, plant, equipment and seismic rental equipment, net

53,524

72,027

Multi-client data library, net

112,705

132,237

Goodwill

23,412

26,274

Intangible assets, net

3,526

4,810

Other assets

2,395

2,977

Total assets

$

359,682

$

435,088

LIABILITIES AND EQUITY

Current liabilities:

Current maturities of long-term debt

$

19,226

$

7,912

Accounts payable

32,034

29,799

Accrued expenses

32,753

34,287

Accrued multi-client data library royalties

22,344

25,045

Deferred revenue

4,395

6,560

Total current liabilities

110,752

103,603

Long-term debt, net of current maturities

144,299

175,080

Other long-term liabilities

44,157

44,365

Total liabilities

299,208

323,048

Equity:

Common stock

118

107

Additional paid-in capital

898,238

894,715

Accumulated deficit

(818,188)

(759,531)

Accumulated other comprehensive loss

(20,063)

(14,781)

Treasury stock

(8,551)

Total stockholders’ equity

60,105

111,959

Noncontrolling interest

369

81

Total equity

60,474

112,040

Total liabilities and equity

$

359,682

$

435,088

 

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016

2015

2016

2015

Cash flows from operating activities:

Net income (loss)

$

1,914

$

(20,156)

$

(58,385)

$

(19,900)

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

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

5,608

6,645

17,024

19,660

Amortization of multi-client data library

8,917

14,091

23,161

24,531

Stock-based compensation expense

902

1,127

2,512

4,174

Loss on extinguishment of debt

2,182

Reduction of accrual for loss contingency related to legal proceedings

(101,978)

Deferred income taxes

650

6,016

1,031

5,992

Change in operating assets and liabilities:

Accounts receivable

(14,655)

4,628

9,325

92,424

Unbilled receivables

(1,669)

(19,035)

(3,711)

(9,837)

Inventories

1,045

1,203

2,374

464

Accounts payable, accrued expenses and accrued royalties

8,899

(3,027)

3,381

(43,676)

Deferred revenue

(3,254)

(4,981)

(2,103)

(2,576)

Other assets and liabilities

7,214

(12)

6,441

(5,274)

Net cash provided by (used in) operating activities

15,571

(13,501)

3,232

(35,996)

Cash flows from investing activities:

Cash invested in multi-client data library

(2,953)

(14,554)

(11,601)

(28,152)

Purchase of property, plant, equipment and seismic rental assets

(227)

(388)

(567)

(17,601)

Other investing activities

1,005

1,262

Net cash used in investing activities

(3,180)

(13,937)

(12,168)

(44,491)

Cash flows from financing activities:

Borrowings under revolving line of credit

15,000

Repurchase of common stock

(964)

Payments on notes payable and long-term debt

(1,940)

(1,871)

(6,726)

(5,431)

Costs associated with issuance of debt

(464)

(146)

(6,638)

(146)

Payment to repurchase bonds

(15,000)

Other financing activities

72

13

94

Net cash used in financing activities

(2,404)

(1,945)

(14,315)

(5,483)

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

116

562

854

601

Net increase (decrease) in cash and cash equivalents

10,103

(28,821)

(22,397)

(85,369)

Cash and cash equivalents at beginning of period

52,433

117,060

84,933

173,608

Cash and cash equivalents at end of period

$

62,536

$

88,239

$

62,536

$

88,239

 

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

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Net revenues:

E&P Technology & Services:

New Venture

$

8,393

$

26,650

$

16,278

$

35,315

Data Library

21,510

15,302

32,057

24,948

Total multi-client revenues

29,903

41,952

48,335

60,263

Imaging Services

6,134

10,693

19,338

33,731

Total

36,037

52,645

67,673

93,994

E&P Operations Optimization:

Devices

8,679

7,290

20,664

27,733

Optimization Software & Services

3,922

6,739

12,685

22,320

Total

12,601

14,029

33,349

50,053

Ocean Bottom Services

29,984

36,417

Total

$

78,622

$

66,674

$

137,439

$

144,047

Gross profit (loss):

E&P Technology & Services

$

12,888

$

11,294

$

(418)

$

(6,954)

E&P Operations Optimization

6,866

7,039

16,647

25,971

Ocean Bottom Services

12,011

(7,225)

11,459

(33,832)

Total

$

31,765

$

11,108

$

27,688

$

(14,815)

Gross margin:

E&P Technology & Services

36

%

21

%

(1)

%

(7)

%

E&P Operations Optimization

54

%

50

%

50

%

52

%

Ocean Bottom Services

40

%

%

31

%

%

Total

40

%

17

%

20

%

(10)

%

Income (loss) from operations:

E&P Technology & Services

$

7,259

$

1,642

$

(16,867)

$

(37,401)

E&P Operations Optimization

3,682

3,916

7,162

15,786

Ocean Bottom Services

9,320

(10,287)

2,053

(46,457)

Support and other

(8,397)

(8,145)

(27,201)

(32,180)

Total

$

11,864

$

(12,874)

$

(34,853)

$

(100,252)

Operating margin:

E&P Technology & Services

20

%

3

%

(25)

%

(40)

%

E&P Operations Optimization

29

%

28

%

21

%

32

%

Ocean Bottom Services

31

%

%

6

%

%

Support and other

(11)%

(12)

%

(20)

%

(22)

%

Total

15

%

(19)

%

(25)

%

(70)

%

 

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

The term Adjusted EBITDA represents net income (loss) before interest expense, interest income, income taxes, depreciation and amortization charges, and other non-cash charges including a reduction for loss contingency related to legal proceedings and loss on extinguishment of debt.  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 useful information regarding our liquidity, ability to service debt and to fund capital expenditures and 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.

 

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Net income (loss)

$

1,914

$

(20,156)

$

(58,385)

$

(19,900)

Interest expense, net

4,607

4,854

14,043

14,086

Income tax expense, net

3,316

2,082

5,865

3,597

Depreciation and amortization expense

14,525

20,736

40,185

44,191

Reduction of accrual for loss contingency related to legal proceedings

(101,978)

Loss on extinguishment of debt

2,182

Adjusted EBITDA

$

24,362

$

7,516

$

3,890

$

(60,004)

 

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
Reconciliation of Special Items to Diluted Income (Loss) per Share
(Non-GAAP Measure)
(In thousands, except per share data)
(Unaudited)

The financial results are reported in accordance with GAAP.  However, management believes that certain non-GAAP performance measures may provide users of this financial information, additional meaningful comparisons between current results and results in prior operating periods. One such non-GAAP financial measure is adjusted income (loss) from operations or adjusted net income (loss), which excludes certain charges or amounts. This adjusted income (loss) amount is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for income (loss) from operations, net income (loss) or other income data prepared in accordance with GAAP. See the tables below for supplemental financial data and the corresponding reconciliation to GAAP financials for the three months ended September 30, 2015 and the nine months ended September 30, 2016 and 2015:

Three Months Ended September 30, 2015

As Reported

Special
Items(1)

As Adjusted

Net revenues

$

66,674

$

$

66,674

Cost of sales

55,566

(2,168)

53,398

Gross profit

11,108

2,168

13,276

Operating expenses

23,982

(1,711)

22,271

Loss from operations

(12,874)

3,879

(8,995)

Interest expense, net

(4,854)

(4,854)

Other expense, net

(346)

(295)

(641)

Income tax expense

2,082

122

2,204

Net loss

(20,156)

3,462

(16,694)

Net (income) loss attributable to noncontrolling interest

(227)

(227)

Net loss attributable to ION

$

(20,383)

$

3,462

$

(16,921)

Net loss per share:

Basic

$

(1.86)

$

(1.54)

Diluted

$

(1.86)

$

(1.54)

Weighted average number of common shares outstanding:

Basic

10,984

10,984

Diluted

10,984

10,984

 

Nine Months Ended September 30, 2016

Nine Months Ended September 30, 2015

As Reported

Special
Items

As Adjusted

As Reported

Special
Items

As Adjusted

Net revenues

$

137,439

$

$

137,439

$

144,047

$

$

144,047

Cost of sales

109,751

(1,077)

108,674

158,862

(3,981)

154,881

Gross profit (loss)

27,688

1,077

28,765

(14,815)

3,981

(10,834)

Operating expenses

62,541

(932)

61,609

85,437

(3,233)

82,204

Loss from operations

(34,853)

2,009

(2)

(32,844)

(100,252)

7,214

(4)

(93,038)

Interest expense, net

(14,043)

(14,043)

(14,086)

(14,086)

Other income (expense), net

(3,624)

2,182

(3)

(1,442)

98,035

(100,360)

(5)

(2,325)

Income tax expense

5,865

5,865

3,597

269

3,866

Net loss

(58,385)

4,191

(54,194)

(19,900)

(93,415)

(113,315)

Net (income) loss attributable to noncontrolling interest

(272)

(272)

322

(172)

150

Net loss attributable to ION

$

(58,657)

$

4,191

$

(54,466)

$

(19,578)

$

(93,587)

$

(113,165)

Net loss per share:

Basic

$

(5.21)

$

(4.83)

$

(1.78)

$

(10.31)

Diluted

$

(5.21)

$

(4.83)

$

(1.78)

$

(10.31)

Weighted average number of common shares outstanding:

Basic

11,269

11,269

10,978

10,978

Diluted

11,269

11,269

10,978

10,978

(1)  

Primarily represents severance charges during the third quarter 2015.

(2)   

Represents severance charges during the second quarter 2016.

(3) 

Represents a loss on extinguishment of debt associated with the Company’s second quarter 2016 bond exchange.

(4)   

In addition to note (1) , the nine months ended September 30, 2015 includes severance and facility charges related to the first half 2015 restructurings.

(5)   

 Primarily represents a partial reduction in the WesternGeco legal contingency in the second quarter 2015.

 

 

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/ion-reports-third-quarter-2016-results-300356361.html

SOURCE ION Geophysical Corporation