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Press release from PR Newswire

ION Reports First Quarter 2011 Results

Wednesday, May 04, 2011

ION Reports First Quarter 2011 Results16:30 EDT Wednesday, May 04, 2011HOUSTON, May 4, 2011 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported first quarter 2011 revenues of $90.6 million, a 2% increase from revenues of $88.7 million in the first quarter of 2010, and a 25% increase excluding the revenues of the Legacy Land Systems (INOVA) segment. First quarter 2011 net income was $0.1 million, or $0.00 per diluted share, compared to a net loss of ($71.8) million, or ($0.60) per share, in the first quarter of 2010, or a net loss of ($11.2) million, or ($0.09) per share after excluding the special items associated with the formation of the land joint venture with BGP and the re-financing of our debts as shown in the table at the end of the first quarter 2010 press release.The first quarter 2011 results include non-cash, pre-tax charges of $4.2 million primarily related to the impact of foreign currency exchange rates on intercompany receivables held by the Software segment and non-cash stock-based compensation expense impacted by increases in ION's stock price during the first quarter.  These two items reduced first quarter earnings by approximately $0.03 per diluted share.  Bob Peebler, ION's Chief Executive Officer, said, "Our first quarter was one of our strongest first quarters in ION's recent history due to a very solid start in both our marine systems and multi-client businesses.  This was significant as our first quarter has historically been the weakest of each year.  As we expected, our data processing business is still being impacted by the Macondo incident, but as we reported last quarter, our pipeline of business strengthened in December and is still building and we remain confident that we will experience a robust 2011. A first quarter highlight of this business was the opening of our joint venture processing services center in Brazil, which should give us better access to a strategically important market for sub-salt depth imaging.  "The current turmoil in Libya significantly impacted our sensor geophone business and forced us to put planned multi-million dollar first quarter sales into Libya on an indefinite hold. Overall, I was pleased that, even with a slow start in both our data processing and sensor geophone businesses, we still outperformed our internal plan and we continue to expect another solid growth year for ION. "Exploration budgets will likely continue to increase as oil prices are hovering above $100/bbl and the global search for energy continues to heat up as energy demand is on the increase due to the improving world economies."   FIRST QUARTER 2011Total revenues for the first quarter of 2011 increased to $90.6 million compared to $88.7 million a year ago. Excluding the revenues of the Legacy Land Systems (INOVA) segment, total first quarter revenues increased 25%. Solutions, Systems and Software segment revenues increased by 20%, 49% and 9%, respectively, over the same period a year ago.  The Solutions group revenues increased to $57.9 million during the first quarter, compared to $48.1 million for the same period a year ago. This increase was predominantly driven by customers' strong interest in access to the Company's multi-client programs in Northeast Greenland, East Africa and Brazil, partially offset by decreased data processing sales that were impacted by lagging effects of the slowdown in the Gulf of Mexico.Systems segment sales increased to $24.0 million in the first quarter compared to $16.1 million in the same period of 2010, principally due to increased sales of towed streamer positioning products as new vessels entering the market are outfitted with the latest marine technology, including DigiBIRD® and DigiFIN®. Additionally, the Company's sensor geophone business was adversely affected by recent events in the Middle East and North Africa as some contracted sales in this region were either cancelled or delayed.Software segment sales increased to $8.7 million in the first quarter compared to $8.0 million due to continued demand for the ORCA® software platform and the favorable impact of foreign exchange rates.  Excluding foreign currency effects, Software segment revenues increased 6%.  Consolidated gross margins for the first quarter of 2011 increased to 34% from 25% in the first quarter of 2010. The increase in gross margins was attributable primarily to the contribution of the Company's lower margin land business to INOVA Geophysical in March 2010, which had a gross margin of (6%) in the first quarter of 2010. Excluding the results of the legacy land business, the overall gross margin of the Company's remaining segments remained consistent with the prior period. Gross margins in the Systems segment improved 17 percentage points, predominantly related to sales mix and cost improvements, while Software and Solutions segment gross margins each decreased by 3% due to sales mix.  As a percentage of revenue, after excluding the 2010 results of the legacy land business, operating expenses declined to 28% of sales during the quarter compared to 34% in the prior year period. Adjusted EBITDA increased 92% to $30.5 million compared to $15.9 million in the first quarter of 2010.The Company's effective tax rate during the first quarter of 2011 was 24.6% (provision on income) compared to (20.7%) (provision on a loss) for the same period of 2010.  The effective tax rate for the first quarter of 2010 included the impact of the formation of INOVA Geophysical. Removing the impact of the INOVA Geophysical transactions, the effective tax rate for the first quarter of 2010 would have been 29.1% (benefit on loss).  The decrease in the effective tax rate is attributable to lower expected tax expense in certain foreign jurisdictions for 2011.The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment on a one fiscal quarter-lag basis.  As a result, the Company's share of INOVA Geophysical's fourth quarter 2010 financial results is included in the Company's first quarter results.  For the first quarter, the Company recognized a loss on its equity investment of approximately $0.9 million.   During the first quarter, the Company invested $80 million of excess cash in short-term certificates of deposit. Total cash and cash equivalents plus these short-term investments were $130.8 million as of March 31, 2011.  Additionally, the Company has no outstanding balance associated with its $100 million revolving credit facility, bringing total liquidity to greater than $230 million.  OUTLOOKBrian Hanson, Executive Vice President and Chief Financial Officer, commented, "While we normally anticipate the first quarter to be the weakest of each year, ION was able to break even as strong performances by our Solutions and Software segments, as well as the marine component of our Systems segment, offset weak performances by our sensor geophone business and our share of INOVA Geophysical.  As previously mentioned in our fourth quarter earnings call, we anticipate 2011 financial performance to be significantly back-end loaded, which is consistent with our historical pattern over the past several years. Not only is this a reflection of the natural budget/planning cycle of our customers, but this year we are also seeing an increase in Solutions backlog to support a stronger second half and we anticipate recognizing the revenue on the 12 streamer system sold to BGP in the second half of the year.Additionally, we are increasing our guidelines for 2011 investments in multi-client data libraries by approximately $20 million for a full-year investment between $110 and $130 million. We expect a majority of this investment to be incurred during the third and fourth quarters. We will continue to invest in multi-client data libraries in strategic locations around the world; and we expect these investments to help position us for stronger financial results in the second half of 2011."           CONFERENCE CALLThe Company has scheduled a conference call for Thursday, May 5, 2011, at 10:00 a.m. Eastern Time that will include a slide presentation.  To participate in the conference call, dial 480-629-9869 at least 10 minutes before the call begins and ask for the ION conference call.  The earnings presentation slides can be accessed at http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9OTIxNzd8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1.A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until May 19, 2011.  To access the replay, dial 303-590-3030 and use pass code 4436712#. 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 webcast will be available shortly after the call on the Company's website.  About IONION 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 HansonChief Financial Officer+1.281.879.3672Jack Lascar DRG&L +1.713.529.6600The information included herein contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  These forward-looking statements include future sales and market growth, timing of sales, future liquidity and cash levels, future estimated revenues and earnings, benefits expected to result from the INOVA Geophysical joint venture and related transactions and other statements that are not of historical fact.  Actual results may vary materially from those described in these forward-looking statements. All forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties.  These risks and uncertainties include the timing and development of the Company's products and services and market acceptance of the Company's new and revised product offerings; risks associated with the operation of the INOVA Geophysical joint venture; risks associated with litigation; risks associated with the Company's level and terms of indebtedness; risks associated with competitors' product offerings and pricing pressures resulting therefrom; the relatively small number of customers that the Company currently relies upon; the fact that a significant portion of the Company's revenues is derived from foreign sales; risks that sources of capital may not prove adequate; the Company's inability to produce products to preserve and increase market share; collection of receivables; and technological and marketplace changes affecting the Company's product 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, 2010 and its Quarterly Reports on Form 10-Q filed during 2011. Tables to followION GEOPHYSICAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)(Unaudited)Three Months EndedMarch 31,20112010Product revenues$  32,387$  40,242Service revenues58,16548,477Total net revenues90,55288,719Cost of products14,63930,491Cost of services44,77435,862Gross profit31,13922,366Operating expenses:Research, development and engineering5,8398,999Marketing and sales7,0427,906General and administrative12,18716,438Total operating expenses25,06833,343Income (loss) from operations6,071(10,977)Interest expense, net(1,615)(25,643)Loss on disposition of land division?(38,115)Fair value adjustment of warrant?12,788Equity in losses of INOVA Geophysical(860)?Other income (expense)(2,999)3,217Income (loss) before income taxes597(58,730)Income tax expense14712,160Net income (loss)450(70,890)Net loss attributable to noncontrolling interest25    ?Net income (loss) attributable to ION475(70,890)Preferred stock dividends338875Net income (loss) applicable to common shares$  137$  (71,765)Net income (loss) per share:Basic$  0.00$  (0.60)Diluted$  0.00$  (0.60)Weighted average number of common shares outstanding:Basic153,666120,312Diluted155,555120,312ION GEOPHYSICAL CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands)(Unaudited)March 31,December 31,20112010ASSETSCurrent assets:Cash and cash equivalents$  50,834$  84,419Short-term investments80,000?Accounts receivable, net63,43677,576Unbilled receivables40,99770,590Inventories80,39566,882Prepaid expenses and other current assets11,41713,165Total current assets327,079312,632Deferred income tax asset11,7648,998Property, plant and equipment, net21,70220,145Multi-client data library, net101,084112,620Investment in INOVA Geophysical94,89895,173Goodwill52,21651,333Intangible assets, net18,98820,317Other assets3,6613,224Total assets$  631,392$  624,442LIABILITIES AND EQUITYCurrent liabilities:Notes payable and current maturities of long-term debt$  5,539$  6,073Accounts payable27,96430,940Accrued expenses41,78854,799Accrued multi-client data library royalties10,70718,667Deferred revenue and other current liabilities38,49222,887Total current liabilities124,490133,366Long-term debt, net of current maturities101,373102,587Other long-term liabilities7,7648,042Total liabilities233,627243,995Equity:Cumulative convertible preferred stock27,00027,000Common stock1,5501,529Additional paid-in capital835,769822,399Accumulated deficit(447,911)(448,386)Accumulated other comprehensive loss(12,253)(15,530)Treasury stock(6,565)(6,565)Total stockholders' equity397,590380,447Noncontrolling interest175    ?Total equity397,765380,447Total liabilities and equity$  631,392$  624,442ION GEOPHYSICAL CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)(Unaudited)Three Months EndedMarch 31,20112010Cash flows from operating activities:Net income (loss)$  450$  (70,890)Adjustments to reconcile net income (loss) to cash provided by operating activities:Depreciation and amortization (other than multi-client data library)3,95311,238Amortization of multi-client data library23,44312,382Stock-based compensation expense2,8121,061Amortization of debt discount?8,656Write-off of unamortized debt issuance costs?10,121Fair value adjustment of warrant?(12,788)Loss on disposition of land division?38,115Equity in losses of INOVA Geophysical860?Deferred income taxes(2,854)8,179Change in operating assets and liabilities:Accounts receivable14,50835,294Unbilled receivables29,593(7,053)Inventories(13,404)(52)Accounts payable, accrued expenses and accrued royalties(22,701)(11,937)Deferred revenue15,5373,913Other assets and liabilities(371)400Net cash provided by operating activities51,82626,639Cash flows from investing activities:Purchase of property, plant and equipment(3,674)(1,268)Investment in multi-client data library(11,907)(5,215)Purchase of short-term investments(80,000)?Proceeds from disposition of land division, net of fees paid?99,790Other investing activities    ?(3,168)Net cash provided by (used in) investing activities(95,581)90,139Cash flows from financing activities:Borrowings under revolving line of credit?85,000Repayments under revolving line of credit?(174,429)Net proceeds from issuance of debt?105,695Net proceeds from issuance of common stock?38,039Payments on notes payable and long-term debt(1,748)(139,211)Payment of preferred dividends(338)(875)Contribution from noncontrolling interest200?Proceeds from exercise of stock options11,793?Other financing activities(37)(28)Net cash provided by (used in) financing activities9,870(85,809)Effect of change in foreign currency exchange rates on cash and cash equivalents300(842)Net increase (decrease) in cash and cash equivalents(33,585)30,127Cash and cash equivalents at beginning of period84,41916,217Cash and cash equivalents at end of period$  50,834$  46,344ION GEOPHYSICAL CORPORATION AND SUBSIDIARIESSUMMARY OF SEGMENT INFORMATION(In thousands)(Unaudited)Three Months EndedMarch 31,20112010Net revenues:Systems:Towed Streamer$  17,547$  10,234Ocean Bottom2174Other6,4115,708Total$  23,960$  16,116Software:Software Systems$  8,427$  7,615Services272356Total$  8,699$  7,971Solutions:Data Processing$  20,299$  23,965New Venture22,4507,426Data Library15,14416,730Total$  57,893$  48,121Legacy Land Systems (INOVA)$  ?$  16,511Total$  90,552$  88,719Gross profit:Systems$  12,245$  5,558Software5,5785,369Solutions13,31612,423Legacy Land Systems (INOVA)    ?(984)Total$  31,139$  22,366Gross margin:Systems51%34%Software64%67%Solutions23%26%Legacy Land Systems (INOVA)    ?%(6%)Total34%25%Income (loss) from operations:Systems$  6,080$  909Software4,8534,806Solutions5,8125,565Legacy Land Systems (INOVA)?(9,623)Corporate and other(10,674)(12,634)Total$  6,071$  (10,977)Reconciliation of Adjusted EBITDA to Net Income (Loss)(Non-GAAP Measure)(In thousands)(Unaudited)Adjusted EBITDA is a Non-GAAP measurement that is presented as an additional indicator of operating performance and is not a substitute for net income (loss) or net income (loss) per share calculated under generally accepted accounting principles (GAAP).  We believe that Adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to service our debt.  The calculation of Adjusted EBITDA shown below is based upon amounts derived from the Company's financial statements prepared in conformity with GAAP.Three Months EndedMarch 31,20112010Net income (loss)$  450$  (70,890)Interest expense, net1,61525,643Income tax expense14712,160Depreciation and amortization expense27,39623,620Equity in losses of INOVA Geophysical860?Loss on disposition of land division?38,115Fair value adjustment of warrant    ?(12,788)Adjusted EBITDA$  30,468$    15,860Reconciliation of Income (Loss) from Operations Excluding theLegacy Land Systems (INOVA) Segment(Non-GAAP Measure)(In thousands)(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 our income (loss) from operations excluding our Legacy Land Systems (INOVA) segment.  This segment was contributed to our joint venture (INOVA Geophysical) on March 25, 2010.  Therefore, beginning on March 26, 2010, this contributed business is no longer consolidated into our results of operations.  This adjusted income amount is not a measure of financial performance under GAAP.  Accordingly, it should not be considered as a substitute for income (loss) from operations or other income data prepared in accordance with GAAP. See the table below for supplemental financial data and the corresponding reconciliation to GAAP financials for the three months ended March 31, 2010:Three Months Ended March 31, 2010AsReportedExcludingLegacy LandSystemsAsAdjustedNet revenues$  88,719$  (16,511)$  72,208Cost of sales66,353(17,495)48,858   Gross profit22,36698423,350Operating expenses:   Research, development and engineering8,999(4,181)4,818   Marketing and sales7,906(1,559)6,347   General and administrative16,438(2,899)13,539      Total operating expenses33,343(8,639)24,704Income (loss) from operations$    (10,977)$  9,623$  (1,354)SOURCE ION Geophysical Corporation