UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: (Date of earliest event reported): February 11, 2015
ION Geophysical Corporation
(Exact name of registrant as specified in its charter)
|
| | |
Delaware (State or other jurisdiction of incorporation) | 1-12691 (Commission file number) | 22-2286646 (I.R.S. Employer Identification No.) |
2105 CityWest Blvd, Suite 400
Houston, Texas 77042-2839
(Address of principal executive offices, including Zip Code)
(281) 933-3339
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On February 11, 2015, ION Geophysical Corporation (the “Company”) issued a press release containing information regarding the Company’s results of operations for the quarter and year ended December 31, 2014. A copy of the press release is furnished as Exhibit 99.1 hereto.
Item 7.01. Regulation FD Disclosure
In conjunction with the above press release, the Company has scheduled a conference call, which will be broadcast live over the Internet, for Thursday, February 12, at 10:00 a.m. Eastern Time (9:00 a.m. Central). The information for accessing the conference call is included in the press release. The webcast of the conference call will be accompanied by a slide presentation, a copy of which is furnished as Exhibit 99.2 hereto.
The information contained in Items 2.02 and 7.01 and the exhibits of this report (i) is not to be considered “filed” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (ii) shall not be incorporated by reference into any previous or future filings made by or to be made by the Company with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended, or the Exchange Act.
The information contained in this report and the attached exhibits 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 statements concerning future sales, earnings, revenues and market growth, timing of sales, future liquidity and cash levels and future cash needs and sources of cash, including availability under our revolving line of credit facility, expected outcomes of litigation, future compliance with our debt financial covenants, sales expected to result from backlogs and pipelines, benefits expected to result from the INOVA Geophysical and OceanGeo joint ventures and related transactions, estimates regarding future commodity prices, future investments 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 an unfavorable judgment in the lawsuit brought by WesternGeco could have a materially adverse effect on our financial results and liquidity; audit adjustments and other modifications to the Company’s financial statements not currently foreseen; the timing and development of the Company’s products and services and market acceptance of the Company’s new and revised product offerings; economic downturns and volatile credit environments; international political and economic events and turmoil; the operation, prospects and performance of the INOVA Geophysical and OceanGeo joint ventures; the Company’s level and terms of indebtedness, including compliance with debt covenants; competitors’ product offerings and pricing pressures resulting therefrom; risks that sources of capital may not prove adequate; 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 Reports on Form 10-K and its Quarterly Reports on Form 10-Q.
Item 9.01. Financial Statements and Exhibits
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Shell company transactions.
Not applicable.
(d) Exhibits.
Exhibit Number Description
99.1 Press Release dated February 11, 2015.
99.2 February 12, 2015 Conference Call Presentation Slides.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | |
Date: February 12, 2015 | ION GEOPHYSICAL CORPORATION
|
| By: | /s/ Jamey S. Seely |
| | Jamey S. Seely |
| | Executive Vice President, General Counsel and Corporate Secretary |
EXHIBIT INDEX
|
| | |
| | |
Exhibit Number | | Description |
| | |
99.1 | | Press Release dated February 11, 2015. |
99.2 | | February 12, 2015 Conference Call Presentation Slides. |
ION reports fourth quarter and year end 2014 results
Takes restructuring charges to rightsize the company
HOUSTON – February 11, 2015 – ION Geophysical Corporation (NYSE: IO) today reported a fourth quarter 2014 net loss of $180.9 million, or $(1.10) per share, which included restructuring and special items totaling $170 million that reduced reported earnings per share by $(1.03). Excluding these restructuring and special items, ION's fourth quarter 2014 net loss was $11.0 million on revenues of $136.8 million, or $(0.07) per share, compared to an adjusted net income of $53.4 million on revenues of $218.7 million, or $0.33 per diluted share, in fourth quarter 2013.
During the quarter, the Company recorded $170 million of restructuring charges and special items as detailed below, with $2 million requiring a use of cash:
| |
• | $109 million of charges impacted cost of sales, of which $101 million was primarily related to a write-down of the multi-client data library within the Solutions segment and $8 million related to inventory write-downs and severance-related charges within the Systems segment; |
| |
• | $33 million of charges impacted operating expenses, of which $25 million was primarily related to the impairment of goodwill within the Systems segment, $2 million was associated with the write-down of intangible assets within the Solutions segment, and $6 million was primarily attributable to the write-down of receivables due from INOVA Geophysical within the Corporate and Other segment; |
| |
• | $34 million of charges impacted equity earnings, primarily due to the full write-down of the Company's equity method investment in INOVA Geophysical; and |
| |
• | $6 million of gains impacted other income, income tax expense and non-controlling interests, primarily related to the Company's sale of a cost method investment. |
A reconciliation of the restructuring and special items can be found in the tables at the end of this press release.
At December 31, 2014, the Company's cash and cash equivalents were $173.6 million. The Company generated net cash flows before financing activities of $81.0 million during 2014, compared to a use of cash before financing activities of $11.4 million in 2013. Full year 2014 Adjusted EBITDA was $108.3 million, compared to $154.3 million in 2013. A reconciliation of Adjusted EBITDA can be found in the tables of this press release.
Brian Hanson, the Company’s President and Chief Executive Officer, commented, “Our fourth quarter and full year results were significantly impacted by the continued slowdown in exploration spending by E&P companies. The slowdown has been greater than we originally expected, but our decision over a year ago to conservatively manage our business has been evident through our ability to generate positive cash flows throughout 2014. While managing for cash, we have narrowed our focus and continue to strategically invest in high potential technologies.
“During the fourth quarter we initiated a restructuring plan to rightsize our segments, with the exception of our Ocean Bottom Services segment, reducing our workforce by approximately 10%. This reduction should result in an annual cash savings of approximately $15 million. This restructuring is a significant move to better integrate and align our entire workforce with our strategy of providing solutions directly to E&P companies.
“In light of the expected prolonged slowdown, we recorded several charges that impacted our fourth quarter results. These charges included a write-down of data library investments associated with our Arctic and onshore North America programs, and a full impairment of goodwill associated with our marine equipment operations. Also, we wrote down our investment in INOVA Geophysical and are evaluating strategic options related to our ongoing participation in the joint venture.
“We are pleased with our continued penetration into the ocean bottom services market through OceanGeo. Our investment in and success with OceanGeo and ocean bottom services has positioned us to participate in the less volatile production phase of seismic activity. During the fourth quarter, OceanGeo completed acquisition of a survey offshore West Africa and was awarded and completed another survey in an adjacent area with a new customer. During 2014, as we increased our ownership in OceanGeo to 100%, we upgraded our vessels for more efficient operations. OceanGeo is ready to take advantage of continued demand for ocean bottom seismic, especially in West Africa, where demand is especially high.
“Looking ahead, we expect 2015 exploration budgets across the E&P industry to be down an estimated 25% to 35% compared to 2014. Consistent with 2014, we will continue to maximize cash and to exercise spending discipline across all of our businesses, funding new programs once we have obtained adequate levels of industry underwriting and continuing to invest in key strategic technologies and market opportunities.”
FOURTH QUARTER 2014
The Company's segment revenues for the fourth quarter were as follows (in thousands):
|
| | | | | | | | | | | |
| | Three Months Ended December 31, | | |
| | 2014 | | 2013 | | % Change |
Solutions | | $ | 80,170 |
| | $ | 166,148 |
| | (52 | )% |
Systems | | 16,469 |
| | 40,470 |
| | (59 | )% |
Software | | 8,411 |
| | 12,059 |
| | (30 | )% |
Ocean Bottom Services | | 31,790 |
| | — |
| | — |
|
Total | | $ | 136,840 |
| | $ | 218,677 |
| | (37 | )% |
Within the Solutions segment, new venture revenues were $22.2 million, a 64% decrease from fourth quarter 2013; data library revenues were $36.1 million, a 52% decrease; and data processing revenues were $21.9 million, a 25% decrease. All businesses within the Solutions segment were impacted by the continued softness of exploration spending. Data library revenues were also impacted by the record sales in fourth quarter 2013 that were not repeated in 2014.
The decrease in Systems segment revenues was primarily due to a reduction in sales of new marine positioning system and land geophone strings compared to fourth quarter 2013.
Software segment revenues were down compared to record fourth quarter revenues in 2013, primarily due to lower Orca® licensing revenues. While Software segment revenues were down year over year, the segment generated overall gross and operating margins, as adjusted, of 66% and 41%, respectively, during the quarter.
Ocean Bottom Services segment revenues were $31.8 million, related to work performed on OceanGeo's projects offshore West Africa, which were completed during the fourth quarter.
Excluding the impact of restructuring and special items, consolidated gross margins were 34%, compared to 47% in fourth quarter 2013, and operating margins were 4%, compared to 30% in the earlier period. The decrease in gross and operating margins was driven primarily by the decrease in revenues within the Solutions and Systems segments, which more than offset the uplift in margins provided by the Ocean Bottom Services segment.
The Company recognized $40.5 million of equity losses, which included the full write-down of its investment in INOVA Geophysical, compared to equity losses of $19.4 million in fourth quarter 2013. INOVA Geophysical experienced a 70% decline in revenues year over year, a result of a soft land seismic equipment market and reduced purchases by BGP, the majority partner in the joint venture. See the attached financial tables for the summarized financial results of INOVA.
The Company's fourth quarter 2013 results included equity losses of $12.4 million related to OceanGeo. In late January 2014, the Company increased its ownership interest to 70%, and subsequently to 100% in July, at that time taking over direct management of OceanGeo.
Income tax expense was $6.3 million for fourth quarter 2014, related to income from the Company's non-U.S. businesses, including OceanGeo. This foreign tax expense has not been offset by the tax benefits on losses within the U.S. and other jurisdictions, from which the Company cannot currently benefit, resulting in an income tax expense on a consolidated pre-tax loss.
FULL YEAR 2014
The Company's segment revenues for the full year were as follows (in thousands):
|
| | | | | | | | | | | |
| | Years Ended December 31, | | |
| | 2014 | | 2013 | | % Change |
Solutions | | $ | 277,904 |
| | $ | 387,384 |
| | (28 | )% |
Systems | | 88,417 |
| | 122,432 |
| | (28 | )% |
Software | | 39,993 |
| | 39,351 |
| | 2 | % |
Ocean Bottom Services | | 103,244 |
| | — |
| | — |
|
Total | | $ | 509,558 |
| | $ | 549,167 |
| | (7 | )% |
Within the Solutions segment, new venture revenues were $98.6 million, down 36% year over year; data library revenues were $66.2 million, down 41%; and data processing revenues were $113.1 million, down 6%. All businesses within the Solutions segment were impacted by the continued softness of exploration spending throughout 2014. The decline in data processing was partially offset by $15.0 million of revenues recognized in 2014 that related to work performed for a customer in 2013.
The decrease in Systems segment revenues was primarily due to (i) lower sales of new marine positioning systems; (ii) a lack of ocean bottom cable systems sales in 2014 compared to 2013; (iii) reduced land geophone string sales; partially offset by (iv) additional marine repair and replacement revenues.
Software segment revenues were up slightly compared to 2013. The Software segment experienced record revenues in the first half of 2014, which were mostly offset by a reduction in revenues in the fourth quarter. The Software segment generated gross and operating margins, as adjusted, of 72% and 51%, respectively, during 2014.
Ocean Bottom Services segment revenues were $103.2 million, related to work performed on OceanGeo's project in Trinidad, completed in May, and from its projects offshore West Africa that were completed in the fourth quarter.
Excluding the impact of restructuring and special items, consolidated gross margins were 34%, compared to 35% in 2013, and operating margins were 5%, compared to 11% in 2013. The decreases in gross and operating margins were primarily due to the decrease in revenues within the Solutions segment, which more than offset the uplift in margins provided by the Ocean Bottom Services segment.
The Company recognized $50.2 million of equity losses related to INOVA Geophysical, which included the full write-down of the remaining balance of its investment, compared to equity losses of $22.5 million in 2013. Also, prior to the consolidation of OceanGeo in late January of this year, the Company recorded $0.7 million of equity earnings, compared to equity losses of $19.8 million in 2013.
Income tax expense was $20.6 million for 2014, related to income from the Company’s non-U.S. businesses, including OceanGeo.
The Company reported a net loss of $128.3 million, or $(0.78) per share, compared to a net loss of $251.9 million, or $(1.59) per share, in 2013. Both periods included special items related to the WesternGeco legal matter and certain restructuring and other special items. Excluding these special items, in 2014, the Company reported a net loss of $34.1 million, or $(0.21) per share, compared to net income of $19.3 million, or $0.12 per diluted share, in 2013.
CONFERENCE CALL
The Company has scheduled a conference call for Thursday, February 12, 2015, 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 February 26, 2015. To access the replay, dial (877) 660-6853 and use pass code 13598876#.
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 Bate
Executive 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 and the INOVA Geophysical joint venture and related transactions, 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 operation of OceanGeo and the INOVA Geophysical joint venture; 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, 2013 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2014.
Tables to follow
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
Service revenues | $ | 112,552 |
| | $ | 167,086 |
| | $ | 384,938 |
| | $ | 391,317 |
|
Product revenues | 24,288 |
| | 51,591 |
| | 124,620 |
| | 157,850 |
|
Total net revenues | 136,840 |
| | 218,677 |
| | 509,558 |
| | 549,167 |
|
Cost of services | 77,930 |
| | 89,014 |
| | 278,627 |
| | 272,047 |
|
Cost of products | 20,892 |
| | 26,821 |
| | 68,608 |
| | 112,346 |
|
Impairment of multi-client data library | 100,100 |
| | — |
| | 100,100 |
| | 5,461 |
|
Gross profit (loss) | (62,082 | ) | | 102,842 |
| | 62,223 |
| | 159,313 |
|
Operating expenses: | | | | | | | |
Research, development and engineering | 10,755 |
| | 9,077 |
| | 41,009 |
| | 37,742 |
|
Marketing and sales | 12,072 |
| | 13,219 |
| | 39,682 |
| | 38,583 |
|
General, administrative and other operating expenses | 27,843 |
| | 16,315 |
| | 76,177 |
| | 66,592 |
|
Impairment of goodwill and intangible assets | 23,284 |
| | — |
| | 23,284 |
| | — |
|
Total operating expenses | 73,954 |
| | 38,611 |
| | 180,152 |
| | 142,917 |
|
Income (loss) from operations | (136,036 | ) | | 64,231 |
| | (117,929 | ) | | 16,396 |
|
Interest expense, net | (4,603 | ) | | (4,241 | ) | | (19,382 | ) | | (12,344 | ) |
Equity in losses of investments | (40,458 | ) | | (31,906 | ) | | (49,485 | ) | | (42,320 | ) |
Other income (expense) | 5,890 |
| | (2,138 | ) | | 79,860 |
| | (182,530 | ) |
Income (loss) before income taxes | (175,207 | ) | | 25,946 |
| | (106,936 | ) | | (220,798 | ) |
Income tax expense | 6,321 |
| | 6,270 |
| | 20,582 |
| | 25,720 |
|
Net income (loss) | (181,528 | ) | | 19,676 |
| | (127,518 | ) | | (246,518 | ) |
Net (income) loss attributable to noncontrolling interests | 650 |
| | 143 |
| | (734 | ) | | 658 |
|
Net income (loss) attributable to ION | (180,878 | ) | | 19,819 |
| | (128,252 | ) | | (245,860 | ) |
Preferred stock dividends | — |
| | — |
| | — |
| | 1,014 |
|
Conversion payment of preferred stock | — |
| | — |
| | — |
| | 5,000 |
|
Net income (loss) applicable to common shares | $ | (180,878 | ) | | $ | 19,819 |
| | $ | (128,252 | ) | | $ | (251,874 | ) |
Net income (loss) per share: | | | | | | | |
Basic | $ | (1.10 | ) | | $ | 0.12 |
| | $ | (0.78 | ) | | $ | (1.59 | ) |
Diluted | $ | (1.10 | ) | | $ | 0.12 |
| | $ | (0.78 | ) | | $ | (1.59 | ) |
Weighted average number of common shares outstanding: | | | | | | | |
Basic | 164,290 |
| | 163,445 |
| | 164,089 |
| | 158,506 |
|
Diluted | 164,290 |
| | 163,772 |
| | 164,089 |
| | 158,506 |
|
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
| | | | | | | |
| December 31, |
| 2014 | | 2013 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 173,608 |
| | $ | 148,056 |
|
Accounts receivable, net | 114,325 |
| | 149,448 |
|
Unbilled receivables | 22,599 |
| | 49,468 |
|
Inventories | 51,162 |
| | 57,173 |
|
Prepaid expenses and other current assets | 13,662 |
| | 24,772 |
|
Total current assets | 375,356 |
| | 428,917 |
|
Deferred income tax asset | 8,604 |
| | 14,650 |
|
Property, plant, equipment and seismic rental equipment, net | 69,840 |
| | 46,684 |
|
Multi-client data library, net | 118,669 |
| | 238,784 |
|
Equity method investments | — |
| | 53,865 |
|
Goodwill | 27,388 |
| | 55,876 |
|
Intangible assets, net | 6,788 |
| | 11,247 |
|
Other assets | 10,612 |
| | 14,648 |
|
Total assets | $ | 617,257 |
| | $ | 864,671 |
|
| | | |
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Current maturities of long-term debt | $ | 7,649 |
| | $ | 5,906 |
|
Accounts payable | 36,863 |
| | 22,654 |
|
Accrued expenses | 65,264 |
| | 84,358 |
|
Accrued multi-client data library royalties | 35,219 |
| | 46,460 |
|
Deferred revenue | 8,262 |
| | 20,682 |
|
Total current liabilities | 153,257 |
| | 180,060 |
|
Long-term debt, net of current maturities | 182,945 |
| | 214,246 |
|
Other long-term liabilities | 143,804 |
| | 210,602 |
|
Total liabilities | 480,006 |
| | 604,908 |
|
Redeemable noncontrolling interest | 1,539 |
| | 1,878 |
|
Equity: | | | |
Common stock | 1,645 |
| | 1,637 |
|
Additional paid-in capital | 887,749 |
| | 879,969 |
|
Accumulated deficit | (734,409 | ) | | (606,157 | ) |
Accumulated other comprehensive loss | (12,807 | ) | | (11,138 | ) |
Treasury stock | (6,565 | ) | | (6,565 | ) |
Total stockholders’ equity | 135,613 |
| | 257,746 |
|
Noncontrolling interests | 99 |
| | 139 |
|
Total equity | 135,712 |
| | 257,885 |
|
Total liabilities and equity | $ | 617,257 |
| | $ | 864,671 |
|
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| | | | | | | |
| Years Ended December 31, |
| 2014 | | 2013 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | (127,518 | ) | | $ | (246,518 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization (other than multi-client library) | 27,656 |
| | 18,158 |
|
Amortization of multi-client data library | 64,374 |
| | 86,716 |
|
Stock-based compensation expense | 8,707 |
| | 7,476 |
|
Equity in losses of investments | 49,485 |
| | 42,320 |
|
Gain on sale of Source product line | (6,522 | ) | | — |
|
Gain on sale of cost method investments | (5,463 | ) | | (3,591 | ) |
Accrual for (reduction of) loss contingency related to legal proceedings | (69,557 | ) | | 183,327 |
|
Impairment of goodwill and intangible assets | 23,284 |
| | — |
|
Impairment of multi-client data library | 100,100 |
| | 5,461 |
|
Write-down of excess and obsolete inventory | 6,952 |
| | 21,197 |
|
Write-down of receivables from INOVA Geophysical | 5,510 |
| | — |
|
Write-down of receivables from OceanGeo | — |
| | 9,157 |
|
Deferred income taxes | (437 | ) | | 4,844 |
|
Change in operating assets and liabilities: | | | |
Accounts receivable | 41,943 |
| | (27,571 | ) |
Unbilled receivables | 26,762 |
| | 40,211 |
|
Inventories | (13,892 | ) | | (8,906 | ) |
Accounts payable, accrued expenses and accrued royalties | (4,771 | ) | | 8,482 |
|
Deferred revenue | (8,382 | ) | | (6,253 | ) |
Other assets and liabilities | 11,549 |
| | 13,077 |
|
Net cash provided by operating activities | 129,780 |
| | 147,587 |
|
Cash flows from investing activities: | | | |
Investment in multi-client data library | (67,785 | ) | | (114,582 | ) |
Purchase of property, plant, equipment and seismic rental equipment | (8,264 | ) | | (16,914 | ) |
Repayment of (net advances to) INOVA Geophysical | 1,000 |
| | (5,000 | ) |
Net investment in and advances to OceanGeo B.V. prior to its consolidation | (3,074 | ) | | (24,755 | ) |
Net proceeds from sale of Source product line | 14,394 |
| | — |
|
Proceeds from sale of cost method investments | 14,051 |
| | 4,150 |
|
Investment in convertible notes | — |
| | (2,000 | ) |
Other investing activities | 928 |
| | 128 |
|
Net cash used in investing activities | (48,750 | ) | | (158,973 | ) |
Cash flows from financing activities: | | | |
Proceeds from issuance of notes | — |
| | 175,000 |
|
Payments under revolving line of credit | (50,000 | ) | | (97,250 | ) |
Borrowings under revolving line of credit | 15,000 |
| | 35,000 |
|
Payments on notes payable and long-term debt | (12,998 | ) | | (4,361 | ) |
Cost associated with issuance of debt | (2,194 | ) | | (6,773 | ) |
Acquisition of non-controlling interest | (6,000 | ) | | — |
|
Payment of preferred dividends | — |
| | (1,014 | ) |
Conversion payment of preferred stock | — |
| | (5,000 | ) |
Proceeds from employee stock purchases and exercise of stock options | 577 |
| | 2,527 |
|
Other financing activities | (359 | ) | | 573 |
|
Net cash provided by (used in) financing activities | (55,974 | ) | | 98,702 |
|
Effect of change in foreign currency exchange rates on cash and cash equivalents | 496 |
| | (231 | ) |
Net increase in cash and cash equivalents | 25,552 |
| | 87,085 |
|
Cash and cash equivalents at beginning of period | 148,056 |
| | 60,971 |
|
Cash and cash equivalents at end of period | $ | 173,608 |
| | $ | 148,056 |
|
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SEGMENT INFORMATION
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | Twelve Months Ended December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
Net revenues: | | | | | | | |
Solutions: | | | | | | | |
New Venture | $ | 22,150 |
| | $ | 60,948 |
| | $ | 98,649 |
| | $ | 154,578 |
|
Data Library | 36,076 |
| | 75,845 |
| | 66,180 |
| | 111,998 |
|
Total multi-client revenues | 58,226 |
| | 136,793 |
| | 164,829 |
| | 266,576 |
|
Data Processing | 21,944 |
| | 29,355 |
| | 113,075 |
| | 120,808 |
|
Total | $ | 80,170 |
| | $ | 166,148 |
| | $ | 277,904 |
| | $ | 387,384 |
|
Systems: | | | | | | | |
Towed Streamer | $ | 8,213 |
| | $ | 25,530 |
| | $ | 43,995 |
| | $ | 66,991 |
|
Ocean bottom equipment | — |
| | — |
| | — |
| | 7,307 |
|
Other | 8,256 |
| | 14,940 |
| | 44,422 |
| | 48,134 |
|
Total | $ | 16,469 |
| | $ | 40,470 |
| | $ | 88,417 |
| | $ | 122,432 |
|
Software: | | | | | | | |
Software Systems | $ | 7,819 |
| | $ | 11,121 |
| | $ | 36,203 |
| | $ | 35,418 |
|
Services | 592 |
| | 938 |
| | 3,790 |
| | 3,933 |
|
Total | $ | 8,411 |
| | $ | 12,059 |
| | $ | 39,993 |
| | $ | 39,351 |
|
Ocean Bottom Services | $ | 31,790 |
| | $ | — |
| | $ | 103,244 |
| | $ | — |
|
Total | $ | 136,840 |
| | $ | 218,677 |
| | $ | 509,558 |
| | $ | 549,167 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2014 | | Three Months Ended December 31, 2013 |
| As Reported | | Special Items(1) | | As Adjusted | | As Reported | | Special Items(1) | | As Adjusted |
Gross profit (loss): | | | | | | | | | | | |
Solutions | $ | (75,552 | ) | | $ | 100,825 |
| | $ | 25,273 |
| | $ | 77,508 |
| | $ | — |
| | $ | 77,508 |
|
Systems | (1,459 | ) | | 7,580 |
| | 6,121 |
| | 16,804 |
| | 608 |
| | 17,412 |
|
Software | 5,447 |
| | 137 |
| | 5,584 |
| | 8,530 |
| | — |
| | 8,530 |
|
Ocean Bottom Services | 9,482 |
| | — |
| | 9,482 |
| | — |
| | — |
| | — |
|
Total | $ | (62,082 | ) | | $ | 108,542 |
| | $ | 46,460 |
| | $ | 102,842 |
| | $ | 608 |
| | $ | 103,450 |
|
Gross margin: | | | | | | | | | | | |
Solutions | (94 | )% | | 126 | % | | 32 | % | | 47 | % | | — | % | | 47 | % |
Systems | (9 | )% | | 46 | % | | 37 | % | | 42 | % | | 1 | % | | 43 | % |
Software | 65 | % | | 1 | % | | 66 | % | | 71 | % | | — | % | | 71 | % |
Ocean Bottom Services | 30 | % | | — | % | | 30 | % | | — | % | | — | % | | — | % |
Total | (45 | )% | | 79 | % | | 34 | % | | 47 | % | | — | % | | 47 | % |
Income (loss) from operations: | | | | | | | | | | | |
Solutions | $ | (92,386 | ) | | $ | 102,740 |
| | $ | 10,354 |
| | $ | 60,931 |
| | $ | — |
| | $ | 60,931 |
|
Systems | (33,356 | ) | | 32,492 |
| | (864 | ) | | 11,215 |
| | 754 |
| | 11,969 |
|
Software | 3,227 |
| | 223 |
| | 3,450 |
| | 7,206 |
| | — |
| | 7,206 |
|
Ocean Bottom Services | 6,737 |
| | — |
| | 6,737 |
| | — |
| | — |
| | — |
|
Corporate and other | (20,258 | ) | | 6,487 |
| | (13,771 | ) | | (15,121 | ) | | — |
| | (15,121 | ) |
Total | $ | (136,036 | ) | | $ | 141,942 |
| | $ | 5,906 |
| | $ | 64,231 |
| | $ | 754 |
| | $ | 64,985 |
|
Operating margin: | | | | | | | | | | | |
Solutions | (115 | )% | | 128 | % | | 13 | % | | 37 | % | | — | % | | 37 | % |
Systems | (203 | )% | | 198 | % | | (5 | )% | | 28 | % | | 2 | % | | 30 | % |
Software | 38 | % | | 3 | % | | 41 | % | | 60 | % | | — | % | | 60 | % |
Ocean Bottom Services | 21 | % | | — | % | | 21 | % | | — | % | | — | % | | — | % |
Corporate and other | (15 | )% | | 5 | % | | (10 | )% | | (7 | )% | | — | % | | (7 | )% |
Total | (99 | )% | | 103 | % | | 4 | % | | 29 | % | | 1 | % | | 30 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2014 | | Twelve Months Ended December 31, 2013 |
| As Reported | | Special Items(1) | | As Adjusted | | As Reported | | Special Items(1) | | As Adjusted |
Gross profit: | | | | | | | | | | | |
Solutions | $ | (24,345 | ) | | $ | 100,825 |
| | $ | 76,480 |
| | $ | 111,108 |
| | $ | 5,461 |
| | $ | 116,569 |
|
Systems | 29,829 |
| | 7,580 |
| | 37,409 |
| | 19,999 |
| | 25,688 |
| | 45,687 |
|
Software | 28,835 |
| | 137 |
| | 28,972 |
| | 28,206 |
| | — |
| | 28,206 |
|
Ocean Bottom Services | 27,904 |
| | — |
| | 27,904 |
| | — |
| | — |
| | — |
|
Total | $ | 62,223 |
| | $ | 108,542 |
| | $ | 170,765 |
| | $ | 159,313 |
| | $ | 31,149 |
| | $ | 190,462 |
|
Gross margin: | | | | | | | | | | | |
Solutions | (9 | )% | | 37 | % | | 28 | % | | 29 | % | | 1 | % | | 30 | % |
Systems | 34 | % | | 8 | % | | 42 | % | | 16 | % | | 21 | % | | 37 | % |
Software | 72 | % | | — | % | | 72 | % | | 72 | % | | — | % | | 72 | % |
Ocean Bottom Services | 27 | % | | — | % | | 27 | % | | — | % | | — | % | | — | % |
Total | 12 | % | | 22 | % | | 34 | % | | 29 | % | | 6 | % | | 35 | % |
Income (loss) from operations: | | | | | | | | | | | |
Solutions | $ | (80,653 | ) | | $ | 102,740 |
| | $ | 22,087 |
| | $ | 61,146 |
| | $ | 5,461 |
| | $ | 66,607 |
|
Systems | (23,521 | ) | | 32,492 |
| | 8,971 |
| | (9,957 | ) | | 28,050 |
| | 18,093 |
|
Software | 20,212 |
| | 223 |
| | 20,435 |
| | 23,602 |
| | — |
| | 23,602 |
|
Ocean Bottom Services | 19,070 |
| | — |
| | 19,070 |
| | — |
| | — |
| | — |
|
Corporate and other | (53,037 | ) | | 6,487 |
| | (46,550 | ) | | (58,395 | ) | | 9,157 |
| | (49,238 | ) |
Total | $ | (117,929 | ) | | $ | 141,942 |
| | $ | 24,013 |
| | $ | 16,396 |
| | $ | 42,668 |
| | $ | 59,064 |
|
Operating margin: | | | | | | | | | | | |
Solutions | (29 | )% | | 37 | % | | 8 | % | | 16 | % | | 1 | % | | 17 | % |
Systems | (27 | )% | | 37 | % | | 10 | % | | (8 | )% | | 23 | % | | 15 | % |
Software | 51 | % | | — | % | | 51 | % | | 60 | % | | — | % | | 60 | % |
Ocean Bottom Services | 18 | % | | — | % | | 18 | % | | — | % | | — | % | | — | % |
Corporate and other | (10 | )% | | 1 | % | | (9 | )% | | (11 | )% | | 2 | % | | (9 | )% |
Total | (23 | )% | | 28 | % | | 5 | % | | 3 | % | | 8 | % | | 11 | % |
|
| | | | |
| | | | |
(1) | See the tables titled 'Reconciliation of Restructuring and Special Items to Diluted Earnings per Share' for descriptions of these restructuring and special items for three and twelve months ended December 31, 2014 and 2013. |
| | | | |
| |
| | | | |
INOVA GEOPHYSICAL EQUIPMENT LIMITED
SUMMARIZED FINANCIAL HIGHLIGHTS
(In thousands)
(Unaudited)
The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment and records its share of earnings and losses of INOVA Geophysical on a one fiscal quarter lag basis. The following table reflects the summarized financial information for INOVA Geophysical for the three months ended September 30, 2014 and 2013 and the twelve-month periods from October 1 to September 30, 2014 and 2013:
|
| | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Period from October 1 through September 30, | |
| 2014 | | 2013 | | 2014 | | 2013 | |
Net revenues | $ | 12,201 |
| | $ | 40,672 |
| | $ | 89,975 |
| | $ | 183,619 |
| |
Gross profit (loss) | $ | (7,773 | ) | (1) | $ | (28,366 | ) | (2) | $ | 247 |
| (1) | $ | (1,988 | ) | (2) |
Income (loss) from operations | $ | (18,446 | ) | (1) | $ | (37,360 | ) | | $ | (34,540 | ) | (1) | $ | (44,463 | ) | |
Net income (loss) | $ | (20,077 | ) | | $ | (38,972 | ) | (2) | $ | (40,087 | ) | | $ | (46,149 | ) | (2) |
|
| | | | |
| | | | |
(1) | Impacting INOVA's gross profit (loss) for the three months ended September 30, 2014, is $3.8 million of a write-down of excess and obsolete inventory. In addition to the special item impacting gross profit (loss), income (loss) from operations was also impacted by $3.4 million of charges related to customer bad debts. |
| |
(2) | Impacting INOVA's gross profit (loss) for the three months ended September 30, 2013, is $36.5 million of restructuring and special items associated with the impairment of intangible assets, write-down of excess and obsolete inventory and rental equipment, and severance-related charges. In addition to the restructuring and special items impacting gross profit (loss), net income (loss) was also impacted by $1.8 million of other restructuring and special items. |
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, gains on sale of cost method investments and the Source product line, and other non-cash charges including, without limitation, equity in (earnings) losses of investments, accrual for (reduction of) loss contingency related to legal proceedings and the impairment and write-down of assets. 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 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 December 31, | | Twelve Months Ended December 31, |
| 2014 | | 2013 | | 2014 | | 2013 |
Net income (loss) | $ | (181,528 | ) | | $ | 19,676 |
| | $ | (127,518 | ) | | $ | (246,518 | ) |
Interest expense, net | 4,603 |
| | 4,241 |
| | 19,382 |
| | 12,344 |
|
Income tax expense | 6,321 |
| | 6,270 |
| | 20,582 |
| | 25,720 |
|
Depreciation and amortization expense | 25,027 |
| | 40,836 |
| | 92,030 |
| | 104,874 |
|
Equity in losses of investments | 40,458 |
| | 31,906 |
| | 49,485 |
| | 42,320 |
|
Write-down of multi-client data library | 100,100 |
| | — |
| | 100,100 |
| | 5,461 |
|
Impairment of goodwill and intangible assets | 23,284 |
| | — |
| | 23,284 |
| | — |
|
Write-down of receivables from INOVA Geophysical | 5,510 |
| | — |
| | 5,510 |
| | — |
|
Write-down of excess and obsolete inventory | 6,952 |
| | — |
| | 6,952 |
| | 21,197 |
|
Gain on sale of cost method investments | (5,463 | ) | | — |
| | (5,463 | ) | | (3,591 | ) |
Gain on sale of Source product line | — |
| | — |
| | (6,522 | ) | | — |
|
Accrual for (reduction of) loss contingency related to legal proceedings | — |
| | 1,551 |
| | (69,557 | ) | | 183,327 |
|
Write-down of receivables from OceanGeo | — |
| | — |
| | — |
| | 9,157 |
|
Adjusted EBITDA | $ | 25,264 |
| | $ | 104,480 |
| | $ | 108,265 |
| | $ | 154,291 |
|
Reconciliation of Restructuring and Special Items to Diluted Earnings 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 income (loss) from operations or net income (loss) excluding 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 table below for supplemental financial data and the corresponding reconciliation to GAAP financials for the three and twelve months ended December 31, 2014 and 2013:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2014 |
| | | Restructuring and Special Items by Segment | | |
| As Reported | | Solutions(1) | | Systems(2) | | Software(3) | | Corporate and Other | | As Adjusted |
Net revenues | $ | 136,840 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 136,840 |
|
Cost of sales | 198,922 |
| | (100,825 | ) | | (7,580 | ) | | (137 | ) | | — |
| | 90,380 |
|
Gross profit (loss) | (62,082 | ) | | 100,825 |
| | 7,580 |
| | 137 |
| | — |
| | 46,460 |
|
Operating expenses | 73,954 |
| | (1,915 | ) | | (24,912 | ) | | (86 | ) | | (6,487 | ) | (4) | 40,554 |
|
Income (loss) from operations | (136,036 | ) | | 102,740 |
| | 32,492 |
| | 223 |
| | 6,487 |
| | 5,906 |
|
Operating margin | (99 | )% | | | | | | | | | | 4 | % |
Interest expense, net | (4,603 | ) | | — |
| | — |
| | — |
| | — |
| | (4,603 | ) |
Equity in losses of investments | (40,458 | ) | | — |
| | — |
| | — |
| | 34,199 |
| (5) | (6,259 | ) |
Other income (expense), net | 5,890 |
| | — |
| | — |
| | — |
| | (5,463 | ) | (6) | 427 |
|
Income tax expense | 6,321 |
| | 283 |
| | — |
| | 26 |
| | — |
|
| 6,630 |
|
Net income (loss) | (181,528 | ) | | 102,457 |
| | 32,492 |
| | 197 |
| | 35,223 |
| | (11,159 | ) |
Net loss attributable to noncontrolling interests | 650 |
| | (504 | ) | | — |
| | — |
| | — |
| | 146 |
|
Net income (loss) applicable to common shares | $ | (180,878 | ) | | $ | 101,953 |
| | $ | 32,492 |
| | $ | 197 |
| | $ | 35,223 |
| | $ | (11,013 | ) |
Net income (loss) per share: | | | | | | | | | | | |
Basic | $ | (1.10 | ) | | | | | | | | | | $ | (0.07 | ) |
Diluted | $ | (1.10 | ) | | | | | | | | | | $ | (0.07 | ) |
Weighted average number of common shares outstanding: | | | | | | | | | | | |
Basic | 164,290 |
| | | | | | | | | | 164,290 |
|
Diluted | 164,290 |
| | | | | | | | | | 164,290 |
|
|
| | | | |
| | | | |
(1) | Primarily relates to the write-down of the multi-client data library, in addition to the impairment of intangible assets and severance-related charges within the Solutions segment. |
| |
(2) | Primarily relates to the write-down of goodwill, in addition to inventory write-downs, bad debt and severance-related charges within the Systems segment. |
| |
(3) | Represents severance-related charges within the Software segment. |
| |
(4) | Represents the write-down of receivables due from INOVA Geophysical, in addition to severance-related charges. |
| |
(5) | Represents the full write-down of Company's equity method investment in INOVA Geophysical of $30.7 million, in addition to the Company's share of charges related excess and obsolete inventory and customer bad debts of $3.5 million. |
| |
(6) | Represents a non-recurring gain on sale of a cost method investment. |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2014 |
| | | Restructuring and Special Items by Segment | | |
| As Reported | | Solutions(a) | | Systems(a) | | Software(a) | | Corporate and Other | | As Adjusted |
Net revenues | $ | 509,558 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 509,558 |
|
Cost of sales | 447,335 |
| | (100,825 | ) | | (7,580 | ) | | (137 | ) | | — |
| | 338,793 |
|
Gross profit | 62,223 |
| | 100,825 |
| | 7,580 |
| | 137 |
| | — |
| | 170,765 |
|
Operating expenses | 180,152 |
| | (1,915 | ) | | (24,912 | ) | | (86 | ) | | (6,487 | ) | (a) | 146,752 |
|
Income (loss) from operations | (117,929 | ) | | 102,740 |
| | 32,492 |
| | 223 |
| | 6,487 |
| | 24,013 |
|
Operating margin | (23 | )% | | | | | | | | | | 5 | % |
Interest expense, net | (19,382 | ) | | — |
| | — |
| | — |
| | — |
| | (19,382 | ) |
Equity in losses of investments | (49,485 | ) | | — |
| | — |
| | — |
| | 34,199 |
| (a) | (15,286 | ) |
Other income (expense), net | 79,860 |
| | — |
| | (6,522 | ) | | — |
| | (75,020 | ) | (b) | (1,682 | ) |
Income tax expense | 20,582 |
| | 283 |
| | (357 | ) | | 26 |
| | — |
|
| 20,534 |
|
Net income (loss) | (127,518 | ) | | 102,457 |
| | 26,327 |
| | 197 |
| | (34,334 | ) | | (32,871 | ) |
Net income attributable to noncontrolling interests | (734 | ) | | (504 | ) | | — |
| | — |
| | — |
| | (1,238 | ) |
Net income (loss) applicable to common shares | $ | (128,252 | ) | | $ | 101,953 |
| | $ | 26,327 |
| | $ | 197 |
| | $ | (34,334 | ) | | $ | (34,109 | ) |
Net income (loss) per share: | | | | | | | | | | | |
Basic | $ | (0.78 | ) | | | | | | | | | | $ | (0.21 | ) |
Diluted | $ | (0.78 | ) | | | | | | | | | | $ | (0.21 | ) |
Weighted average number of common shares outstanding: | | | | | | | | | | | |
Basic | 164,089 |
| | | | | | | | | | 164,089 |
|
Diluted | 164,089 |
| | | | | | | | | | 164,089 |
|
|
| | | | |
| | | | |
(a) | Relates to the restructuring and special items impacting the fourth quarter 2014. See the notes for the three months ended December 31, 2014 for description of these restructuring and special items. |
| |
(b) | In addition to the sale of a cost method investment of $5.5 million in the fourth quarter, the Company's first quarter results were impacted by a reduction in the WesternGeco legal contingency by $69.6 million and in the second quarter a non-recurring gain on the sale of the marine source product line of $6.5 million (before tax). |
| |
|
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2013 |
| | | Restructuring and Special Items by Segment | | |
| As Reported | | Systems(1) | | Corporate and Other | | As Adjusted |
Net revenues | $ | 218,677 |
| | $ | — |
| | $ | — |
| | $ | 218,677 |
|
Cost of sales | 115,835 |
| | (608 | ) | | — |
| | 115,227 |
|
Gross profit | 102,842 |
| | 608 |
| | — |
| | 103,450 |
|
Operating expenses | 38,611 |
| | (146 | ) | | — |
| | 38,465 |
|
Income from operations | 64,231 |
| | 754 |
| | — |
| | 64,985 |
|
Operating margin | 29 | % | | | | | | 30 | % |
Interest expense, net | (4,241 | ) | | — |
| | — |
| | (4,241 | ) |
Equity in losses of investments | (31,906 | ) | | — |
| | 31,238 |
| (2) | (668 | ) |
Other expense, net | (2,138 | ) | | — |
| | 1,551 |
| (3) | (587 | ) |
Income tax expense | 6,270 |
| | — |
| | — |
| | 6,270 |
|
Net income | 19,676 |
| | 754 |
| | 32,789 |
| | 53,219 |
|
Net loss attributable to noncontrolling interests | 143 |
| | — |
| | — |
| | 143 |
|
Net income (loss) attributable to ION | 19,819 |
| | 754 |
| | 32,789 |
| | 53,362 |
|
Net income per share: | | | | | | | |
Basic | $ | 0.12 |
| | | | | | $ | 0.33 |
|
Diluted | $ | 0.12 |
| | | | | | $ | 0.33 |
|
Weighted average number of common shares outstanding: | | | | | | | |
Basic | 163,445 |
| | | | | | 163,445 |
|
Diluted | 163,772 |
| | | | | | 163,772 |
|
|
| | | | |
| | | | |
(1) | Represents restructuring charges related to the Systems segment vacating certain leased facilities in the fourth quarter 2013. |
| |
(2) | $18.8 million represents ION's 49% share of restructuring charges within the INOVA joint venture, associated with the impairment of intangible assets, write-down of excess and obsolete inventory and rental equipment, and severance-related charges and $12.4 million represents losses incurred as a result of ION taking a larger ownership position in OceanGeo. |
| |
(3) | Represents additional accrued interest related to the WesternGeco legal contingency. |
| |
|
| | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2013 |
| | | Restructuring and Special Items by Segment | |
| As Reported | | Solutions(a) | | Systems(b) | | Corporate and Other | | As Adjusted |
Net revenues | $ | 549,167 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 549,167 |
|
Cost of sales | 389,854 |
| | (5,461 | ) | | (25,688 | ) | | — |
| | 358,705 |
|
Gross profit | 159,313 |
| | 5,461 |
| | 25,688 |
| | — |
| | 190,462 |
|
Operating expenses | 142,917 |
| | — |
| | (2,362 | ) | | (9,157 | ) | (c) | 131,398 |
|
Income from operations | 16,396 |
| | 5,461 |
| | 28,050 |
| | 9,157 |
| | 59,064 |
|
Operating margin | 3 | % | | | | | | | | 11 | % |
Interest expense, net | (12,344 | ) | | — |
| | — |
| | — |
| | (12,344 | ) |
Equity in losses of investments | (42,320 | ) | | — |
| | — |
| | 31,238 |
| (d) | (11,082 | ) |
Other income (expense), net | (182,530 | ) | | — |
| | — |
| | 184,491 |
| (e) | 1,961 |
|
Income tax expense | 25,720 |
| | — |
| | — |
| | (7,811 | ) | (f) | 17,909 |
|
Net income (loss) | (246,518 | ) | | 5,461 |
| | 28,050 |
| | 232,697 |
| | 19,690 |
|
Net loss attributable to noncontrolling interests | 658 |
| | — |
| | — |
| | — |
| | 658 |
|
Net income (loss) attributable to ION | (245,860 | ) | | 5,461 |
| | 28,050 |
| | 232,697 |
| | 20,348 |
|
Preferred stock dividends | 6,014 |
| | — |
| | — |
| | (5,000 | ) | (g) | 1,014 |
|
Net income (loss) applicable to common shares | $ | (251,874 | ) | | $ | 5,461 |
| | $ | 28,050 |
| | $ | 237,697 |
| | $ | 19,334 |
|
Net income (loss) per share: | | | | | | | | | |
Basic | $ | (1.59 | ) | | | | | | | | $ | 0.12 |
|
Diluted | $ | (1.59 | ) | | | | | | | | $ | 0.12 |
|
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic | 158,506 |
| | | | | | | | 158,506 |
|
Diluted | 158,506 |
| | | | | | | | 159,117 |
|
|
| | | | |
| | | | |
(a) | Represents the partial write-down of a multi-client data library. |
| |
(b) | Represents excess and obsolete inventory write-downs and severance-related charges as a result of restructuring of the Systems segment. |
| |
(c) | Represents the write-down of the carrying value of all receivables due from OceanGeo at September 30, 2013. |
| |
(d) | $18.8 million represents ION's 49% share of restructuring charges within the INOVA joint venture, associated with the impairment of intangible assets, write-down of excess and obsolete inventory and rental equipment, and severance-related charges and $12.4 million represents losses incurred as a result of ION taking a larger ownership position in OceanGeo. |
| |
(e) | Primarily represents the loss contingency accrual related to the WesternGeco legal matter. |
| |
(f) | Represents a charge to income tax expense related to the Company establishing a valuation allowance on its net deferred tax assets. |
| | | | |
(g) | Represents a payment related to the conversion of ION preferred stock into ION common shares. |
| | | | |
ION Earnings Call – Q4 2014 Earnings Call Presentation February 12, 2015
Corporate Participants and Contact Information CONTACT INFORMATION If you have technical problems during the call, please contact DENNARD–LASCAR Associates at 713 529 6600. If you would like to view a replay of today's call, it will be available via webcast in the Investor Relations section of the Company's website at www.iongeo.com for approximately 12 months. BRIAN HANSON President and Chief Executive Officer STEVE BATE Executive Vice President and Chief Financial Officer 2
Forward-Looking Statements The information included herein contains 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. Actual results may vary fundamentally 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 risk factors that are disclosed by ION from time to time in its filings with the Securities and Exchange Commission. 3
ION FY 2014 Results 4 • FY 2014 revenues $510M, down 7% Y/Y • Three of four business segments negatively impacted by exploration downturn • Q4 results impacted by several one- time restructuring and special items • Focus on cash generation has paid off; cash grew to over $170M in 2014 Revenue $M FY 13 FY 14 0 100 200 300 400 500 600 Cash & Cash Equiv. $M FY 13 FY 14 0 50 100 150 200
ION FY 2014 Results Ocean Bottom Services Segment Generated significant cash and over $100M in revenues Outlook for ocean bottom seismic remains solid, despite exploration slowdown Upgraded vessels for more efficient operation OceanGeo ready to take advantage of continued demand, especially in West Africa 5 FY14 $M Revenue Op Profit 0 25 50 75 100 125
ION FY 2014 Results Solutions Segment Multi-client – Q4 and FY revenues impacted by continued exploration slowdown – Strong cash position enabled continued strategic investment – Initiated three new BasinSPANTM projects in Q4 – Maintained disciplined underwriting standards Data Processing – Dual focus: Improve efficiency through cost control and add to DP technology toolkit PrecisIONTM inversion tool Full waveform inversion 6 NamibiaSPAN 10,000 km PeruSPAN 12,000 km LibyaSPAN 7,700 km
ION FY 2014 Results Software and Systems Segments Software – Revenues up slightly Y/Y – Strong gross and operating margins – Continued market penetration with Orca® – Diversifying software portfolio with MarlinTM for simultaneous operations, now commercial Systems – Revenues down as expected per long- term strategy 7 Marlin Orca
Financial Overview of Special Items Q4 14 1. $101M in Solutions primarily impairment of multi-client library; $8M inventory write-downs & severance in Systems 2. $25M in Systems primarily impairment of goodwill; $2M in Solutions primarily impairment of intangible assets; $6M write-down of receivables due from INOVA 3. Non-recurring gain on sale of cost method investment 4. Full write-down of equity method investment in INOVA 5. Income tax and non-controlling interest impact of above items Of $170M in charges, only $2M required a use of cash Q4 14 Special Q4 14 (in thousands) As Reported Items As Adjusted Net Revenues 136,840 - 136,840 Cost of sales 198,922 (108,542) 1 90,380 Gross profit (62,082) 108,542 46,460 Operating Expenses: Operating Expenses 73,954 (33,400) 2 40,554 Operating Income (136,036) 141,942 5,906 Interest Expense (net) (4,603) - (4,603) Other income (expense) 5,890 (5,463) 3 427 Equity Earnings (Losses) (40,458) 34,199 4 (6,259) Earnings (Loss) Before Inc Tax & NCI (175,207) 170,678 (4,529) Income Tax Expense 6,321 309 5 6,630 Earnings (Loss) B for NCI (181,528) 170,369 (11,159) Noncontrolling inter st 650 (504) 5 146 Net Earnings to Com on (180,878) 169,865 (11,013) EPS (1.10) 1.03 (0.07)
9 ION Q4 14 Highlights - 50 100 150 200 250 Q4 13 Q4 14 Software Systems Solutions Revenue $M Ocean Bottom 30% 4% 0% 10% 20% 30% Adjusted Op. Margin % Q4 13 Q4 14 • Revenues down 37% Y/Y • Solutions down 52% • Software down 30% • Systems down 59% • OceanGeo revenues from West Africa projects • Adjusted Op. Margin down to 4% • Revenue decline in Solutions and Systems more than offset uplift from OceanGeo • Adjusted EBITDA down to $25M • Adjusted EPS of ($0.07) 0.33 (0.07) $(0.10) $- $0.10 $0.20 $0.30 Adjusted Diluted EPS Q4 13 Q4 14 0 20 40 60 80 100 Q4 13 Adjusted EBITDA $M Q4 14
Solutions Segment Financial Overview – Q4 14 10 - 25 50 75 100 125 150 175 Q4 13 Q4 14 Revenue by Type $M Data Processing Data Libraries New Ventures Multi-client Investment Full Year $M 115 68 - 25 50 75 100 125 • Solutions segment revenues down 52% Y/Y: • New Ventures down 64% • Data libraries down 52% • Data processing down 25% • Continue to be impacted by the ongoing softness in exploration spending • Adjusted Op. Margin down to 13% • Reduction on revenues • Exercising spending discipline; FY14 $68M investment in library FY 13 FY 14 37% 13% 0% 10% 20% 30% 40% Q4 13 Q4 14 Adjusted Op. Margin %
Software Segment Financial Overview – Q4 14 - 2 4 6 8 10 12 Q4 13 Q4 14 Services Software Systems 11 Revenue by Type $M 60% 41% 0% 20% 40% 60% Q4 13 Q4 14 Adjusted Op. Margin % Software segment revenues down 30% Y/Y •Decreased Orca licensing revenues Adjusted Op. Margin down to 41%: Reduction in revenues, Q4 13 record revenues not repeated Increased R&D investment in new E&P software solutions for managing simultaneous operations
Systems Segment Financial Overview – Q4 14 - 10 20 30 40 50 Q4 13 Q4 14 Towed Streamer Equipment Other 12 Revenue by Type $M 30% -5% -10% 0% 10% 20% 30% Q4 13 Q4 14 Adjusted Op. Margin % Systems segment revenues down 59% Y/Y Reduced sales of new marine positioning systems and sensor geophones Adjusted Op. Margin down to -5%: Decline in revenues Continued investment in development and support of our ocean bottom systems for OceanGeo
Ocean Bottom Services Segment Financial Overview – Q4 14 Revenues of $32M on West Africa projects (completed in 4Q) Operating profit of $7M, or 21% operating margin 13 - 5 10 15 20 25 30 35 Revenue Op. Profit Q4 14 ($M)
INOVA Geophysical Financial Overview – Q4 14 14 ION shares in 49% of INOVA’s results. • ION wrote down investment to $0 • No contractual commitments or intent to fund INOVA’s future losses • Discontinue recording share of losses in INOVA going forward 0 10 20 30 40 50 Q3 13 Q3 14 Q3 Revenues $M Q3 Adjusted Op. Profit -15 -10 -5 0 5 Q3 13 Q3 14
Financial Overview Cash Flow 15 SUMMARIZED CASH FLOW $ Thousands FY 2013 FY 2014 Cash from operations 128,547$ 76,571$ Working capital 19,040 53,209 Multi-client investment (114,582) (67,785) PP&E Capital Expenditures (16,914) (8,264) Free Cash Flow 16,091 53,731 Proceeds from sale of product line and investments 4,150 28,445 Notes issuance (net) / Pay down of revolver 105,977 (35,000) Investment in and advances to OceanGeo (24,755) (3,074) Other Investing & Financing (14,378) (18,550) Net change in Cash 87,085 25,552 Cash & Cash Equiv. (Beg. of Period) 60,971 148,056 Cash & Cash Equiv. (End of Period) 148,056$ 173,608$ Net debt (total debt less cash balances) of $17M
Summary 2014 was challenging; expect continuation through 2015 and into 2016 – Customer budgets delayed – ‘wait and see’ mode – Expect 2015 Exploration budgets to be down 25-35% – Expect first half of the year to be slower than second half Will continue to manage our business conservatively – Continued focus on cash preservation – Continued spending discipline – Continued strategic investment in technologies and market opportunities 16
17 Q&A
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