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): May 6, 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 May 6, 2015, ION Geophysical Corporation (the “Company”) issued a press release containing information regarding the Company’s results of operations for the quarter ended March 31, 2015. 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, May 7, 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 (the “Securities Act”), 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 and Section 21E of the Exchange Act. 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 OceanGeo and the INOVA Geophysical joint venture 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 outcome 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 OceanGeo and the INOVA Geophysical joint venture; 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 SEC, 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 May 6, 2015.
99.2 May 7, 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.
Date: May 7, 2015
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| | | |
| | 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 May 6, 2015 |
99.2 | | May 7, 2015 Conference Call Presentation Slides. |
ION reports first quarter 2015 results
Results impacted by the continued slowdown in exploration spending
HOUSTON – May 6, 2015 – ION Geophysical Corporation (NYSE: IO) today reported a first quarter 2015 net loss of $55.3 million, or $(0.34) per share, on revenues of $40.6 million, compared to an adjusted net income of $6.4 million, or $0.04 per diluted share, on revenues of $144.7 million in first quarter 2014. During the first quarter 2015, the Company initiated a further restructuring program, recording charges of approximately $4 million. A reconciliation of restructuring and special items to the first quarter 2015 and 2014 can be found in the financial tables of this press release.
At March 31, 2015, the Company’s cash and cash equivalents were $144.4 million. The Company consumed cash before financing activities of $27.5 million during the first quarter 2015, compared to a generation of cash before financing activities of $36.9 million in the prior year period. First quarter 2015 Adjusted EBITDA was $(38.1) million, compared to $42.9 million in the first three months of 2014. A reconciliation of Adjusted EBITDA can be found in the financial tables of this press release.
Brian Hanson, ION’s President and Chief Executive Officer, commented, “As we expected, our first quarter results were impacted by the significant downturn in exploration spending. The first quarter is usually our softest, but this quarter was exceptionally weak, as many of our E&P customers have delayed until recently finalizing their budgets for 2015.
“Since identifying a softening in exploration spending as early as the third quarter of 2013, we have been managing our business conservatively with a focus on generating free cash flow. We have continued to scrutinize lower performing parts of our business, resulting in further restructuring of our Data Processing and Systems businesses. During the first quarter, we centralized our global data processing capabilities to core data processing ‘Centers of Excellence’ in the U.S. and the U.K., and we consolidated our marine equipment repair operations into two locations in the U.S. and the U.A.E. Including actions taken in December 2014, our restructurings have resulted in an approximate 20% reduction of full-time employees. In addition, in the second quarter, we initiated a 10% salary reduction program among a majority of our U.S. and U.K. employees. We expect these actions will result in savings of approximately $25 million in 2015.
“While there still remains a significant amount of uncertainty in the multi-client side of our Solutions segment, we are starting to see an increase in customer activity. In addition, we are starting to see growth in the sales pipeline for reprocessing existing seismic data. Our Systems and Software businesses continue to be impacted by the reduction in vessel capacity within the towed streamer seismic contractor market, and we expect this trend to continue throughout 2015 and into 2016.
“Within our Ocean Bottom Services segment, OceanGeo has been idle since late fourth quarter. We have been verbally awarded and are working through the bid process towards a formal contract for a longer-term project in Brazil, expected to begin in the fourth quarter of this year or early 2016. To bridge the gap, we are negotiating with other customers for short-term survey work. Despite the extended market downturn and uncertainty, we see significant long-term potential for OceanGeo and technologies to improve ocean bottom survey productivity, and we expect demand for ocean bottom production surveys (4D) to increase.
“We expected to be a net consumer of cash during the first half of 2015, even though we are operating the business conservatively with a focus on cash preservation. With most of our E&P customers having finalized their budgets for 2015, we now expect to see an increase in exploration spending over the back half of the year, albeit at lower than historical levels. As a result of our more constructive forecast for exploration spending and our available liquidity, we will continue to invest in key strategic opportunities, positioning us to take advantage of market opportunities when seismic activity resumes.”
FIRST QUARTER 2015
The Company’s segment revenues for the first quarter were as follows (in thousands):
|
| | | | | | | | | | | |
| | Three Months Ended March 31, | | |
| | 2015 | | 2014 | | % Change |
Solutions | | $ | 18,999 |
| | $ | 89,241 |
| | (79 | )% |
Systems | | 12,769 |
| | 24,848 |
| | (49 | )% |
Software | | 8,810 |
| | 10,039 |
| | (12 | )% |
Ocean Bottom Services | | — |
| | 20,570 |
| | (100 | )% |
Total | | $ | 40,578 |
| | $ | 144,698 |
| | (72 | )% |
Within the Solutions segment, new venture revenues were $5.0 million, an 85% decrease from first quarter 2014; data library revenues were $2.1 million, an 84% decrease; and data processing revenues were $11.8 million, a 73% decrease. All businesses within the Solutions segment were impacted by the continued slowdown in exploration spending. A portion of the year-over-year decline in data processing revenues was due to $15.0 million of revenues recognized in the first quarter 2014, for work performed in 2013, that did not recur in first quarter 2015.
The decrease in Systems segment revenues was primarily due to a reduction in sales of new marine positioning systems and a reduction in repair and replacement revenues, both attributable to a decrease in vessel capacity from 2014 to 2015.
Software segment revenues were down compared to record first quarter revenues in 2014, primarily due to lower Orca® licensing revenues and the effects of foreign currency translation. While Software segment revenues were down year over year, the segment generated overall gross and operating margins of 63% and 38%, respectively, during the quarter.
As previously stated, the Company’s Ocean Bottom Services segment was impacted by OceanGeo’s crew being idle, resulting in a lack of revenue generation in first quarter 2015.
Consolidated gross margins were (39)% compared to 39% in first quarter 2014, and operating margins were (115)% compared to 14% in the prior year quarter. The decreases in gross and operating margins were driven by the significant decline in revenues within the Solutions segment and from lack of revenues generated in the Company’s Ocean Bottom Services segment.
Income tax expense was $1.0 million for first quarter 2015, related to income from the Company’s non-U.S. businesses. This foreign tax expense was not offset by tax benefits on losses within the U.S. and other jurisdictions, therefore producing a consolidated income tax expense on a pre-tax loss.
CONFERENCE CALL
The Company has scheduled a conference call for Thursday, May 7, 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 May 21, 2015. To access the replay, dial (877) 660-6853 and use pass code 13606760#.
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, 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, 2014 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2015.
Tables to follow
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Service revenues | $ | 20,080 |
| | $ | 110,696 |
|
Product revenues | 20,498 |
| | 34,002 |
|
Total net revenues | 40,578 |
| | 144,698 |
|
Cost of services | 45,534 |
| | 72,071 |
|
Cost of products | 10,832 |
| | 15,773 |
|
Gross profit (loss) | (15,788 | ) | | 56,854 |
|
Operating expenses: | | | |
Research, development and engineering | 7,720 |
| | 9,039 |
|
Marketing and sales | 7,833 |
| | 9,213 |
|
General, administrative and other operating expenses | 15,348 |
| | 18,931 |
|
Total operating expenses | 30,901 |
| | 37,183 |
|
Income (loss) from operations | (46,689 | ) | | 19,671 |
|
Interest expense, net | (4,625 | ) | | (4,797 | ) |
Equity in losses of investments | — |
| | (1,688 | ) |
Other income (expense), net | (3,219 | ) | | 68,526 |
|
Income (loss) before income taxes | (54,533 | ) | | 81,712 |
|
Income tax expense | 983 |
| | 5,263 |
|
Net income (loss) | (55,516 | ) | | 76,449 |
|
Net (income) loss attributable to noncontrolling interests | 252 |
| | (470 | ) |
Net income (loss) attributable to ION | $ | (55,264 | ) | | $ | 75,979 |
|
Net income (loss) per share: | | | |
Basic | $ | (0.34 | ) | | $ | 0.46 |
|
Diluted | $ | (0.34 | ) | | $ | 0.46 |
|
Weighted average number of common shares outstanding: | | | |
Basic | 164,567 |
| | 163,847 |
|
Diluted | 164,567 |
| | 164,061 |
|
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
| | | | | | | |
ASSETS | March 31,
2015 | | December 31,
2014 |
Current assets: | | | |
Cash and cash equivalents | $ | 144,438 |
| | $ | 173,608 |
|
Accounts receivable, net | 39,369 |
| | 114,325 |
|
Unbilled receivables | 24,098 |
| | 22,599 |
|
Inventories | 42,976 |
| | 51,162 |
|
Prepaid expenses and other current assets | 13,007 |
| | 13,662 |
|
Total current assets | 263,888 |
| | 375,356 |
|
Deferred income tax asset | 8,605 |
| | 8,604 |
|
Property, plant, equipment and seismic rental equipment, net | 79,739 |
| | 69,840 |
|
Multi-client data library, net | 128,598 |
| | 118,669 |
|
Goodwill | 26,289 |
| | 27,388 |
|
Intangible assets, net | 6,276 |
| | 6,788 |
|
Other assets | 10,064 |
| | 10,612 |
|
Total assets | $ | 523,459 |
| | $ | 617,257 |
|
LIABILITIES AND EQUITY | | | |
Current liabilities: | | | |
Current maturities of long-term debt | $ | 7,242 |
| | $ | 7,649 |
|
Accounts payable | 29,150 |
| | 36,863 |
|
Accrued expenses | 50,849 |
| | 65,264 |
|
Accrued multi-client data library royalties | 15,604 |
| | 35,219 |
|
Deferred revenue | 11,327 |
| | 8,262 |
|
Total current liabilities | 114,172 |
| | 153,257 |
|
Long-term debt, net of current maturities | 182,421 |
| | 182,945 |
|
Other long-term liabilities | 144,979 |
| | 143,804 |
|
Total liabilities | 441,572 |
| | 480,006 |
|
Redeemable noncontrolling interest | 1,325 |
| | 1,539 |
|
Equity: | | | |
Common stock | 1,647 |
| | 1,645 |
|
Additional paid-in capital | 889,255 |
| | 887,749 |
|
Accumulated deficit | (789,673 | ) | | (734,409 | ) |
Accumulated other comprehensive loss | (14,152 | ) | | (12,807 | ) |
Treasury stock | (6,565 | ) | | (6,565 | ) |
Total stockholders’ equity | 80,512 |
| | 135,613 |
|
Noncontrolling interest | 50 |
| | 99 |
|
Total equity | 80,562 |
| | 135,712 |
|
Total liabilities and equity | $ | 523,459 |
| | $ | 617,257 |
|
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | (55,516 | ) | | $ | 76,449 |
|
Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities: | | | |
Depreciation and amortization (other than multi-client data library) | 6,525 |
| | 7,904 |
|
Amortization of multi-client data library | 5,289 |
| | 16,326 |
|
Stock-based compensation expense | 1,480 |
| | 2,777 |
|
Equity in losses of investments | — |
| | 1,688 |
|
Reduction of accrual for loss contingency related to legal proceedings | — |
| | (69,557 | ) |
Deferred income taxes | (12 | ) | | (884 | ) |
Change in operating assets and liabilities: | | | |
Accounts receivable | 74,388 |
| | 60,646 |
|
Unbilled receivables | (1,523 | ) | | (18,945 | ) |
Inventories | (468 | ) | | (144 | ) |
Accounts payable, accrued expenses and accrued royalties | (39,144 | ) | | (5,359 | ) |
Deferred revenue | 3,137 |
| | (4,678 | ) |
Other assets and liabilities | (862 | ) | | (3,541 | ) |
Net cash (used in) provided by operating activities | (6,706 | ) | | 62,682 |
|
Cash flows from investing activities: | | | |
Cash invested in multi-client data library | (9,088 | ) | | (22,353 | ) |
Purchase of property, plant, equipment and seismic rental assets | (11,994 | ) | | (1,997 | ) |
Repayment of advance to INOVA Geophysical | — |
| | 1,000 |
|
Net investment in and advances to OceanGeo B.V. prior to its consolidation | — |
| | (3,074 | ) |
Other investing activities | 257 |
| | 605 |
|
Net cash used in investing activities | (20,825 | ) | | (25,819 | ) |
Cash flows from financing activities: | | | |
Borrowings under revolving line of credit | — |
| | 15,000 |
|
Payments on notes payable and long-term debt | (2,066 | ) | | (2,755 | ) |
Other financing activities | 31 |
| | 166 |
|
Net cash (used in) provided by financing activities | (2,035 | ) | | 12,411 |
|
Effect of change in foreign currency exchange rates on cash and cash equivalents | 396 |
| | (24 | ) |
Net (decrease) increase in cash and cash equivalents | (29,170 | ) | | 49,250 |
|
Cash and cash equivalents at beginning of period | 173,608 |
| | 148,056 |
|
Cash and cash equivalents at end of period | $ | 144,438 |
| | $ | 197,306 |
|
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SEGMENT INFORMATION
(In thousands)
(Unaudited)
|
| | | | | | | |
| Three Months Ended March 31, |
| 2015 | | 2014 |
Net revenues: | | | |
Solutions: | | | |
New Venture | $ | 5,029 |
| | $ | 32,738 |
|
Data Library | 2,137 |
| | 13,217 |
|
Total multi-client revenues | 7,166 |
| | 45,955 |
|
Data Processing | 11,833 |
| | 43,286 |
|
Total | $ | 18,999 |
| | $ | 89,241 |
|
Systems: | | | |
Towed Streamer | $ | 5,165 |
| | $ | 11,851 |
|
Other | 7,604 |
| | 12,997 |
|
Total | $ | 12,769 |
| | $ | 24,848 |
|
Software: | | | |
Software Systems | $ | 7,729 |
| | $ | 9,154 |
|
Services | 1,081 |
| | 885 |
|
Total | $ | 8,810 |
| | $ | 10,039 |
|
Ocean Bottom Services | $ | — |
| | $ | 20,570 |
|
Total | $ | 40,578 |
| | $ | 144,698 |
|
Gross profit (loss): | | | |
Solutions | $ | (10,392 | ) | | $ | 33,011 |
|
Systems | 4,559 |
| | 11,417 |
|
Software | 5,590 |
| | 7,257 |
|
Ocean Bottom Services | (15,545 | ) | | 5,169 |
|
Total | $ | (15,788 | ) | | $ | 56,854 |
|
Gross margin: | | | |
Solutions | (55 | )% | | 37 | % |
Systems | 36 | % | | 46 | % |
Software | 63 | % | | 72 | % |
Ocean Bottom Services | — | % | | 25 | % |
Total | (39 | )% | | 39 | % |
Income (loss) from operations: | | | |
Solutions | $ | (21,778 | ) | | $ | 19,112 |
|
Systems | 1,014 |
| | 3,371 |
|
Software | 3,335 |
| | 5,128 |
|
Ocean Bottom Services | (17,559 | ) | | 4,162 |
|
Corporate and other | (11,701 | ) | | (12,102 | ) |
Total | $ | (46,689 | ) | | $ | 19,671 |
|
Operating margin: | | | |
Solutions | (115 | )% | | 21 | % |
Systems | 8 | % | | 14 | % |
Software | 38 | % | | 51 | % |
Ocean Bottom Services | — | % | | 20 | % |
Corporate and other | (29 | )% | | (8 | )% |
Total | (115 | )% | | 14 | % |
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 and other similar non-cash charges including, without limitation, equity in (earnings) losses of investments and the reduction of accrual for loss contingency related to legal proceedings. 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 March 31, |
| | 2015 | | 2014 |
Net income (loss) | | $ | (55,516 | ) | | $ | 76,449 |
|
Interest expense, net | | 4,625 |
| | 4,797 |
|
Income tax expense | | 983 |
| | 5,263 |
|
Depreciation and amortization expense | | 11,814 |
| | 24,230 |
|
Equity in losses of investments | | — |
| | 1,688 |
|
Reduction of accrual for loss contingency related to legal proceedings | | — |
| | (69,557 | ) |
Adjusted EBITDA | | $ | (38,094 | ) | | $ | 42,870 |
|
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
Reconciliation of Special Items to Diluted Earnings (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 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 three months ended March 31, 2015 and 2014:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2015 | | Three Months Ended March 31, 2014 |
| As Reported | | Special Items(1) | | As Adjusted | | As Reported | | Special
Items(2) | | As Adjusted |
Net revenues | $ | 40,578 |
| | $ | — |
| | $ | 40,578 |
| | $ | 144,698 |
| | $ | — |
| | $ | 144,698 |
|
Cost of sales | 56,366 |
| | (1,813 | ) | | 54,553 |
| | 87,844 |
| | — |
| | 87,844 |
|
Gross profit (loss) | (15,788 | ) | | 1,813 |
| | (13,975 | ) | | 56,854 |
| | — |
| | 56,854 |
|
Operating expenses | 30,901 |
| | (198 | ) | | 30,703 |
| | 37,183 |
| | — |
| | 37,183 |
|
Income (loss) from operations | (46,689 | ) | | 2,011 |
| | (44,678 | ) | | 19,671 |
| | — |
| | 19,671 |
|
Interest expense, net | (4,625 | ) | | — |
| | (4,625 | ) | | (4,797 | ) | | — |
| | (4,797 | ) |
Equity in losses of investments | — |
| | — |
| | — |
| | (1,688 | ) | | — |
| | (1,688 | ) |
Other income (expense), net | (3,219 | ) | | 1,913 |
| | (1,306 | ) | | 68,526 |
| | (69,557 | ) | | (1,031 | ) |
Income tax expense | 983 |
| | — |
| | 983 |
| | 5,263 |
| | | | 5,263 |
|
Net income (loss) | (55,516 | ) | | 3,924 |
| | (51,592 | ) | | 76,449 |
| | (69,557 | ) | | 6,892 |
|
Net (income) loss attributable to noncontrolling interest | 252 |
| | (172 | ) | | 80 |
| | (470 | ) | | — |
| | (470 | ) |
Net income (loss) attributable to ION | $ | (55,264 | ) | | $ | 3,752 |
| | $ | (51,512 | ) | | $ | 75,979 |
| | $ | (69,557 | ) | | $ | 6,422 |
|
Net income (loss) per share: | | | | | | | | | | | |
Basic | $ | (0.34 | ) | | | | $ | (0.31 | ) | | $ | 0.46 |
| | | | $ | 0.04 |
|
Diluted | $ | (0.34 | ) | | | | $ | (0.31 | ) | | $ | 0.46 |
| | | | $ | 0.04 |
|
Weighted average number of common shares outstanding: | | | | | | | | | | | |
Basic | 164,567 |
| | | | 164,567 |
| | 163,847 |
| | | | 163,847 |
|
Diluted | 164,567 |
| | | | 164,567 |
| | 164,061 |
| | | | 164,061 |
|
(1) Represents severance and facility charges related to first quarter 2015 restructuring.
(2) Represents a reduction in the WesternGeco legal contingency due to the court order issued in April 2014.
ION Earnings Call – Q1 2015 Earnings Call Presentation May 7, 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 Q1 15 Overview Q1 exceptionally weak – impacted by downturn in exploration spending Managing business conservatively; focus on cash preservation and cost control – Further restructuring of our Data Processing and Systems businesses – 20% headcount reduction since December 2014 – 10% salary reduction among US and UK employees initiated Q2 15 Segment highlights – Solutions: Seeing slight uptick in pipeline for reprocessing existing data – Systems and Software: Impacted by reduced towed streamer vessel capacity – Ocean Bottom Services: Crew idle since Q4. Negotiating long-term project in Brazil; expect to begin Q4. 4
ION Q1 15 Financial Overview Highlights - 50 100 150 Q1 14 Q1 15 Software Systems Solutions Revenue $M Ocean Bottom 20 (47) -50 -25 0 25 Op. Profit $M Q1 14 Q1 15 • Revenues down 72% Y/Y • Solutions down 79% • Software down 12% • Systems down 49% • No revenues contributed by OceanGeo • Op. Margin down to -115% • Significant decline in Solutions revenues & no revenues contributed by OceanGeo • Adjusted EPS of ($0.31) • Adjusted EBITDA of ($38M) 0.04 (0.31) $(0.35) $(0.25) $(0.15) $(0.05) $0.05 Adjusted Diluted EPS Q1 14 Q1 15 43 (38) -50 -25 0 25 50 Adjusted EBITDA $M Q1 14 Q1 15 5
ION Q1 15 Financial Overview Cash Flow SUMMARIZED CASH FLOW $ Thousands Q1 2014 Q1 2015 Cash from operations 34,703$ (42,234)$ Working capital 27,979 35,528 Multi-client investment (22,353) (9,088) PP&E Capital Expenditures (1,997) (11,994) Free Cash Flow 38,332 (27,788) Borrowings under revolver 15,000 - Other Investing & Financing (4,082) (1,382) Net change in Cash 49,250 (29,170) Cash & Cash Equiv. (Beg. of Period) 148,056 173,608 Cash & Cash Equiv. (End of Period) 197,306$ 144,438$ No borrowings under revolver at March 2015 Net debt (total debt less cash balances) of $45M 6
Summary Expect increase in exploration spending in 2H 15, albeit at lower than historic levels Preparing for the eventual upturn – Focus on cash preservation – Strategic restructuring of underperforming parts of the business – Focus on maintaining Ocean Bottom business; expect demand to increase – Continuing to invest in key strategic opportunities 7
8 Q&A
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