IO ION Geophysical Corporation New

HOUSTON, Aug. 5, 2015 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported second quarter 2015 net income of $56.1 million, or $0.34 per diluted share.  The second quarter results were positively impacted by special items totaling $100.8 million, or $0.61 per diluted share, primarily related to an additional partial reversal of a litigation reserve.  Excluding special items, the Company's second quarter adjusted net loss was $44.7 million, or $(0.27) per share, on revenues of $36.8 million, compared to an adjusted net loss of $5.0 million, or $(0.03) per share, on revenues of $121.5 million in second quarter 2014.  A reconciliation of special items to 2015 and 2014 can be found in the financial tables of this press release.

At June 30, 2015, the Company's cash and cash equivalents were $117.1 million.  The Company consumed cash before financing activities of $53.0 million during the first half 2015 and generated cash before financing activities of $50.8 million in the prior year period.  First half 2015 Adjusted EBITDA was $(67.5) million, compared to $70.0 million in first half 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, "In our first quarter call, we indicated that we expected our second quarter results to be similar to the first quarter, but expected an increase to our revenues in second half of the year.  Our second quarter results and outlook for the remainder of the year are playing out as we originally anticipated.

"In early July, we began acquisition on the first phase of MexicoSPAN^TM.  This industry funded program encompasses more than 22,000 km of deep-imaged two-dimensional (2D) seismic data.  Combined with our existing data libraries, MexicoSPAN will deliver the industry's only complete, basin-wide regional view of the Gulf of Mexico.  While this program will positively impact our second half results, we still anticipate that exploration spending in the second half of 2015 and into 2016 will be far below 2013-2014 levels.  We now expect our full year investment into our data library to be in the  range of $50 to $60 million in 2015.

"During the quarter we continued to implement cost cutting initiatives, further reducing our full time employee headcount.   Including actions we began taking in December 2014, our restructuring initiatives have reduced our full-time employee base by approximately 25% and yielded an estimated annualized savings of $40 million.

"We have initiated actions within our Ocean Bottom Services business to minimize costs, while maintaining our ocean bottom capabilities.  We have cold-stacked the vessels and our crew and have taken other actions which will reduce our OceanGeo cash burn rate to less than $3 million per quarter.  We are actively in negotiations on three projects and anticipate the crew going back to work in the fourth quarter or first quarter of next year.

"Earlier this month, we amended our credit facility with PNC bank, who is now the sole lender and agent.  The amended credit facility has improved financial covenants and a maximum borrowing capacity of $40 million.

"While not yet complete, we are pleased with the progress and decisions by the U.S. Court of Appeals in our WesternGeco lawsuit.  In early July, the Court of Appeals reversed in part the original judgment, holding that the district court erred by including lost profits in their judgment.  As a result of this decision, we reduced our legal contingency to $22 million, down from $124 million.  WesternGeco has requested a rehearing en banc with the U.S. Court of Appeals and may pursue further appeals, but the reduced judgment, coupled with our amended credit facility, improves our liquidity position and gives us more flexibility in how we invest cash into our businesses."

SECOND QUARTER 2015

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

Within the Solutions segment, new venture revenues were $3.6 million, an 86% decrease from second quarter 2014; data library revenues were $7.5 million, a 45% decrease; and data processing revenues were $11.2 million, a 53% decrease.  All businesses within the Solutions segment were impacted by the continued slowdown in exploration spending. 

The decrease in Systems segment revenues was primarily due to a reduction in marine repair and replacement revenues attributable to reduced activity by seismic contractors as they have taken vessels out of service.

Software segment revenues were down compared to record second quarter revenues in 2014, primarily due to lower Orca^® licensing revenues and the effects of foreign currency translation.  While Software segment revenues were down 36% year over year, the segment generated positive gross and operating margins of 62% and 31%, respectively, during the quarter. 

The Company's Ocean Bottom Services segment was impacted by OceanGeo's crew being idle, resulting in a lack of revenue generation in second quarter 2015.

Consolidated gross margins were (28)% compared to 31% in second quarter 2014, and operating margins were (111)% compared to 3% in the prior year quarter.  The decreases in gross and operating margins were driven by the significant decline in revenues within the Solutions and Systems segments and, to a lesser extent, the Software segment, and from a lack of revenues generated in the Company's Ocean Bottom Services segment.  

YEAR-TO-DATE 2015

The Company's segment revenues for the first half of the year were as follows (in thousands):

Within the Solutions segment, new venture revenues were $8.7 million, an 85% decrease from the first half 2014; data library revenues were $9.6 million, a 64% decrease; and data processing revenues were $23.0 million, a 66% decrease.  The decrease in new venture and data library revenues was due to the continued softness 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 the first half 2015.  

The decrease in Systems segment revenues was primarily due to a reduction in marine repair and replacement revenues attributable to reduced activity by seismic contractors as they have taken vessels out of service.

Software segment revenues were down compared to record first half revenues in 2014, primarily due to lower Orca licensing revenues and the effects of foreign currency translation.  While Software segment revenues were down 24% year over year, the segment generated positive gross and operating margins of 63% and 35%, respectively, during the first half 2015. 

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 half 2015.

Consolidated gross margins were (34)% compared to 36% in first half 2014, and operating margins were (113)% compared to 9% in the prior year period.  The decreases in gross and operating margins were driven by the significant decline in revenues within the Solutions and Systems segments and, to a lesser extent, the Software segment, and from a lack of revenues generated in the Company's Ocean Bottom Services segment.  

For the first half of 2015, the Company reported net income of $0.8 million, or $0.00 per diluted share, compared to net income of $77.2 million, or $0.47 per diluted share, in the first half 2014.  Both periods included special items related to the reductions in accrual for the WesternGeco legal matter, in addition to restructuring and other special items.  Excluding these special items, in the first half 2015, the Company reported an adjusted net loss of $96.2 million, or $(0.58) per share, compared to an adjusted net income of $1.4 million, or $0.01 per diluted share, in the prior year period.

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, August 6, 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 August 20, 2015.  To access the replay, dial (877) 660-6853 and use pass code 13612621#.

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
Reconciliation of Adjusted EBITDA to Net Income
(Non-GAAP Measure)
(In thousands)
(Unaudited)

The term Adjusted EBITDA represents net income before interest expense, interest income, income taxes, depreciation and amortization, gain on sale of Source product line, and other similar non-cash charges including, without limitation, equity in losses of investments and the reductions 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 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.

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 adjusted income (loss) from operations or adjusted net income (loss), which excludes certain charges or amounts. This adjusted income (loss) amount is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for income (loss) from operations, net income (loss) or other income data prepared in accordance with GAAP. See the table below for supplemental financial data and the corresponding reconciliation to GAAP financials three and six months ended June 30, 2015 and 2014:

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SOURCE ION Geophysical Corporation