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): November 4, 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 November 4, 2015, ION Geophysical Corporation (the “Company”) issued a press release containing information regarding the Company’s results of operations for the quarter ended September 30, 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, November 5, 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.

2
 
 
 



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.

3
 
 
 



Exhibit Number
 
Description
 
 
 
99.1
 
Press Release dated November 4, 2015.
 
 
 
99.2
 
November 5, 2015 Conference Call Presentation Slides.
 
 
 


4
 
 
 



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: November 5, 2015
 
 
ION GEOPHYSICAL CORPORATION
 
 
 
 
 
 
 
 
 
 
By:
/s/ Jamey S. Seely
 
 
 
Jamey S. Seely
 
 
 
Executive Vice President, General Counsel and Corporate Secretary
 
 
 
 
 
 
 
 

5
 
 
 




EXHIBIT INDEX

 
 
 
Exhibit Number
 
Description
 
 
 
99.1
 
Press Release dated November 4, 2015

99.2
 
November 5, 2015 Conference Call Presentation Slides.



6
 
 
 




                                        
ION reports third quarter 2015 results
Revenues of $66.7 million and adjusted EPS of $(0.10)

HOUSTON November 4, 2015 – ION Geophysical Corporation (NYSE: IO) today reported third quarter 2015 net loss of $20.4 million, or $(0.12) per share. The third quarter results were impacted by special items totaling $3.5 million, or $(0.02) per share, primarily related to severance charges. Excluding special items, the Company’s third quarter adjusted net loss was $16.9 million, or $(0.10) per share, on revenues of $66.7 million, compared to a net loss of $24.5 million, or $(0.15) per share, on revenues of $106.5 million in third quarter 2014. A reconciliation of special items to 2015 and 2014 can be found in the financial tables of this press release.
At September 30, 2015, the Company’s total liquidity was $128.2 million consisting of cash and cash equivalents of $88.2 million and the $40.0 million available on the Company’s recently amended revolving credit facility. The Company consumed cash before financing activities of $80.5 million during the first nine months of 2015 and generated cash before financing activities of $36.0 million in the prior year period. The Company reported a positive Adjusted EBITDA for third quarter 2015 of $7.5 million, compared to $13.0 million one year ago. Year-to-date 2015 Adjusted EBITDA was $(60.0) million, compared to $83.0 million in the prior year period. 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, “We indicated on our second quarter earnings call that we anticipated our third quarter revenues to be up over the first two quarters primarily as a result of beginning data acquisition on our industry-funded MexicoSPANTM program. We completed acquisition in late October and are currently processing the data. Our clients are very pleased with the quality of the fast track data we have delivered so far.
“However, the virtual shutdown in exploration spending continues to have a negative impact on all parts of our business, and we are managing through this downturn by employing strict cost controls and spending discipline. During the quarter, we reduced our employee headcount by an additional 25% and implemented additional cost control measures. A majority of the reductions occurred in September and therefore had minimal cash savings impact on our third quarter. Once complete later this year, these additional cost controls will yield an estimated $40 million in annualized savings. While we have taken out cost across the company, we have appropriately scaled our businesses to reflect our current revenue streams while still maintaining all of our core capabilities. Consistent with our asset light strategy, we are ready to scale up or down as business dictates.
“In light of the current economic environment, we were successful in amending our credit facility with PNC bank. The amended credit facility has improved financial covenants, and we had full availability on the maximum $40.0 million borrowing capacity at the end of September.
“Looking ahead, we believe that the exploration landscape in 2016, as it impacts our business, will be similar to 2015. Our objective during this period is to maintain our strategic capabilities and advance our key R&D initiatives while

1



minimizing our cash burn. We believe we have moved quickly and cut deep, as we currently do not expect to see early signs of recovery in our area of the industry until 2017.”
THIRD QUARTER 2015
The Company’s segment revenues for the third quarter were as follows (in thousands):
 
 
Three Months Ended September 30,
 
 
 
 
2015
 
2014
 
% Change
Solutions
 
$
52,645

 
$
45,859

 
15
 %
Systems
 
7,290

 
24,695

 
(70
)%
Software
 
6,739

 
11,010

 
(39
)%
Ocean Bottom Services
 

 
24,976

 
(100
)%
Total
 
$
66,674

 
$
106,540

 
(37
)%
Within the Solutions segment, new venture revenues were $26.7 million, a 44% increase from third quarter 2014; data library revenues were $15.3 million, an increase of over 350%; and data processing revenues were $10.7 million, a 56% decrease. While all businesses within the Solutions segment continue to be impacted by the slowdown in exploration spending, the increase in new venture and data library revenues was primarily related to the Company’s acquisition of its industry-funded MexicoSPANTM program and increased sales of its South American data libraries.
The decrease in Systems segment revenues was primarily due to a reduction in new marine positioning system sales and repair and replacement revenues attributable to reduced activity by seismic contractors as they have taken vessels out of service.
The decrease in Software segment revenues was primarily due to lower Orca® licensing revenues and, to a lesser extent, the effects of foreign currency translation. While Software segment revenues were down 39% year over year, the segment generated positive gross and operating margins of 65% and 36%, 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 third quarter 2015.
Consolidated gross margins were 17%, compared to 27% in third quarter 2014, and operating margins were (19)%, compared to (5)% in the prior year quarter. The decreases in gross and operating margins were driven by the significant decline in revenues within the Systems segment, the lack of revenues generated in the Ocean Bottom Services segment and, to a lesser extent, the decline in revenues within the Software segment. These decreases were partially offset by the increase in revenues within the Solutions segment and by the Company’s ongoing cost reduction efforts.
As the Company wrote its investment in INOVA Geophysical down to zero at the end of last year, the Company did not record any losses on its share of the joint venture in third quarter 2015, compared to its share of losses of $5.6 million in third quarter 2014.



2



YEAR-TO-DATE 2015
The Company’s segment revenues for the first nine months of the year were as follows (in thousands):
 
 
Nine Months Ended September 30,
 
 
 
 
2015
 
2014
 
% Change
Solutions
 
$
93,994

 
$
197,734

 
(52
)%
Systems
 
27,733

 
71,948

 
(61
)%
Software
 
22,320

 
31,582

 
(29
)%
Ocean Bottom Services
 

 
71,454

 
(100
)%
Total
 
$
144,047

 
$
372,718

 
(61
)%
Within the Solutions segment, new venture revenues were $35.3 million, a 54% decrease from the first nine months of 2014; data library revenues were $24.9 million, a 17% decrease; and data processing revenues were $33.7 million, a 63% decrease. All businesses within the Solutions segment were impacted by the slowdown in exploration spending. Also, 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 2015.
The decrease in Systems segment revenues was primarily due to a reduction in new marine positioning system sales and repair and replacement revenues attributable to reduced activity by seismic contractors as they have taken vessels out of service.
Software segment revenues were down primarily due to lower Orca licensing revenues and, to a lesser extent, the effects of foreign currency translation. While Software segment revenues were down 29% year over year, the segment generated positive gross and operating margins of 64% and 35%, respectively, during the first nine months of 2015.
The Company’s Ocean Bottom Services segment was impacted by OceanGeo’s crew being idle, resulting in a lack of revenue generation in the first nine months of 2015.
Consolidated gross margins were (10)%, compared to 33% in the first nine months of 2014, and operating margins were (70)%, compared to 5% 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 the lack of revenues generated in the Company’s Ocean Bottom Services segment.
For the first nine months of 2015, the Company reported a net loss of $19.6 million, or $(0.12) per share, compared to net income of $52.6 million, or $0.32 per diluted share, in the first nine months of 2014. Both periods included special items related to the reductions in the accrual for the WesternGeco legal matter, in addition to restructuring and other special items. Excluding these special items, in the first nine months of 2015, the Company reported an adjusted net loss of $113.2 million, or $(0.69) per share, compared to an adjusted net loss of $23.1 million, or $(0.14) per share, in the prior year period.


3



CONFERENCE CALL
The Company has scheduled a conference call for Thursday, November 5, 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 November 19, 2015. To access the replay, dial (877) 660-6853 and use pass code 13621442#.
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

4



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Service revenues
$
53,515

 
$
71,923

 
$
96,918

 
$
272,386

Product revenues
13,159

 
34,617

 
47,129

 
100,332

Total net revenues
66,674

 
106,540

 
144,047

 
372,718

Cost of services
47,883

 
60,285

 
132,234

 
200,697

Cost of products
7,683

 
17,032

 
26,628

 
47,716

Gross profit (loss)
11,108

 
29,223

 
(14,815
)
 
124,305

Operating expenses:
 
 
 
 
 
 
 
Research, development and engineering
6,537

 
10,910

 
21,496

 
30,254

Marketing and sales
6,904

 
8,480

 
23,375

 
27,610

General, administrative and other operating expenses
10,541

 
15,182

 
40,566

 
48,334

Total operating expenses
23,982

 
34,572

 
85,437

 
106,198

Income (loss) from operations
(12,874
)
 
(5,349
)
 
(100,252
)
 
18,107

Interest expense, net
(4,854
)
 
(5,048
)
 
(14,086
)
 
(14,779
)
Equity in losses of investments

 
(5,558
)
 

 
(9,027
)
Other income (expense), net
(346
)
 
(622
)
 
98,035

 
73,970

Income (loss) before income taxes
(18,074
)
 
(16,577
)
 
(16,303
)
 
68,271

Income tax expense
2,082

 
8,345

 
3,597

 
14,261

Net income (loss)
(20,156
)
 
(24,922
)
 
(19,900
)
 
54,010

Net (income) loss attributable to noncontrolling interests
(227
)
 
381

 
322

 
(1,384
)
Net income (loss) attributable to ION
$
(20,383
)
 
$
(24,541
)
 
$
(19,578
)
 
$
52,626

Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.12
)
 
$
(0.15
)
 
$
(0.12
)
 
$
0.32

Diluted
$
(0.12
)
 
$
(0.15
)
 
$
(0.12
)
 
$
0.32

Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
164,755

 
164,149

 
164,672

 
164,021

Diluted
164,755

 
164,149

 
164,672

 
164,326




5



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) 
ASSETS
September 30,
2015
 
December 31,
2014
Current assets:
 
 
 
Cash and cash equivalents
$
88,239

 
$
173,608

Accounts receivable, net
21,587

 
114,325

Unbilled receivables
32,387

 
22,599

Inventories
34,683

 
51,162

Prepaid expenses and other current assets
10,124

 
13,662

Total current assets
187,020

 
375,356

Deferred income tax asset
5,706

 
8,604

Property, plant, equipment and seismic rental equipment, net
77,081

 
69,840

Multi-client data library, net
135,907

 
118,669

Goodwill
26,809

 
27,388

Intangible assets, net
5,306

 
6,788

Other assets
9,380

 
10,612

Total assets
$
447,209

 
$
617,257

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
6,612

 
$
7,649

Accounts payable
27,950

 
36,863

Accrued expenses
54,302

 
65,264

Accrued multi-client data library royalties
12,443

 
35,219

Deferred revenue
5,575

 
8,262

Total current liabilities
106,882

 
153,257

Long-term debt, net of current maturities
179,666

 
182,945

Other long-term liabilities
39,830

 
143,804

Total liabilities
326,378

 
480,006

Redeemable noncontrolling interest
1,200

 
1,539

Equity:
 
 
 
Common stock
1,648

 
1,645

Additional paid-in capital
892,007

 
887,749

Accumulated deficit
(753,987
)
 
(734,409
)
Accumulated other comprehensive loss
(13,564
)
 
(12,807
)
Treasury stock
(6,565
)
 
(6,565
)
Total stockholders’ equity
119,539

 
135,613

Noncontrolling interest
92

 
99

Total equity
119,631

 
135,712

Total liabilities and equity
$
447,209

 
$
617,257


6



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited) 
 
Nine Months Ended September 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(19,900
)
 
$
54,010

Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities:
 
 
 
Depreciation and amortization (other than multi-client data library)
19,660

 
20,989

Amortization of multi-client data library
24,531

 
46,014

Stock-based compensation expense
4,174

 
7,058

Reductions of accrual for loss contingency related to legal proceedings
(101,978
)
 
(69,557
)
Equity in losses of investments

 
9,027

Gain on sale of Source product line

 
(6,522
)
Deferred income taxes
5,992

 
(1,536
)
Change in operating assets and liabilities:
 
 
 
Accounts receivable
92,424

 
71,540

Unbilled receivables
(9,837
)
 
(8,036
)
Inventories
464

 
(4,272
)
Accounts payable, accrued expenses and accrued royalties
(43,676
)
 
(31,324
)
Deferred revenue
(2,576
)
 
(4,153
)
Other assets and liabilities
(5,274
)
 
3,738

Net cash (used in) provided by operating activities
(35,996
)
 
86,976

Cash flows from investing activities:
 
 
 
Cash invested in multi-client data library
(28,152
)
 
(57,340
)
Purchase of property, plant, equipment and seismic rental assets
(17,601
)
 
(6,842
)
Repayment of advance to INOVA Geophysical

 
1,000

Net investment in and advances to OceanGeo B.V. prior to its consolidation

 
(3,074
)
Net proceeds from sale of Source product line

 
14,394

Other investing activities
1,262

 
928

Net cash used in investing activities
(44,491
)
 
(50,934
)
Cash flows from financing activities:
 
 
 
Borrowings under revolving line of credit

 
15,000

Payments under revolving line of credit

 
(50,000
)
Payments on notes payable and long-term debt
(5,431
)
 
(11,737
)
Costs associated with issuance of debt
(146
)
 
(2,126
)
Acquisition of non-controlling interest

 
(6,000
)
Other financing activities
94

 
423

Net cash used in financing activities
(5,483
)
 
(54,440
)
Effect of change in foreign currency exchange rates on cash and cash equivalents
601

 
189

Net decrease in cash and cash equivalents
(85,369
)
 
(18,209
)
Cash and cash equivalents at beginning of period
173,608

 
148,056

Cash and cash equivalents at end of period
$
88,239

 
$
129,847



7



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SEGMENT INFORMATION
(In thousands)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net revenues:
 
 
 
 
 
 
 
Solutions:
 
 
 
 
 
 
 
New Venture
$
26,650

 
$
18,446

 
$
35,315

 
$
76,499

Data Library
15,302

 
3,262

 
24,948

 
30,104

Total multi-client revenues
41,952

 
21,708

 
60,263

 
106,603

Data Processing
10,693

 
24,151

 
33,731

 
91,131

Total
$
52,645

 
$
45,859

 
$
93,994

 
$
197,734

Systems:
 
 
 
 
 
 
 
Towed Streamer
$
4,426

 
$
13,666

 
$
12,273

 
$
35,782

Other
2,864

 
11,029

 
15,460

 
36,166

Total
$
7,290

 
$
24,695

 
$
27,733

 
$
71,948

Software:
 
 
 
 
 
 
 
Software Systems
$
5,869

 
$
9,922

 
$
19,396

 
$
28,384

Services
870

 
1,088

 
2,924

 
3,198

Total
$
6,739

 
$
11,010

 
$
22,320

 
$
31,582

Ocean Bottom Services
$

 
$
24,976

 
$

 
$
71,454

Total
$
66,674

 
$
106,540

 
$
144,047

 
$
372,718

Gross profit (loss):
 
 
 
 
 
 
 
Solutions
$
11,294

 
$
5,927

 
$
(6,954
)
 
$
51,207

Systems
1,366

 
10,123

 
7,425

 
31,288

Software
4,399

 
8,326

 
14,197

 
23,388

Ocean Bottom Services
(5,951
)
 
4,847

 
(29,483
)
 
18,422

Total
$
11,108

 
$
29,223

 
$
(14,815
)
 
$
124,305

Gross margin:
 
 
 
 
 
 
 
Solutions
21
 %
 
13
 %
 
(7
)%
 
26
 %
Systems
19
 %
 
41
 %
 
27
 %
 
43
 %
Software
65
 %
 
76
 %
 
64
 %
 
74
 %
Ocean Bottom Services
 %
 
19
 %
 
 %
 
26
 %
Total
17
 %
 
27
 %
 
(10
)%
 
33
 %
Income (loss) from operations:
 
 
 
 
 
 
 
Solutions
$
768

 
$
(5,960
)
 
$
(40,766
)
 
$
11,733

Systems
(1,295
)
 
2,917

 
(2,660
)
 
9,835

Software
2,444

 
6,227

 
7,874

 
16,985

Ocean Bottom Services
(7,289
)
 
1,677

 
(34,856
)
 
12,333

Corporate and other
(7,502
)
 
(10,210
)
 
(29,844
)
 
(32,779
)
Total
$
(12,874
)
 
$
(5,349
)
 
$
(100,252
)
 
$
18,107

Operating margin:
 
 
 
 
 
 
 
Solutions
1
 %
 
(13
)%
 
(43
)%
 
6
 %
Systems
(18
)%
 
12
 %
 
(10
)%
 
14
 %
Software
36
 %
 
57
 %
 
35
 %
 
54
 %
Ocean Bottom Services
 %
 
7
 %
 
 %
 
17
 %
Corporate and other
(11
)%
 
(10
)%
 
(21
)%
 
(9
)%
Total
(19
)%
 
(5
)%
 
(70
)%
 
5
 %

8



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, 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.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(20,156
)
 
$
(24,922
)
 
$
(19,900
)
 
$
54,010

Interest expense, net
4,854

 
5,048

 
14,086

 
14,779

Income tax expense
2,082

 
8,345

 
3,597

 
14,261

Depreciation and amortization expense
20,736

 
18,961

 
44,191

 
67,003

Reductions of accrual for loss contingency related to legal proceedings

 

 
(101,978
)
 
(69,557
)
Equity in losses of investments

 
5,558

 

 
9,027

Gain on sale of Source product line

 

 

 
(6,522
)
Adjusted EBITDA
$
7,516

 
$
12,990

 
$
(60,004
)
 
$
83,001



9



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 for the three and nine months ended September 30, 2015 and the nine months ended September 30, 2014:
 
Three Months Ended September 30, 2015
 
 
As Reported
 
Special
Items
 
As Adjusted
 
Net revenues
$
66,674

 
$

 
$
66,674

 
Cost of sales
55,566

 
(2,168
)
(1) 
53,398

 
Gross profit
11,108

 
2,168

 
13,276

 
Operating expenses
23,982

 
(1,711
)
(1) 
22,271

 
Loss from operations
(12,874
)
 
3,879

 
(8,995
)
 
Interest expense, net
(4,854
)
 

 
(4,854
)
 
Other expense, net
(346
)
 
(295
)
(2) 
(641
)
 
Income tax expense
2,082

 
122

 
2,204

 
Net loss
(20,156
)
 
3,462

 
(16,694
)
 
Net income attributable to noncontrolling interest
(227
)
 

 
(227
)
 
Net loss attributable to ION
$
(20,383
)
 
$
3,462

 
$
(16,921
)
 
Net income (loss) per share:
 
 
 
 
 
 
Basic
$
(0.12
)
 
 
 
$
(0.10
)
 
Diluted
$
(0.12
)
 
 
 
$
(0.10
)
 
Weighted average number of common shares outstanding:
 
 
 
 
 
 
Basic
164,755

 
 
 
164,755

 
Diluted
164,755

 
 
 
164,755

 



10



 
Nine Months Ended September 30, 2015
 
Nine Months Ended September 30, 2014
 
As Reported
 
Special
Items
 
As Adjusted
 
As Reported
 
Special
Items
 
As Adjusted
Net revenues
$
144,047

 
$

 
$
144,047

 
$
372,718

 
$

 
$
372,718

Cost of sales
158,862

 
(3,981
)
(3) 
154,881

 
248,413

 

 
248,413

Gross profit (loss)
(14,815
)
 
3,981

 
(10,834
)
 
124,305

 

 
124,305

Operating expenses
85,437

 
(3,233
)
(3) 
82,204

 
106,198

 

 
106,198

Income (loss) from operations
(100,252
)
 
7,214

 
(93,038
)
 
18,107

 

 
18,107

Interest expense, net
(14,086
)
 

 
(14,086
)
 
(14,779
)
 

 
(14,779
)
Equity in losses of investments

 

 

 
(9,027
)
 

 
(9,027
)
Other income (expense), net
98,035

 
(100,360
)
(4) 
(2,325
)
 
73,970

 
(76,079
)
(5) 
(2,109
)
Income tax expense
3,597

 
269

(6) 
3,866

 
14,261

 
(357
)
(6) 
13,904

Net income (loss)
(19,900
)
 
(93,415
)
 
(113,315
)
 
54,010

 
(75,722
)
 
(21,712
)
Net (income) loss attributable to noncontrolling interest
322

 
(172
)
 
150

 
(1,384
)
 

 
(1,384
)
Net income (loss) attributable to ION
$
(19,578
)
 
$
(93,587
)
 
$
(113,165
)
 
$
52,626

 
$
(75,722
)
 
$
(23,096
)
Net income (loss) per share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
(0.12
)
 
 
 
$
(0.69
)
 
$
0.32

 
 
 
$
(0.14
)
Diluted
$
(0.12
)
 
 
 
$
(0.69
)
 
$
0.32

 
 
 
$
(0.14
)
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
164,672

 
 
 
164,672

 
164,021

 
 
 
164,021

Diluted
164,672

 
 
 
164,672

 
164,326

 
 
 
164,021


(1) 
Represents severance charges related to the third quarter 2015 restructurings.
(2) 
Represents a gain on disposal of the Company’s Denver land processing operations in the third quarter 2015.
(3) 
In addition to note (1) , the nine months ended September 30, 2015 includes severance and facility charges related to the first half 2015 restructurings.
(4) 
In addition to note (2), the nine months ended September 30, 2015 includes an additional partial reduction in the WesternGeco legal contingency from the second quarter 2015.
(5) The nine months ended September 30, 2014 was impacted by the first quarter reduction of $69.6 million in the WesternGeco legal contingency, in addition to a second quarter non-recurring gain on the sale of the marine source product line of $6.5 million (before tax).
(6) As the Company maintains a valuation allowance for substantially all its deferred tax assets, a majority of these special items have no associated net tax effect.




11


ION Earnings Call – Q3 2015 Earnings Call Presentation November 5, 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 Q3 15 Overview  Financial highlights – Q3 revenues $67M; adjusted net loss of $17M or $(0.10) per share – Q3 revenues up as result of industry-funded MexicoSPANTM program  Continued strict cost controls – Additional Q3 25% headcount reduction and cost control measures to yield an additional annualized savings of $40M – Maintaining core capabilities and flexibility to scale up or down  Segment highlights – Multi-client shift from new venture underwriting to late sales – Continued pressure on data processing – Software softening due to vessel stacking – OBS project delays making start dates uncertain 4 MexicoSPAN Phase 1: 22,000 km deep-imaged 2D data


 
(0.15) (0.10) $(0.20) $(0.15) $(0.10) $(0.05) $- Adjusted Diluted EPS Q3 14 5 - 25 50 75 100 125 Q3 14 Q3 15 Software Systems Solutions Revenue $M • Revenues down 37% Y/Y • Solutions up 15% • Systems down 70% • Software down 39% • No revenues from Ocean Bottom •Operating Margin down to (19)% • Significant revenue declines in Systems & Software segments • Lack of Ocean Bottom Services revenues • Partially offset by revenue increase in Solutions segment & cost savings • Adjusted EPS of ($0.10) • Adjusted EBITDA of $8M Ocean Bottom (5) (13) -14 -12 -10 -8 -6 -4 -2 0 Op. Profit $M Q3 14 Q3 15 Q3 15 13 8 0 2 4 6 8 10 12 14 Adjusted EBITDA $M Q3 14 Q3 15 ION Financial Overview Q3 15 Highlights


 
ION Financial Overview Cash Flow 6 $ Millions YTD YTD Sept 14 Sept 15 Q3 14 Q3 15 Cash from operations 59.5$ (67.5)$ 5.7$ 7.7$ Working capital 27.5 31.5 4.5 (21.2) Multi-client investment (57.3) (28.2) (23.0) (14.6) PP&E Capital Expenditures (6.8) (17.6) (2.3) (0.4) Free Cash Flow 22.9 (81.8) (15.1) (28.5) Net Repayments under revolver (35.0) - - - Other Investing & Financing (6.2) (3.6) (12.9) (0.4) Net Change in Cash (18.3) (85.4) (28.0) (28.9) Cash & Cash Equiv. (Beg. Of Period) 148.1 173.6 157.8 117.1 Cash & Cash Equiv. (End Of Period) 129.8$ 88.2$ 129.8$ 88.2$ Cash balances of $88M at September 30, 2015 Full availability under $40M credit facility


 
Summary  Maintaining strict focus on cost control  Expect 2016 to be similar to 2015  Scaled business to maintain strategic capabilities and advance key R&D initiatives, while minimizing cash burn 7


 
8 Q&A


 


 
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