ION Reports Strong Fourth Quarter and Full Year 2012 Results

Fourth Quarter EPS of $0.17; Full Year EPS of $0.39, up 160%

News provided by

ION Geophysical Corporation

Feb 13, 2013, 04:05 ET

HOUSTON, Feb. 13, 2013 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported fourth quarter 2012 revenues of $173.1 million, an 8% increase from revenues of $159.9 million in fourth quarter 2011.  Fourth quarter 2012 net income increased to $26.8 million, or $0.17 per diluted share, compared to net income of $12.0 million, or $0.08 per diluted share in fourth quarter 2011.  Adjusted EBITDA increased 6% to $62.7 million compared to $59.0 million in fourth quarter 2011.

For full year 2012, ION reported a 16% increase in revenues to $526.3 million, compared to $454.6 million in 2011. 2012 net income was $62.0 million, or $0.39 per diluted share, compared to net income of $23.4 million, or $0.15 per diluted share, in 2011.  Excluding special items as described below, 2012 net income was $61.6 million, or $0.39 per diluted share, versus 2011 net income of $34.6 million, or $0.22 per diluted share.

Brian Hanson, the Company's President and Chief Executive Officer, commented, "We are pleased with the results we delivered in the fourth quarter and full year 2012.  We continue to benefit from our investment in multi-client data libraries, generating solid growth in both new venture and data library revenues.

"Our GeoVentures division had another strong fourth quarter, delivering record revenues for both the quarter and the year, driven by increases in library sales and new venture projects.  We completed acquisition of several new marine programs in the Arctic and offshore Latin America, and a land program in Europe.  We also commenced acquisition of a new marine program offshore Australia.  With our new activity and our existing portfolio of library programs, we are well positioned for upcoming licensing rounds anticipated in and around Brazil, Australia, East Africa, and Greenland.

"Our data processing business remains strong, achieving record revenues for the fourth quarter and for the year.  We're benefiting from our international expansion and a healthy Gulf of Mexico market.   Additionally, our new WiBand™ broadband solution continues to gain momentum with several projects underway both in the Gulf of Mexico and internationally that have WiBand in the work-flow, or have a high potential to utilize WiBand.  Our investments in data processing infrastructure continue to pay off and we look forward to another strong year in 2013 for this business.

"Our Software business achieved record revenues in 2012, driven by healthy Orca® and Gator® software sales during the quarter.  We also continued to experience solid growth in our on-board acquisition optimization services business.

"Our Systems segment experienced a year-over-year decline in revenues due to a large 12-streamer sale in fourth quarter 2011 that was not replicated in 2012.  We continue to reposition this segment for new ocean-bottom product launches in 2013, such as our next generation VSO system, Calypso™."

FOURTH QUARTER 2012

Total revenues for the fourth quarter of 2012 increased 8% to $173.1 million, compared to $159.9 million a year ago.  Solutions segment revenues increased 45% over the same period in 2011; Software segment revenues increased by 16%; while Systems segment revenues declined by 39%.

Solutions segment revenues increased to $121.1 million in fourth quarter 2012, compared to $83.4 million a year ago, driven primarily by an 83% increase in new ventures activity, a 19% growth in data library sales, and 27% growth in the data processing business.

Software segment sales were $10.7 million compared to $9.2 million in fourth quarter 2011. Excluding foreign currency effects, Software segment revenues increased 14% due primarily to increased demand for the Company's Orca and Gator software and onboard acquisition optimization services. 

Systems segment sales declined to $41.4 million, from $67.3 million in fourth quarter 2011, principally due to the impact of the 12-streamer system sold in fourth quarter 2011 that was not replicated in 2012. 

Excluding the impact of special items, consolidated gross margins during the fourth quarter increased to 43% from 40% in fourth quarter 2011. The gross margin improvement was driven primarily by revenue growth and profitability improvement in the Solutions segment.  Excluding the impact of special items, fourth quarter operating expenses as a percentage of revenues were 21% compared to 18% in fourth quarter 2011, while consolidated operating margins were relatively flat. 

The Company's effective tax rate during the fourth quarter was 27.3% compared to 30.7% in fourth quarter 2011.  The decrease in the effective tax rate was primarily due to a release of a valuation allowance related to U.S. deferred tax assets.

The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment on a one fiscal quarter-lag basis.  As a result, the Company's share of INOVA Geophysical's third quarter 2012 financial results is included in the Company's fourth quarter results.  For third quarter 2012, INOVA Geophysical reported revenues of $25.1 million, down 7% from $27.0 million in third quarter 2011.  INOVA Geophysical reported a net loss of $8.7 million for third quarter 2012, compared to a net loss of $25.3 million in third quarter 2011.  The Company recognized losses on its INOVA equity investment of approximately $4.3 million in its fourth quarter 2012 compared to a loss of $13.0 million for the prior year period.  For the full year, INOVA was modestly profitable as anticipated. 

The Company's total cash and cash equivalents were $61.0 million as of December 31, 2012.  Additionally, the Company had $77.7 million of unused capacity under its $175 million credit facility as of December 31, 2012.

FULL YEAR 2012

Total revenues for 2012 increased 16% to $526.3 million compared to $454.6 million in 2011, with year-over-year growth driven by the Company's Solutions and Software business segments.

Solutions segment revenues for 2012 increased 33% to $351.3 million primarily as a result of data processing growth, a 50% increase in new venture revenues, and a 15% increase in library sales.  Software segment revenues for 2012 increased 13% while Systems segment revenues for 2012 decreased 14%.

The Company's effective tax rate during 2012 was 27.5%, compared to 29.2% in 2011.  The decrease in the effective tax rate was primarily due to a 2012 release of a valuation allowance related to U.S. deferred tax assets.

Results for 2012 include special items incurred in the fourth quarter totaling $0.4 million, net of taxes.  The special items consisted primarily of a $12.8 million pre-tax charge for a write down of marine equipment and bad debt reserves, and a $19.0 million pre-tax gain on legal settlements.  Excluding the impact of special items, consolidated gross margins for 2012 increased to 41% compared to 38% in 2011, and consolidated operating margins for 2012 increased to 17% from 15% in 2011. 

OUTLOOK

Greg Heinlein, the Company's Chief Financial Officer, commented, "We delivered another solid quarter with revenues up 8% year over year, and up 31% when adjusting for the large streamer sale in the same period of 2011.  While we had a few off-setting, one-time items this quarter, diluted EPS for the full year grew 160% year-over-year.

"Our 2012 operating expenses were impacted by nearly $9 million of legal expenses related primarily to two lawsuits.  We expect our legal expenses to be at more normal levels in 2013.

"Based on our market outlook and robust pipeline, in 2013, we will continue to invest in each of our business segments, particularly in marketing and sales, data processing and interpretation personnel, hardware and software, as well as research and development around new marine technologies.  In 2013, we anticipate investing between $140 and $160 million in our multi-client data libraries.  We estimate interest expense for 2013 to be between $4 and $7 million and our effective tax rate to be between 25% and 30%.

"Exploration budgets are forecasted to grow significantly in 2013, and the seismic industry continues to show capital discipline.  We expect those trends to benefit ION further in 2013 across each of our segments."

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, February 14, 2013, 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 at 9:00 a.m. Eastern time.  To participate in the conference call, dial 480-629-9866 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 28, 2013.  To access the replay, dial 303-590-3030 and use pass code 4592368#.

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 Geophysical Corporation is a leading provider of geophysical technology, services, and solutions for the global oil & gas industry. ION's offerings are designed to allow E&P companies to obtain higher resolution images of the subsurface to reduce the risk of exploration and reservoir development, and to enable seismic contractors to acquire geophysical data safely and efficiently. Additional information about ION is available at www.iongeo.com.

Contacts
Greg Heinlein
Chief Financial Officer
+1.281.552.3011

Jack Lascar
DRG&L
+1.713.529.6600

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 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 the INOVA Geophysical joint venture and related transactions and other statements that are not of historical fact.  Actual results may vary materially from those described in these forward-looking statements. All forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties.  These risks and uncertainties include risks associated with litigation, including the lawsuit brought by WesternGeco; 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 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, 2011 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2012.

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,

2012

2011

2012

2011

Service revenues

$

122,082

$

84,011

$

354,583

$

265,586

Product revenues

50,988

75,872

171,734

189,035

Total net revenues

173,070

159,883

526,317

454,621

Cost of services

69,432

45,877

219,324

177,956

Cost of products

30,894

49,389

91,192

103,220

Gross profit

72,744

64,617

215,801

173,445

Operating expenses:






Research, development and engineering

8,544

6,499

34,080

24,569

Marketing and sales

11,078

8,190

35,240

31,269

General, administrative and other operating expenses

28,259

16,500

71,954

50,812

Total operating expenses

47,881

31,189

141,274

106,650

Income from operations

24,863

33,428

74,527

66,795

Interest expense, net

(1,146)

(1,600)

(5,265)

(5,784)

Equity in earnings (losses) of INOVA Geophysical

(4,264)

(13,018)

297

(22,862)

Other income (expense)

17,851

(1,144)

17,124

(3,447)

Income before income taxes

37,304

17,666

86,683

34,702

Income tax expense

10,191

5,420

23,857

10,136

Net income

27,113

12,246

62,826

24,566

Net income attributable to noncontrolling interests

53

105

489

208

Net income attributable to ION

27,166

12,351

63,315

24,774

Preferred stock dividends

338

338

1,352

1,352

Net income applicable to common shares

$

26,828

$

12,013

$

61,963

$

23,422

Net income per share:






Basic

$

0.17

$

0.08

$

0.40

$

0.15

Diluted

$

0.17

$

0.08

$

0.39

$

0.15

Weighted average number of common shares outstanding:






Basic

156,107

155,292

155,801

154,811

Diluted

163,016

162,132

162,765

156,090

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)




December 31,

2012

2011

ASSETS




Current assets:


Cash and cash equivalents

$

60,971

$

42,402

Short-term investments

—

20,000

Accounts receivable, net

127,136

130,612

Unbilled receivables

89,784

25,628

Inventories

70,675

70,145

Prepaid expenses and other current assets

25,605

13,460

Total current assets

374,171

302,247

Deferred income tax asset

28,414

17,645

Property, plant, equipment and seismic rental equipment, net

33,772

24,771

Multi-client data library, net

230,315

175,768

Investment in INOVA Geophysical

73,925

72,626

Goodwill

55,349

53,963

Intangible assets, net

14,841

17,716

Other assets

9,796

9,322

Total assets

$

820,583

$

674,058

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:


Current maturities of long-term debt

$

3,496

$

5,770

Accounts payable

28,688

22,296

Accrued expenses

124,095

61,384

Accrued multi-client data library royalties

26,300

15,318

Deferred revenue

26,899

33,802

Total current liabilities

209,478

138,570

Long-term debt, net of current maturities

101,832

99,342

Other long-term liabilities

8,131

7,719

Total liabilities

319,441

245,631

Redeemable noncontrolling interests

2,123

2,615

Stockholders' equity:


Cumulative convertible preferred stock

27,000

27,000

Common stock

1,564

1,555

Additional paid-in capital

848,669

843,271

Accumulated deficit

(360,297)

(423,612)

Accumulated other comprehensive loss

(11,886)

(16,193)

Treasury stock

(6,565)

(6,565)

Total stockholders' equity

498,485

425,456

Noncontrolling interests

534

356

Total equity

499,019

425,812

Total liabilities and equity

$

820,583

$

674,058

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



Years Ended December 31,

2012

2011

Cash flows from operating activities:


Net income

$

62,826

$

24,566

Adjustments to reconcile net income to net cash provided by operating activities:


Depreciation and amortization (other than multi-client library)

16,202

13,917

Amortization of multi-client data library

89,080

77,317

Stock-based compensation expense

6,598

6,344

Equity in (earnings) losses of INOVA Geophysical

(297)

22,862

Write-down of marine equipment

5,928

—

Write-down of investments

556

1,312

Deferred income taxes

3,686

(8,131)

Excess tax benefit from stock-based compensation

(193)

(3,294)

Change in operating assets and liabilities:


Accounts receivable

4,006

(52,955)

Unbilled receivables

(64,156)

44,962

Inventories

(7,039)

(6,641)

Accounts payable, accrued expenses and accrued royalties

61,873

(7,546)

Deferred revenue

(6,957)

15,957

Other assets and liabilities

(3,032)

1,314

Net cash provided by operating activities

169,081

129,984

Cash flows from investing activities:


Investment in multi-client data library

(145,627)

(143,782)

Purchase of property, plant and equipment

(14,877)

(11,060)

Investment in seismic rental equipment

(1,773)

—

Maturity (net purchases) of short-term investments

20,000

(20,000)

Investment in convertible notes

(2,000)

(6,500)

Other investing activities

—

(280)

Net cash used in investing activities

(144,277)

(181,622)

Cash flows from financing activities:


Borrowings under revolving line of credit

148,250

—

Repayments under revolving line of credit

(51,000)

—

Payments on notes payable and long-term debt

(101,702)

(6,145)

Payment of preferred dividends

(1,352)

(1,352)

Proceeds from employee stock purchases and exercise of stock options

807

13,105

Excess tax benefit from stock-based compensation

193

3,294

Contribution from noncontrolling interests

212

961

Other financing activities

(1,862)

(59)

Net cash provided by (used in) financing activities

(6,454)

9,804

Effect of change in foreign currency exchange rates on cash and cash equivalents

219

(183)

Net increase (decrease) in cash and cash equivalents

18,569

(42,017)

Cash and cash equivalents at beginning of period

42,402

84,419

Cash and cash equivalents at end of period

$

60,971

$

42,402

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

SUMMARY OF SEGMENT INFORMATION

(In thousands)

(Unaudited)





Three Months Ended December 31,

Twelve Months Ended December 31,

2012

2011

2012

2011

Net revenues:






Solutions:






New Venture

$

55,991

$

30,516

$

147,346

$

98,335

Data Library

32,826

27,470

88,085

76,332

Total multi-client revenues

88,817

57,986

235,431

174,667

Data Processing

32,233

25,434

115,834

88,783

Total

$

121,050

$

83,420

$

351,265

$

263,450

Systems:






Towed Streamer

$

30,709

$

51,453

$

77,769

$

111,453

Ocean Bottom

1,719

451

14,823

960

Other

8,929

15,381

39,404

40,591

Total

$

41,357

$

67,285

$

131,996

$

153,004

Software:






Software Systems

$

9,631

$

8,587

$

39,738

$

36,031

Services

1,032

591

3,318

2,136

Total

$

10,663

$

9,178

$

43,056

$

38,167

Total

$

173,070

$

159,883

$

526,317

$

454,621

Gross profit:






Solutions

$

51,919

$

37,541

$

132,950

$

84,647

Systems

13,013

20,357

50,790

61,109

Software

7,812

6,719

32,061

27,689

Total

$

72,744

$

64,617

$

215,801

$

173,445

Gross margin:






Solutions

43%

45%

38%

32%

Systems

31%

30%

38%

40%

Software

73%

73%

74%

73%

Total

42%

40%

41%

38%

Income from operations:






Solutions

$

39,208

$

27,868

$

88,589

$

50,620

Systems

(5,938)

11,043

10,132

33,034

Software

6,582

6,054

28,129

24,463

Corporate and other

(14,989)

(11,537)

(52,323)

(41,322)

Total

$

24,863

$

33,428

$

74,527

$

66,795

Operating margin:






Solutions

32

33%

25%

19%

Systems

(14)%

16%

8%

22%

Software

62%

66%

65%

64%

Corporate and other

(9)%

(7)%

(10)%

(9)%

Total

14%

21%

14%

15%

Reconciliation of Adjusted EBITDA to Net Income

(Non-GAAP Measure)

(In thousands)

(Unaudited)





Adjusted EBITDA is a non-GAAP measurement that is presented as an additional indicator of operating performance and is not a substitute for net income or net income per share calculated under generally accepted accounting principles (GAAP). We believe that Adjusted EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to service our debt. The calculation of Adjusted EBITDA shown below is based upon amounts derived from the Company's financial statements prepared in conformity with GAAP.










Three Months Ended December 31,

Twelve Months Ended December 31,

2012

2011

2012

2011

Net Income

$

27,113

$

12,246

$

62,826

$

24,566

Interest expense, net

1,146

1,600

5,265

5,784

Income tax expense

10,191

5,420

23,857

10,136

Depreciation and amortization expense

26,839

25,419

105,282

91,234

Equity in (earnings) losses of INOVA Geophysical

4,264

13,018

(297)

22,862

Gain on legal settlement

(19,000)

—

(19,000)

—

Write-down of marine equipment

5,928

—

5,928

—

Write-down of bad debt

5,640

—

5,640

—

Write-down of investments

556

1,312

556

1,312

Adjusted EBITDA

$

62,677

$

59,015

$

190,057

$

155,894

SOURCE ION Geophysical Corporation

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