Attached files
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| 8-K - 8-K - ION GEOPHYSICAL CORP | a8-kq42012.htm |
| EX-99.2 - EARNINGS PRESENTATION - ION GEOPHYSICAL CORP | earningspresentationq412.htm |
ION Reports Strong Fourth Quarter and Full Year 2012 Results
Fourth Quarter EPS of $0.17; Full Year EPS of $0.39, up 160%
HOUSTON, TX – February 13, 2013 – 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 several special items incurred in the fourth quarter totaling $0.4 million net income impact, 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 | |||||||