Attached files
| file | filename |
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| 8-K - 8-K - ION GEOPHYSICAL CORP | a8k-earningsx2013x3q.htm |
| EX-99.2 - EARNINGS PRESENTATION - ION GEOPHYSICAL CORP | ion3q13earningspresentat.htm |
ION Reports Third Quarter Results
Takes Restructuring Charges to Rightsize Systems Segment
HOUSTON – November 6, 2013 – ION Geophysical Corporation (NYSE: IO) today reported a third quarter 2013 net loss of $202.1 million, or $(1.29) per diluted share, which included restructuring and special items totaling $(182.0) million, impacting its diluted earnings per share by $(1.16). Excluding these restructuring and special items, ION's net loss was $20.1 million on revenues of $79.8 million, or $(0.13) per diluted share, compared to net income of $14.9 million on revenues of $136.3 million, or $0.09 per diluted share, in third quarter 2012.
During the quarter, the Company recorded several restructuring and special items as follows:
• | $72.9 million, impacting other expense, primarily related to an increase to the Company's accrual on the WesternGeco legal matter; |
• | $30.5 million, impacting cost of sales, of which $25.0 million related to inventory write-downs and severance-related charges within the Systems segment and $5.5 million to a partial write-down of a land multi-client data library within the Solutions segment; |
• | $11.4 million, impacting operating expenses, of which $9.2 million related to the write-down of all receivables due from its OceanGeo (formerly named GeoRXT) joint venture and $2.2 million to severance-related charges within the Systems segment; |
• | $62.1 million related to establishing a valuation allowance on the Company's net deferred tax assets; and |
• | $5.0 million related to the conversion of ION preferred stock into ION common shares. |
Of the total $182.0 million of charges, approximately $16.0 million were cash items. A reconciliation of the restructuring and special items can be found in a table at the end of this press release.
Brian Hanson, the Company’s President and Chief Executive Officer, commented, “The third quarter was obviously disappointing, with our year-over-year revenues down 41%. In our Solutions segment, we experienced a significant decline in new venture activities and data library revenues, indicative of the recent softening in multi-client programs. This year has seen excess capacity in the market for marine proprietary programs, creating availability for contractors to service the multi-client market. With excess available capacity driving lower than expected underwriting levels, we currently have delayed our investments in new programs.
“Looking ahead to the fourth quarter, we expect to increase multi-client program investments in our 3D North American land programs as well as several new 2D marine programs that are sufficiently underwritten.
“Our data processing business had solid revenues during the first nine months of the year, driven by strong demand in Europe, the Middle East and the Gulf of Mexico, as well as continued demand for our broadband processing solution, WiBandTM. However, our third quarter data processing revenues were down year-over-year, due to approximately $7.0 million of unrecorded revenues tied to a customer contract still pending final execution.
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“Our Software segment continued to experience year-over-year weakness due to softness in the marine contractor market driven by customer consolidation. However, the launch of our new NarwhalTM ice management system at the Society of Exploration Geophysicists (SEG) show in September was well received. We earned our first commercial revenues this quarter, and we look forward to more updates on Narwhal in ensuing quarters.
“During the third quarter, we restructured our Systems segment to reflect the maturity of our towed streamer product portfolio. Primarily, we aligned the segment to focus on the seabed market, while lowering the legacy towed streamer product line cost structure, managing it toward greater profitability. As a result of our restructuring, we have reduced our Systems segment operating costs by approximately $12 million per year.
“During the third quarter, our INOVA joint venture initiated a restructuring program in response to the continued softness in the land market and competition among land equipment providers for both cabled and cableless acquisition systems. The restructuring within INOVA is intended to enable the business to operate profitably at lower revenue levels. As we report INOVA on a one fiscal quarter lag, our share of INOVA's restructuring charges will impact our fourth quarter results.
"We also wrote down our remaining investment and receivables in OceanGeo to a zero value. Until we develop a new pipeline of projects for the joint venture, we felt it was appropriate that our 30% ownership position reflect the lack of earnings visibility in the near future. We continue to help the joint venture in securing new programs as quickly as possible.
“Regarding the additional increase to our legal accrual, as we disclosed in our October 8-K filing, the trial court in our WesternGeco lawsuit entered an order on supplemental damages and ruled that the damages for the additional units should be calculated by combining the jury’s previous reasonable royalty and lost profits damages awards per unit. Based on these further developments at the trial court level, we concluded it was appropriate to increase the accrual and record an additional non-cash charge to cover these supplemental damages and interest. In the order, the presiding judge also ruled that infringement involving the supplemental units was not willful and that WesternGeco was not entitled to receive enhanced damages. After a final judgment in the case is entered by the trial court, we look forward to appealing the case to the United States Court of Appeals for the Federal Circuit in Washington, D.C. It will take some time for the appeal to be completed, but we believe we will ultimately prevail in the case.”
THIRD QUARTER 2013
Total revenues decreased 41% to $79.8 million, compared to $136.3 million in third quarter 2012. Revenues in all three of the Company's segments declined.
Solutions segment revenues decreased to $43.4 million, compared to $92.1 million in third quarter 2012, due to declines in new venture, data library and data processing revenues. New venture revenues were down due to delays in new programs, driven by lower than expected underwriting levels. Data library revenues declined year-over-year due to further delays in licensing rounds in key geographic locations. Data processing revenues were down due to approximately $7.0 million of unrecorded revenues tied to a customer contract pending final execution.
Systems segment sales decreased to $26.3 million compared to $31.1 million in third quarter 2012, primarily related to a decline in revenues associated with new positioning system sales, partially offset by an increase in repair and replacement systems sales to the Company's existing customer base.
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Software segment sales declined to $10.1 million from $13.1 million, primarily related to a decline in Orca® and Gator® licensing revenues driven by customer consolidation.
Excluding the impact of restructuring and special items, consolidated gross margins were 19%, compared to 41% in third quarter 2012, and operating margins were (18)%, compared to 18% in third quarter 2012. The decrease in gross and operating margins was driven primarily by the low revenues within the Solutions segment.
The Company’s equity investments include its 49% interest in INOVA Geophysical and its 30% interest in OceanGeo. The Company accounts for its interest in INOVA on a one fiscal quarter lag basis. As a result, the Company's share of INOVA's second quarter 2013 financial results is included in the Company's third quarter results. During the third quarter, the Company recognized losses on its INOVA equity investment of $(0.2) million, compared to losses of $(1.7) million for the prior year period. Additionally, during third quarter 2013, the Company recorded a loss on its OceanGeo equity investment of $(5.0) million, which excludes the receivable write-down as discussed above. See the attached financial tables for the summarized financial results of INOVA and OceanGeo.
The Company's effective tax rate was (41)%, compared to 28% in third quarter 2012. The change in the effective tax rate resulted from establishment of a deferred tax valuation allowance in third quarter 2013. The deferred tax valuation allowance is associated with this quarter’s restructuring and special charges, and the previously recorded non-cash reserve taken for the litigation with WesternGeco.
As of September 30, 2013, the Company had full availability under its $175.0 million credit facility. The Company’s total cash and cash equivalents were $88.6 million, for total liquidity of $263.6 million at September 30, 2013. Adjusted EBITDA was $(4.2) million compared to $56.8 million in third quarter 2012. A reconciliation of Adjusted EBITDA can be found in the financial tables of this press release.
YEAR-TO-DATE 2013
Total revenues decreased 6% to $330.5 million compared to $353.2 million for the same period in 2012. Solutions segment revenues decreased 4% to $221.2 million, primarily due to a slowdown in data library sales during this year. Systems segment revenues decreased by 9%, primarily due to a decline in revenues associated with new positioning system sales, partially offset by an increase in repair and replacement systems. Software segment revenues decreased 16% due to a decline in Orca and Gator revenues associated with customer consolidation.
Excluding the impact of restructuring and special items, consolidated gross margins decreased to 26% compared to 40% in the first three quarters of 2012, and operating margins were (2)% compared to 14% in the same period of 2012. The decrease in gross and operating margins is due to the revenue declines in the Solutions and Software segments and to cost overruns incurred during the first six months of 2013 on a 3D marine program within the Solutions segment.
The Company recognized losses on its INOVA equity investment of $(3.0) million, compared to earnings of $4.6 million for the 2012 period. This decline followed a 12% reduction in revenues, related to reduced vibrator truck sales and revenues from rental equipment, which were partially offset by an increase in sales of G3i systems. Additionally, the Company recorded losses on its OceanGeo equity investment of $(7.4) million, which excludes the receivable write-down as discussed above.
Including the restructuring and special items, the Company reported a net loss of $271.7 million, or $(1.73) per diluted share. In addition to the items highlighted above, the first nine months of 2013 were impacted by the approximate
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$110.0 million charge in the second quarter as the Company increased its accrual related to the WesternGeco legal matter. Excluding the restructuring and special items, the Company reported net loss of $18.2 million, or $(0.12) per diluted share, compared to net income of $35.1 million, or $0.22 per diluted share, in the first nine months of 2012.
OUTLOOK
Greg Heinlein, the Company's Chief Financial Officer, commented, “We completed painful but necessary steps to rightsize our Systems segment for some of our product lines. These predominantly non-cash charges represent our further transition to a service model focused more closely on E&P customers. We believe these actions will better position ION within these markets in 2014 as the current seismic market imbalances correct themselves.
“Looking ahead, our effective tax rate should be significantly lower throughout 2014, as we expect to begin utilizing our net operating losses that are fully reserved. With our reduced investment in multi-client programs during the first nine months of this year, we now expect that our full year spending will be in the range of $100 million to $120 million.
“Given the previously mentioned recent seismic market dynamics, we are prudently managing our business to generate positive cash flows and take comfort with the full availability under our $175 million revolver and almost $90 million of cash on hand at the end of September.”
CONFERENCE CALL
The Company has scheduled a conference call for Thursday, November 7, 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 by 9:00 a.m. Eastern time. To participate in the conference call, dial 480-629-9863 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 21, 2013. To access the replay, dial 303-590-3030 and use pass code 4644944#.
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.
Contact
Greg Heinlein
Senior Vice President and Chief Financial Officer
+1.281.552.3011
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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 the INOVA Geophysical and OceanGeo joint ventures and related transactions, 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 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 and OceanGeo joint ventures; 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, 2012 and its Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed during 2013.
Tables to follow
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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, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Service revenues | $ | 44,679 | $ | 93,023 | $ | 224,231 | $ | 232,501 | |||||||
Product revenues | 35,159 | 43,300 | 106,259 | 120,746 | |||||||||||
Total net revenues | 79,838 | 136,323 | 330,490 | 353,247 | |||||||||||
Cost of services | 52,256 | 59,136 | 188,494 | 149,863 | |||||||||||
Cost of products | 42,686 | 21,229 | 85,525 | 60,327 | |||||||||||
Gross profit (loss) | (15,104 | ) | 55,958 | 56,471 | 143,057 | ||||||||||
Operating expenses: | |||||||||||||||
Research, development and engineering | 10,288 | 7,504 | 28,665 | 25,536 | |||||||||||
Marketing and sales | 8,416 | 8,091 | 25,364 | 24,162 | |||||||||||
General, administrative and other operating expenses | 22,720 | 15,314 | 50,277 | 43,695 | |||||||||||
Total operating expenses | 41,424 | 30,909 | 104,306 | 93,393 | |||||||||||
Income (loss) from operations | (56,528 | ) | 25,049 | (47,835 | ) | 49,664 | |||||||||
Interest expense, net | (4,281 | ) | (1,237 | ) | (8,103 | ) | (4,119 | ) | |||||||
Equity in earnings (losses) of investments | (5,192 | ) | (1,684 | ) | (10,414 | ) | 4,561 | ||||||||
Other expense, net | (74,301 | ) | (936 | ) | (180,392 | ) | (727 | ) | |||||||
Income (loss) before income taxes | (140,302 | ) | 21,192 | (246,744 | ) | 49,379 | |||||||||
Income tax expense | 56,954 | 6,037 | 19,450 | 13,666 | |||||||||||
Net income (loss) | (197,256 | ) | 15,155 | (266,194 | ) | 35,713 | |||||||||
Net loss attributable to noncontrolling interest | 498 | 42 | 515 | 436 | |||||||||||
Net income (loss) attributable to ION | (196,758 | ) | 15,197 | (265,679 | ) | 36,149 | |||||||||
Preferred stock dividends | 338 | 338 | 1,014 | 1,014 | |||||||||||
Conversion payment of preferred stock | 5,000 | — | 5,000 | — | |||||||||||
Net income (loss) applicable to common shares | $ | (202,096 | ) | $ | 14,859 | $ | (271,693 | ) | $ | 35,135 | |||||
Net income (loss) per share: | |||||||||||||||
Basic | $ | (1.29 | ) | $ | 0.10 | $ | (1.73 | ) | $ | 0.23 | |||||
Diluted | $ | (1.29 | ) | $ | 0.09 | $ | (1.73 | ) | $ | 0.22 | |||||
Weighted average number of common shares outstanding: | |||||||||||||||
Basic | 157,143 | 155,918 | 156,842 | 155,698 | |||||||||||
Diluted | 157,143 | 162,852 | 156,842 | 162,680 | |||||||||||
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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, 2013 | December 31, 2012 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 88,585 | $ | 60,971 | |||
Accounts receivable, net | 62,901 | 127,136 | |||||
Unbilled receivables | 82,894 | 89,784 | |||||
Inventories | 61,404 | 70,675 | |||||
Prepaid expenses and other current assets | 25,698 | 25,605 | |||||
Total current assets | 321,482 | 374,171 | |||||
Deferred income tax asset | — | 28,414 | |||||
Property, plant, equipment and seismic rental equipment, net | 49,360 | 33,772 | |||||
Multi-client data library, net | 242,870 | 230,315 | |||||
Equity method investments | 69,624 | 73,925 | |||||
Goodwill | 55,322 | 55,349 | |||||
Intangible assets, net | 11,986 | 14,841 | |||||
Other assets | 15,199 | 9,796 | |||||
Total assets | $ | 765,843 | $ | 820,583 | |||
LIABILITIES AND EQUITY | |||||||
Current liabilities: | |||||||
Current maturities of long-term debt | $ | 5,193 | $ | 3,496 | |||
Accounts payable | 31,808 | 28,688 | |||||
Accrued expenses | 60,360 | 124,095 | |||||
Accrued multi-client data library royalties | 24,661 | 26,300 | |||||
Deferred revenue | 20,361 | 26,899 | |||||
Total current liabilities | 142,383 | 209,478 | |||||
Long-term debt, net of current maturities | 180,530 | 101,832 | |||||
Other long-term liabilities | 207,044 | 8,131 | |||||
Total liabilities | 529,957 | 319,441 | |||||
Redeemable noncontrolling interest | 1,881 | 2,123 | |||||
Equity: | |||||||
Cumulative convertible preferred stock | — | 27,000 | |||||
Common stock | 1,633 | 1,564 | |||||
Additional paid-in capital | 877,891 | 848,669 | |||||
Accumulated deficit | (625,976 | ) | (360,297 | ) | |||
Accumulated other comprehensive loss | (13,300 | ) | (11,886 | ) | |||
Treasury stock | (6,565 | ) | (6,565 | ) | |||
Total stockholders’ equity | 233,683 | 498,485 | |||||
Noncontrolling interests | 322 | 534 | |||||
Total equity | 234,005 | 499,019 | |||||
Total liabilities and equity | $ | 765,843 | $ | 820,583 | |||
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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30, | |||||||
2013 | 2012 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (266,194 | ) | $ | 35,713 | ||
Adjustments to reconcile net income (loss) to cash provided by operating activities: | |||||||
Depreciation and amortization (other than multi-client data library) | 13,146 | 11,532 | |||||
Amortization of multi-client data library | 50,892 | 66,911 | |||||
Amortization of debt costs | 928 | 187 | |||||
Stock-based compensation expense | 5,707 | 4,473 | |||||
Equity in (earnings) losses of investments | 10,414 | (4,561 | ) | ||||
Gain on sale of cost-method investment | (3,591 | ) | — | ||||
Accrual for loss contingency related to legal proceedings | 181,776 | 10,000 | |||||
Write-down of multi-client data library | 5,461 | — | |||||
Write-down of receivables from OceanGeo | 9,157 | — | |||||
Write-down of excess and obsolete inventory | 21,197 | — | |||||
Deferred income taxes | 7,768 | 795 | |||||
Change in operating assets and liabilities: | |||||||
Accounts receivable | 57,010 | 37,526 | |||||
Unbilled receivables | 6,890 | (40,898 | ) | ||||
Inventories | (13,157 | ) | (8,540 | ) | |||
Accounts payable, accrued expenses and accrued royalties | (31,550 | ) | 12,812 | ||||
Deferred revenue | (6,527 | ) | (12,316 | ) | |||
Other assets and liabilities | 12,585 | (2,302 | ) | ||||
Net cash provided by operating activities | 61,912 | 111,332 | |||||
Cash flows from investing activities: | |||||||
Investment in multi-client data library | (68,908 | ) | (105,600 | ) | |||
Purchase of property, plant, equipment and seismic rental assets | (14,374 | ) | (13,566 | ) | |||
Net advances to INOVA Geophysical | (8,000 | ) | — | ||||
Investment in and advances to OceanGeo B.V. (formerly named GeoRXT B.V.) | (9,500 | ) | — | ||||
Proceeds from sale of a cost-method investment | 4,150 | — | |||||
Maturity of short-term investments | — | 20,000 | |||||
Investment in convertible note | (2,000 | ) | (2,000 | ) | |||
Other investing activities | 76 | — | |||||
Net cash used in investing activities | (98,556 | ) | (101,166 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from issuance of notes | 175,000 | — | |||||
Payments under amended revolving line of credit | (97,250 | ) | (51,000 | ) | |||
Borrowings under amended revolving line of credit | — | 148,250 | |||||
Repayment of term loan | — | (98,250 | ) | ||||
Payments on long-term debt | (3,296 | ) | (2,776 | ) | |||
Cost associated with issuance of notes | (6,731 | ) | — | ||||
Cost associated with debt amendment | — | (1,313 | ) | ||||
Payment of preferred dividends | (1,014 | ) | (1,014 | ) | |||
Conversion payment of preferred stock | (5,000 | ) | — | ||||
Proceeds from exercise of stock options | 2,367 | 563 | |||||
Other financing activities | 790 | 338 | |||||
Net cash provided by (used in) financing activities | 64,866 | (5,202 | ) | ||||
Effect of change in foreign currency exchange rates on cash and cash equivalents | (608 | ) | 113 | ||||
Net increase in cash and cash equivalents | 27,614 | 5,077 | |||||
Cash and cash equivalents at beginning of period | 60,971 | 42,402 | |||||
Cash and cash equivalents at end of period | $ | 88,585 | $ | 47,479 | |||
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Reconciliation of Restructuring and Special Items to Diluted Earnings per Share
(Non-GAAP Measure)
(In thousands, except per share data)
(Unaudited)
The financial results are reported in accordance with GAAP. However, management believes that certain non-GAAP performance measures may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. One such non-GAAP financial measure is income (loss) from operations or net income (loss) excluding certain charges or amounts. This adjusted income 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, 2013:
Three Months Ended September 30, 2013 | |||||||||||||||||||
Restructuring and Special Items by Segment | |||||||||||||||||||
As Reported | Systems(1) | Solutions(2) | Corporate and Other | As Adjusted | |||||||||||||||
Net revenues | $ | 79,838 | $ | — | $ | — | $ | — | $ | 79,838 | |||||||||
Cost of sales | 94,942 | (25,080 | ) | (5,461 | ) | — | 64,401 | ||||||||||||
Gross profit (loss) | (15,104 | ) | 25,080 | 5,461 | — | 15,437 | |||||||||||||
Operating expenses | 41,424 | (2,216 | ) | — | (9,157 | ) | (3) | 30,051 | |||||||||||
Income (loss) from operations | (56,528 | ) | 27,296 | 5,461 | 9,157 | (14,614 | ) | ||||||||||||
Operating margin | (71 | )% | (18 | )% | |||||||||||||||
Interest expense, net | (4,281 | ) | — | — | — | (4,281 | ) | ||||||||||||
Equity in losses of investments | (5,192 | ) | — | — | — | (5,192 | ) | ||||||||||||
Other expense, net | (74,301 | ) | — | — | 72,940 | (4) | (1,361 | ) | |||||||||||
Income tax expense (benefit) | 56,954 | — | — | (62,106 | ) | (5) | (5,152 | ) | |||||||||||
Net income (loss) | (197,256 | ) | 27,296 | 5,461 | 144,203 | (20,296 | ) | ||||||||||||
Net loss attributable to noncontrolling interest | 498 | — | — | — | 498 | ||||||||||||||
Net income (loss) attributable to ION | (196,758 | ) | 27,296 | 5,461 | 144,203 | (19,798 | ) | ||||||||||||
Preferred stock dividends | 5,338 | — | — | (5,000 | ) | (6) | 338 | ||||||||||||
Net income (loss) applicable to common shares | $ | (202,096 | ) | $ | 27,296 | $ | 5,461 | $ | 149,203 | $ | (20,136 | ) | |||||||
Net income (loss) per share: | |||||||||||||||||||
Basic | $ | (1.29 | ) | $ | (0.13 | ) | |||||||||||||
Diluted | $ | (1.29 | ) | $ | (0.13 | ) | |||||||||||||
Weighted average number of common shares outstanding: | |||||||||||||||||||
Basic | 157,143 | 157,143 | |||||||||||||||||
Diluted | 157,143 | 157,143 | |||||||||||||||||
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Nine Months Ended September 30, 2013 | |||||||||||||||||||
Restructuring and Special Items by Segment | |||||||||||||||||||
As Reported | Systems(1) | Solutions(2) | Corporate and Other | As Adjusted | |||||||||||||||
Net revenues | $ | 330,490 | $ | — | $ | — | $ | — | $ | 330,490 | |||||||||
Cost of sales | 274,019 | (25,080 | ) | (5,461 | ) | — | 243,478 | ||||||||||||
Gross profit | 56,471 | 25,080 | 5,461 | — | 87,012 | ||||||||||||||
Operating expenses | 104,306 | (2,216 | ) | — | (9,157 | ) | (3) | 92,933 | |||||||||||
Income (loss) from operations | (47,835 | ) | 27,296 | 5,461 | 9,157 | (5,921 | ) | ||||||||||||
Operating margin | (14 | )% | (2 | )% | |||||||||||||||
Interest expense, net | (8,103 | ) | — | — | — | (8,103 | ) | ||||||||||||
Equity in losses of investments | (10,414 | ) | — | — | — | (10,414 | ) | ||||||||||||
Other expense, net | (180,392 | ) | — | — | 182,940 | (4) | 2,548 | ||||||||||||
Income tax expense (benefit) | 19,450 | — | — | (23,606 | ) | (5) | (4,156 | ) | |||||||||||
Net income (loss) | (266,194 | ) | 27,296 | 5,461 | 215,703 | (17,734 | ) | ||||||||||||
Net loss attributable to noncontrolling interest | 515 | — | — | — | 515 | ||||||||||||||
Net income (loss) attributable to ION | (265,679 | ) | 27,296 | 5,461 | 215,703 | (17,219 | ) | ||||||||||||
Preferred stock dividends | 6,014 | — | — | (5,000 | ) | (6) | 1,014 | ||||||||||||
Net income (loss) applicable to common shares | $ | (271,693 | ) | $ | 27,296 | $ | 5,461 | $ | 220,703 | $ | (18,233 | ) | |||||||
Net income (loss) per share: | |||||||||||||||||||
Basic | $ | (1.73 | ) | $ | (0.12 | ) | |||||||||||||
Diluted | $ | (1.73 | ) | $ | (0.12 | ) | |||||||||||||
Weighted average number of common shares outstanding: | |||||||||||||||||||
Basic | 156,842 | 156,842 | |||||||||||||||||
Diluted | 156,842 | 156,842 | |||||||||||||||||
(1) | Represents excess and obsolete inventory write-downs and severance-related charges as a result of a restructuring of the Systems segment. In addition, the Company is in the process of performing the required impairment testing of the Systems segment goodwill. | |||
(2) | Represents the partial write-down of a land multi-client data library program. | |||
(3) | Represents the write-down of the remaining carrying value of all receivables due from OceanGeo. | |||
(4) | The third quarter primarily represents an additional accrual to the WesternGeco legal matter regarding supplemental damages. The nine months also reflects the Company's second quarter loss contingency accrual related to the WesternGeco legal matter. | |||
(5) | Represents a charge to income tax expense related to the Company establishing a valuation allowance on its net deferred tax assets. | |||
(6) | Represents a payment related to the conversion of ION preferred stock into ION common shares. | |||
10
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SEGMENT INFORMATION
(In thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net revenues: | |||||||||||||||
Solutions: | |||||||||||||||
New Venture | $ | 11,945 | $ | 40,817 | $ | 93,630 | $ | 91,355 | |||||||
Data Library | 5,184 | 22,756 | 36,153 | 55,259 | |||||||||||
Total multi-client revenues | 17,129 | 63,573 | 129,783 | 146,614 | |||||||||||
Data Processing | 26,318 | 28,546 | 91,453 | 83,601 | |||||||||||
Total | $ | 43,447 | $ | 92,119 | $ | 221,236 | $ | 230,215 | |||||||
Systems: | |||||||||||||||
Towed Streamer | $ | 15,342 | $ | 17,529 | $ | 41,461 | $ | 47,060 | |||||||
Ocean Bottom | 159 | 7,969 | 7,307 | 13,104 | |||||||||||
Other | 10,766 | 5,616 | 33,194 | 30,475 | |||||||||||
Total | $ | 26,267 | $ | 31,114 | $ | 81,962 | $ | 90,639 | |||||||
Software: | |||||||||||||||
Software Systems | $ | 8,892 | $ | 12,186 | $ | 24,297 | $ | 30,107 | |||||||
Services | 1,232 | 904 | 2,995 | 2,286 | |||||||||||
Total | $ | 10,124 | $ | 13,090 | $ | 27,292 | $ | 32,393 | |||||||
Total | $ | 79,838 | $ | 136,323 | $ | 330,490 | $ | 353,247 | |||||||
Three Months Ended September 30, 2013 | Three Months Ended September 30, 2012 | ||||||||||||||
As Reported | Restructuring and Special Items | As Adjusted | |||||||||||||
Gross profit (loss): | |||||||||||||||
Solutions(1) | $ | (8,487 | ) | $ | 5,461 | $ | (3,026 | ) | $ | 33,142 | |||||
Systems(1) | (13,987 | ) | 25,080 | 11,093 | 12,731 | ||||||||||
Software | 7,370 | — | 7,370 | 10,085 | |||||||||||
Total | $ | (15,104 | ) | $ | 30,541 | $ | 15,437 | $ | 55,958 | ||||||
Gross margin: | |||||||||||||||
Solutions(1) | (20 | )% | 13 | % | (7 | )% | 36 | % | |||||||
Systems(1) | (53 | )% | 95 | % | 42 | % | 41 | % | |||||||
Software | 73 | % | — | % | 73 | % | 77 | % | |||||||
Total | (19 | )% | 38 | % | 19 | % | 41 | % | |||||||
Income (loss) from operations: | |||||||||||||||
Solutions(1) | $ | (18,163 | ) | $ | 5,461 | $ | (12,702 | ) | $ | 22,341 | |||||
Systems(1) | (23,610 | ) | 27,296 | 3,686 | 6,335 | ||||||||||
Software | 6,280 | — | 6,280 | 9,186 | |||||||||||
Corporate and other(1) | (21,035 | ) | 9,157 | (11,878 | ) | (12,813 | ) | ||||||||
Total | $ | (56,528 | ) | $ | 41,914 | $ | (14,614 | ) | $ | 25,049 | |||||
Operating margin: | |||||||||||||||
Solutions(1) | (42 | )% | 13 | % | (29 | )% | 24 | % | |||||||
Systems(1) | (90 | )% | 104 | % | 14 | % | 20 | % | |||||||
Software | 62 | % | — | % | 62 | % | 70 | % | |||||||
Corporate and other(1) | (26 | )% | 11 | % | (15 | )% | (9 | )% | |||||||
Total | (71 | )% | 53 | % | (18 | )% | 18 | % | |||||||
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Nine Months Ended September 30, 2013 | Nine Months Ended September 30, 2012 | ||||||||||||||
As Reported | Restructuring and Special Items | As Adjusted | |||||||||||||
Gross profit: | |||||||||||||||
Solutions(1) | $ | 33,600 | $ | 5,461 | $ | 39,061 | $ | 81,031 | |||||||
Systems(1) | 3,195 | 25,080 | 28,275 | 37,777 | |||||||||||
Software | 19,676 | — | 19,676 | 24,249 | |||||||||||
Total | $ | 56,471 | $ | 30,541 | $ | 87,012 | $ | 143,057 | |||||||
Gross margin: | |||||||||||||||
Solutions(1) | 15 | % | 3 | % | 18 | % | 35 | % | |||||||
Systems(1) | 4 | % | 30 | % | 34 | % | 42 | % | |||||||
Software | 72 | % | — | % | 72 | % | 75 | % | |||||||
Total | 17 | % | 9 | % | 26 | % | 40 | % | |||||||
Income (loss) from operations: | |||||||||||||||
Solutions(1) | $ | 215 | $ | 5,461 | $ | 5,676 | $ | 49,381 | |||||||
Systems(1) | (21,172 | ) | 27,296 | 6,124 | 16,070 | ||||||||||
Software | 16,396 | — | 16,396 | 21,547 | |||||||||||
Corporate and other(1) | (43,274 | ) | 9,157 | (34,117 | ) | (37,334 | ) | ||||||||
Total | $ | (47,835 | ) | $ | 41,914 | $ | (5,921 | ) | $ | 49,664 | |||||
Operating margin: | |||||||||||||||
Solutions(1) | — | % | 3 | % | 3 | % | 21 | % | |||||||
Systems(1) | (26 | )% | 33 | % | 7 | % | 18 | % | |||||||
Software | 60 | % | — | % | 60 | % | 67 | % | |||||||
Corporate and other(1) | (13 | )% | 3 | % | (10 | )% | (11 | )% | |||||||
Total | (14 | )% | 12 | % | (2 | )% | 14 | % | |||||||
(1) | See the tables titled 'Reconciliation of Restructuring and Special Items to Diluted Earnings per Share' for descriptions of these restructuring and special items for three and nine months ended September 30, 2013. | |||
12
INOVA GEOPHYSICAL EQUIPMENT LIMITED
SUMMARIZED FINANCIAL HIGHLIGHTS
(In thousands)
(Unaudited)
The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment and records its share of earnings and losses of INOVA Geophysical on a one fiscal quarter lag basis. The following table reflects the summarized financial information for INOVA Geophysical for the three months ended June 30, 2013 and 2012 and the nine-month periods from October 1 to June 30, 2013 and 2012:
Three Months Ended June 30, | Period from October 1 through June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net revenues | $ | 61,241 | $ | 47,447 | $ | 142,947 | $ | 163,224 | |||||||
Gross profit | $ | 12,243 | $ | 6,296 | $ | 26,378 | $ | 39,762 | |||||||
Income (loss) from operations | $ | 1,658 | $ | (4,029 | ) | $ | (7,103 | ) | $ | 11,390 | |||||
Net income (loss) | $ | (488 | ) | $ | (3,454 | ) | $ | (6,518 | ) | $ | 10,917 | ||||
OCEANGEO B.V.
SUMMARIZED FINANCIAL HIGHLIGHTS
(In thousands)
(Unaudited)
The Company accounts for its 30% interest in OceanGeo B.V. ("OceanGeo") (formerly named GeoRXT B.V.) as an equity method investment and records its share of earnings and losses of OceanGeo on a current basis. The following table reflects the summarized financial information for OceanGeo for the three months ended September 30, 2013 and the period from March 1, 2013 to September 30, 2013:
Three Months Ended September 30, 2013 | Period from March 1 to September 30, 2013 | ||||||
Net revenues(1) | $ | — | $ | 19,668 | |||
Gross profit (loss) | $ | (11,359 | ) | $ | (11,237 | ) | |
Income (loss) from operations | $ | (16,733 | ) | $ | (23,609 | ) | |
Net income (loss) | $ | (17,553 | ) | $ | (24,598 | ) | |
(1) | During the three months ended September 30, 2013, OceanGeo vessels and crew remained idle. OceanGeo is actively bidding on new projects, which, if awarded, are expected to begin work in the fourth quarter. | |||
13
Reconciliation of Adjusted EBITDA to Net Income (Loss)
(Non-GAAP Measure)
(In thousands)
(Unaudited)
The term Adjusted EBITDA represents net income (loss) before interest expense, interest income, income taxes, depreciation and amortization and other similar non-cash charges including, without limitation, equity in (earnings) losses of investments and accrual for loss contingency related to legal proceedings. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for net income (loss) or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included Adjusted EBITDA as a supplemental disclosure because its management believes that Adjusted EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net income (loss) | $ | (197,256 | ) | $ | 15,155 | $ | (266,194 | ) | $ | 35,713 | |||||
Interest expense, net | 4,281 | 1,237 | 8,103 | 4,119 | |||||||||||
Income tax expense | 56,954 | 6,037 | 19,450 | 13,666 | |||||||||||
Depreciation and amortization expense | 19,057 | 32,700 | 64,038 | 78,443 | |||||||||||
Equity in (earnings) losses of investments | 5,192 | 1,684 | 10,414 | (4,561 | ) | ||||||||||
Accrual for loss contingency related to legal proceedings | 71,776 | — | 181,776 | — | |||||||||||
Write-down of multi-client data library | 5,461 | — | 5,461 | — | |||||||||||
Write-down of receivables from OceanGeo | 9,157 | — | 9,157 | — | |||||||||||
Write-down of excess and obsolete inventory | 21,197 | — | 21,197 | — | |||||||||||
Adjusted EBITDA | $ | (4,181 | ) | $ | 56,813 | $ | 53,402 | $ | 127,380 | ||||||
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