ION reports fourth quarter and year end 2018 results

HOUSTON, Feb. 6, 2019 /PRNewswire/ -- ION Geophysical Corporation (NYSE: IO) today reported revenues of $74.6 million in the fourth quarter 2018, a 29% increase compared to revenues of $57.9 million one year ago.  ION's net loss was $19.3 million, or $(1.38) per share, compared to a net loss of $1.4 million, or $(0.12) per share in the fourth quarter 2017.  Excluding special items in both periods, the Company reported Adjusted net income of $15.3 million, or $1.07 per diluted share, compared to Adjusted net income of $4.7 million, or $0.38 per diluted share in the fourth quarter 2017.  A majority of the special items for this quarter relate to the impairment of the Company's cable-based ocean bottom technologies within the Ocean Bottom Integrated Technologies segment.  A reconciliation of special items to the reported financial results can be found in the tables of this press release.

The Company reported Adjusted EBITDA of $36.5 million for the fourth quarter 2018, an increase of 54% from the Adjusted EBITDA of $23.8 million one year ago.  A reconciliation of Adjusted EBITDA to the closest comparable GAAP numbers can be found in the tables of this press release.

Net cash flows from operations were $14.4 million during the fourth quarter 2018, compared to $17.9 million in the fourth quarter 2017.  Total net cash flows, including investing and financing activities, were $3.4 million, compared to $11.7 million one year ago.  At December 31, 2018, the Company had total liquidity of $75.5 million, consisting of $33.6 million of cash on hand, and $41.9 million of available borrowing capacity under its maximum $50.0 million revolving credit facility.

Brian Hanson, the Company's President and Chief Executive Officer, commented, "While our fourth quarter revenue improved sequentially, driven primarily by the success of our Brazil 3D reimaging programs, we experienced geopolitical headwinds that further delayed Mexico and Panama data sales.  In addition, typical year-end spending didn't materialize in the way we anticipated for key customers, likely due to the commodity price slide experienced in the fourth quarter of 2018.

"We continue to expect near-term oil price volatility and for E&P capital preservation to take priority over reserve replacement, with very focused exploration spending.  That said, the international market is anticipated to grow for a second consecutive year and we are seeing increasing momentum across all our E&P and adjacent market businesses.  We believe market fundamentals will continue to improve as it becomes increasingly critical to meet production demand in the next decade.  In 2019, we expect an increase in new program development, the completion of our 4Sea commercialization and greater adoption of Marlin in both E&P and adjacent markets.  As usual, we expect 2019 to be back-end loaded given the timing of client budget spending, license rounds and new program activity."

For the full year 2018, the Company reported revenues of $180.0 million and a net loss of $71.2 million, or $(5.20) per share, compared revenues of $197.6 million and a net loss of $30.2 million, or $(2.55) per share in 2017.  Excluding special items in both periods, the Company reported Adjusted net loss of $32.5 million, or $(2.37) per share, compared to Adjusted net loss of $19.1 million, or $(1.61) per share in 2017.  Adjusted EBITDA was $41.7 million in 2018, compared to $64.5 million in 2017.

Net cash flows from operations were $7.1 million during 2018, compared to $27.6 million in 2017.  Total net cash flows, including investing and financing activities, were $(18.6) million in 2018, compared to $(1.0) million in 2017.

FOURTH QUARTER 2018

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

Within the E&P Technology & Services segment, new venture revenues were $29.6 million, a slight decrease from the fourth quarter 2017; while data library revenues were $25.5 million, a 74% increase; and Imaging Services revenues were $5.4 million, a 79% increase.  The increase in data library revenues was the result of sales of recently completed programs, particularly in Brazil.  The Imaging Services revenues were propelled by a continued increase in proprietary ocean bottom nodal imaging projects.  The Imaging Services group has continued to successfully focus on higher value, technology-driven projects.  

Within the Operations Optimization segment, Optimization Software & Services revenues were $6.0 million, a 43% increase from the fourth quarter 2017.  The increase in Optimization Software & Services revenues was due to the continued increase in subscription-based software revenues and hardware sales of ION's Gator™ ocean bottom command and control system.  Devices revenues were $8.1 million, also a 43% increase from the fourth quarter 2017.  While Devices revenues increased, partially driven by higher spares and replacement sales, the business continues to be impacted by reduced towed streamer seismic activity.

The Ocean Bottom Integrated Technologies segment had no revenues during the fourth quarter.  The Company has continued to evolve its strategy for the Ocean Bottom Integrated Technologies segment consistent with its asset light business model.  The remaining elements of its next generation ocean bottom nodal system, 4Sea, will be commercialized in 2019.  The Company is offering 4Sea components more broadly to the growing number of OBS service providers under recurring revenue commercial strategies that will enable the Company to share in the value its technology delivers.

Consolidated gross margin for the quarter was 51%, compared to 41% in the fourth quarter 2017.  Gross margin in the E&P Technology & Services increased to 53%, up from 43% one year ago.  This increase was primarily due to the significant increase in data library revenues and the increase and mix of Imaging Services revenues.  Operations Optimization gross margin was 52%, a slight increase from the 50% gross margin in fourth quarter 2017.

Consolidated operating margin was (22)%, compared to (2)% in the prior year quarter.  Consolidated operating margin, as adjusted for special items, was 24%, compared to 9% in the prior year quarter.  Similar to gross margin, the increase in operating margin, as adjusted, was related to the increase in revenues in the E&P Technology & Services segment.

FULL YEAR 2018

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

Within the E&P Technology & Services segment, new venture revenues were $69.7 million, a 31% decrease from 2017; while data library revenues were $47.1 million, an 18% increase, and Imaging Services revenues were $19.7 million, a 20% increase.  The increase in data library and Imaging Services revenues were driven by the significant increases during the fourth quarter 2018.  The decrease in new venture revenues was the result of the continued delay of the Panama license round announcement, political change in Mexico prompting E&P companies to pause new venture activity and the continued focus on cash preservation within E&P companies restricting exploration spending.

Within the Operations Optimization segment, Optimization Software & Services revenues were $21.1 million, an increase of 27%.  The change in Optimization Software & Services revenues for the full year is fairly consistent with the changes described in the preceding section.  Devices revenues were $22.4 million, a 5% decrease from 2017.  The decrease in Devices revenues was due to continued sluggishness in the towed streamer market during the first nine months of the year, as the increase in revenues in the fourth quarter 2018 was not large enough to overcome the first nine months.

The Ocean Bottom Integrated Technologies segment had no revenues during the year.

Consolidated gross margin was 33%, compared to 38% in 2017.  Gross margin in the E&P Technology & Services decreased to 32%, down from 41% in 2017.  This decrease was the result of the decrease in new venture revenues.  Operations Optimization gross margin was 51%, a slight increase from the 50% gross margin in 2017.

Consolidated operating margin was (30)%, compared to (4)% in 2017.  Consolidated operating margin, as adjusted for special items, was (9)%, compared to (1)% in 2017, the result of the decrease in new venture revenues.

Income tax expense was $2.7 million in 2018, primarily due to positive results from the Company's non-U.S. businesses.  This foreign tax expense has not been offset by the tax benefits on losses within the U.S. and other jurisdictions, from which the Company cannot currently benefit, resulting in an income tax expense on a consolidated pre-tax loss.

CONFERENCE CALL

The Company has scheduled a conference call for Thursday, February 7, 2019, 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 February 21, 2019.  To access the replay, dial (877) 660-6853 and use pass code 13686431#.

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 develops and leverages innovative technologies, creating value through data capture, analysis and optimization to enhance critical decision-making, enabling superior returns.  For more information, visit www.iongeo.com.

ContactSteve BateExecutive Vice President and Chief Financial Officer+1.281.552.3011

The information 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 information 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 the risks associated with the timing and development of ION Geophysical Corporation's products and services; pricing pressure; decreased demand; changes in oil prices; and political, execution, regulatory, and currency risks. These risks and uncertainties also include risks associated with the WesternGeco litigation and other related proceedings. We cannot predict the outcome of this litigation or the related proceedings. For additional information regarding these various risks and uncertainties, including the WesternGeco litigation, see our Form 10-K for the year ended December 31, 2017, filed on February 8, 2018. Additional risk factors, which could affect actual results, are disclosed by the Company in its fillings with the Securities and Exchange Commission ("SEC"), including its Form 10-K, Form 10-Qs and Form 8-Ks filed during the year. The Company expressly disclaims any obligation to revise or update any forward-looking statements.

Tables to follow

The following table is a reconciliation of cash, cash equivalents and restricted cash (in thousands):

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIESReconciliation of Adjusted EBITDA to Net Loss(Non-GAAP Measure)(In thousands)(Unaudited)

The term Adjusted EBITDA represents net loss before interest expense, interest income, income taxes, depreciation and amortization, and other credits or charges including, without limitation, impairment of long-lived assets, changes in the loss contingency reserve related to legal proceedings and stock appreciation rights expense.  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 loss or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity.  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 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.  Additionally, due to the recent changes in the Company's stock price and impact of reflecting its stock appreciation awards at their fair value, the Company is presenting Adjusted EBITDA, excluding the impact of stock appreciation awards, to assist in the comparability to its prior year results.

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIESReconciliation of Special Items to Net Income (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 income (loss) from operations or net income (loss) excluding 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 twelve months ended December 31, 2018 and 2017.

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SOURCE ION Geophysical Corporation