Exhibit 99.1
ION REPORTS STRONG THIRD QUARTER RESULTS
Revenues increase 26% quarter over quarter
Earnings per diluted share nearly doubles to $0.27, excluding special items
EBITDA nearly doubles for both the third quarter and year-to-date 2008
HOUSTON– November 4, 2008 – ION Geophysical Corporation (NYSE: IO) today announced third quarter 2008 net income of $24.9 million, or $0.25 per diluted share, on revenues of $218.5 million compared to net income of $12.6 million, or $0.14 per diluted share, on revenues of $173.6 million for the same period a year ago. Third quarter earnings included several special items totaling approximately $2.6 million, of which $1.2 million, or approximately $0.01 per diluted share, related to the quarterly fair value adjustment of the Company’s preferred stock redemption features and $0.9 million, or approximately $0.01 per diluted share, related to charges incurred as part of the acquisition of ARAM Systems and Canadian Seismic Rentals (“ARAM”) in the latter part of the third quarter. The remaining $0.5 million special item was due to the impact of Hurricane Ike, which directly hit the Houston area in September and caused extensive power outages and other infrastructural damage across the region. Excluding the impact of these special items, the Company reported third quarter earnings of $0.27 per diluted share on revenues of $218.5 million for 2008.
Bob Peebler, President and Chief Executive Officer of ION, stated, “We are very pleased with our record third quarter revenues and improved profitability. We had another excellent quarter in our Marine Imaging Systems division driven by strong sales of positioning systems and DigiFIN™ streamer technology and the delivery of most of the remaining portion of the fifth VectorSeis® Ocean (VSO) system to RXT.
“We are also delighted by the continued record performance of our ION Solutions group, including our new venture sales related to the Company’s programs off the coasts of Alaska, South America and West Africa and continued strength in data processing.
“In our land division, gross margins continue to improve, driven by reductions in cable system and vibroseis vehicle costs and higher margins from ARAM system sales. We continue to be on track for FireFly® commercialization later this year with most of the emphasis now on international markets, due to working capital issues affecting North American customers.
“We realize that, along with the rest of the industry, we will likely be affected by the current turbulence in the financial markets, resulting in the ensuing slowdown of the economy and the decline in commodity prices. We believe that our strategy of building competitive advantage through our technology by investing $164.0 million over the last five years in technology R&D will serve us well during this period as oil companies look for significant productivity improvements to offset lower commodity prices. We believe our industry is in a short-term down cycle that will likely last through 2009 and could extend into 2010, but we put that in context of a longer term trend of growing demand for oil and gas. This longer-term trend will continue to put pressure on oil companies to increase reserves through exploration and enhanced oil recovery. Geophysical technologies that provide enhanced efficiency and productivity, whether in reducing dry holes drilled, improving field operations or making older reservoirs more productive, will be more valuable now that oil and service companies will be challenged to find ways to improve profitability.”
THIRD QUARTER 2008
Total revenues in the third quarter increased 26% to $218.5 million compared to $173.6 million a year ago. The increased revenues were the results of strong sales in all of the Company’s segments, including Marine Imaging Systems, Land Imaging Systems and ION Solutions.
The ION Systems group generated sales of $141.0 million, increasing 11% compared to the same period in 2007. Marine Imaging Systems revenues increased 32% to $49.0 million compared to $37.1 million a year ago, as demand for the Company’s DigiFIN™ streamer positioning and seabed products remained strong. Additionally, a portion of the fifth VSO acquisition system was delivered in the third quarter, which continues to demonstrate the success and acceptance of VSO technology. Land Imaging Systems’ revenues increased to $81.6 million compared to $79.1 million in the third quarter of 2007. The third quarter of 2007 included the delivery of five systems to Oil and Natural Gas Corporation Ltd. (ONGC) for $22.8 million. In the third quarter of 2008, Land Imaging Systems continued to have strong vibroseis truck sales. The third quarter financial results include ARAM’s operating results for the last 12 days of the quarter. Data Management Solutions’ revenues were essentially flat at $10.4 million for the third quarter compared to $10.9 million a year ago.
The ION Solutions group had another record quarter, generating $77.5 million in revenues compared to $46.5 million in the same period a year ago. The 67% increase was primarily driven by robust new venture program sales off the coasts of Alaska, East Africa and South America, combined with strong data library revenues in the African region.
Consolidated gross margin for the third quarter of 2008 improved to 33% from 30% in the third quarter of 2007, primarily due to improvements in the Land Imaging Systems and Data Management Solutions segments. Overall, ION Systems continued to see notable margin improvements in Scorpion® cable systems, vibroseis vehicle sales and the addition of higher margin ARAM land systems. ION Solutions experienced a slight deterioration in margin rates, driven by product mix when compared to 2007.
Operating expenses as a percent of revenues for the third quarter of 2008 dropped to 19% compared to 21% in the prior year period. General and administrative expenses as a percentage of revenues remained stable for the third quarter of 2008 at approximately 7%.
Income from operations in the third quarter increased over 85% to $31.6 million compared to $16.9 million in the third quarter of 2007. Adjusted EBITDA (earnings before net interest expense, taxes, depreciation and amortization and the fair value adjustment of preferred stock redemption features) for the third quarter doubled to $69.6 million compared to $34.3 million in the third quarter of 2007. A reconciliation of Adjusted EBITDA to reported earnings can be found at the end of this press release.
YEAR-TO-DATE 2008
Consolidated revenues for the first nine months of 2008 increased 7% to $539.4 million compared to $503.8 million for the same period in 2007. The revenues in 2008 included strong DigiFIN sales, new venture and multi-client data library sales and the delivery of the majority of the fifth VSO system. Gross margin for the first nine months of 2008 improved substantially to 33% compared to 27% for 2007. Strong margin improvements were realized across the majority of the segments, with the largest improvements occurring in the ION Solutions and Land Imaging segments.
Operating expenses as a percentage of revenues for year-to-date 2008 and 2007 were stable at approximately 21%. These expenses mainly relate to salaries associated with increased headcount, increased bonus expense related to continued strong
performance and legal and accounting professional fees related to the Company’s international expansion initiatives. Research and development expenses for the period were approximately 7% of revenue, consistent with the prior year. The Company’s effective tax rate year-to-date was 15.5% for 2008 compared to 16.0% for 2007.
Income from operations for year-to-date 2008 totaled $61.6 million, an increase of 80% over 2007. For the first nine months of 2008, the Company reported net income of $48.0 million, or $0.49 per diluted share, compared to net income of $22.8 million, or $0.26 per diluted share, in 2007. Adjusted EBITDA for the period was $145.4 million compared to $75.9 million in 2007.
ACQUISITION OF ARAM
On September 18, 2008, the Company completed the acquisition of all of the outstanding shares of ARAM Systems and Canadian Seismic Rentals (“ARAM”). Founded in 1971, ARAM designs, manufactures, sells and leases land seismic data acquisition systems, specializing in analog cabled systems. As a result of the acquisition, the operations of ARAM are combined with the Company’s operations commencing as of September 19, 2008 through the end of the quarter. Due to consolidating ARAM with the Company’s Land Imaging Systems group, the Company will not be reporting separate ARAM results in the future.
OUTLOOK
The following statements are based on the Company’s current expectations. These statements are forward looking and actual results may differ materially. Factors affecting these forward-looking statements are detailed below.
Brian Hanson, Executive Vice President and Chief Financial Officer, commented, “While we normally anticipate the final quarter to be the strongest of the year, the current economic environment has made the visibility into the market and economy difficult. Based on our year-to-date results and our current pipeline of business, we expect 2008 consolidated revenues to range between $780 and $830 million and earnings to be between $0.70 and $0.80 per diluted share. This outlook assumes that we will not likely see the normal high level of year-end spending due to both oil and gas companies and our contractor customers taking a more conservative approach going forward. We will hold a 2009 guidance call in late December upon the completion of our 2009 plan.”
CONFERENCE CALL
The Company has scheduled a conference call for Wednesday, November 5, 2008, at 10:00 a.m. Eastern Time. To participate in the conference call, dial 303-242-0003 at least 10 minutes before the call begins and ask for the ION conference call. A replay of the call will be available approximately two hours after the live broadcast ends and will be accessible until November 19, 2008. To access the replay, dial 303-590-3000 and use pass code 11121267#.
Investors, analysts and the general public will also have the opportunity to listen to the conference call live over the Internet by visitingwww.iongeo.com. Also, an archive of the web cast will be available shortly after the call on the Company’s website.
About ION
ION is a leading provider of geophysical technology, services, and solutions for the global oil & gas industry. ION’s offerings allow E&P operators to obtain higher resolution images of the subsurface to reduce the risk of exploration and reservoir development, and enable seismic contractors to acquire geophysical data more efficiently. Additional information about ION is available at www.iongeo.com.
CONTACTS:
R. Brian Hanson
Chief Financial Officer
+1.281.879.3672
Jack Lascar
DRG&E
+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 include statements concerning estimated revenues, earnings and earnings per share for fiscal 2008, and estimated gross margins, Adjusted EBITDA and operating expenses as a percentage of revenue for fiscal 2008, future sales and market growth, 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 timing and development of the Company’s products and services and market acceptance of the Company’s new and revised product offerings; risks associated with the economic downturn and the volatile credit environment; risks associated with the integration of ARAM’s business; risks associated with the Company’s level of indebtedness; risks associated with competitor’s 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 foreignt sales; the risks 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 line. 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, including its Annual Report on Form 10-K for the year ended December 31, 2007.
Tables to follow
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| Product revenues | | $ | 140,332 | | | $ | 126,246 | | | $ | 337,726 | | | $ | 385,587 | |
| Service revenues | | | 78,197 | | | | 47,306 | | | | 201,627 | | | | 118,166 | |
| | | | | | | | | | | | | |
| Total net revenues | | | 218,529 | | | | 173,552 | | | | 539,353 | | | | 503,753 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Cost of products | | | 92,347 | | | | 89,407 | | | | 224,601 | | | | 278,924 | |
| Cost of services | | | 53,561 | | | | 31,498 | | | | 135,716 | | | | 86,810 | |
| | | | | | | | | | | | | |
| Gross profit | | | 72,621 | | | | 52,647 | | | | 179,036 | | | | 138,019 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Research, development and engineering | | | 13,498 | | | | 12,449 | | | | 37,507 | | | | 37,530 | |
| Marketing and sales | | | 12,062 | | | | 10,906 | | | | 35,440 | | | | 31,151 | |
| General and administrative | | | 15,487 | | | | 12,428 | | | | 44,484 | | | | 35,024 | |
| | | | | | | | | | | | | |
| Total operating expenses | | | 41,047 | | | | 35,783 | | | | 117,431 | | | | 103,705 | |
| | | | | | | | | | | | | |
| Income from operations | | | 31,574 | | | | 16,864 | | | | 61,605 | | | | 34,314 | |
| Interest expense | | | (1,592 | ) | | | (1,764 | ) | | | (2,731 | ) | | | (5,017 | ) |
| Interest income | | | 40 | | | | 273 | | | | 1,117 | | | | 1,412 | |
| Other income (expense) | | | 743 | | | | (823 | ) | | | 1,075 | | | | (1,470 | ) |
| Fair value adjustment of preferred stock redemption features | | | (1,147 | ) | | | — | | | | (974 | ) | | | — | |
| | | | | | | | | | | | | |
| Income before income taxes | | | 29,618 | | | | 14,550 | | | | 60,092 | | | | 29,239 | |
| Income tax expense | | | 3,760 | | | | 1,322 | | | | 9,343 | | | | 4,671 | |
| | | | | | | | | | | | | |
| Net income | | | 25,858 | | | | 13,228 | | | | 50,749 | | | | 24,568 | |
| Preferred stock dividends and accretion | | | 925 | | | | 589 | | | | 2,743 | | | | 1,780 | |
| | | | | | | | | | | | | |
| Net income applicable to common shares | | $ | 24,933 | | | $ | 12,639 | | | $ | 48,006 | | | $ | 22,788 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Earnings per share: | | | | | | | | | | | | | | | | |
| Basic net income share | | $ | 0.26 | | | $ | 0.16 | | | $ | 0.51 | | | $ | 0.28 | |
| | | | | | | | | | | | | |
| Diluted net income share | | $ | 0.25 | | | $ | 0.14 | | | $ | 0.49 | | | $ | 0.26 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Weighted average number of common shares outstanding: | | | | | | | | | | | | | | | | |
| Basic | | | 95,823 | | | | 81,047 | | | | 94,676 | | | | 80,607 | |
| Diluted | | | 102,653 | | | | 97,780 | | | | 102,127 | | | | 97,426 | |
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| | | | | | | | | |
| | | September 30, | | | December 31, | |
| | | 2008 | | | 2007 | |
| ASSETS | | | | | | | | |
| | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 32,189 | | | $ | 36,409 | |
| Restricted cash | | | 5,344 | | | | 7,052 | |
| Accounts receivable, net | | | 180,026 | | | | 188,029 | |
| Notes receivable, net | | | 25,473 | | | | 5,454 | |
| Unbilled receivables | | | 65,578 | | | | 22,388 | |
| Inventories | | | 254,803 | | | | 128,961 | |
| Prepaid expenses and other current assets | | | 25,523 | | | | 12,717 | |
| | | | | | | |
| Total current assets | | | 588,936 | | | | 401,010 | |
| Notes receivable | | | 6,753 | | | | — | |
| Non-current deferred income tax asset | | | 3,351 | | | | 2,872 | |
| Property, plant and equipment, net | | | 63,961 | | | | 36,951 | |
| Multi-client data library, net | | | 83,004 | | | | 59,689 | |
| Investments at cost | | | 4,954 | | | | 4,954 | |
| Goodwill | | | 306,041 | | | | 153,145 | |
| Intangible and other assets, net | | | 170,749 | | | | 50,528 | |
| | | | | | | |
| Total assets | | $ | 1,227,749 | | | $ | 709,149 | |
| | | | | | | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Notes payable and current maturities of long-term debt | | $ | 190,534 | | | $ | 14,871 | |
| Accounts payable | | | 86,599 | | | | 44,674 | |
| Accrued expenses | | | 74,629 | | | | 66,911 | |
| Accrued multi-client data library royalties | | | 30,586 | | | | 29,962 | |
| Deferred revenue | | | 12,037 | | | | 21,278 | |
| Deferred income tax liability | | | 5,165 | | | | 2,792 | |
| | | | | | | |
| Total current liabilities | | | 399,550 | | | | 180,488 | |
| Long-term debt, net of current maturities | | | 124,316 | | | | 9,842 | |
| Non-current deferred income tax liability | | | 37,505 | | | | 3,384 | |
| Other long-term liabilities | | | 4,115 | | | | 4,195 | |
| Fair value of preferred stock redemption features | | | 2,188 | | | | — | |
| | | | | | | |
| Total liabilities | | | 567,674 | | | | 197,909 | |
| | | | | | | | | |
| Cumulative convertible preferred stock | | | 68,785 | | | | 35,000 | |
| | | | | | | | | |
| Stockholders’ equity: | | | | | | | | |
| Common stock | | | 994 | | | | 948 | |
| Additional paid-in capital | | | 624,924 | | | | 559,255 | |
| Accumulated deficit | | | (34,833 | ) | | | (82,839 | ) |
| Accumulated other comprehensive income | | | 6,766 | | | | 5,460 | |
| Treasury stock | | | (6,561 | ) | | | (6,584 | ) |
| | | | | | | |
| Total stockholders’ equity | | | 591,290 | | | | 476,240 | |
| | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 1,227,749 | | | $ | 709,149 | |
| | | | | | | |
ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SEGMENT INFORMATION
(In thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| Net revenues: | | | | | | | | | | | | | | | | |
| Land Imaging Systems | | $ | 81,562 | | | $ | 79,055 | | | $ | 177,270 | | | $ | 242,804 | |
| Marine Imaging Systems | | | 49,016 | | | | 37,099 | | | | 133,872 | | | | 116,925 | |
| Data Management Solutions | | | 10,408 | | | | 10,917 | | | | 29,170 | | | | 28,097 | |
| | | | | | | | | | | | | |
| Total ION Systems | | | 140,986 | | | | 127,071 | | | | 340,312 | | | | 387,826 | |
| ION Solutions | | | 77,543 | | | | 46,481 | | | | 199,041 | | | | 115,927 | |
| | | | | | | | | | | | | |
| Total | | $ | 218,529 | | | $ | 173,552 | | | $ | 539,353 | | | $ | 503,753 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Income (loss) from operations: | | | | | | | | | | | | | | | | |
| Land Imaging Systems | | $ | 11,216 | | | $ | 5,663 | | | $ | 15,831 | | | $ | 16,681 | |
| Marine Imaging Systems | | | 14,063 | | | | 9,912 | | | | 35,245 | | | | 32,077 | |
| Data Management Solutions | | | 6,820 | | | | 5,948 | | | | 17,496 | | | | 12,686 | |
| | | | | | | | | | | | | |
| Total ION Systems | | | 32,099 | | | | 21,523 | | | | 68,572 | | | | 61,444 | |
| ION Solutions | | | 14,019 | | | | 7,443 | | | | 36,316 | | | | 7,432 | |
| Corporate | | | (14,544 | ) | | | (12,102 | ) | | | (43,283 | ) | | | (34,562 | ) |
| | | | | | | | | | | | | |
| Total | | $ | 31,574 | | | $ | 16,864 | | | $ | 61,605 | | | $ | 34,314 | |
| | | | | | | | | | | | | |
Reconciliation of Adjusted EBITDA to Net Income
(Non-GAAP Measures)
(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 principals (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 | | | Nine Months Ended | |
| | | September 30, | | | September 30, | |
| | | 2008 | | | 2007 | | | 2008 | | | 2007 | |
| Net income applicable to common shares | | $ | 24,933 | | | $ | 12,639 | | | $ | 48,006 | | | $ | 22,788 | |
| Interest expense | | | 1,592 | | | | 1,764 | | | | 2,731 | | | | 5,017 | |
| Interest income | | | (40 | ) | | | (273 | ) | | | (1,117 | ) | | | (1,412 | ) |
| Income tax expense | | | 3,760 | | | | 1,322 | | | | 9,343 | | | | 4,671 | |
| Depreciation and amortization expense | | | 38,250 | | | | 18,885 | | | | 85,423 | | | | 44,835 | |
| Fair value adjustment of preferred stock redemption features | | | 1,147 | | | | — | | | | 974 | | | | — | |
| | | | | | | | | | | | | |
| Adjusted EBITDA | | $ | 69,642 | | | $ | 34,337 | | | $ | 145,360 | | | $ | 75,899 | |
| | | | | | | | | | | | | |
Reconciliation of Special Items Adjustments to Diluted Earnings Per Share
(Non-GAAP Measures)
(In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, 2008
| | | | | |
| | | Amount | |
| Fair value adjustment of preferred stock redemption features | | $ | 1,147 | |
| ARAM acquisition-related items | | | 920 | |
| Hurricane Ike charges | | | 525 | |
| | | | |
| Total | | $ | 2,592 | |
| | | | |
| | | | | |
| Diluted EPS | | $ | 0.25 | |
| Impact of special items | | $ | 0.02 | |
| | | | |
| Diluted EPS, excluding special items | | $ | 0.27 | |
| | | | |
| | | | | |
| Weighted Average number of diluted common shares outstanding | | | 102,653 | |
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