ION Geophysical Corporation reported fourth quarter 2011 revenues of $159.9 million, compared to $158.6 million in the fourth quarter of 2010.
Excluding special items ION reported fourth quarter 2011 net income of $23.2 million, or $0.15 per diluted share, compared to net income of $21.2 million, or $0.14 per diluted share, in the fourth quarter of 2010. Including special items, fourth quarter 2011 net income was $12.0 million, or $0.08 per diluted share, compared to net income of $20.0 million, or $0.13 per diluted share, in 2010.
For full year 2011, ION reported revenues of $454.6 million, compared to $444.3 million in 2010. Total revenues excluding Legacy Land Systems (INOVA) grew 6% during 2011. ION reported 2011 net income of $34.6 million, or $0.22 per diluted share, compared to 2010 net income of $22.8 million, or $0.16 per diluted share, both excluding special items. Actual reported net income in 2011 was $23.4 million, or $0.15 per diluted share, compared to a net loss of ($38.8) million, or ($0.27) per share, in 2010.
Three pre-tax adjustments totaling $0.07 per diluted share affected fourth quarter 2011 net income. The first resulted from a $7.7 million charge for write-down of excess inventory by INOVA Geophysical. This charge reflects an adjustment to inventory values for older products, given INOVA’s launch of Hawk™ and a new version of FireFly®. The second is a $2.9 million restructuring as ION moved its geophone manufacturing operations from the Netherlands to lower-cost centers in Asia. The last is a $1.3 million impairment of one of ION’s investments.
Brian Hanson, ION’s Chief Executive Officer, commented, “We finished with strong results, as expected. Our marine group continues to deliver excellent results, driven by the ongoing transition of the towed streamer market to more complex surveys, which promotes sales of our leading Digi positioning equipment product line and our latest software platform, Orca®. As a major milestone, we installed our Orca software platform on our 51st vessel, further expanding our market share to over 40%. We are also pleased that we completed the BGP 12-streamer deal, as expected, in the fourth quarter with their new marine vessel, Prospector, successfully completing its first commercial job.
“As previously reported, our data processing business experienced a revenue and earnings decline in 2011, which was the direct impact of the Macondo oil spill. This was the first decline in our DP business after several years of year-over-year growth and represented an approximate 12 cent negative pre-tax impact from the prior year. The good news is we have seen an extremely strong build up in our backlog, including the fourth quarter award of the single largest data processing contract in our history, which we believe indicates a healing of the Gulf of Mexico, but also the significant increase in our global data processing footprint over the last year.
“One important highlight for the year is the continuing expansion of our GeoVentures™ group portfolio, which had another strong growth year. This included finishing our third Arctic program in Greenland, as well as our first land ResSCANS™ survey for North American shale oil and gas geologies. We continue to develop our leading data acquisition and processing technologies in the North American oil and gas shale plays centered on recording the full wavefield and proprietary processing. We also recently started our first international effort in the shale play with a regional land survey in Poland. The recent weak gas prices make technology such as ResSCANS even more important to oil companies to further drive productivity.
“Despite a challenging year for the land equipment market, INOVA experienced another sequential improvement in sales, which should result in their first profitable quarter in the fourth quarter. As a result of INOVA’s significant R&D program, they have launched a series of new products, including a new version of FireFly and their first offering of autonomous land nodes, branded Hawk. We are confident these new products place INOVA in a much stronger position for 2012. As indicated in our December call, we anticipate INOVA to be break-even in 2012.”
FOURTH QUARTER 2011
Total revenues for the fourth quarter increased to $159.9 million, compared to $158.6 million a year ago. Systems segment revenues increased by 58% over the same period in 2010, while Solutions segment revenues decreased by 22%. Software segment revenues were relatively flat to the same quarter last year.
Sales in the Systems segment increased to $67.3 million in the fourth quarter, compared to $42.6 million in the same period of 2010, which includes the 12-streamer system sold to BGP.
Sales in the Solutions segment decreased to $83.4 million during the fourth quarter, down $23.2 million compared to $106.6 million for the same period a year ago. This decrease was primarily the result of lower data library sales as compared to an exceptionally strong fourth quarter of 2010, which was partially driven by money being shifted from drilling programs in the Gulf of Mexico to international exploration programs. This decrease in data library sales was partially offset by more than a 60% increase in new venture revenues related to projects in North American shale plays, East Africa and the Arctic.
Consolidated gross margins for fourth quarter 2011 decreased slightly to 40% from 42% in fourth quarter 2010. Gross margins in the Software and Solutions segments improved by 8 and 7 percentage points, respectively, due to favorable sales mix, while gross margins in the Systems segment decreased by 16 percentage points, partially attributed to the mix of the lower-margin streamer system sale to BGP in the fourth quarter.
As a percentage of revenue, operating expenses during the fourth quarter remained essentially flat at 20%. Adjusted EBITDA for the quarter decreased to $59.0 million, compared to $71.4 million in fourth quarter 2010, mostly related to higher data library sales in fourth quarter 2010.
ION accounts for its 49% interest in INOVA on a one fiscal quarter lag. ION’s share of INOVA’s third quarter financial results is included in ION’s fourth quarter. For fourth quarter 2011, ION recognized a loss on its INOVA equity investment of approximately $13.0 million, which includes approximately $7.7 million (ION’s 49% share) of the write-down of excess inventory by INOVA.
FULL YEAR 2011
Consolidated revenues for full year 2011 increased to $454.6 million, compared to $444.3 million for 2010. Excluding the Legacy Land Systems (INOVA) segment revenues, which were consolidated in the company’s first quarter 2010 results, 2011 revenues increased 6%, or $26.8 million, versus 2010 levels. Revenues in the Systems segment increased 34%, driven by strong towed streamer and other marine equipment sales. Revenues in the Software segment increased 4% and were flat on a currency-adjusted basis. Revenues in the Solutions segment decreased $13.5 million, or 5%, compared to prior year, primarily as a result of lower data processing sales. Data processing revenues improved sequentially each quarter, but decreased 18% over the prior year due to the lagging effects of the Gulf of Mexico oil spill. However, multi-client revenues increased 3%, as new venture activity was successfully carried out in the Arctic, East Africa and the North American shale plays.
Gross margins for full year 2011 improved slightly to 38%, compared to 37% for 2010. Excluding the results of the Legacy Land Systems (INOVA) segment, the overall gross margin of the remaining segments remained consistent with 2010.
ION’s operating expenses as a percentage of revenues for 2011 were 23%, consistent with 2010, excluding the Legacy Land Systems (INOVA) segment. ION’s 2011 effective tax rate of 29.2% was impacted by the establishment of valuation allowances associated with equity in losses of INOVA Geophysical and the write-down of one of ION’s investments. Excluding these items, the 2011 effective tax rate would have been 17.2% compared to 14.5% for 2010. The increase in the effective tax rate relates to the changes in the distribution of earnings between U.S. and foreign jurisdictions.
Income from operations for 2011 totaled $66.8 million, compared to $52.8 million in 2010. Excluding the first quarter 2010 results of the Legacy Land Systems (INOVA) segment, income from operations during 2010 was $62.5 million.
Adjusted EBITDA for 2011 decreased 5% to $155.9 million, compared to $163.8 million in 2010. At year end, ION had no outstanding balance associated with its $100 million revolving credit facility, bringing total liquidity to $162.4 million.
Greg Heinlein, ION’s Chief Financial Officer, further commented, “Our fourth quarter results were strong, as expected, and we anticipate the positive momentum experienced in the quarter to continue as we head into 2012.
“Our marine business delivered a strong fourth quarter performance, supported by the streamer sale to BGP. Our multi-client business is currently executing several new venture programs on land and offshore, which positions us well for a strong 2012. In addition, our Solutions backlog is at record levels, and we expect revenue growth rates to return to historically high levels.
“As mentioned on our market and business outlook call in December, we expect our investment in multi-client data libraries during 2012 to be in the range of $130 to $150 million, with a significant amount of this investment to be underwritten by our customers and with new venture projects spread more evenly throughout the year due to continued expansion on land. While we expect 2012 earnings to be back-end loaded, we continue to anticipate approximately one-fourth of annual results to be reflected in the first half of the year due to the growing impact of our GeoVentures business and the distribution of multi-client projects throughout the year.”
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 operators 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.
Subsea World News Staff , February 17, 2012; Image: ION