ION Geophysical Revenues Up 16 Pct (USA)

ION Geophysical Corporation yesterday reported first quarter 2013 revenues of $129.7 million, a 16% increase from revenues of $111.7 million in first quarter 2012.

First quarter 2013 net income was $1.5 million, or $0.01 per diluted share, compared to net income of $8.2 million, or $0.05 per diluted share, in first quarter 2012. Adjusted EBITDA was $25.7 million compared to $36.7 million in first quarter 2012.

Brian Hanson, the Company’s President and Chief Executive Officer, commented, “Our first quarter results were impacted by several one-off items that collectively reduced our earnings significantly. Nevertheless, our underlying growth trend and momentum continue and we remain confident in our full year outlook as we continue to build upon the momentum delivered in 2012.

“Our GeoVentures® division delivered a strong revenue quarter driven by new ventures revenues. Our data library sales were impacted somewhat by delays in licensing rounds offshore Tanzania and Greenland, but we remain confident these sales will be realized later this year. We continued a multi-quarter 3D marine program during the quarter, positioning us strategically in some key growth markets, which will result in great margins when complete. While we recorded a bad debt reserve related to a bankruptcy filing of one of our underwriting clients in a land program, we expect the data from this program to remain extremely valuable to constituents that pick up these leases from our client.

“Our data processing business remained strong as we continued to benefit from improvement in U.S. Gulf of Mexico activity and international diversification. We are opening a new processing center in Perth, Australia, further expanding our global footprint. Additionally, we’re continuing to benefit from increased penetration of our WiBandTM broadband solution.

“Our Software segment achieved relatively flat revenues in the first quarter, which is typical for this business, with growth in sales of our Orca® software and on-board acquisition optimization services offset by a slight decline in sales of our traditionally more transactional seabed software.

“Our Systems segment revenues declined in the first quarter, driven by lower demand for positioning products due to a slowdown of new vessel builds as well as a decline in revenues in our land sensors business.

“We recorded a slight loss on our 30% share in the GeoRXT joint venture in the first quarter. We expect to comment more specifically about the joint venture and our ongoing discussions to increase to a 50% share in the near future. At that time, we can provide more granularity for the full year outlook and our plans to expand the operations beyond Brazil.”

First Quarter 2013

Total revenues for the first quarter of 2013 increased 16% to $129.7 million, compared to $111.7 million a year ago. Solutions segment revenues increased 35% over the same period in 2012; Software segment revenues were relatively flat; Systems segment revenues declined by 13%.

Solutions segment revenues increased to $89.2 million in first quarter 2013, compared to $66.1 million a year ago, driven primarily by a 67% increase in new ventures activity and 16% growth in the data processing business, partially offset by an 8% decline in data library sales.

Software segment sales were $8.7 million compared to $8.9 million in first quarter 2012. Excluding foreign currency effects, Software segment revenues were relatively flat.

Systems segment sales declined to $31.8 million from $36.7 million in first quarter 2012, principally due to lower marine positioning equipment and land sensors revenue, partially offset by modest growth in marine seabed revenues.

Consolidated gross margins were 27%, compared to 37% in first quarter 2012. The gross margin decrease was driven primarily by the mix of products sold within the Systems business, with a decline in higher margin positioning products, partially offset by growth in lower margin marine seabed and marine streamer products, combined with the land sensors revenue decline. Additionally, the GeoVentures 3D program weather delays negatively impacted gross margins by nearly $6 million in first quarter 2013.

First quarter operating margins were 1%, compared to 10% in first quarter 2012. The operating margin deterioration was caused by a combination of gross margin deterioration as explained above, as well as approximately $2.9 million in bad debt reserves, primarily due to the bankruptcy of a GeoVentures underwriting client as noted above.

The Company’s effective tax rate during the first quarter was 40%, compared to 29% in first quarter 2012. During the first quarter, the Company recorded a one-time adjustment to tax that adversely impacted the effective tax rate. Excluding the one-time adjustment, the Company’s effective tax rate for first quarter 2013 was 29%.

The Company’s equity investments include its 49% interest in INOVA Geophysical and its 30% interest in GeoRXT B.V. The Company accounts for its 49% interest in INOVA Geophysical on a one fiscal quarter-lag basis. As a result, the Company’s share of INOVA Geophysical’s fourth quarter 2012 financial results is included in the Company’s first quarter results. INOVA Geophysical reported revenues of $59.6 million, compared to $59.0 million in fourth quarter 2011. INOVA Geophysical reported earnings of $3.7 million for fourth quarter 2012, compared to earnings of $5.7 million in fourth quarter 2011. The Company recognized earnings on its INOVA equity investment of approximately $1.9 million in its first quarter 2013, compared to earnings of $2.5 million for the prior year period. Additionally, during the first quarter 2013, the Company recorded a loss on its GeoRXT equity investment of approximately $(0.7) million.

The Company’s total cash and cash equivalents were $66.6 million as of March 31, 2013. Additionally, the Company had $77.7 million of unused capacity under its $175 million credit facility as of March 31, 2013.


Greg Heinlein, the Company’s Chief Financial Officer, commented, “We delivered solid revenue growth in the first quarter, but a combination of factors resulted in a disappointing bottom-line. While each factor is something we deal with in our business every quarter, we were not able to overcome the combination of licensing delays impacting library sales, weather-related delays and associated costs in our 3D program, and a reserve for a customer bankruptcy. Despite the weak first quarter, we remain enthusiastic and steadfast in our belief that 2013 will ultimately result in solid year-over-year growth, but we’ve clearly got additional work to do to improve margins and earnings through the remainder of the year.

“INOVA generated solid revenues in their fourth quarter, driven by sales of G3iTM channels (cable-based recording channels), vibrators, and UniVibTM units (peak force small vibrators), as reflected in our first quarter equity income. We expect to record an equity loss from INOVA in our second quarter due to softness in INOVA’s first quarter revenues, but we expect INOVA to be modestly profitable for full year 2013.

“As we look ahead to the second quarter, we appear to be picking up momentum in our three business segments. However, we expect to be adversely impacted by a slow first quarter at INOVA, and another modest loss in our seabed joint venture. Should we decide to increase to a 50% ownership position in our seabed joint venture, our investment and global relationships should start to develop a larger, sustainable backlog to allow the venture to expand internationally throughout the remainder of 2013. We view seabed technology as an important strategic growth driver for ION and believe there are many market opportunities associated with solving some of our customers’ toughest challenges using our seabed technology.”

Press Release, May 01, 2013


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