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ION Reports Record Fourth Quarter 2007 Results
Fourth quarter revenues increased 26% to $209.4 million Fourth quarter EPS increased 67% to $0.25 per diluted share, excluding $0.07 per share of one-time charges Company reaffirms 2008 earnings guidance
HOUSTON, Feb 20, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- ION Geophysical Corporation (NYSE: IO) today announced record fourth quarter 2007 net income of $17.5 million, or $0.18 per diluted share, on revenues of $209.4 million compared to net income of $13.0 million, or $0.15 per diluted share, on revenues of $166.2 million for the same period a year ago. Fourth quarter earnings included a one-time charge of $6.5 million, of which $2.9 million, or approximately $0.03 per diluted share, related to the conversion into common shares of $52.8 million of the Company's 5.5% senior convertible notes in the fourth quarter. The remaining $3.6 million one-time charge, or approximately $0.04 per diluted share, was a non-cash tax expense associated with the activities related to the consolidation of international sales under a new entity operating in Dubai. Excluding the impact of these one-time charges, the Company reported $0.52 per diluted share on revenues of $713.1 million for 2007.

Bob Peebler, ION's President and Chief Executive Officer, said, "We are very pleased to have generated our best quarterly results. As expected, the fourth quarter was 2007's strongest as we achieved several key successes, including the delivery of the fourth VectorSeis(R) Ocean (VSO) system to Reservoir Exploration Technology (RXT), the continued commercialization of DigiFIN(TM), and the sale of a 10,000 station, full-wave Scorpion(R) system to the geophysical services affiliate of an oil & gas company operating in China. Each of our segments showed significant improvement over last year, with our Marine Imaging Systems and our Data Management Solutions segments showing the greatest improvements.

"As the majority of ION's business is increasingly international, we have initiated the expansion of our international presence through the establishment of an International Headquarters in Dubai in 2008. In addition to being closer geographically to our customers, we expect this expansion to have the added benefit of maintaining a low effective tax rate in future years."


Revenues during the fourth quarter of 2007 increased 26% to $209.4 million from the fourth quarter of 2006. ION Systems sales increased 28% to $152.6 million, while ION Solutions sales rose 21% to $56.8 million. The increased revenues were the result of strong sales across all of the Company's segments.

Within the ION Systems group, Land Imaging Systems' revenues increased 10% to $82.2 million from $74.9 million a year ago, driven by high demand for vibroseis vehicles and the Company's Scorpion land recording platform. Marine Imaging Systems revenues increased 60% to $60.8 million compared to $37.9 million a year ago as demand for the Company's streamer positioning, streamer control and energy source products remained strong. During the fourth quarter, the Marine Imaging Systems division completed the largest positioning system sale in the Company's history to PGS and delivered the fourth VSO system to RXT. ION's Data Management Solutions business had another record quarter, attributed primarily to solid sales of SPECTRA(R), Orca(R) and GATOR(R) command and control software products.

The ION Solutions group generated $56.8 million in revenues compared to $47.0 million in the same period a year ago. The 21% increase was primarily driven by increased data processing revenues and multi-client data library sales related to the Company's recently completed programs off the coasts of India and Alaska.

Gross margin for the fourth quarter of 2007 increased to 32% from 30% in the fourth quarter of 2006. Within the Land Imaging Systems business, gross margins associated with cabled system sales showed marked improvement over the comparable period last year and were partially offset by stronger than expected sales of lower- margin vibroseis vehicles. The Marine Imaging Systems business experienced lower margins for the fourth quarter compared to the same period in 2006 due to changes in product mix, although margins improved on a full-year basis.

Operating expenses for the fourth quarter fell to 18% of revenues as compared to 20% for the same period last year. Marketing and sales expense increased $0.5 million as a result of increased sales activity. General and administrative expenses as a percentage of revenues remained stable at 7% during the fourth quarter of 2007 and 2006. Income from operations in the fourth quarter increased 72% to $29.6 million compared to $17.2 million in the fourth quarter of 2006. EBITDA (earnings before net interest expense, taxes, depreciation and amortization) for the fourth quarter increased 53% to $46.0 million compared to $30.0 million in the fourth quarter of 2006. A reconciliation of EBITDA to reported earnings can be found at the end of this press release.


Revenues for the year ended December 31, 2007 increased 42% to $713.1 million compared to $503.6 million for 2006. Gross margin for 2007 was 28% compared to 31% for 2006. As discussed in previous quarters, included in the $209.5 million in year-over-year revenue increase is an aggregate of $37.0 million in revenue with an average margin of 8% that represents unique and one-time transactions. These isolated transactions include the first FireFly(R) system currently in use by Apache and BP, an ongoing strategic risk-sharing multi-client project and the sale of a replacement cable for the original VSO system. The above-mentioned special items distort the overall gross margins of the business and account for approximately half of the two-point year-on-year margin difference. The remaining margin difference is attributed to overall business mix, including the impact of lower than average margins related to the ONGC sale and the large one-time, higher-margin multi-client seismic library sale in the second quarter of 2006.

Operating expenses for 2007 declined to 19% compared to 23% in 2006, reflecting better leverage in the business. Research and development expenses were 6% of revenue, consistent with the prior year. The Company's effective tax rate was 23.1% for 2007 compared to 15.0% for 2006. Approximately 6.5 of the 8.1 percentage point increase in tax rate was associated with the one-time charge of $3.6 million mentioned previously, and the remaining 1.6% increase was due to improved results in the Company's foreign locations.

Income from operations for 2007 totaled $63.9 million, an increase of 60% over 2006. For 2007, ION reported net income of $40.3 million, or $0.45 per diluted share and $0.52 per diluted share when the one-time expenses of $6.5 million are excluded, compared to net income of $26.9 million, or $0.33 per diluted share, in 2006. EBITDA for the full year was $121.9 million compared to $82.8 million in 2006.


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, "Based on our current pipeline of business, we are reiterating the earnings guidance we provided on December 17, 2007. We expect 2008 consolidated revenues to range between $780 and $830 million and earnings to be between $0.70 and $0.85 per diluted share. Additionally, we expect seismic activity to remain robust throughout 2008 and believe our company is in a strong competitive position with our new technologies, such as DigiFIN, Orca, FireFly, Reverse Time Migration and full-wave processing. These technologies are designed to help oil companies solve their more complex reservoir problems and help our contractor customers deliver their services more efficiently. As in prior years, we expect these earnings to be back-end loaded due to timing issues related to permitting and other operational considerations for our ION Solutions multi-client business, the influence of natural budgeting cycles on our Data Library business, and the normal seasonal cycles experienced in our business."


ION has scheduled a conference call for Thursday, February 21, 2008, at 10:00 a.m. Eastern Time. To participate in the conference call, dial 303-262-2193 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 March 6, 2008. To access the replay, dial 303-590-3000 and use pass code 11108202.

Investors, analysts and the general public will also have the opportunity to listen to the conference call live over the Internet by visiting http://www.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 http://www.iongeo.com.

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, 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 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 foreign 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, 2006 and Quarterly Reports on Form 10-Q filed during 2007.

                               Tables to follow

                   (In thousands, except per share amounts)

                                Three Months Ended      Twelve Months Ended
                                   December 31,              December 31,
                                 2007        2006         2007       2006

    Product revenues           $152,104    $118,956     $537,691   $354,258
    Service revenues             57,254      47,287      175,420    149,298
      Total net revenues        209,358     166,243      713,111    503,556

    Cost of products            108,773      87,513      390,512    257,749
    Cost of services             32,869      28,248      119,679     91,592
      Gross profit               67,716      50,482      202,920    154,215

    Operating expenses:
      Research and development   11,587       9,719       46,302     32,751
      Marketing and sales        12,726      12,193       43,877     40,651
      General and
       administrative            13,881      11,250       49,100     40,807
      (Gain) loss on sale of
       assets                       (58)         91         (253)        58
        Total operating
         expenses                38,136      33,253      139,026    114,267
    Income from operations       29,580      17,229       63,894     39,948
    Interest expense             (1,266)     (1,461)      (6,283)    (5,770)
    Interest income                 436         523        1,848      2,040
    Loss on debt conversion      (2,902)          -       (2,902)         -
    Other income (expense)          380        (852)      (1,090)    (2,161)
      Income before income
       taxes and change in
       accounting principle      26,228      15,439       55,467     34,057
    Income tax expense            8,152       1,782       12,823      5,114
      Net income before change
       in accounting principle   18,076      13,657       42,644     28,943
    Cumulative effect of
     change in accounting
     principle                        -           -            -        398
      Net income                 18,076      13,657       42,644     29,341
    Preferred stock dividends
     and accretion                  608         628        2,388      2,429
      Net income applicable
       to common shares         $17,468     $13,029      $40,256    $26,912

    Basic net income per share:
      Net income per basic share
       before change in
       accounting principle       $0.20       $0.16        $0.49      $0.33
      Cumulative effect of
       change in accounting
       principle                      -           -            -       0.01
      Net income per basic share  $0.20       $0.16        $0.49      $0.34

    Diluted net income per share:
      Net income per diluted
       share before change in
       accounting principle       $0.18       $0.15        $0.45      $0.32
      Cumulative effect of
       change in accounting
       principle                      -           -            -       0.01
      Net income per diluted
       share                      $0.18       $0.15        $0.45      $0.33

    Weighted average number of
     common shares outstanding:
      Basic                      85,897      79,954       81,941     79,497
      Diluted                   101,857      96,181       97,321     95,182

                         CONSOLIDATED BALANCE SHEETS
                                (In thousands)
                                                          December 31,
                                                       2007           2006
    Current assets:
      Cash and cash equivalents                      $36,409        $17,056
      Restricted cash                                  7,052          1,044
      Accounts receivable, net                       188,029        167,747
      Current portion of notes receivable, net         5,454          6,299
      Unbilled receivables                            22,388         28,599
      Inventories                                    128,961        115,520
      Prepaid expenses and other current assets       12,717          9,854
        Total current assets                         401,010        346,119
    Notes receivable                                       -          4,968
    Non-current deferred income tax asset              2,872          6,197
    Property, plant and equipment, net                36,951         38,129
    Multi-client data library, net                    59,689         33,072
    Investments at cost                                4,954          4,254
    Goodwill                                         153,145        156,091
    Intangible and other assets, net                  50,528         66,306
        Total assets                                $709,149       $655,136


    Current liabilities:
      Notes payable and current maturities
       of long-term debt                             $14,871         $6,566
      Accounts payable                                44,674         47,844
      Accrued expenses                                66,911         50,819
      Accrued multi-client data library royalties     29,962         27,197
      Deferred revenue                                21,278         37,442
    Deferred income tax liability                      2,792          5,909
        Total current liabilities                    180,488        175,777
    Long-term debt, net of current maturities          9,842         70,974
    Non-current deferred income tax liability          3,384          4,142
    Other long-term liabilities                        4,195          4,588
        Total liabilities                            197,909        255,481

    Cumulative convertible preferred stock            35,000         29,987

    Stockholders' equity:
      Common stock                                       948            810
      Additional paid-in capital                     559,255        493,605
      Accumulated deficit                            (82,839)      (123,095)
      Accumulated other comprehensive income           5,460          4,859
      Treasury stock                                  (6,584)        (6,511)
        Total stockholders' equity                   476,240        369,668
        Total liabilities and stockholders'
         equity                                     $709,149       $655,136

                    Reconciliation of EBITDA to Net Income
                             (Non-GAAP Measures)
                                (In thousands)

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 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 EBITDA shown below is based upon amounts derived from the company's financial statements prepared in conformity with GAAP.

                                 Three Months Ended      Twelve Months Ended
                                     December 31,             December 31,
                                  2007        2006         2007       2006
    Net income applicable to
     common shares              $17,468     $13,029      $40,256    $26,912
    Interest expense              1,266       1,461        6,283      5,770
    Interest income                (436)       (523)      (1,848)    (2,040)
    Income tax expense            8,152       1,782       12,823      5,114
    Depreciation and
     amortization expense        19,594      14,231       64,429     47,047
    EBITDA                      $46,044     $29,980     $121,943    $82,803

CONTACTS: R. Brian Hanson
Chief Financial Officer
ION Geophysical (281) 879-3672

Jack Lascar / Karen Roan
DRG&E (713) 529-6600

SOURCE ION Geophysical Corporation