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|ION Reports Record Fourth Quarter 2007 Results|
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."
FOURTH QUARTER 2007
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.
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 ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) 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 ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) December 31, 2007 2006 ASSETS 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 LIABILITIES AND STOCKHOLDERS' EQUITY 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) (Unaudited)
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
SOURCE ION Geophysical Corporation