ION Reports Results for Third Quarter 2011 (USA)
ION Geophysical Corporation reported third quarter 2011 revenues of $115.7 million, compared to revenues of $121.6 million in the third quarter of 2010. Net income in the third quarter of 2011 was $8.7 million, or $0.06 per diluted share, compared to $11.9 million, or $0.08 per diluted share, in the third quarter of 2010.
Bob Peebler, ION’s Chief Executive Officer, said, “As expected, we improved our third quarter results over the first two quarters of 2011, mainly due to the strong performance of our multi-client, marine equipment and Concept software businesses. Compared to last year’s third quarter, our results were negatively impacted by reduced data processing sales in the Gulf of Mexico, quarterly lumpiness in our equipment and data library businesses, and the continued negative financial results of the INOVA joint venture.
“Our data processing business has been slow to recover from weakness following the Macondo oil spill, but we see steady improvement and sufficient pipeline activity to expect a full recovery in 2012. We also expect to grow our data processing business in Mexico, Europe, South America and the Middle East.
“Our marine group continues to deliver strong performance driven by the ongoing transition of the global towed streamer market to more complex surveys, which continues to drive sales of our market-leading Digi positioning equipment product line and of our latest software platform, Orca.
“We were pleased with customer reception to INOVA’s new product introduction at the industry’s major annual trade show in late September, including a new version of FireFly, a new version of their cabled system, and their first offering of land nodes. INOVA, BGP and ION have continued with INOVA’s aggressive R&D program, and we are confident these new products place INOVA in a much stronger position going into 2012.
“We continue to grow our new ventures programs, and we are still on a path for a 2011 capital spend of $110 to $130 million; our growing and diversified portfolio is a platform that bodes well for the future. We recently completed a scientific project for the Russian Government, where we used ION’s unique Arctic technology and know-how to survey large swatches of the Russian Arctic. This program positions us to be a major player in future Russian Arctic multi-client business. In addition, our footprint in the U.S. shale play is expanding with three new venture programs in our backlog and more on the drawing board. We believe we are gaining significant technical understanding of shale plays from a reservoir perspective and will leverage this in 2012 as we broaden our shale footprint, both in the U.S. and international markets.
“We expect further improvements in our fourth quarter results driven by revenue from our multi-client programs, strong data library sales, the expected recognition of revenue from our twelve-streamer sale to BGP and further improvement in our data processing business. The main uncertainties for the remainder of the year are the potential impact of our customers’ spending patterns due to the volatility of oil prices and the rate of recovery of our data processing business. In summary, we expect a solid fourth quarter and anticipate entering 2012 in an excellent position in all of our product and service lines.”
THIRD QUARTER 2011
Total revenues for the third quarter of 2011 decreased 5% to $115.7 million compared to $121.6 million for the same period in 2010. Systems and Software segment revenues for the third quarter of 2011 increased by 25% and 12%, respectively, compared to the prior year period, while Solutions segment revenues decreased by 16%.
Systems segment sales were $32.3 million in the third quarter of 2011 compared to $25.7 million in the same period of 2010, due to strong demand for marine positioning equipment and improved sales of sensor geophones.
Software segment sales were $10.2 million in the third quarter of 2011 compared to $9.1 million in the same period a year ago. Excluding foreign currency effects, Software segment revenues increased 8% from the prior period primarily due to demand for Orca and Gator software products.
Solutions segment sales were $73.2 million during the third quarter of 2011, compared to $86.7 million for the same period a year ago. In the multi-client business, data library sales increased 72% over the third quarter of 2010 to $15.2 million, driven by demand for access to multi-client data in areas such as the Arctic, East Africa and the Congo. New venture sales for the third quarter were impacted by timing, as 2010 new venture programs in the Arctic were concentrated to the third quarter. The 2011 new venture programs are expected to be spread more evenly over the third and fourth quarters. Data processing revenues, although up sequentially, decreased 20% to $22.4 million as compared to $27.9 million in the prior year period, due to the lagging effects of the Gulf of Mexico oil spill.
Consolidated gross margins were 38% during the third quarter of 2011 compared to 40% in the prior period a year ago. Gross margins in the Software segment improved 12 percentage points predominantly due to a favorable mix of software sales, which typically result in higher margins than the associated hardware sales for this segment. Gross margins in the Solutions and Systems segments decreased by six and three percentage points, respectively, with gross margins in the Solutions segment being impacted by lower data processing sales.
As a percentage of revenue, operating expenses increased slightly to 22% of sales during the third quarter of 2011 compared to 21% of sales for the prior year period. Income from operations was $18.5 million during the third quarter of 2011 compared to $23.4 million in the third quarter of 2010. Adjusted EBITDA was $40.3 million compared to $60.3 million in the third quarter of 2010. The decrease in Adjusted EBITDA was principally due to higher revenues and the associated amortization expense from new venture multi-client programs in 2010, which were concentrated to the third quarter as noted above.
The Company accounts for its 49% interest in INOVA Geophysical as an equity method investment on a one fiscal quarter-lag basis. As a result, the Company’s share of INOVA Geophysical’s second quarter 2011 financial results is included in the Company’s third quarter results. For the third quarter of 2011, the Company recognized a loss on its INOVA equity investment of approximately $4.8 million, compared to a loss of $8.0 million in the third quarter of 2010.
The Company’s effective tax rate during the third quarter was 27.9% (provision on income) compared to 18.8% (benefit on income) for the same period of 2010. The third quarter of 2010 included a benefit related to alternative minimum tax. Excluding this benefit, the Company’s effective tax rate for the third quarter of 2010 would have been 22.2% (provision on income). The increase in the Company’s effective tax rate for the third quarter of 2011 was due to changes in the distribution of earnings between U.S. and foreign jurisdictions.
Total cash and cash equivalents plus short-term investments were $71.3 million as of September 30, 2011. Additionally, the Company has no outstanding balance associated with its $100 million revolving credit facility, bringing total liquidity to $171 million.
Consolidated revenues for the first nine months of 2011 increased 3% to $294.7 million compared to $285.7 million for the same period in 2010. Excluding the results of the Company’s Legacy Land Systems (INOVA) segment in 2010, revenues for the first nine months increased 9% or $25.6 million.
Systems segment revenues for the first nine months of 2011 increased $14.1 million or 20% over prior year, primarily as a result of higher revenues from towed streamer and other marine products, partially offset by weak sales of sensor geophones. Solutions and Software segment revenues for the period each increased by 6%.
Gross margin for the first nine months of 2011 was 37%, consistent with the same period of 2010 after excluding the first quarter 2010 results of the Legacy Land Systems (INOVA) segment.
Operating expenses as a percentage of revenues for the first nine months of 2011 decreased slightly to 26% compared to 27% in the prior year period after excluding the first quarter 2010 results of the Legacy Land Systems (INOVA) segment. Income from operations for the first nine months of 2011 totaled $33.4 million compared to $28.0 million in the prior period, excluding the results of the Legacy Land Systems (INOVA) segment.
The Company’s effective tax rate during the first nine months of 2011 was 27.7%, a provision on income, compared to a provision on a loss of 27.7% for 2010. The provision on a loss for 2010 was due to the transactions involved in the completion of the INOVA Geophysical joint venture.
For the first nine months of 2011, the Company reported net income of $11.4 million, or $0.07 per diluted share, compared to a net loss of ($58.8) million, or ($0.42) per share, in 2010. Excluding the after-tax impact of the special items as shown in the table at the end of the third quarter 2010 press release, the Company reported net income of $1.4 million, or $0.01 per diluted share, for the first nine months of 2010. Adjusted EBITDA for the period was $96.9 million compared to $92.4 million in 2010.
Brian Hanson, President, Chief Operating Officer and Chief Financial Officer, commented, “We are pleased with the third quarter results as they came in within our expectations and we expect improved fourth-quarter results consistent with our historical pattern over the past several years.
“Our multi-client business is currently executing several new venture programs both on land and at sea. Our marine business continues to perform well and remains on track to recognize the revenue from the BGP twelve-streamer sale in the fourth quarter. And, we expect the run rate of the data processing business to be restored to pre-Macondo levels in early 2012.
“We continue to expect our investment in multi-client data libraries to achieve a full-year level in the range of $110 to $130 million, with a significant amount of this investment to be underwritten by our customers. This, combined with the normal, year-end spending patterns on data libraries, positions us well for a solid fourth quarter.”
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.
Source: ION, November 03, 2011