0000866609-19-000025.txt : 20190207 0000866609-19-000025.hdr.sgml : 20190207 20190207090357 ACCESSION NUMBER: 0000866609-19-000025 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20190206 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190207 DATE AS OF CHANGE: 20190207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ION GEOPHYSICAL CORP CENTRAL INDEX KEY: 0000866609 STANDARD INDUSTRIAL CLASSIFICATION: OIL AND GAS FIELD EXPLORATION SERVICES [1382] IRS NUMBER: 222286646 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12691 FILM NUMBER: 19573625 BUSINESS ADDRESS: STREET 1: 2105 CITYWEST BLVD STREET 2: SUITE 100 CITY: HOUSTON STATE: TX ZIP: 770422855 BUSINESS PHONE: 2819333339 MAIL ADDRESS: STREET 1: 2105 CITYWEST BLVD STREET 2: SUITE 100 CITY: HOUSTON STATE: TX ZIP: 770422855 FORMER COMPANY: FORMER CONFORMED NAME: INPUT OUTPUT INC DATE OF NAME CHANGE: 19930328 8-K 1 a8k-2018xq4xearnings.htm 8-K Document


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


Date of Report: (Date of earliest event reported): February 6, 2019


ION Geophysical Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)
1-12691
(Commission file number)
22-2286646
(I.R.S. Employer Identification No.)


2105 CityWest Blvd, Suite 100
Houston, Texas 77042-2839
(Address of principal executive offices, including Zip Code)

(281) 933-3339
(Registrant’s telephone number, including area code)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 






Item 2.02.    Results of Operations and Financial Condition
 
On February 6, 2019, ION Geophysical Corporation (the “Company”) issued a press release containing information regarding the Company’s results of operations for the quarter and year ended December 31, 2018. A copy of the press release is furnished as Exhibit 99.1 hereto.


Item 7.01.    Regulation FD Disclosure
 
In conjunction with the above press release, the Company has scheduled a conference call, which will be broadcast live over the Internet, for Thursday, February 7, at 10:00 a.m. Eastern Time (9:00 a.m. Central). The webcast of the conference call will be accompanied by a slide presentation, which can be accessed from the ION home page in the Investor Relations section of the ION website by 9:00 AM Eastern Time.
The information contained in Items 2.02 and 7.01 and the exhibits of this report (i) is not to be considered “filed” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (ii) shall not be incorporated by reference into any previous or future filings made by or to be made by the Company with the Securities and Exchange Commission (“SEC”) under the Securities Act of 1933, as amended, or the Exchange Act.
The information 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 may include information 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 risks associated with the timing and development of ION Geophysical Corporation's products and services; pricing pressure; decreased demand; changes in oil prices; and political, execution, regulatory, and currency risks. These risks and uncertainties also include risks associated with the WesternGeco litigation and other related proceedings. We cannot predict the outcome of this litigation or the related proceedings.  For additional information regarding these various risks and uncertainties, including the WesternGeco litigation, see our Form 10-K for the year ended December 31, 2017, filed on February 8, 2018. Additional risk factors, which could affect actual results, are disclosed by the Company in its fillings with the Securities and Exchange Commission ("SEC"), including its Form 10-K, Form 10-Qs and Form 8-Ks filed during the year. The Company expressly disclaims any obligation to revise or update any forward-looking statements.
















Item 9.01.    Financial Statements and Exhibits

(a)    Financial statements of businesses acquired.

Not applicable.

(b)    Pro forma financial information.

Not applicable.

(c)    Shell company transactions.

Not applicable.

(d)    Exhibits.

Exhibit Number    Description

99.1        Press Release dated February 6, 2019.










SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: February 7, 2019
ION GEOPHYSICAL CORPORATION 

 
By:
/s/ Matthew Powers
 
 
Matthew Powers
 
 
Executive Vice President, General Counsel and Corporate Secretary






EXHIBIT INDEX

 
 
 
Exhibit Number
 
Description
 
 
 
99.1
 




 EX-99.1 2 ex991earningsrelease4q-18.htm EXHIBIT 99.1 Exhibit



ION reports fourth quarter and year end 2018 results
Fourth quarter revenue growth of 29% fueled by Brazil 3D reimaging program sales
HOUSTON – February 6, 2019 – ION Geophysical Corporation (NYSE: IO) today reported revenues of $74.6 million in the fourth quarter 2018, a 29% increase compared to revenues of $57.9 million one year ago. ION's net loss was $19.3 million, or $(1.38) per share, compared to a net loss of $1.4 million, or $(0.12) per share in the fourth quarter 2017. Excluding special items in both periods, the Company reported Adjusted net income of $15.3 million, or $1.07 per diluted share, compared to Adjusted net income of $4.7 million, or $0.38 per diluted share in the fourth quarter 2017. A majority of the special items for this quarter relate to the impairment of the Company's cable-based ocean bottom technologies within the Ocean Bottom Integrated Technologies segment. A reconciliation of special items to the reported financial results can be found in the tables of this press release.
The Company reported Adjusted EBITDA of $36.5 million for the fourth quarter 2018, an increase of 54% from the Adjusted EBITDA of $23.8 million one year ago. A reconciliation of Adjusted EBITDA to the closest comparable GAAP numbers can be found in the tables of this press release.
Net cash flows from operations were $14.4 million during the fourth quarter 2018, compared to $17.9 million in the fourth quarter 2017. Total net cash flows, including investing and financing activities, were $3.4 million, compared to $11.7 million one year ago. At December 31, 2018, the Company had total liquidity of $75.5 million, consisting of $33.6 million of cash on hand, and $41.9 million of available borrowing capacity under its maximum $50.0 million revolving credit facility.
Brian Hanson, the Company’s President and Chief Executive Officer, commented, “While our fourth quarter revenue improved sequentially, driven primarily by the success of our Brazil 3D reimaging programs, we experienced geopolitical headwinds that further delayed Mexico and Panama data sales. In addition, typical year-end spending didn’t materialize in the way we anticipated for key customers, likely due to the commodity price slide experienced in the fourth quarter of 2018.
“We continue to expect near-term oil price volatility and for E&P capital preservation to take priority over reserve replacement, with very focused exploration spending. That said, the international market is anticipated to grow for a second consecutive year and we are seeing increasing momentum across all our E&P and adjacent market businesses. We believe market fundamentals will continue to improve as it becomes increasingly critical to meet production demand in the next decade. In 2019, we expect an increase in new program development, the completion of our 4Sea commercialization and greater adoption of Marlin in both E&P and adjacent markets. As usual, we expect 2019 to be back-end loaded given the timing of client budget spending, license rounds and new program activity.”
For the full year 2018, the Company reported revenues of $180.0 million and a net loss of $71.2 million, or $(5.20) per share, compared revenues of $197.6 million and a net loss of $30.2 million, or $(2.55) per share in 2017. Excluding special items in both periods, the Company reported Adjusted net loss

1


of $32.5 million, or $(2.37) per share, compared to Adjusted net loss of $19.1 million, or $(1.61) per share in 2017. Adjusted EBITDA was $41.7 million in 2018, compared to $64.5 million in 2017.
Net cash flows from operations were $7.1 million during 2018, compared to $27.6 million in 2017. Total net cash flows, including investing and financing activities, were $(18.6) million in 2018, compared to $(1.0) million in 2017.
FOURTH QUARTER 2018
The Company's segment revenues for the fourth quarter were as follows (in thousands):
 
 
Three Months Ended December 31,
 
 
 
 
2018
 
2017
 
% Change
E&P Technology & Services
 
$
60,443

 
$
48,003

 
26
%
Operations Optimization
 
14,151

 
9,899

 
43
%
Ocean Bottom Integrated Technologies
 
—

 
—

 
—

Total
 
$
74,594

 
$
57,902

 
29
%
Within the E&P Technology & Services segment, new venture revenues were $29.6 million, a slight decrease from the fourth quarter 2017; while data library revenues were $25.5 million, a 74% increase; and Imaging Services revenues were $5.4 million, a 79% increase. The increase in data library revenues was the result of sales of recently completed programs, particularly in Brazil. The Imaging Services revenues were propelled by a continued increase in proprietary ocean bottom nodal imaging projects. The Imaging Services group has continued to successfully focus on higher value, technology-driven projects.
Within the Operations Optimization segment, Optimization Software & Services revenues were $6.0 million, a 43% increase from the fourth quarter 2017. The increase in Optimization Software & Services revenues was due to the continued increase in subscription-based software revenues and hardware sales of ION’s Gator™ ocean bottom command and control system. Devices revenues were $8.1 million, also a 43% increase from the fourth quarter 2017. While Devices revenues increased, partially driven by higher spares and replacement sales, the business continues to be impacted by reduced towed streamer seismic activity.
The Ocean Bottom Integrated Technologies segment had no revenues during the fourth quarter. The Company has continued to evolve its strategy for the Ocean Bottom Integrated Technologies segment consistent with its asset light business model. The remaining elements of its next generation ocean bottom nodal system, 4Sea, will be commercialized in 2019. The Company is offering 4Sea components more broadly to the growing number of OBS service providers under recurring revenue commercial strategies that will enable the Company to share in the value its technology delivers.

2


Consolidated gross margin for the quarter was 51%, compared to 41% in the fourth quarter 2017. Gross margin in the E&P Technology & Services increased to 53%, up from 43% one year ago. This increase was primarily due to the significant increase in data library revenues and the increase and mix of Imaging Services revenues. Operations Optimization gross margin was 52%, a slight increase from the 50% gross margin in fourth quarter 2017.
Consolidated operating margin was (22)%, compared to (2)% in the prior year quarter. Consolidated operating margin, as adjusted for special items, was 24%, compared to 9% in the prior year quarter. Similar to gross margin, the increase in operating margin, as adjusted, was related to the increase in revenues in the E&P Technology & Services segment.
FULL YEAR 2018
The Company's segment revenues for the full year were as follows (in thousands):
 
 
Years Ended December 31,
 
 
 
 
2018
 
2017
 
% Change
E&P Technology & Services
 
$
136,520

 
$
157,249

 
(13
)%
Operations Optimization
 
43,525

 
40,305

 
8
 %
Ocean Bottom Integrated Technologies
 
—

 
—

 
—

Total
 
$
180,045

 
$
197,554

 
(9
)%
Within the E&P Technology & Services segment, new venture revenues were $69.7 million, a 31% decrease from 2017; while data library revenues were $47.1 million, an 18% increase, and Imaging Services revenues were $19.7 million, a 20% increase. The increase in data library and Imaging Services revenues were driven by the significant increases during the fourth quarter 2018. The decrease in new venture revenues was the result of the continued delay of the Panama license round announcement, political change in Mexico prompting E&P companies to pause new venture activity and the continued focus on cash preservation within E&P companies restricting exploration spending.
Within the Operations Optimization segment, Optimization Software & Services revenues were $21.1 million, an increase of 27%. The change in Optimization Software & Services revenues for the full year is fairly consistent with the changes described in the preceding section. Devices revenues were $22.4 million, a 5% decrease from 2017. The decrease in Devices revenues was due to continued sluggishness in the towed streamer market during the first nine months of the year, as the increase in revenues in the fourth quarter 2018 was not large enough to overcome the first nine months.
The Ocean Bottom Integrated Technologies segment had no revenues during the year.
Consolidated gross margin was 33%, compared to 38% in 2017. Gross margin in the E&P Technology & Services decreased to 32%, down from 41% in 2017. This decrease was the result of the decrease in new venture revenues. Operations Optimization gross margin was 51%, a slight increase from the 50% gross margin in 2017.

3


Consolidated operating margin was (30)%, compared to (4)% in 2017. Consolidated operating margin, as adjusted for special items, was (9)%, compared to (1)% in 2017, the result of the decrease in new venture revenues.
Income tax expense was $2.7 million in 2018, primarily due to positive results from the Company’s non-U.S. businesses. This foreign tax expense has not been offset by the tax benefits on losses within the U.S. and other jurisdictions, from which the Company cannot currently benefit, resulting in an income tax expense on a consolidated pre-tax loss.
CONFERENCE CALL
The Company has scheduled a conference call for Thursday, February 7, 2019, at 10:00 a.m. Eastern Time that will include a slide presentation to be posted in the Investor Relations section of the ION website by 9:00 a.m. Eastern Time. To participate in the conference call, dial (877) 407-0672 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 February 21, 2019. To access the replay, dial (877) 660-6853 and use pass code 13686431#.
Investors, analysts and the general public will also have the opportunity to listen to the conference call live over the Internet by visiting www.iongeo.com. An archive of the webcast will be available shortly after the call on the Company’s website.
About ION
ION develops and leverages innovative technologies, creating value through data capture, analysis and optimization to enhance critical decision-making, enabling superior returns. For more information, visit www.iongeo.com.
Contact
Steve Bate
Executive Vice President and Chief Financial Officer
+1.281.552.3011
The information 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 may include information 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 risks associated with the timing and development of ION Geophysical Corporation's products and services; pricing pressure; decreased demand; changes in oil prices; and political, execution, regulatory, and currency risks. These risks and uncertainties also include risks associated with the WesternGeco litigation and other related proceedings. We cannot predict the outcome of this litigation or the related proceedings. For additional information regarding these various risks and uncertainties, including the WesternGeco litigation, see our Form 10-K for the year ended December 31, 2017, filed on February 8, 2018. Additional risk factors, which could affect actual results, are disclosed by the Company in its fillings with the Securities and Exchange Commission ("SEC"), including its Form 10-K, Form 10-Qs and Form 8-Ks filed during the year. The Company expressly disclaims any obligation to revise or update any forward-looking statements.
Tables to follow

4


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited) 
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Service revenues
$
61,095

 
$
48,513

 
$
139,038

 
$
159,410

Product revenues
13,499

 
9,389

 
41,007

 
38,144

Total net revenues
74,594

 
57,902

 
180,045

 
197,554

Cost of services
30,271

 
29,606

 
100,557

 
103,124

Cost of products
6,514

 
4,485

 
19,868

 
18,791

Gross profit
37,809

 
23,811

 
59,620

 
75,639

Operating expenses:
 
 
 
 
 
 
 
Research, development and engineering
4,638

 
4,433

 
18,182

 
16,431

Marketing and sales
5,479

 
5,716

 
21,793

 
20,778

General, administrative and other operating expenses
7,800

 
14,813

 
37,364

 
47,129

Impairment of long-lived assets
36,553

 
—

 
36,553

 
—

Total operating expenses
54,470

 
24,962

 
113,892

 
84,338

Loss from operations
(16,661
)
 
(1,151
)
 
(54,272
)
 
(8,699
)
Interest expense, net
(3,203
)
 
(4,045
)
 
(12,972
)
 
(16,709
)
Other income (expense), net
180

 
209

 
(436
)
 
(3,945
)
Income (loss) before income taxes
(19,684
)
 
(4,987
)
 
(67,680
)
 
(29,353
)
Income tax expense (benefit)
(587
)
 
(3,646
)
 
2,718

 
24

Net income (loss)
(19,097
)
 
(1,341
)
 
(70,398
)
 
(29,377
)
Net income attributable to noncontrolling interests
(246
)
 
(53
)
 
(773
)
 
(865
)
Net loss applicable to ION
$
(19,343
)
 
$
(1,394
)
 
$
(71,171
)
 
$
(30,242
)
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(1.38
)
 
$
(0.12
)
 
$
(5.20
)
 
$
(2.55
)
Diluted
$
(1.38
)
 
$
(0.12
)
 
$
(5.20
)
 
$
(2.55
)
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
Basic
14,007

 
12,019

 
13,692

 
11,876

Diluted
14,007

 
12,019

 
13,692

 
11,876


5


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited) 
 
December 31,
 
2018
 
2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
33,551

 
$
52,056

Accounts receivable, net
26,128

 
19,478

Unbilled receivables
44,032

 
37,304

Inventories, net
14,130

 
14,508

Prepaid expenses and other current assets
7,782

 
7,643

Total current assets
125,623

 
130,989

Deferred income tax asset, net
7,191

 
1,753

Property, plant, equipment and seismic rental equipment, net
13,041

 
52,153

Multi-client data library, net
73,544

 
89,300

Goodwill
22,915

 
24,089

Other assets
2,435

 
2,785

Total assets
$
244,749

 
$
301,069

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
2,228

 
$
40,024

Accounts payable
34,913

 
24,951

Accrued expenses
31,411

 
38,697

Accrued multi-client data library royalties
29,256

 
27,035

Deferred revenue
7,710

 
8,910

Total current liabilities
105,518

 
139,617

Long-term debt, net of current maturities
119,513

 
116,720

Other long-term liabilities
11,894

 
13,926

Total liabilities
236,925

 
270,263

Equity:
 
 
 
Common stock
140

 
120

Additional paid-in capital
952,626

 
903,247

Accumulated deficit
(926,092
)
 
(854,921
)
Accumulated other comprehensive loss
(20,442
)
 
(18,879
)
Total stockholders’ equity
6,232

 
29,567

Noncontrolling interests
1,592

 
1,239

Total equity
7,824

 
30,806

Total liabilities and equity
$
244,749

 
$
301,069


6


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended December 31,
 
Years Ended December 31,
 
2018
 
2017
 
2018
 
2017
Cash flows from operating activities:
 
 
 
 
 
 
 
Net loss
$
(19,097
)
 
$
(1,341
)
 
$
(70,398
)
 
$
(29,377
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization (other than multi-client library)
1,861

 
3,393

 
8,763

 
16,592

Amortization of multi-client data library
16,444

 
12,857

 
48,988

 
47,102

Impairment of multi-client data library
—

 
2,304

 
—

 
2,304

Stock-based compensation expense
829

 
858

 
3,337

 
2,552

Accrual for loss contingency related to legal proceedings
—

 
—

 
—

 
5,000

Write-down of excess and obsolete inventory
665

 
398

 
665

 
398

Impairment of long-lived assets
36,553

 
—

 
36,553

 
—

Deferred income taxes
(3,942
)
 
(4,520
)
 
(6,252
)
 
(5,420
)
Change in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
(2,641
)
 
19,892

 
(7,024
)
 
1,692

Unbilled receivables
(18,401
)
 
(11,549
)
 
(5,245
)
 
(23,947
)
Inventories
293

 
(641
)
 
(353
)
 
190

Accounts payable, accrued expenses and accrued royalties
1,967

 
432

 
(7,600
)
 
1,443

Deferred revenue
(2,591
)
 
(1,961
)
 
(1,112
)
 
5,131

Other assets and liabilities
2,482

 
(2,204
)
 
6,776

 
3,952

Net cash provided by operating activities
14,422

 
17,918

 
7,098

 
27,612

Cash flows from investing activities:
 
 
 
 
 
 
 
Investment in multi-client data library
(8,365
)
 
(7,134
)
 
(28,276
)
 
(23,710
)
Purchase of property, plant, equipment and seismic rental equipment
(1,201
)
 
(42
)
 
(1,514
)
 
(1,063
)
Net cash used in investing activities
(9,566
)
 
(7,176
)
 
(29,790
)
 
(24,773
)
Cash flows from financing activities:
 
 
 
 
 
 
 
Repayments under revolving line of credit
—

 
—

 
(10,000
)
 
—

Payments on notes payable and long-term debt
(736
)
 
(496
)
 
(30,807
)
 
(4,816
)
Cost associated with issuance of debt
(682
)
 
(53
)
 
(1,247
)
 
(53
)
Net proceeds from issuance of stocks
—

 
—

 
46,999

 
—

Proceeds from employee stock purchases and exercise of stock options
214

 
1,619

 
214

 
1,619

Dividend payment to noncontrolling interest
—

 
(100
)
 
(200
)
 
(100
)
Other financing activities
(227
)
 
14

 
(1,151
)
 
(243
)
Net cash provided by (used in) financing activities
(1,431
)
 
984

 
3,808

 
(3,593
)
Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash
23

 
11

 
319

 
(260
)
Net increase (decrease) in cash, cash equivalents and restricted cash
3,448

 
11,737

 
(18,565
)
 
(1,014
)
Cash, cash equivalents and restricted cash at beginning of period
30,406

 
40,682

 
52,419

 
53,433

Cash, cash equivalents and restricted cash at end of period
$
33,854

 
$
52,419

 
$
33,854

 
$
52,419


The following table is a reconciliation of cash, cash equivalents and restricted cash (in thousands):
 
December 31,
 
2018
 
2017
 Cash and cash equivalents
33,551

 
$
52,056

 Restricted cash included in prepaid expenses and other current assets
—

 
$
60

 Restricted cash included in other long-term assets
303

 
$
303

 Total cash, cash equivalents, and restricted cash shown in statements of cash flows
33,854

 
$
52,419



7


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
SUMMARY OF SEGMENT INFORMATION
(In thousands)
(Unaudited)
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
 
2018
 
2017
 
2018
 
2017
 
Net revenues:
 
 
 
 
 
 
 
 
E&P Technology & Services:
 
 
 
 
 
 
 
 
New Venture
$
29,616

 
$
30,347

 
$
69,685

 
$
100,824

 
Data Library
25,466

 
14,656

 
47,095

 
40,016

 
Total multi-client revenues
55,082

 
45,003

 
116,780

 
140,840

 
Imaging Services
5,361

 
3,000

 
19,740

 
16,409

 
Total
60,443

 
48,003

 
136,520

 
157,249

 
Operations Optimization:
 
 
 
 
 
 
 
 
Devices
8,121

 
5,681

 
22,396

 
23,610

 
Optimization Software & Services
6,030

 
4,218

 
21,129

 
16,695

 
Total
14,151

 
9,899

 
43,525

 
40,305

 
Ocean Bottom Integrated Technologies
—

 
—

 
—

 
—

 
Total
$
74,594

 
$
57,902

 
$
180,045

 
$
197,554

 
Gross profit (loss):
 
 
 
 
 
 
 
 
E&P Technology & Services
$
31,743

 
$
20,732

 
$
43,369

 
$
65,196

 
Operations Optimization
7,313

 
4,976

 
22,293

 
20,076

 
Ocean Bottom Integrated Technologies
(1,247
)
 
(1,897
)
 
(6,042
)
 
(9,633
)
 
Total
$
37,809

 
$
23,811

 
$
59,620

 
$
75,639

 
Gross margin:
 
 
 
 
 
 
 
 
E&P Technology & Services
53
%
 
43
%
 
32
%
 
41
%
 
Operations Optimization
52
%
 
50
%
 
51
%
 
50
%
 
Ocean Bottom Integrated Technologies
—
%
 
—
%
 
—
%
 
—
%
 
Total
51
%
 
41
%
 
33
%
 
38
%
 
Income (loss) from operations:
 
 
 
 
 
 
 
 
E&P Technology & Services
$
26,180

 
$
14,553

 
$
21,758

 
$
42,505

 
Operations Optimization
3,303

 
2,453

 
7,295

 
8,022

 
Ocean Bottom Integrated Technologies
(39,078
)
(1) 
(3,959
)
 
(47,644
)
(1) 
(16,259
)
 
Support and other
(7,066
)
(2) 
(14,198
)
(2) 
(35,681
)
(2) 
(42,967
)
(2) 
Loss from operations
(16,661
)
 
(1,151
)
 
(54,272
)
 
(8,699
)
 
Interest expense, net
(3,203
)
 
(4,045
)
 
(12,972
)
 
(16,709
)
 
Other income (expense), net
180

 
209

 
(436
)
 
(3,945
)
(3) 
Loss before income taxes
$
(19,684
)
 
$
(4,987
)
 
$
(67,680
)
 
$
(29,353
)
 

(1) 
Includes a $36.6 million charge related to the impairment of fixed assets of the Company's cable-based ocean bottom technologies during the three months ended December 31, 2018, which is considered a Special Item as highlighted in the table 'Reconciliation of Special Items to Net Income (Loss) per Share'.

(2) 
Includes a $1.9 million credit for the three months ended December 31, 2018, a $2.1 million charge for the twelve months ended December 31, 2018 and a $6.1 million charge for both the three and twelve months ended December 31, 2017 associated with fair value impact of stock appreciation awards, which are considered Special Items as highlighted in the table 'Reconciliation of Special Items to Net Income (Loss) per Share'.
(3) 
Includes a $5.0 million accrual related to the WesternGeco legal contingency, which is considered a Special Item as highlighted in the table 'Reconciliation of Special Items to Net Income (Loss) per Share'.

8


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
Reconciliation of Adjusted EBITDA to Net Loss
(Non-GAAP Measure)
(In thousands)
(Unaudited)
The term Adjusted EBITDA represents net loss before interest expense, interest income, income taxes, depreciation and amortization, and other credits or charges including, without limitation, impairment of long-lived assets, changes in the loss contingency reserve related to legal proceedings and stock appreciation rights expense. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation from or as a substitute for net loss or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Adjusted EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included Adjusted EBITDA as a supplemental disclosure because its management believes that Adjusted EBITDA provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates. Additionally, due to the recent changes in the Company's stock price and impact of reflecting its stock appreciation awards at their fair value, the Company is presenting Adjusted EBITDA, excluding the impact of stock appreciation awards, to assist in the comparability to its prior year results.
 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2018
 
2017
 
2018
 
2017
Net loss
$
(19,097
)
 
$
(1,341
)
 
$
(70,398
)
 
$
(29,377
)
Interest expense, net
3,203

 
4,045

 
12,972

 
16,709

Income tax expense (benefit)
(587
)
 
(3,646
)
 
2,718

 
24

Depreciation and amortization expense
18,305

 
18,554

 
57,751

 
65,998

Impairment of long-lived assets
36,553

 
—

 
36,553

 
—

Accrual of loss contingency related to legal proceedings
—

 
—

 
—

 
5,000

Stock appreciation rights expense
(1,908
)
 
6,141

 
2,105

 
6,141

Adjusted EBITDA
$
36,469

 
$
23,753

 
$
41,701

 
$
64,495



9


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
Reconciliation of Special Items to Net Income (Loss) per Share
(Non-GAAP Measure)
(In thousands, except per share data)
(Unaudited)
The financial results are reported in accordance with GAAP. However, management believes that certain non-GAAP performance measures may provide users of this financial information, additional meaningful comparisons between current results and results in prior operating periods. One such non-GAAP financial measure is income (loss) from operations or net income (loss) excluding certain charges or amounts. This adjusted income (loss) amount is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for income (loss) from operations, net income (loss) or other income data prepared in accordance with GAAP. See the table below for supplemental financial data and the corresponding reconciliation to GAAP financials for the three and twelve months ended December 31, 2018 and 2017.
 
Three Months Ended December 31, 2018
 
Three Months Ended December 31, 2017
 
As Reported
 
Special Items
 
As Adjusted
 
As Reported
 
Special Items
 
As Adjusted
Net revenues
$
74,594

 
$
—

 
$
74,594

 
$
57,902

 
$
—

 
$
57,902

Cost of sales
36,785

 
—

 
36,785

 
34,091

 
—

 
34,091

Gross profit
37,809

 
—

 
37,809

 
23,811

 
—

 
23,811

Operating expenses
54,470

 
(34,645
)
(1) 
19,825

 
24,962

 
(6,141
)
(3) 
18,821

Income (loss) from operations
(16,661
)
 
34,645

 
17,984

 
(1,151
)
 
6,141

 
4,990

Interest expense, net
(3,203
)
 
—

 
(3,203
)
 
(4,045
)
 
—

 
(4,045
)
Other income (expense), net
180

 
—

 
180

 
209

 
—

 
209

Income tax benefit
(587
)
 
—

 
(587
)
 
(3,646
)
 
—

 
(3,646
)
Net income (loss)
(19,097
)
 
34,645

 
15,548

 
(1,341
)
 
6,141

 
4,800

Net income attributable to noncontrolling interests
(246
)
 
—

 
(246
)
 
(53
)
 
—

 
(53
)
Net income (loss) applicable to ION
$
(19,343
)
 
$
34,645

 
$
15,302

 
$
(1,394
)
 
$
6,141

 
$
4,747

Net income (loss) per share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
(1.38
)
 
 
 
$
1.09

 
$
(0.12
)
 
 
 
$
0.39

Diluted
$
(1.38
)
 
 
 
$
1.07

 
$
(0.12
)
 
 
 
$
0.38

Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
14,007

 
 
 
14,007

 
12,019

 
 
 
12,019

Diluted
14,007

 
 
 
14,268

 
12,019

 
 
 
12,366



10


 
Twelve Months Ended December 31, 2018
 
Twelve Months Ended December 31, 2017
 
As Reported
 
Special Items
 
As Adjusted
 
As Reported
 
Special Items
 
As Adjusted
Net revenues
$
180,045

 
$
—

 
$
180,045

 
$
197,554

 
$
—

 
$
197,554

Cost of sales
120,425

 
—

 
120,425

 
121,915

 
—

 
121,915

Gross profit
59,620

 
—

 
59,620

 
75,639

 
—

 
75,639

Operating expenses
113,892

 
(38,658
)
(2) 
75,234

 
84,338

 
(6,141
)
(3) 
78,197

Loss from operations
(54,272
)
 
38,658

 
(15,614
)
 
(8,699
)
 
6,141

 
(2,558
)
Interest expense, net
(12,972
)
 
—

 
(12,972
)
 
(16,709
)
 
—

 
(16,709
)
Other income (expense), net
(436
)
 
—

 
(436
)
 
(3,945
)
 
5,000

(4) 
1,055

Income tax expense
2,718

 
—

 
2,718

 
24

 
—

 
24

Net loss
(70,398
)
 
38,658

 
(31,740
)
 
(29,377
)
 
11,141

 
(18,236
)
Net income attributable to noncontrolling interests
(773
)
 
—

 
(773
)
 
(865
)
 
—

 
(865
)
Net loss applicable to ION
$
(71,171
)
 
$
38,658

 
$
(32,513
)
 
$
(30,242
)
 
$
11,141

 
$
(19,101
)
Net loss per share:
 
 
 
 
 
 
 
 
 
 
 
Basic
$
(5.20
)
 
 
 
$
(2.37
)
 
$
(2.55
)
 
 
 
$
(1.61
)
Diluted
$
(5.20
)
 
 
 
$
(2.37
)
 
$
(2.55
)
 
 
 
$
(1.61
)
Weighted average number of common shares outstanding:
 
 
 
 
 
 
 
 
 
 
 
Basic
13,692

 
 
 
13,692

 
11,876

 
 
 
11,876

Diluted
13,692

 
 
 
13,692

 
11,876

 
 
 
11,876

(1)
Represents $36.6 million impairment of fixed assets of the Company's cable-based ocean bottom technologies within Ocean Bottom Integrated Technologies segment, partially offset by a $1.9 million credit related to stock appreciation right awards expense during the three months ended December 31, 2018.
(2)
Same as note(1) above, except the stock appreciation right awards expense was a $2.1 million charge for the twelve months ended December 31, 2018.
(3)
Represents stock appreciation right awards expense for the three and twelve months ended December 31, 2017.
(4)
Represents an accrual related to the WesternGeco legal contingency during the three months ended December 31, 2017.






11