ION Geophysical has reported second quarter 2009 revenues of $100.5 million, resulting in a net loss of ($5.5 million), or ($0.05) per diluted share, excluding after-tax foreign currency exchange losses totaling ($5.7) million, or ($0.06) per diluted share. The non-cash foreign currency exchange losses relate mainly to the Company's United Kingdom and Canadian operations. Including the foreign currency exchange losses, ION's net loss for the quarter was ($11.3) million, or ($0.11) per diluted share. In the second quarter of 2008, ION's net income was $15.4 million, or $0.16 per diluted share, on revenues of $180.7 million.
Bob Peebler, ION's Chief Executive Officer, said, "Our second quarter operating results reflected the continuing impact of the economic downturn in several of our markets. We remain affected by the substantial cuts in capital expenditures for exploration and production among oil and gas companies and the cautious approach taken by many of our contractor customers resulting from the continued volatility in economic conditions and commodity prices. These factors resulted in a material decline in seismic activity during the period, especially in North America and Russia.
"However, despite the decreases in our revenues, our gross margins increased over prior year. In the second quarter of 2009, our gross margins were 33% compared to 32% last year, primarily as a result of improved product sales mix mainly in our Marine Imaging Systems and Data Management Solutions divisions.
"Our Marine division generated better results sequentially, but we are starting to experience weaker marine activity. The performance of our Land Imaging Systems division continues to be adversely affected by weakness in the land seismic markets in North America and Russia.
"Despite the current challenging operating conditions, our Data Management Solutions (Concept Systems) group experienced a very good quarter, and we continue to benefit from our technology offerings, including strong demand for marine Intelligent Acquisition(TM) [IA] technologies as well as for our data processing services in our ION Solutions division.
"We are pleased to have recognized the first sale of our fully commercialized FireFly® system to the world's largest land contractor and to report that the purchaser is pleased with the performance of the system. In addition, after completing the original survey, we have now been awarded a production survey with a 6,100 station FireFly system that is being used by a super major to image the Haynesville shale in northeast Texas. We are also proceeding with a second survey using an 8,000 station FireFly system with Compania Mexicana de Exploraciones (Comesa), an oilfield services company majority owned by PEMEX, the national oil company of Mexico.
"We continue to expect a challenging year for the rest of 2009, except in data processing business and in our Data Management Systems division, where our backlog remains solid through 2009 as oil companies continue to focus on extracting additional insights from previously acquired data sets through data reprocessing.
"In this challenging environment, we continue to focus on cash generation and cost reduction, while maintaining our long-term commitment to continued technology development in order to better position ourselves when the seismic markets recover."
SECOND QUARTER 2009
Total revenues in the second quarter of 2009 decreased 44% to $100.5 million compared to $180.7 million a year ago. While all of the Company's segments experienced quarter-over-quarter revenue declines, the Marine Imaging Systems and Data Management Solutions divisions showed sequential improvement.
During the second quarter of 2009, the ION Systems group generated sales of $63.9 million compared to $105.8 million in the same period in 2008. Marine Imaging Systems' revenues decreased to $24.2 million compared to $50.4 million a year ago, mainly due to the decrease in VectorSeis® Ocean system sales compared to last year. Market demand for DigiFIN(TM) remained strong during the second quarter as customers continue to retrofit their existing fleets with the latest streamer control technology. Land Imaging Systems' revenues decreased to $30.4 million compared to $45.8 million in the second quarter of 2008. Despite the inclusion of ARAM's operating results, the division continues to be adversely impacted by the continuing economic recession and depressed credit markets, which resulted in reduced sales of systems, geophones and vibroseis trucks in North America and Russia. However, partially offsetting this decline was the recognition of the first fully commercialized sale of the Company's FireFly system. The FireFly system has continued to gain market acceptance through several projects with major oil and gas companies. Data Management Solutions' revenues decreased to $9.2 million for the second quarter compared to $9.6 million a year ago, due entirely to changes in foreign currency exchange rates as the pound sterling weakened significantly against the dollar compared to last year. Removing the effect of the exchange rates, Data Management Solutions' revenues increased by 21% compared to prior year.
The ION Solutions group generated $36.7 million in revenues compared to $74.9 million in the same period a year ago. The decrease was primarily driven by lower multi-client data library and new venture program sales, partially offset by continued strong data processing revenues.
Consolidated gross margins for the second quarter of 2009 increased to 33% from 32% in the second quarter of 2008, primarily due to favorable product mix in both the Marine Imaging Systems and the Data Management Solutions' groups. This improvement in margins was achieved despite lower gross margins in the remaining business units and the increased amortization charges related to the September 2008 ARAM acquisition.
Operating expenses as a percentage of revenues for the second quarter of 2009 increased to 33% compared to 21% in the prior year period. General and administrative expenses as a percentage of revenues for the second quarter of 2009 increased to 13.5% compared to 7.9% in the prior period. Both increases were driven entirely by lower revenue as general and administrative expenses overall decreased year over year. Adjusted EBITDA (net income (loss) before net interest expense, taxes, depreciation and amortization and impairment of intangible assets) for the second quarter decreased to $12.6 million compared to $50.8 million in the second quarter of 2008.
Consolidated revenues for the first six months of 2009 decreased 35% to $207.4 million compared to $320.8 million for the same period in 2008. Revenues decreased across all segments due to continued volatility in commodity prices, continued tightening of credit markets and continued decline in seismic activity in the North American and Russian markets. Notwithstanding the significant decrease in revenues, gross margin for the first six months of 2009 decreased slightly to 32% compared to 33% for 2008. Strong margin improvements in the Marine Imaging Systems and Data Management Solutions groups were partially offset by lower gross margin in the Land Imaging Systems and ION Solutions groups.
Operating expenses, excluding the impairment of intangible assets of $38.0 million and severance charges of $1.3 million, as a percentage of revenues for the first six months of 2009 increased to 35% compared to 24% in the prior year period, solely as a result of lower revenues. Excluding the above items, total operating expenses for the first six months of 2009 decreased by $4.2 million when compared with 2008, which did not include the costs related to the ARAM business. Additionally, total operating expenses for 2009 included an additional $2.6 million of bad debt expense. Based upon the recent cost reduction measures initiated in the fourth quarter of 2008, the Company expects to continue to incur lower operating expenses for the remainder of 2009 than were incurred last year and generate savings of approximately $43 million on an annualized basis.
The Company's effective tax rate during the first six months of 2009 was 25.6% (benefit on a loss) compared to 18.3% (provision on income) for 2008. The increase in effective tax rate relates primarily to the Company's tax benefit related to further impairment of intangible assets, which is taxed at 29%. The inclusion of this benefit at the higher tax rate increased the Company's overall effective tax rate for the first six months of 2009.
Loss from operations for the first half of 2009 totaled ($44.8) million compared to income of $30.0 million in the prior period. For the first six months of 2009, including the impact of the first quarter impairment of intangible assets of $38.0 million and the foreign currency exchange losses of $6.7 million, the Company reported a net loss of ($49.7) million, or ($0.49) per diluted share, compared to net income of $23.1 million, or $0.24 per diluted share, in 2008. Excluding the after-tax impact of the first quarter impairment and the foreign currency exchange losses, the Company reported a net loss of ($17.4) million, or ($0.17) per diluted share for the first six months of 2009. Adjusted EBITDA for the period was $30.6 million compared to $77.7 million in 2008.
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