Input/Output Inc. Reports Operating Results (10-Q)

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Aug 06, 2009
Input/Output Inc. (IO, Financial) filed Quarterly Report for the period ended 2009-06-30.

ION GEOPHYSICAL CORPORATION 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. Input/Output Inc. has a market cap of $326.3 million; its shares were traded at around $2.74 with a P/E ratio of 8 and P/S ratio of 0.5.

Highlight of Business Operations:

Our Current Debt Levels. In connection with the ARAM acquisition, we increased our indebtedness significantly. As of June 30, 2009, we had outstanding total indebtedness of approximately $270.6 million, including capital lease obligations. Total indebtedness on that date included $110.9 million of five-year term indebtedness and $98.0 million in revolving credit debt, in each case incurred under our amended commercial banking credit facility (the Amended Credit Facility). Total indebtedness on that date also included $12.5 million in borrowings under a secured equipment financing transaction. We also had as of that date $35.0 million of subordinated indebtedness outstanding under an amended and restated subordinated promissory note (the Amended and Restated Subordinated Note) that we had issued to one of ARAMs selling shareholders as part of the purchase price consideration for the acquisition of ARAM.

In response to this downturn, we have taken measures to further reduce operating costs in our businesses. We expect that 2009 will prove to be a challenging year for our North America and Russia land systems and vibroseis truck sales. In addition, we have slowed our capital spending, including investments for our multi-client data library, and are projecting capital expenditures for 2009 at $90 million to $95 million compared with $127.9 million for the comparable period in 2008. Of that total, we expect to spend approximately $80 million to $85 million on investments in our multi-client data library during 2009, and we anticipate that a majority of this investment will be underwritten by our customers. To the extent our customers commitments do not reach an acceptable level of pre-funding, the amount of our anticipated investment could significantly decline. The remaining sums are expected to be funded from internally generated cash.

2009 Developments. Our overall total net revenues of $207.4 million for the six months ended June 30, 2009 decreased $113.4 million, or 35.4%, compared to total net revenues for the six months ended June 30, 2008. Our overall gross profit percentage for the first six months of 2009 was 32.2% compared to 33.2% for the first six months of 2008. In the first six months of 2009, we recorded a loss from operations of ($44.8) million (which includes the effect of an impairment of intangible assets charge of $38.0 million in the first quarter of 2009), compared to $30.0 million income from operations for the first six months of 2008.

Net Revenues. Net revenues of $100.5 million for the three months ended June 30, 2009 decreased $80.2 million, or 44.4%, compared to the corresponding period last year. Land Imaging Systems net revenues decreased by $15.4 million, to $30.4 million compared to $45.8 million in the corresponding period of last year. This decrease related mainly to the continued decreased market demand in North America and Russia for land seismic equipment, partially offset by the sale of FireFly system to the worlds largest land contractor in the second quarter of 2009. Marine Imaging Systems net revenues for the three months ended June 30, 2009 decreased by $26.2 million to $24.2 million compared to $50.4 million in the corresponding period of last year, principally due to the decrease in VectorSeis Ocean (VSO) system sales in 2008 which were not repeated during the three months ended June 30, 2009. This decrease was partially offset by multiple sales of our DigiFIN positioning systems. Revenues from our Data Management Solutions segment (our Concept Systems subsidiary) decreased slightly compared to the corresponding period of last year. This decrease was due entirely to the effect of foreign currency exchange rate fluctuations compared to a year ago. Converting those revenues to Data Management Solutions domestic currency of British Pounds Sterling, revenues for the second quarter of 2009 increased £1.0 million compared to the second quarter of 2008.

Interest Expense. Interest expense of $6.9 million for the three months ended June 30, 2009 increased $6.2 million compared to $0.7 million for the second quarter of 2008. The increase is due to the higher levels of outstanding indebtedness and the higher effective interest rate under the Bridge Loan Agreement that we extinguished during the second quarter of 2009 combined with increased revolver borrowings of $98.0 million. See Liquidity and Capital Resources Sources of Capital below. Because of these increased levels of borrowed indebtedness, our interest expense will continue to be significantly higher in 2009 than we experienced in prior years.

Net Revenues. Net revenues of $207.4 million for the six months ended June 30, 2009 decreased $113.4 million, or 35.4%, compared to the corresponding period last year. Land Imaging Systems net revenues decreased by $31.1 million, to $64.6 million compared to $95.7 million in the corresponding period of last year. This decrease related mainly to the continued decreased market demand in North America and Russia for land seismic equipment. Marine Imaging Systems net revenues for the six months ended June 30, 2009 decreased by $42.2 million to $42.7 million compared to $84.9 million in the corresponding period of last year, principally due to the timing of new marine vessels being introduced into the market. This decrease was partially offset by multiple sales of our DigiFIN system and several marine streamer positioning system sales in the second quarter of 2009. Revenues from our Data Management Solutions segment (our Concept Systems subsidiary) of $16.5 million for the first half of 2009 decreased from the $18.8 million in revenues for the corresponding period of last year. This decrease was due entirely to the effect of foreign currency exchange rate fluctuations compared to a year ago. Converting those revenues to Data Management Solutions domestic currency of British Pounds Sterling, revenues for the first quarter of 2009 increased £1.4 million compared to the first half of 2008.

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