EDGAR 10-K Filing

Company CIK: 866609
Filing Year: 2021
Filename: 866609_10-K_2021_0001437749-21-002669.json

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ITEM 1. BUSINESS
Item 1. Business
Going Concern and Existing Second Lien Notes Restructuring
As of December 31, 2020, we had $120.6 million in aggregate principal amount outstanding of our 9.125% Senior Secured Second Priority Notes due December 2021, which mature on December 15, 2021 (the “Existing Second Lien Notes”). The Existing Second Lien Notes, which are now classified as a current liability, raise substantial doubt about our ability to continue as a going concern within the next twelve months. Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business. Accordingly, our consolidated financial statements exclude certain adjustments that might result if we are unable to continue as a going concern. If we are unable to repay, refinance or restructure our Existing Second Lien Notes, which could result in the acceleration of the maturity of the outstanding balance on our Credit Facility, our assets may not be sufficient to repay in full the amounts owed to holders of our Existing Second Lien Notes or to lenders under our Credit Facility.
To address the upcoming maturity of our Existing Second Lien Notes, we executed a Restructuring Support Agreement supported by holders of our Existing Second Lien Notes representing approximately 92% of the aggregate principal amount outstanding under our Existing Second Lien Notes, to effect certain restructuring transactions (the "Restructuring Transactions"), and we are seeking stockholder approval of such Restructuring Transactions to be voted at a special meeting of stockholders scheduled for February 23, 2021 ("the Special Meeting"). The Restructuring Transactions, as further discussed in Item 7. “ Liquidity and Capital Resources” and in Footnote 1, "Summary of Significant Accounting Policies" of Footnotes to Consolidated Financial Statements, will allow us to extend the maturity of our Existing Second Lien Notes by four years to December 2025 by exchanging such notes for new convertible notes with a lower interest rate of 8% per annum. Accordingly, the consummation of the Restructuring Transactions and the conversion of the New Second Lien Notes, if converted, will have a substantial dilutive effect on our outstanding common stock. Shareholders will have the opportunity to participate in a concurrent rights offering to purchase the new convertible notes or our common stock in order to minimize dilution from the Restructuring Transactions. We anticipate the completion of the Restructuring Transactions by the end of March 2021.
We also entered into a restructuring support agreement with PNC Bank, National Association (“PNC”), the lender of our Credit Facility, (the "PNC Restructuring Support Agreement") that will allow us, among others, to consummate and implement the Restructuring Transactions and waive any going concern event of default that would otherwise occur under our Credit Facility.
While we believe we will be successful in obtaining stockholders' approval and executing the Restructuring Transactions, there can be no assurances regarding the ultimate success, timing or extent of any such funding, which are dependent upon a variety of factors, many of which are outside of our control. In addition, no assurance can be given that any funding from the Restructuring Transactions, if approved by stockholders and obtained at all, will be adequate to fulfill our obligations and operate our business. Consequently, we may be required to obtain additional funding whether through private or public equity transactions, debt financing or other capital sources. We may not be able to take such actions, if necessary, on commercially reasonable terms or at all. If additional funding cannot be obtained on a timely basis and on satisfactory terms, it will have an adverse effect on our business, financial condition and results of operations.
COVID-19 Business Impact and Response
The COVID-19 pandemic caused the global economy to enter a recessionary period, which may be prolonged and severe. During 2020, the exploration and production (“E&P”) industry faced the dual impact of demand deterioration from COVID-19 and market oversupply from increased production, which caused oil and natural gas prices to decline significantly for most of the year. Brent crude oil prices, which are most relevant to our internationally focused business, dropped 66% during the first quarter from $66 on January 1, 2020 to $23 on March 31, 2020. By the end of the second quarter, Brent crude oil prices rebounded to $41 per barrel, benefiting from increased global demand as pandemic restrictions started to ease and decreased production. Brent crude oil prices have remained relatively stable through the end of the year, increasing during the fourth quarter to end the year at $51 per barrel. Brent crude oil prices further increased to approximately $60 per barrel at the beginning of February 2021, which is consistent with prices a year ago. In an effort to stabilize oil prices by limiting supply, OPEC and other oil producing allies agreed to substantial production cuts throughout 2020 that were extended through March 2021.
While commodity prices can be volatile, the sharp decline throughout 2020 triggered E&P companies to reduce budgets by approximately 25%. Exploration offerings and data purchases are often discretionary and, therefore, receive disproportionately higher reductions than overall budget cuts. Consequently, there has been a material slowdown in offshore seismic spending since the second quarter of 2020, and while we are seeing signs that could improve, we expect the market to remain challenging in 2021. However, the challenging market also serves as a catalyst to drive necessary cost restructuring and digital transformation of the E&P ecosystem.
Our management expects continued portfolio rationalization and high grading as E&P companies seek to find the best return on investment opportunities to meet oil and gas demand in the next decade. Near-term, due to the impact of the COVID-19, project high grading will likely be more acute due to budget reductions. Over the last several years, we strategically shifted our portfolio closer to the reservoir, where revenue tends to be higher and more consistent. New Venture data acquisition offshore and Software and related personnel-based offshore services are expected to continue to be most impacted by COVID-19 travel restrictions. While offshore operations have been temporarily impacted by travel restrictions, we believe the demand for digitalization technologies will remain strong. In some cases, ION technology is expected to be more relevant and valuable in the current environment. For instance, ION expects offerings that facilitate remote working to see increased demand.
While 2020 revenues came in lower than the prior year due to the repercussions of the oil price volatility in early 2020 and the ongoing uncertainty from the COVID-19 pandemic, we made progress executing our strategy. We continue to work closely with our clients to understand their revised plans and to scale our business appropriately. We partially mitigated the impact of the current macroeconomic environment by fully benefiting from the structural changes and associated cost reductions that were outlined in our quarterly reports on Form 10-Q for the quarterly period ended March 31, 2020. To further mitigate the impact of COVID-19 and oil price volatility, management implemented a plan to preserve cash and manage liquidity as follows:
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Scaled down personnel costs and operating expenses in April 2020 by another $18.0 million during the remaining nine months of 2020, building on the over $20.0 million of cuts made in January 2020. These further reductions are primarily through a variety of furlough programs and reduced compensation arrangements across our worldwide workforce. Our executives took a 20% base salary reduction and a tiered reduction scheme has been cascaded to the rest of the worldwide workforce. Our Board of Directors took a 20% reduction in directors' fees. In addition, we have curtailed use of external contractors, decreased travel and event costs and implemented new systems and processes that more efficiently support our business.
• Reduced capital expenditures to approximately $28.0 million (a portion of which were pre-funded or underwritten by our customers), down from the original budget of $35.0 million to $50.0 million, to reflect both reduced seismic demand and travel/border restrictions impacting new data acquisition offshore. The majority of capital expenditures relate to investments in multi-client data. This provides flexibility to aggressively reduce cash outflows while shifting to significantly lower cost reimaging programs.
• Applied for and continue to explore various government assistance programs, of which approximately $6.9 million was received and applied against qualifying expenditures during the second quarter. Receipt of this assistance allowed us to avoid further staff reductions while supporting our ongoing operations.
• Re-negotiated existing lease agreements for our significant locations to obtain rent relief of approximately $4.0 million. The majority of the cash savings from the rent relief is from July 2020 to March 2021. See Footnote 14 "Lease Obligations" of Footnotes to Consolidated Financial Statements for further details.
• Announced the sale of our 49% ownership interest in INOVA Geophysical joint venture (defined below in "Our Business") for $12.0 million subject to regulatory approvals and other closing conditions. Closing of the transaction is expected in 2021.
• Entered into a settlement agreement with WesternGeco L.L.C ("WesternGeco") ending the decade-long patent litigation. See Footnote 9 "Litigations" of Footnotes to Consolidated Financial Statements for further details.
Our Business
ION is an innovative, asset light global technology company that delivers powerful data-driven decision-making offerings to the offshore energy and ports and harbors markets. We are entering a fourth industrial revolution where technology is fundamentally changing how decisions are made. Decision-making is shifting from what was historically an art to a science. Data, analytics and digitalization provide a step-change opportunity to translate information into insights to enhance decisions, gain a competitive edge and deliver superior returns.
We have been a leading technology innovator for over 50 years. While the traditional focus of our technology has been on the E&P industry, we are now broadening and diversifying our business into relevant adjacent markets such as E&P logistics and ports and harbors. Our offerings are focused on improving subsurface knowledge to enhance E&P decision-making and enhancing situational awareness to optimize offshore operations. We serve customers in most major energy producing regions of the world from strategically located offices.
The Company is publicly listed on the New York Stock Exchange under the ticker IO. ION is headquartered in Houston, Texas with regional offices around the world. The company has 428 employees, about half of whom are in technical roles and a quarter have advanced degrees. We have approximately 450 patents and pending patent applications in various countries around the world.
We provide our services and products through two business segments - E&P Technology & Services and Operations Optimization. In addition, we have a 49% ownership interest in INOVA Geophysical Equipment Limited (“INOVA Geophysical,” or “INOVA”), a joint venture with BGP Inc. (“BGP”), a subsidiary of China National Petroleum Corporation. BGP owns the remaining 51% equity interest in INOVA. We wrote our investment in INOVA down to zero in 2014. See further discussion below on our agreement to sell our interest in INOVA.
Our E&P Technology & Services segment creates digital data assets and delivers services to help E&P companies improve decision-making, reduce risk and maximize value. Across the E&P lifecycle, our E&P offerings focus on driving customer decisions, such as which blocks to bid on and for how much, how to maximize portfolio value, where to drill wells or how to optimize production.
Our Operations Optimization segment develops mission-critical subscription offerings and provides engineering services that enable operational control and optimization offshore. This segment is comprised of our Optimization Software & Services and Devices offerings. Our advanced hardware and software offerings control some of the largest moving objects on the planet and in some of the harshest conditions.
We historically conducted our land seismic equipment business through INOVA, which manufactures land seismic data acquisition systems, digital sensors, vibroseis vehicles (i.e., vibrator trucks), and energy source controllers. In March 2020, we announced an agreement to sell our 49% ownership interest in INOVA joint venture for $12.0 million, subject to regulatory approvals and other closing conditions. Closing of the transaction is expected in 2021.
Services and Products
E&P Technology & Services. Our offerings are designed to help E&P companies improve decision-making, reduce risk and maximize value. Within our E&P Technology and Services segment, there are two synergistic groups: Imaging and Reservoir Services and Ventures. Our Imaging and Reservoir Services group provides advanced data processing, imaging and reservoir services designed to maximize image quality and subsurface insights, helping E&P companies reduce exploration and production risk, evaluate and develop reservoirs, and increase production. Imaging and Reservoir Services continually develops and applies proprietary processing algorithms via its imaging engine to data owned or licensed by our customers to translate raw data into subsurface images. We continually enhance our novel workflows and maintain a leading-edge infrastructure to efficiently deliver the best image quality.
While our Imaging and Reservoir Services group processes and images data for customers on a proprietary basis, the majority of these resources support our higher potential return multi-client business. The proprietary work we take on is complex, where our advanced technology is valued and where we closely collaborate with our customers to solve their toughest challenges. We maintain approximately 19 petabytes of digital seismic data storage through our global data centers, including a core data center located in Houston. We utilize a globally distributed network of Linux-cluster processing centers in combination with our major hubs in Houston and London to process seismic data using advanced, proprietary algorithms and workflows.
Our Ventures group leverages the world-class geoscience skills of the Imaging and Reservoir Services group to create global digital data assets that are licensed to multiple E&P companies to optimize their investment decisions. Our global data library consists of over 740,000 km of 2D and over 380,000 sq km of 3D multi-client seismic data in virtually all major offshore petroleum provinces. Ventures has the capability and expertise to manage multi-client or proprietary surveys, from survey planning and design to data acquisition and management, to final subsurface imaging and reservoir characterization. We focus on the technologically intensive components of the image development process, such as survey planning and design, and data processing and interpretation, while outsourcing asset-intensive components (such as field acquisition) to experienced contractors.
Occasionally we develop proprietary technology solutions that fill a gap we have identified in the market and support our multi-client program development efforts. For example, previously we created an under-ice acquisition solution to collect data in the Arctic and Marlin™ was initially developed to help manage our own complex survey operations. In 2020, we commercialized Gemini™ extended frequency source technology. Gemini’s unique design efficiently supports substantially improved data quality and lower environmental impact desired by the industry. This important ingredient to enhancing subsurface knowledge differentiates ION as we expand into the larger 3D multi-client new acquisition market while maintaining our asset light approach.
We offer our services to customers on both a proprietary and multi-client (non-exclusive) basis. In both cases, a majority of our exposure to survey costs are generally pre-funded by our customers, limiting our cost exposure. The period during which our multi-client surveys are being designed, acquired or processed is referred to as the “New Venture” phase. Once the New Venture phase is completed, the surveys become part of our Data Library. For proprietary services, the customer has exclusive ownership of the data. For multi-client surveys, we generally retain ownership of our long-term exclusive marketing rights to the data and receive ongoing revenue from subsequent data license sales.
Operations Optimization. Our Operations Optimization segment develops mission-critical subscription offerings and provides engineering services that enable operational control and optimization offshore. Our advanced systems improve situational awareness, communication and risk management to enable rapid, informed decisions in challenging offshore environments. Our industry-leading mission management, navigation, communications and sensing technologies enable safer, more efficient operations.
This segment is comprised of our Optimization Software & Services and Devices offerings.
Our Optimization Software & Services group provides survey design, command and control software systems and related services for marine towed streamer and seabed operations. Our software business commands recurring, premium subscription revenues. We are market leaders in our core business and adapted our platform to more broadly optimize operations beyond our core market. Our software offerings leverage a leading data integration platform to control and optimize operations. Engineering services experts deliver in-field optimization services, equipment maintenance and training to maximize value from our offerings.
We extended our successful seismic command and control platform to optimize operations more broadly. Marlin is cloud-based software designed to maximize the safety and efficiency of complex offshore operations by integrating a variety of data sources in real-time with operational plans to improve situational awareness and decision-making. Akin to air traffic control systems, Marlin enables multiple stakeholders to share and visualize vessel route plans, foresee and avoid conflicts between vessels and fixed assets, optimize schedules safely within a rules-based environment, and measure and improve asset performance.
Our Devices group develops intelligent equipment controlled by our software to optimize operations. Our Devices group develops, manufactures and repairs marine data acquisition systems, diverters, sensors and compasses, which, in addition to seismic, have been deployed in marine robotics, scientific, E&P, defense and other commercial applications.
INOVA Geophysical. INOVA manufactures land acquisition systems, land source products and source controllers and multicomponent sensors. We wrote our investment in INOVA down to zero in 2014.
ION History
Founded in 1968 as Input/Output (“I/O”), ION began as a provider of highly specialized seismic source synchronization equipment. In 1988, the company introduced its first land system, System One, capable of recording large volumes of data more quickly, which helped the industry shift from 2D to 3D data. ION became publicly traded on the NASDAQ exchange in 1991, and was listed on the New York Stock Exchange in 1994 using the trading symbol "IO". Throughout the 1990s and 2000s, ION experienced growth through a number of acquisitions. In 2002, the company’s first BasinSPAN multi-client program was introduced, paving the way for a global data library. In September 2007, Input/Output officially changed its name to "ION" as part of a re-branding to better reflect the continuing evolution of the company from an equipment manufacturer to a broad-based, technology-focused seismic solutions provider.
E&P Subsurface Data Collection and Use
Since the 1930s, oil and gas companies have sought to reduce exploration risk by using seismic data to create an image of the Earth’s subsurface. Seismic imaging plays a fundamental role in hydrocarbon exploration and reservoir development by delineating structures, rock types and fluid locations in the subsurface. Our technologies, services and solutions are used by E&P companies to generate high-resolution images of the Earth’s subsurface to identify hydrocarbons, pinpoint drilling locations and monitor production from existing wells.
Typically, an E&P company engages the services of a geophysical acquisition contractor to develop a seismic survey design, secure permits, coordinate logistics, and acquire seismic data in a selected area. E&P companies generally rely on third parties, such as ION, to provide the contractor with equipment, navigation and data management software, and field support services necessary for data acquisition. After the data is collected, the same geophysical contractor, a third-party data processing company, or the E&P company itself will process the data using proprietary algorithms and workflows to create a series of seismic images. Geoscientists then interpret the data by reviewing the images of the subsurface and integrating the geophysical data with other geological and production information such as well logs or core information.
Seismic data is collected when recording devices placed on the Earth’s surface, sea floor, or carried within the streamer cable of a towed streamer vessel, measure how long it takes for sound vibrations to echo off rock layers underground. For seismic data acquisition onshore, the acoustic energy producing the sound vibrations is generated by large vibroseis (vibrator) vehicles. In marine acquisition, the energy is provided by source arrays that deliver compressed air into the water column. The acoustic energy propagates through the subsurface as a spherical wave front, or seismic wave. Interfaces between different types of rocks will both reflect and transmit this wave front. Onshore, the reflected signals return to the surface where they are measured by sensitive receivers called analog coil-spring geophones. Offshore, the reflected signals are recorded by either hydrophones towed in an array behind a streamer acquisition vessel or by multicomponent geophones or micro electromechanical system sensors that are placed directly on the ocean floor. Once the recorded seismic energy is processed using advanced algorithms and workflows, images of the subsurface can be created to depict the structure, lithology (rock type), fracture patterns, and fluid content of subsurface horizons, highlighting the most promising places to drill for oil and natural gas. This processing also aids in engineering decisions, such as drilling and completion methods, as well as decisions affecting reservoir production and economic decisions related to infrastructure and reserves in place.
Markets and Customers
Oil and gas prices have rebounded, however, we expect the market to remain challenging in the near-term. E&P companies' focus on value generation and cash preservation continues to affect exploration spending. We are diversifying our revenues in other markets to help mitigate the impact of oil and gas cycles. Our primary customers are E&P companies to whom we market and offer services, primarily multi-client seismic data programs from our Ventures group, data processing, imaging and reservoir services from our Imaging and Reservoir Services group, as well as consulting services from our Optimization Software & Services group. In 2020, E&P companies accounted for approximately 78% of our total consolidated net revenues. Secondarily, seismic contractors purchase our towed streamer data acquisition systems and related equipment and software to collect data in accordance with their E&P company customers’ specifications or for their own seismic data libraries.
We are actively diversifying our software and hardware into adjacent markets, primarily focused on ports and harbors. Ports and harbors are undergoing a digital transformation that is fundamentally changing operations and increasing efficiency. Tier 1 ports have been leading the digital transformation, and there's an emerging need for Tier 2 and Tier 3 ports to do so as well to compete. New disruptive technologies, such as artificial intelligence, Internet of Things and Blockchain have the potential to transform port efficiency.
A significant portion of our marketing effort is focused on areas outside of the United States. Foreign sales are subject to special risks inherent in doing business outside of the United States, including the risk of political instability, armed conflict, civil disturbances, currency fluctuations, embargo and governmental activities, customer credit risks and risk of non-compliance with U.S. and foreign laws, including tariff regulations and import/export restrictions.
We sell our services and products through a direct sales force consisting of employees and international third-party sales representatives responsible for key geographic areas. The majority of our foreign sales are denominated in U.S. dollars. During 2020, 2019 and 2018, sales to destinations outside of North America accounted for approximately 92%, 84% and 89% of our consolidated net revenues, respectively. Further, systems and equipment sold to domestic customers is frequently deployed internationally and, from time to time, certain foreign sales require export licenses.
Traditionally, our business has been seasonal, with strongest demand typically in the second half of our fiscal year.
For information concerning the geographic breakdown of our consolidated net revenues, see Footnote 3 “Segment and Geographic Information of Footnotes to Consolidated Financial Statements contained elsewhere in this Annual Report on Form 10-K for additional information.
Competition
The market for seismic services and products is highly competitive and characterized by frequent changes in technology.
Our Ventures group within our E&P Technology & Services segment faces competition in creating, developing and selling multi-client data from a number of companies. CGG (an integrated geophysical company), Schlumberger (a large integrated oilfield services company) and TGS all have an asset light strategy. Shearwater, Polarcus and BGP run acquisition crews and also compete in multi-client data acquisition. PGS is the only integrated provider delivering both.
Our Imaging and Reservoir Services group within our E&P Technology & Services segment competes with companies that provide data processing services to E&P companies. See “Services and Products - E&P Technology & Services Segment.” While the barriers to enter this market are relatively low, we believe the barriers to compete at the higher end of the market where our efforts are focused - are significantly higher. At the higher end of this market, CGG and Schlumberger are our two primary competitors for advanced imaging and reservoir services. Both of these companies are significantly larger than ION in terms of revenue, processing locations and sales, marketing and financial resources.
Our principal competitor for marine equipment is Sercel, a manufacturing subsidiary of CGG. We also compete with other equipment companies on a product-by-product basis. Our ability to compete effectively in the manufacture and sale of seismic instruments and data acquisition systems depends principally upon continued technological innovation, as well as pricing, system reliability, reputation for quality and ability to deliver on schedule.
Some service providers design and manufacture acquisition technology in-house (or through a network of third-party vendors) to differentiate themselves. Although this technology competes directly with ours, it is not usually made available to other seismic acquisition contractors.
In the land seismic equipment market, where INOVA competes, the principal competitors are Sercel and Geospace Technologies. INOVA is a joint venture with BGP as a majority stake owner. BGP purchases land seismic equipment from both INOVA and competing land equipment suppliers.
Outside of our core market, we compete with a number of software and hardware technology companies. The market for ports and harbors technologies tends to be very fragmented with a range of huge multi-billion dollar competitors to new startups. The closest competitor to Marlin in ports and harbors is PortMaster, software developed by the Port of Rotterdam.
Our Strategy
The key elements of our business strategy are to:
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Leverage our technologies to create value through data capture, analysis and optimization to enhance companies’ critical decision-making abilities and returns. Data, analytics and digitalization provide a step-change opportunity to translate information into insights to enhance decisions, gain a competitive edge and deliver superior returns. As a result, decision-making is shifting from what was historically an art to a science. ION offerings are focused on improving E&P decision-making and optimizing offshore operations.
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Expand our E&P Technology & Services business, focusing on delivering value closer to the reservoir. Over the last several years, we have made an effort to diversify our offerings within the E&P life cycle and move closer to the reservoir. Historically known for our 2D programs, we initially materially entered the 3D multi-client market by reimaging existing seismic data using our advanced data processing techniques and algorithms. We rapidly grew our data library in Mexico and Brazil, making a name for ourselves in 3D. Building on this success, in 2020 we set our sights on entering the larger 3D multi-client new acquisition market. Our Gemini source and top tier imaging are key ingredients to successfully executing this strategy. We believe shifting to more reservoir-focused E&P offerings will increase earnings and position our company better for E&P cycles.
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Expand our Operations Optimization business into relevant adjacent markets. While our traditional focus for technology has been on the seismic industry, we are broadening and diversifying our software and equipment businesses into relevant adjacent markets such as E&P logistics and ports and harbors. Adjacent markets broaden our opportunity to better monetize our return on technology investments while reducing our susceptibility to E&P cycles. We intend to grow our revenues from these non-seismic markets over the next 5 years.
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Continue investing in advanced software and equipment technology to provide next generation services and products. Our industry is competitive and continually evolving, so we intend to continue investing in the development of new technologies to stay on the cutting-edge of innovation. A key element of our business strategy has been to understand the challenges faced in survey planning, data acquisition, processing, and interpretation and offshore operations. We will continue to develop and offer technology and services that enable us to work with clients to solve their unique challenges around the world. In particular, we intend to focus on the development of our Gemini extended frequency source, our Marlin operations optimization software, and continued advancement of our data processing and imaging workflows, such as FWI, with the goal of obtaining technical and market leadership in what we continue to believe are important and expanding markets. In 2020, our total investment in research and development and engineering was equal to approximately 11% of our total consolidated net revenues for the year.
Our Strengths
We believe that we are solidly positioned to successfully execute the key elements of our business strategy based on the following competitive strengths:
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We develop and leverage innovative technology platforms to improve decision-making and profitability. Our data management and analysis platforms help derive insights from data we acquire to improve E&P decision-making and optimize offshore operations. The data can be used to decide whether and how much to bid on a block, how to maximize production from a field, or how to optimize the safety and efficiency of complex maritime projects. Our operations optimization platform and imaging engine are the core underlying technology and we continually advance our complex algorithms to improve the resulting analysis.
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We focus on higher potential return offerings and creative business models to maximize shareholder value. We streamlined our business and focused on the areas with the highest potential returns because we believe every dollar invested should go further. In addition, we aim to structure both the project financing and payment in a way to maximize profit, such as sharing in the success of a project.
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Our asset light strategy enables us to avoid significant fixed costs and remain financially flexible. We do not own a fleet of marine vessels and do not provide our own crews to acquire seismic data. We outsource seismic data acquisition activity to third parties that operate fleets of seismic vessels and equipment. This practice enables us to avoid significant fixed costs associated with these assets and personnel and to manage our business in a manner that provides flexibility to quickly scale up or down our capital investments based on E&P spending levels. We actively manage the costs of developing our multi-client data business by having our customers partially pre-fund, or underwrite, the investment for any new project. Our target goal is to have a vast majority of the total cost of each new project’s data acquisition to be underwritten by our customers. We believe this conservative approach to multi-client data investment is the most prudent way to reduce the impact of any sudden reduction in the demand for seismic data, giving us the flexibility to aggressively reduce cash outflows as we have successfully implemented in the current industry downturn.
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Our global footprint and diversified portfolio approach enable us to offset regional downturns or local slowdowns. Conducting business around the world has been and will continue to be a key component of our strategy. This global focus and diversified portfolio approach have been helpful in minimizing the impact of any regional or country-specific slowdown for short or extended periods of time. While the traditional focus of our technology has been on the seismic industry, we are now broadening and diversifying our business into relevant adjacent markets such as E&P logistics and ports and harbors. Adjacent markets broaden our opportunity to better monetize our return on technology investments while reducing our susceptibility to E&P cycles.
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We have a diversified and blue chip customer base. We provide services and products to a diverse, global customer base that includes many of the largest oil and gas and geophysical companies in the world, including National Oil Companies (“NOCs”) and International Oil Companies (“IOCs”). Whereas almost all of our revenues in the early 2000s were derived from seismic service providers, in 2020, E&P companies accounted for approximately 78% of our total consolidated net revenues.
Product Research and Development
Our ability to compete effectively depends principally upon continued innovation in our underlying technologies and the value we can provide to inform decisions. As such, the overall focus of our research and development efforts has remained on improving the quality and value of the data we provide and the subsurface images we generate. In particular, we have concentrated on enhancing the quality of the information that can be extracted from the subsurface images. Research and development efforts in 2020 targeted a range of new technologies.
The Ventures group commercialized new Gemini extended frequency source technology to improve subsurface imaging and environmental performance.
The Imaging and Reservoir Services group continued to enhance its high-end workflows, such as FWI, and invest in infrastructure to efficiently deliver Tier 1 image quality.
The Optimization Software & Services group continues enhancing core survey design and command and control software while broadening Marlin’s capabilities for adjacent markets, primarily for ports and harbors.
Development within the Devices group was focused on new technologies for adjacent markets and sustaining our existing portfolio of technologies. We continue to invest in the development of new sensors within and outside our core business.
As many of these new services and products are under development and, as the development cycles from initial conception to commercial introduction can extend over a number of years, their commercial feasibility or degree of commercial acceptance may not yet be established. No assurance can be given concerning the successful development of any new service or product, any enhancements to them, the specific timing of their release or their level of acceptance in the marketplace.
Intellectual Property
We rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technologies. We have approximately 450 patents and pending patent applications, including filings in international jurisdictions with respect to the same kinds of technologies. Although our portfolio of patents is important to our operations, and particular patents may be material to specific business lines, no one patent is considered essential to our consolidated business operations.
Our patents, copyrights and trademarks offer us only limited protection. Our competitors may attempt to copy aspects of our products despite our efforts to protect our proprietary rights, or may design around the proprietary features of our products. Policing unauthorized use of our proprietary rights is difficult, and we may be unable to determine the extent to which such use occurs. Our difficulties are compounded in certain foreign countries where the laws do not offer as much protection for proprietary rights as the laws of the United States, including the potential for adverse decisions by judicial or administrative bodies in foreign countries with unpredictable or corrupt judicial systems. From time to time, third parties inquire and claim that we have infringed upon their intellectual property rights and we make similar inquiries and claims to third parties. Material intellectual property litigation is discussed in detail in Footnote 9 “Litigations” of Footnotes to Consolidated Financial Statements.”
The information contained in this Annual Report on Form 10-K contains references to trademarks, service marks and registered marks of ION and our subsidiaries, as indicated. Except where stated otherwise or unless the context otherwise requires, the terms “DigiFIN,” “Orca,” and “MESA,” refer to the DigiFIN®, ORCA® and MESA® registered marks owned by ION or their affiliates, and the terms “BasinSPAN,” “DigiBIRD II,” "DigiSTREAMER," “Gator,” “SailWing,” “Marlin,” and "Gemini" refer to the BasinSPAN™, DigiBIRD II™, DigiSTREAMER™, GATOR™, SailWing™, Marlin™ and Gemini™ trademarks and service marks owned by ION or their affiliates.
Regulatory Matters
Our operations are subject to various international conventions, laws and regulations in the countries in which we operate, including laws and regulations relating to the importation of and operation of seismic equipment, currency conversions and repatriation, oil and gas exploration and development, taxation of offshore earnings and earnings of expatriate personnel, environmental protection, the use of local employees and suppliers by foreign contractors and duties on the importation and exportation of equipment. Our operations are subject to government policies and product certification requirements worldwide. Governments in some foreign countries have become increasingly active in regulating the companies holding concessions, the exploration for oil and gas and other aspects of the oil and gas industries in their countries. In some areas of the world, this governmental activity has adversely affected the amount of exploration and development work done by major oil and gas companies and may continue to do so. Operations in less developed countries can be subject to legal systems that are not as mature or predictable as those in more developed countries, which can lead to greater uncertainty in legal matters and proceedings (including the potential for adverse decisions by judicial or administrative bodies in foreign countries with unpredictable or corrupt judicial systems). We are required to consent to home country jurisdiction in many of our contracts with foreign state-owned companies, particularly those countries where our data are acquired.
Changes in these conventions, regulations, policies or requirements could affect the demand for our services and products or result in the need to modify them, which may involve substantial costs or delays in sales and could have an adverse effect on our future operating results. Our export activities are subject to extensive and evolving trade regulations. Certain countries are subject to trade restrictions, embargoes and sanctions imposed by the U.S. government. These restrictions and sanctions prohibit or limit us from participating in certain business activities in those countries.
Our operations are also subject to numerous local, state and federal laws and regulations in the United States and in foreign jurisdictions concerning the containment and disposal of hazardous materials, the remediation of contaminated properties and the protection of the environment. While the industry has experienced an increase in general environmental regulation worldwide and laws and regulations protecting the environment have generally become more stringent, we do not believe compliance with these regulations has resulted in a material adverse effect on our business or results of operations, and we do not currently foresee the need for significant expenditures in order to be able to remain compliant in all material respects with current environmental protection laws. Regulations in this area are subject to change, and there can be no assurance that future laws or regulations will not have a material adverse effect on us.
On January 20, 2021, the acting secretary of the U.S. Department of Interior issued an order, effective immediately, mandating a 60-day moratorium on new oil and gas leases and drilling permits on federal lands and waters, and more recently President Biden recently announced a moratorium on new oil and gas leasing on federal lands and offshore waters pending completion of a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices. Our global footprint and diversified portfolio approach helps minimize the impact of any regional or country-specific slowdown. We are primarily focused internationally offshore, and unlike our peers, we have a fairly modest exposure to the Gulf of Mexico. Our 2D data library in the Gulf of Mexico is a mature, exploration-focused offering that is already very well subscribed by incumbent block holders. The 3D data library we have onshore North America covers private, not public, acreage. Should the moratorium result in longer-term changes, this could drive large scale E&P company portfolio investment more towards international offshore, which would be better aligned with our offerings.
President Biden and the Democratic Party, which now controls Congress, have identified climate change as a priority, and it is likely that new executive orders, regulatory action, and/or legislation targeting greenhouse gas emissions, or prohibiting, delaying or restricting oil and gas development activities in certain areas, will be proposed and/or promulgated during the Biden Administration. A recent executive order issued by President Biden established climate change as a primary foreign policy and national security consideration, affirmed that achieving net-zero greenhouse gas emissions by or before midcentury is a critical priority, affirmed the Biden Administration’s desire to establish the United States as a leader in addressing climate change, generally further integrates climate change and environmental justice considerations into government agencies’ decision-making, and eliminates fossil fuel subsidies, among other measures.
To the extent that our customers’ operations are disrupted by future laws and regulations, our business and results of operations may be materially adversely affected.
Environmental Matters
Governments and regulatory agencies in the European Union, the United States and other regions, as well as the public, have been increasingly focused on curtailing the emission of carbon dioxide and other greenhouse gases, and on ameliorating their effect on the climate. There are many proposals at the international, national, regional and state levels of government to monitor and limit emissions of greenhouse gases, and these proposals will likely continue to proliferate. One such proposal is the United Nations-sponsored “Paris Agreement,” which is a non-binding agreement for nations to limit their greenhouse gas emissions through individually-determined reduction goals every five years after 2020. The United States withdrew from the Paris Agreement under the Trump Administration, but Biden recommitted the United States to it upon assuming office.
There have also been efforts in recent years to encourage sovereign wealth funds, public pension funds, universities, and other investors to avoid investments in companies involved in hydrocarbon exploration and production, and to encourage lenders and other financial services companies to limit or curtail activities with them. These activities could have a material adverse effect on our share price, on our ability to secure financing, and on our ability to generate revenue.
We could also face climate-related litigation with respect to our operations or products. A number of cities, local governments and other plaintiffs have sought to bring suit against companies involved in hydrocarbon exploration and production, alleging, among other things, that such companies contribute to climate change, or that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts. While we are not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.
Employees
We pride ourselves on providing a diverse, inclusive culture; challenging, rewarding work; technical training and career development programs. In light of COVID-19, we are also providing flexibility where to possible to enable remote working and flexible hours.
ION has a strong organizational culture built on five principles that we believe will enable us deliver the best results for our clients and shareholders. The cultural pillars include themes of entrepreneurialism, accountability, collaboration, customer-centricity, and innovation.
As an organization with diverse employees, ION is committed to supporting and advancing our ‘One ION’ culture that deeply values and respects diversity and inclusion. In 2020, ION established a diversity and inclusion policy and advocacy group to further strengthen this mission. We have worked to increase the diversity of our Board of Directors, leadership team and overall workforce in the last couple of years. We also take measures to ensure equity, such as providing employees equal access to opportunities, such as equity in pay, and recruiting strategies aimed at hiring diverse talent.
Historically we have maintained a healthy employee retention rate, which for 2020 was 92%. In addition, the average tenure of our active employees is 12 years, a key determinant of overall employment satisfaction.
As of December 31, 2020, we had 428 regular, full-time employees, 56% of whom were located in the U.S. From time to time and on an as-needed basis, we supplement our regular workforce with individuals that we hire temporarily or retain as independent contractors in order to most effectively achieve our business objectives. Our U.S. employees are not represented by any collective bargaining agreement, and we have never experienced a labor-related work stoppage. We believe that our employee relations are satisfactory.
Financial Information by Segment and Geographic Area
For a discussion of financial information by business segment and geographic area, see Footnote 3 “Segment and Geographic Information” of Footnotes to Consolidated Financial Statements.
Available Information
Our executive headquarters are located at 2105 CityWest Boulevard, Suite 100, Houston, Texas 77042-2855. Our telephone number is (281) 933-3339. Our home page on the Internet is www.iongeo.com. We make our website content available for information purposes only. Unless specifically incorporated by reference in this Annual Report on Form 10-K, information that you may find on our website is not part of this report.
In portions of this Annual Report on Form 10-K, we incorporate by reference information from parts of other documents filed with the Securities and Exchange Commission (“SEC”). The SEC allows us to disclose important information by referring to it in this manner, and you should review this information. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, annual reports to stockholders, and proxy statements for our stockholders’ meetings, as well as any amendments, available free of charge through our website as soon as reasonably practicable after we electronically file those materials with, or furnish them to, the SEC.
You can learn more about us by reviewing our SEC filings on our website. Our SEC reports can be accessed through the Investor Relations section on our website. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements, and other information regarding SEC registrants, including our company.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
This report contains or incorporates by reference statements concerning our future results and performance and other matters that are “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “would,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of such terms or other comparable terminology. Examples of other forward-looking statements contained or incorporated by reference in this report include statements regarding:
• our ability to continue as a going concern;
• our ability to timely commence and complete the restructuring transactions, if at all;
• our ability to comply with our debt financial covenants;
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the impact of the COVID-19 pandemic on our business, financial condition, and results of operations;
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future levels of capital expenditures and of our customers for seismic activities;
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future oil and gas commodity prices;
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the effects of current and future worldwide economic conditions (particularly in developing countries) and demand for oil and natural gas and seismic equipment and services;
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future implications of our negative working capital and stockholders’ deficit, including future cash needs and availability of cash, to fund our operations and pay our obligations;
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the effects of current and future unrest in the Middle East, North Africa and other regions;
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the timing of anticipated revenues and the recognition of those revenues for financial accounting purposes;
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the effects of ongoing and future industry consolidation;
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the timing of future revenue realization of anticipated orders for multi-client survey projects and data processing work in our E&P Technology & Services segment;
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future government laws or regulations pertaining to the oil and gas industry, including trade restrictions, embargoes and sanctions imposed by the U.S. government or laws curtailing the exploration for, or use of; hydrocarbons;
• future government actions that may result in the deprivation of our contractual rights, including the potential for adverse decisions by judicial or administrative bodies in foreign countries with unpredictable or corrupt judicial systems;
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expected net revenues, gross margins, income from operations and net income for our services and products;
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future seismic industry fundamentals, including future demand for seismic services and equipment;
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future benefits to our customers to be derived from new services and products;
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future benefits to be derived from our investments in technologies, joint ventures and acquired companies;
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future growth rates for our services and products;
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the degree and rate of future market acceptance of our new services and products;
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expectations regarding E&P companies and seismic contractor end-users purchasing our more technologically-advanced services and products;
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anticipated timing and success of commercialization and capabilities of services and products under development and start-up costs associated with their development;
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future opportunities for new products and projected research and development expenses;
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expectations regarding realization of deferred tax assets;
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expectations regarding the impact of the U.S. Tax Cuts, Jobs Act and CARES Act;
• expectations regarding the approval of our request for forgiveness of the PPP Loan;
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anticipated results with respect to certain estimates we make for financial accounting purposes;
• future success dependent on our continuing ability to identify, hire, develop, motivate and retain skilled personnel for all areas of our organization;
• breaches to our systems could lead to loss of intellectual property, dissemination of highly confidential information, increased costs and impairment of our ability to conduct our operations;
• evolving cybersecurity risks, such as those involving unauthorized access or control, denial-of-service attacks, malicious software, data privacy breaches by employees, insiders or others with authorized access, cyber or phishing-attacks, ransomware, malware, social engineering, physical breaches or other actions;
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compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting corrupt payments to government officials and other third parties; and
• anticipated approval of the INOVA sale by applicable regulators.
These forward-looking statements reflect our best judgment about future events and trends based on the information currently available to us. Our results of operations can be affected by inaccurate assumptions we make or by risks and uncertainties known or unknown to us. Therefore, we cannot guarantee the accuracy of the forward-looking statements. Actual events and results of operations may vary materially from our current expectations and assumptions. While we cannot identify all of the factors that may cause actual results to vary from our expectations, we believe the following factors should be considered carefully:
Risks Related to our Financial Condition and Indebtedness
There is substantial doubt about our ability to continue as a going concern.
As of December 31, 2020, we had $120.6 million in aggregate principal amount outstanding of our 9.125% Senior Secured Second Priority Notes, which mature on December 15, 2021 (the “Existing Second Lien Notes”). The Existing Second Lien Notes, which are now classified as a current liability, raise substantial doubt about our ability to continue as a going concern within the next twelve months. If we are unable to repay, refinance or restructure our Existing Second Lien Notes, which could result in the acceleration of the maturity of the outstanding balance on our Credit Facility, our assets may not be sufficient to repay in full the amounts owed to holders of our Existing Second Lien Notes or to lenders under our Credit Facility. Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements included elsewhere in this Form 10-K.
We may not be able to timely refinance our Existing Second Lien Notes, or at all, which will adversely affect our financial condition.
To address the upcoming maturity of our Existing Second Lien Notes, we entered in a Restructuring Support Agreeme nt with holders of our Existing Second Lien Notes representing approximately 92% of the aggregate principal amount outstanding under our Existing Second Lien Notes, to effect certain restructuring transactions (the "Restructuring Transactions"), and we are seeking stockholder approval of such Restructuring Transactions to be voted at a special meeting of stockholders scheduled for February 23, 2021 (the "Special Meeting"), as further discussed in Item 1. Business and in
Footnote 1 " Summary of Significant Accounting Policies" of Footnotes to Consolidated Financial Statements. While management believes it will be successful in executing the Restructuring Transactions, there can be no assurances regarding the ultimate success or timing of such Restructuring Transactions, which are dependent on numerous factors, many of which are outside our control. If we are unable to complete the Restructuring Transactions, we will consider other restructuring alternatives available to us at that time. Those alternatives may be limited and may include obtaining relief under the U.S. Bankruptcy Code. Any such alternatives will involve significant uncertainties, costs and other risks, and distract our management from operating our business. The success of any such alternatives cannot be predicted at this time. Even if we are successful with the Restructuring Transactions or any alternative transactions, our ability to avoid a future in-court restructuring under the U.S. Bankruptcy Code is not guaranteed.
Our indebtedness could adversely affect our liquidity, financial condition and our ability to fulfill our obligations and operate our business.
At December 31, 2020, our total indebtedness outstanding was approximately $143.7 million, consisting of approximately $120.6 million in aggregate principal amount outstanding of our Senior Secured Second-Priority Notes, $0.7 million of equipment finance lease obligations, $22.5 million in borrowings outstanding under our Credit Facility, and $0.9 million in aggregate principal amount outstanding of other short-term debt, partially offset by $1.0 million of debt issuance costs. Under our Credit Facility, the lender has committed $50.0 million of revolving credit, subject to a borrowing base. At December 31, 2020, we had $7.4 million of borrowing base availability under the Credit Facility. The amount available will increase or decrease monthly as our borrowing base changes. We may also incur additional indebtedness in the future. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our high level of indebtedness could have negative consequences to us, including:
• we may not be able to continue as a going concern;
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we may have difficulty satisfying our obligations with respect to our outstanding debt;
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we may have difficulty obtaining financing in the future for working capital, capital expenditures, acquisitions or other purposes;
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we may need to use all, or a substantial portion, of our available cash flow to pay interest and principal on our debt, which will reduce the amount of money available to finance our operations and other business activities;
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our vulnerability to general economic downturns and adverse industry conditions could increase;
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our flexibility in planning for, or reacting to, changes in our business and in our industry in general could be limited;
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our amount of debt and the amount we must pay to service our debt obligations could place us at a competitive disadvantage compared to our competitors that have less debt;
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our customers may react adversely to our significant debt level and seek or develop alternative licensors or suppliers;
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we may have insufficient funds, and our debt level may also restrict us from raising the funds necessary to repurchase all of the Notes, as defined below, tendered to us upon the occurrence of a change of control, which would constitute an event of default under the Notes; and
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our failure to comply with the restrictive covenants in our debt instruments which, among other things, limit our ability to incur debt and sell assets, could result in an event of default that, if not cured or waived, could have a material adverse effect on our business or prospects.
Our level of indebtedness will require that we use a substantial portion of our cash flow from operations to pay principal of, and interest on, our indebtedness, which will reduce the availability of cash to fund working capital requirements, capital expenditures, research and development and other general corporate or business activities.
The indentures governing the 9.125% Second Lien Notes due 2021 contain a number of restrictive covenants that limit our ability to finance future operations or capital needs or engage in other business activities that may be in our interest.
The indenture governing the Existing Second Lien Notes imposes, (and the terms of any future indebtedness could impose) operating and other restrictions on us and our subsidiaries. Such restrictions affect, or will affect, and in many respects limit or prohibit, among other things, our ability and the ability of certain of our subsidiaries to:
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incur additional indebtedness;
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create liens;
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pay dividends and make other distributions in respect of our capital stock;
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redeem our capital stock;
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make investments or certain other restricted payments;
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sell certain kinds of assets;
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enter into transactions with affiliates; and
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effect mergers or consolidations.
The restrictions contained in the indenture governing the Existing Second Lien Notes could:
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limit our ability to plan for or react to market or economic conditions or meet capital needs or otherwise restrict our activities or business plans; and
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adversely affect our ability to finance our operations, acquisitions, investments or strategic alliances or other capital needs or to engage in other business activities that would be in our interest.
A breach of any of these covenants could result in a default under the indenture governing the Existing Second Lien Notes. If an event of default occurs, the trustee and holders of the Existing Second Lien Notes could elect to declare all principal amount outstanding, together with accrued and unpaid interest, to be immediately due and payable. An event of default under the indenture governing the Existing Second Lien Notes would also constitute an event of default under our Credit Facility, which would lead to an acceleration of our obligations under the Credit Facility, including the maturity of all borrowings outstanding, together with accrued and unpaid interest. Should this occur, it may cause us to face substantial liquidity problems and may force us to reduce or delay investments, dispose of material assets or operations, or issue additional debt or equity. See “-There is substantial doubt about our ability to continue as a going concern” above and Footnote 5 “Long-term Debt” of the Footnotes to Consolidated Financial Statements appearing below in this Form 10-K.
We may not be entitled to forgiveness of our Paycheck Protection Program Loan, and our application for it could be determined by the government to have been impermissible.
On April 15, 2020, we received loan proceeds of approximately $6.9 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). We have used the PPP Loan proceeds in accordance with the provisions of the CARES Act. The PPP Loan bears interest at a rate of 1.00% per annum, and is subject to the standard terms and conditions applicable to loans administered by the SBA under the CARES Act. During fourth quarter 2020, the Company applied to PNC for forgiveness of the amount due under the PPP Loan.
Under the CARES Act, as amended in June 2020, loan forgiveness is generally available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the Covered Period, which is 8 weeks or 24 weeks (at the election of the Company) beginning on the date of the first disbursement of the PPP Loan. The amount of the PPP Loan eligible to be forgiven may be reduced in certain circumstances, including as a result of certain headcount or salary reductions. We will be required to repay any portion of the outstanding principal amount of the PPP Loan that is not forgiven, along with accrued and unpaid interest for a period of two years (the PPP Loan will be due in 2022), and we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan will ultimately be forgiven by the SBA.
In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, the maintenance of our workforce, our need for additional funding to continue operations, and our ability to access alternative forms of capital in the current market environment to offset the effects of the COVID -19 pandemic. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the CARES Act. The certification described above that we were required to provide in connection with our application for the PPP Loan did not contain any objective criteria and is subject to interpretation.
However, on April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have not been in compliance with these requirements or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties, including significant civil, criminal and administrative penalties, which could also result in adverse publicity and damage to our reputation. Should we be audited or reviewed by federal or state regulatory authorities as a result of filing an application for forgiveness of the PPP Loan or otherwise, such audit or review could result in the diversion of management’s time and attention and the incurrence of additional legal and reputational costs. If we were to be audited or reviewed by the SBA or other government entity and receive an adverse determination or finding in such audit review, we could be required to return the full amount of the PPP Loan. Any of these events could have a material adverse effect on our business, results of operations and financial condition.
Risks Related to COVID-19 Pandemic
The COVID-19 pandemic has adversely affected our business; the ultimate effect on our operations and financial condition will depend on future developments that are highly uncertain.
The COVID-19 pandemic has adversely affected the global economy. It has disrupted supply chains, caused downward pressure on stock prices, depressed the demand for many goods and services, and created significant volatility in the financial markets. The pandemic has also resulted in travel restrictions, business closures and other restrictions on movement and interactions in many locations. There has been a significant reduction in the demand for oil, and a significant drop in the price of oil. If the reduced demand and reduced prices continue for a prolonged period, our operations, financial condition, and cash flows may be materially and adversely affected.
Our operations also may be adversely affected if significant portions of our workforce are unable to work effectively, whether because of illness, quarantines, government actions, or other restrictions in connection with the pandemic.
We have already implemented workplace restrictions, including guidance for our employees to work remotely if able, in our offices and work sites for health and safety reasons and are continuing to monitor national, state and local government directives where we have operations. Currently the majority of our workforce is working from home. The extent to which the COVID-19 pandemic will adversely affect our business, results of operations, and financial condition will depend on future developments that are highly uncertain. The course, scope and duration of the pandemic, and actions taken by governmental authorities and other third parties in response to the pandemic, cannot be predicted.
The disruption and uncertainty spurred by COVID-19 has created new avenues for phishing and other cyberattacks, which may impact us to a greater extent as we allow a significant number of our employees to work remotely.
The United States Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (“CISA”) has warned that cybercriminals will take advantage of the disruption and uncertainty created by the COVID-19 pandemic in their cyberattacks. Increased exposure of our employees to phishing and other scams by cybercriminals in this environment could increase the risk of malicious software being installed on our system, and increase our risk of surrendering sensitive or confidential information. In response to COVID-19, we have been allowing a significant portion of our workforce to work from home. In line with this response, we have provided some employees with expanded remote network access options which enable them to work outside of our physical office locations, and, in this environment, more of our employees use their own personal devices, which can further increase these and other cybersecurity risks. A significant disruption of our information technology systems, unauthorized loss of, or dissemination of, confidential information, or legal claims resulting from our violation of privacy laws, could each have a material adverse effect on our business.
Risks Related to the Operation of our Business
Our business depends on the level of exploration and production activities by the oil and natural gas industry. If capital expenditures by E&P companies decline, typically because of lower price realizations for oil and natural gas, the demand for our services and products would decline and our results of operations would be materially adversely affected.
Demand for our services and products depends upon the level of spending by E&P companies and seismic contractors for exploration and production activities, and those activities depend in large part on oil and gas prices. Spending by our customers on services and products that we provide is highly discretionary in nature, and subject to rapid and material change. Any decline in oil and gas related spending on behalf of our customers could cause alterations in our capital spending plans, project modifications, delays or cancellations, general business disruptions or delays in payment, or non-payment of amounts that are owed to us, any one of which could have a material adverse effect on our financial condition. E&P companies’ willingness to explore, develop and produce depends largely upon prevailing industry conditions that are influenced by numerous factors over which our management has no control, such as:
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the supply of and demand for oil and gas;
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the level of prices, and expectations about future prices, of oil and gas;
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the cost of exploring for, developing, producing and delivering oil and gas;
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the expected rates of decline for current production;
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the discovery rates of new oil and gas reserves;
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weather conditions, including hurricanes, that can affect oil and gas operations over a wide area, as well as less severe inclement weather that can preclude or delay seismic data acquisition;
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domestic and worldwide economic conditions;
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public health crises, such as the coronavirus outbreak at the beginning of 2020;
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changes in government leadership;
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political instability in oil and gas producing countries;
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technical advances affecting energy consumption;
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government policies regarding the exploration, production and development of oil and gas reserves;
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the ability of oil and gas producers to raise equity capital and debt financing;
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merger and divestiture activity among oil and gas companies and seismic contractors; and
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compliance by members of OPEC and non-OPEC members, such as Russia, with agreements to cut oil production.
The level of oil and gas exploration and production activity has been volatile in recent years. Trends in oil and gas exploration and development activities have declined, together with demand for our services and products. Any prolonged substantial reduction in oil and gas prices would likely further affect oil and gas production levels and therefore adversely affect demand for the services we provide and products we sell.
Our operating results often fluctuate from period to period as we are subject to cyclicality and seasonality factors.
Our industry and the oil and gas industry in general are subject to cyclical fluctuations. Demand for our services and products depends upon spending levels by E&P companies for exploration and production of oil and natural gas and, in the case of new seismic data acquisition, the willingness of those companies to forgo ownership of the seismic data. Capital expenditures by E&P companies for these activities depend upon several factors, including actual and forecasted prices of oil and natural gas and those companies’ short-term and strategic plans.
Our operating results are subject to fluctuations from period to period as a result of introducing new services and products, the timing of significant expenses in connection with customer orders, unrealized sales, levels of research and development activities, the product and service mix of our revenues, the seasonality of our business (with strongest demand typically in the second half of the year) and delays caused by factors beyond our control. Because some of our products are technologically complex and tend to be relatively large investments, we generally experience long sales cycles for these types of products with a series of technical and commercial reviews by our customers and historically incur significant expense at the beginning of these cycles. Our revenues and gross margin can vary widely from period to period due to changes in customer requirements and demand as well as timing of orders and shipments and mix of services and products sold. This uneven pattern makes financial predictions for any given period difficult, increases the risk of unanticipated variations in our quarterly results and financial condition, and places challenges on our inventory management. As a result, if net revenues or gross margins fall below expectations, our results of operations and financial condition will likely be materially adversely affected.
We are subject to intense competition, which could limit our ability to maintain or increase our market share or to maintain our prices at profitable levels.
Many of our sales are obtained through a competitive bidding process, which is standard for our industry. Competitive factors in recent years have included price, technological expertise, and a reputation for quality, safety and dependability. While no single company competes with us in all of our segments, we are subject to intense competition in each of our segments. New entrants in many of the markets in which certain of our services and products are currently strong should be expected. See Item 1. “Business - Competition.” We compete with companies that are larger than we are in terms of revenues, technical personnel, number of processing locations and sales and marketing resources. A few of our competitors have a competitive advantage in being part of a large affiliated seismic contractor company. In addition, we compete with major service providers and government-sponsored enterprises and affiliates. Some of our competitors conduct seismic data acquisition operations as part of their regular business, which we have traditionally not conducted, and have greater financial and other resources than we do. These and other competitors may be better positioned to withstand and adjust more quickly to volatile market conditions, such as fluctuations in oil and natural gas prices, as well as changes in government regulations. In addition, any excess supply of services and products in the seismic services market could apply downward pressure on prices for our services and products. The negative effects of the competitive environment in which we operate could have a material adverse effect on our results of operations. In particular, the consolidation in recent years of many of our competitors in the seismic services and products markets has negatively impacted our results of operations.
There are a number of geophysical companies that create, market and license seismic data and maintain seismic libraries. Competition for acquisition of new seismic data among geophysical service providers historically has been intense and we expect this competition will continue to be intense. Larger and better-financed operators could enjoy an advantage over us in a competitive environment for new data.
We also face exposure to product liability claims in the event that certain of our products, or certain components manufactured by others that are incorporated into our products, fail to perform to specification, which failure results, or is alleged to result, in property damage, bodily injury and/or death. Marine exploration in particular can present dangerous conditions to those conducting it. Any product liability claims decided adversely against us may have a material adverse effect on our results of operations and cash flows. While we maintain insurance coverage with respect to certain product liability claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against product liability claims. In addition, product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome. Furthermore, even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and us.
We have invested, and expect to continue to invest, significant sums of money in acquiring and processing seismic data for our E&P Technology & Services’ multi-client data library, without knowing precisely how much of this seismic data we will be able to license or when and at what price we will be able to license the data sets. Our business could be adversely affected by the failure of our customers to fulfill their obligations to reimburse us for the underwritten portion of our seismic data acquisition costs for our multi-client library.
We invest significant amounts in acquiring and processing new seismic data to add to our E&P Technology & Services’ multi-client data library. The costs of most of these investments are funded by our customers, with the remainder generally being recovered through future data licensing fees. In 2020, we invested approximately $27.2 million in our multi-client data library. Our customers generally commit to licensing the data prior to us initiating a new data library acquisition program. However, the aggregate amounts of future licensing fees for this data are uncertain and depend on a variety of factors, including the market prices of oil and gas, customer demand for seismic data in the library, and the availability of similar data from competitors.
By making these investments in acquiring and processing new seismic data for our E&P Technology & Services’ multi-client library, we are exposed to the following risks:
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We may not fully recover our costs of acquiring and processing seismic data through future sales. The ultimate amounts involved in these data sales are uncertain and depend on a variety of factors, many of which are beyond our control.
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The timing of these sales is unpredictable and can vary greatly from period to period. The costs of each survey are capitalized and then amortized as a percentage of sales and/or on a straight-line basis over the expected useful life of the data. This amortization will affect our earnings and, when combined with the sporadic nature of sales, will result in increased earnings volatility.
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Regulatory changes that affect companies’ ability to drill, either generally or in a specific location where we have acquired seismic data, could materially adversely affect the value of the seismic data contained in our library. Technology changes could also make existing data sets obsolete. Additionally, each of our individual surveys has a limited book life based on its location and oil and gas companies’ interest in prospecting for reserves in such location, so a particular survey may be subject to a significant decline in value beyond our initial estimates.
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The value of our multi-client data could be significantly adversely affected if any material adverse change occurs in the general prospects for oil and gas exploration, development and production activities.
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The cost estimates upon which we base our pre-commitments of funding could be wrong. The result could be losses that have a material adverse effect on our financial condition and results of operations. These pre-commitments of funding are subject to the creditworthiness of our customers. In the event that a client refuses or is unable to pay its commitment, we could incur a substantial loss on that project.
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As part of our asset-light strategy, we routinely charter vessels from third-party vendors to acquire seismic data for our multi-client business. As a result, our cost to acquire our multi-client data could significantly increase if vessel charter prices rise materially.
Reductions in demand for our seismic data, or lower revenues of or cash flows from our seismic data, may result in a requirement to increase amortization rates or record impairment charges in order to reduce the carrying value of our data library. For 2020, we wrote down our multi-client data library by $1.2 million resulting from our quarterly impairment review. These increases or charges, if required, could be material to our operating results for the periods in which they are recorded.
A substantial portion of our seismic acquisition project costs (including third-party project costs) are underwritten by our customers. In the event that underwriters for such projects fail to fulfill their obligations with respect to such underwriting commitments, we would continue to be obligated to satisfy our payment obligations to third-party contractors.
We derive a substantial amount of our revenues from foreign operations and sales, which pose additional risks.
The majority of our foreign sales are denominated in U.S. dollars. Sales to customer destinations outside of North America represented 92%, 84% and 89% of our consolidated net revenues for 2020, 2019 and 2018, respectively. We believe that export sales will remain a significant percentage of our revenues. U.S. export restrictions affect the types and specifications of products we can export. Additionally, in order to complete certain sales, U.S. laws may require us to obtain export licenses, and we cannot assure you that we will not experience difficulty in obtaining these licenses.
Like many energy services companies, we have operations in and sales into certain international areas, including parts of the Middle East, West Africa, Latin America, India, Asia Pacific and Russia, that are subject to risks of war, political disruption, civil disturbance, political corruption, public health crises, possible economic and legal sanctions (such as possible restrictions against countries that the U.S. government may in the future consider to be state sponsors of terrorism) and changes in global trade policies. Our sales or operations may become restricted or prohibited in any country in which the foregoing risks occur. In particular, the occurrence of any of these risks could result in the following events, which in turn, could materially and adversely impact our results of operations:
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disruption of E&P activities;
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restriction on the movement and exchange of funds;
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inhibition of our ability to collect advances and receivables;
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enactment of additional or stricter U.S. government or international sanctions;
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limitation of our access to markets for periods of time;
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expropriation and nationalization of assets of our company or those of our customers;
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political and economic instability, which may include armed conflict and civil disturbance;
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currency fluctuations, devaluations and conversion restrictions;
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confiscatory taxation or other adverse tax policies; and
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governmental actions that may result in the deprivation of our contractual rights, including the potential for adverse decisions by judicial or administrative bodies in foreign countries with unpredictable or corrupt judicial systems.
Our international operations and sales increase our exposure to other countries’ restrictive tariff regulations, other import/export restrictions and customer credit risk.
In addition, we are subject to taxation in many jurisdictions and the final determination of our tax liabilities involves the interpretation of the statutes and requirements of taxing authorities worldwide. Our tax returns are subject to routine examination by taxing authorities, and these examinations may result in assessments of additional taxes, penalties and/or interest.
The loss of any significant customer or the inability of our customers to meet their payment obligations to us could materially and adversely affect our results of operations and financial condition.
Our business is exposed to risks related to customer concentration. In 2020, we had two customers (BHP and Shell) with sales that exceeded 10% of our consolidated net revenues. In 2019, we had one customer (Petrobras) with sales that each exceeded 10% of our consolidated net revenues and we had two customers (Exxon Mobil and Petrobras) with sales that exceeded 10% of our consolidated net revenues for 2018. Our top five customers together accounted for approximately 55%, 40% and 39% of our consolidated net revenues during 2020, 2019 and 2018. The loss of any of our significant customers or deterioration in our relations with any of them could materially and adversely affect our results of operations and financial condition.
Any consolidation or strategic change made by our customers may impact the demand for our services and products. The loss of any of our significant customers could materially and adversely affect our results of operations and financial condition.
Our business is exposed to risks of loss resulting from nonpayment by our customers. Many of our customers finance their activities through cash flow from operations, the incurrence of debt or the issuance of equity. Declines in commodity prices, and the credit markets could cause the availability of credit to be constrained. The combination of lower cash flow due to commodity prices, a reduction in borrowing bases under reserve-based credit facilities and the lack of available debt or equity financing may result in a significant reduction in our customers’ liquidity and ability to pay their obligations to us. Furthermore, some of our customers may be highly leveraged and subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to us. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidity may adversely affect our financial results.
We rely on highly skilled personnel in our businesses, and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to effectively operate our business.
Our performance is largely dependent on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability to identify, hire, develop, motivate and retain skilled personnel for all areas of our organization. We require highly skilled personnel to operate and provide technical services and support for our businesses. Competition for qualified personnel required for our data processing operations and our other businesses has intensified recently, presenting challenges for us to recruit, train and retain our employees while managing the impact of potential wage inflation and the lack of available qualified labor in some markets where we operate. A well-trained, motivated and adequately-staffed work force has a positive impact on our ability to attract and retain business. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.
Certain of our facilities could be damaged by hurricanes and other natural disasters, which could have an adverse effect on our results of operations and financial condition.
Certain of our facilities are located in regions of the United States that are susceptible to damage from hurricanes and other weather events.
Future hurricanes or similar natural disasters that impact our facilities may negatively affect our financial position and operating results for those periods. These negative effects may include reduced production, product sales and data processing revenues; costs associated with resuming production; reduced orders for our services and products from customers that were similarly affected by these events; lost market share; late deliveries; additional costs to purchase materials and supplies from outside suppliers; uninsured property losses; inadequate business interruption insurance and an inability to retain necessary staff. To the extent that climate change increases the severity of hurricanes and other weather events, as some have suggested, it could worsen the severity of these negative effects on our financial position and operating results.
Increased regulation and litigation around climate change could negatively impact our business.
Governments and regulatory agencies in the European Union, the United States and other regions, as well as the public, have been increasingly focused on curtailing the emission of carbon dioxide and other greenhouse gases, and on ameliorating their effect on the climate. There are many proposals at the international, national, regional and state levels of government to monitor and limit emissions of greenhouse gases, and these proposals will likely continue to proliferate. One such proposal is the United Nations-sponsored “Paris Agreement,” which is a non-binding agreement for nations to limit their greenhouse gas emissions through individually-determined reduction goals every five years after 2020. The United States withdrew from the Paris Agreement under the Trump Administration, but Biden recommitted the United States to it upon assuming office.
There have also been efforts in recent years to encourage sovereign wealth funds, public pension funds, universities, and other investors to avoid investments in companies involved in hydrocarbon exploration and production, and to encourage lenders and other financial services companies to limit or curtail activities with them. These activities could have a material adverse effect on our share price, on our ability to secure financing, and on our ability to generate revenue.
We could also face climate-related litigation with respect to our operations or products. A number of cities, local governments and other plaintiffs have sought to bring suit against companies involved in hydrocarbon exploration and production, alleging, among other things, that such companies contribute to climate change, or that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors by failing to adequately disclose those impacts. While we are not a party to any such litigation, we could be named in actions making similar allegations. An unfavorable ruling in any such case could significantly impact our operations and could have an adverse impact on our financial condition.
We have outsourcing arrangements with third parties to manufacture some of our products. If these third party suppliers fail to deliver quality products or components at reasonable prices on a timely basis, we may alienate some of our customers and our revenues, profitability and cash flow may decline. Additionally, current global economic conditions could have a negative impact on our suppliers, causing a disruption in our vendor supplies. A disruption in vendor supplies may adversely affect our results of operations.
Our manufacturing processes require us to purchase quality components. In addition, we use contract manufacturers as an alternative to our own manufacturing of products. We have outsourced the manufacturing of our products, including our towed marine streamers and geophone manufacturing. Certain components used in our towed marine manufacturing operations are currently provided by a single supplier. Without these sole suppliers, we would be required to find other suppliers who could build these components for us, or set up to make these parts internally. If, in implementing any outsource initiative, we are unable to identify contract manufacturers willing to contract with us on competitive terms and to devote adequate resources to fulfill their obligations to us or if we do not properly manage these relationships, our existing customer relationships may suffer. In addition, by undertaking these activities, we run the risk that the reputation and competitiveness of our services and products may deteriorate as a result of the reduction of our control over quality and delivery schedules. We also may experience supply interruptions, cost escalations and competitive disadvantages if our contract manufacturers fail to develop, implement, or maintain manufacturing methods appropriate for our products and customers.
Reliance on certain suppliers, as well as industry supply conditions, generally involves several risks, including the possibility of a shortage or a lack of availability of key components, increases in component costs and reduced control over delivery schedules. If any of these risks are realized, our revenues, profitability and cash flows may decline. In addition, the more we come to rely on contract manufacturers, we may have fewer personnel resources with expertise to manage problems that may arise from these third-party arrangements.
Additionally, our suppliers could be negatively impacted by current global economic conditions. If certain of our suppliers were to experience significant cash flow issues or become insolvent as a result of such conditions, it could result in a reduction or interruption in supplies to us or a significant increase in the price of such supplies and adversely impact our results of operations and cash flows.
Global economic conditions and credit market uncertainties could have an adverse effect on customer demand for certain of our services and products, which in turn would adversely affect our results of operations, our cash flows, our financial condition and our stock price.
Historically, demand for our services and products has been sensitive to the level of exploration spending by E&P companies and seismic contractors. The demand for our services and products will be lessened if exploration expenditures by E&P companies are reduced. During periods of reduced levels of exploration for oil and natural gas, there have been oversupplies of seismic data and downward pricing pressures on our seismic services and products, which, in turn, have limited our ability to meet sales objectives and maintain profit margins for our services and products. In the past, these then-prevailing industry conditions have had the effect of reducing our revenues and operating margins. The markets for oil and gas historically have been volatile and may continue to be so in the future.
Turmoil or uncertainty in the credit markets and its potential impact on the liquidity of major financial institutions may have an adverse effect on our ability to fund our business strategy through borrowings under either existing or new debt facilities in the public or private markets and on terms we believe to be reasonable. Likewise, there can be no assurance that our customers will be able to borrow money for their working capital or capital expenditures on a timely basis or on reasonable terms, which could have a negative impact on their demand for our services and products and impair their ability to pay us for our services and products on a timely basis, or at all.
Our sales have historically been affected by interest rate fluctuations and the availability of liquidity, and we and our customers would be adversely affected by increases in interest rates or liquidity constraints. This could have a material adverse effect on our business, results of operations, financial condition and cash flows.
Due to the international scope of our business activities, our results of operations may be significantly affected by currency fluctuations.
We derived approximately 92% of our 2020 consolidated net revenues from international sales, subjecting us to risks relating to fluctuations in currency exchange rates. Currency variations can adversely affect margins on sales of our products in countries outside of the United States and margins on sales of products that include components obtained from suppliers located outside of the United States. We operate in a wide variety of jurisdictions, including the United Kingdom, Brazil, Mexico, China, Canada, Russia, the United Arab Emirates, Egypt and other countries. Certain of these countries have experienced geopolitical instability, economic problems and other uncertainties from time to time. To the extent that world events or economic conditions negatively affect our future sales to customers in these and other regions of the world, or the collectability of receivables, our future results of operations, liquidity and financial condition may be adversely affected.
We currently require customers in certain higher risk countries to provide their own financing. We do not currently extend long-term credit through notes to our customers.
Our foreign subsidiaries receive their income and pay their expenses primarily in their local currencies. To the extent that transactions of these subsidiaries are settled in their local currencies, a devaluation of those currencies versus the U.S. dollar could reduce the contribution from these subsidiaries to our consolidated results of operations as reported in U.S. dollars. For financial reporting purposes, such depreciation will negatively affect our reported results of operations since earnings denominated in foreign currencies would be converted to U.S. dollars at a decreased value. In addition, since we participate in competitive bids for sales of certain of our services and products that are denominated in U.S. dollars, a depreciation of the U.S. dollar against other currencies could harm our competitive position relative to other companies. While we periodically employ economic cash flow and fair value hedges to minimize the risks associated with these exchange rate fluctuations, the hedging activities may be ineffective or may not offset more than a portion of the adverse financial impact resulting from currency variations. Accordingly, we cannot provide assurance that fluctuations in the values of the currencies of countries in which we operate will not materially adversely affect our future results of operations.
As a technology-focused company, we are continually exposed to risks related to complex, highly technical services and products that are sometimes operated in dangerous marine environments.
We make strategic decisions from time to time as to the technologies in which we invest. Our operating results are dependent upon our ability to improve and refine our seismic imaging and data processing services and to successfully develop, manufacture and market our products and services. New technologies generally require a substantial investment before any assurance is available as to their commercial viability. If we choose the wrong technology, or if our competitors develop or select a superior technology, we could lose our existing customers and be unable to attract new customers, which would harm our business and operations.
The markets for our services and products are characterized by changing technology and new product introductions. We must invest substantial capital to develop and maintain a leading edge in technology, with no assurance that we will receive an adequate rate of return on those investments. If we are unable to develop and produce successfully and timely new or enhanced services and products, we will be unable to compete in the future and our business, our results of operations and our financial condition will be materially and adversely affected. Our business could suffer from unexpected developments in technology, or from our failure to adapt to these changes. In addition, the preferences and requirements of customers can change rapidly.
The businesses of our E&P Technology & Services segment and Optimization Software & Services group within our Operations Optimization segment, being more concentrated in software, processing services and proprietary technologies, have also exposed us to various risks that these technologies typically encounter, including the following:
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future competition from more established companies entering the market;
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technology obsolescence;
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dependence upon continued growth of the market for seismic data processing;
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the rate of change in the markets for these segments’ technology and services;
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further consolidation of the participants within this market;
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research and development efforts not proving sufficient to keep up with changing market demands;
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dependence on third-party software for inclusion in these segments’ services and products;
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misappropriation of these segments’ technology by other companies;
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alleged or actual infringement of intellectual property rights that could result in substantial additional costs;
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difficulties inherent in forecasting sales for newly developed technologies or advancements in technologies;
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recruiting, training and retaining technically skilled, experienced personnel that could increase the costs for these segments, or limit their growth; and
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the ability to maintain traditional margins for certain of their technology or services.
Seismic data acquisition and data processing technologies historically have progressed rather rapidly and we expect this progression to continue. In order to remain competitive, we must continue to invest additional capital to maintain, upgrade and expand our seismic data acquisition and processing capabilities. However, due to potential advances in technology and the related costs associated with such technological advances, we may not be able to fulfill this strategy, thus possibly affecting our ability to compete. New data acquisition or processing technologies may be developed. New and enhanced services and products introduced by one of our competitors may gain market acceptance and, if not available to us, may adversely affect us.
Our customers often require demanding specifications for performance and reliability of our services and products. Because many of our products are complex and often use unique advanced components, processes, technologies and techniques, undetected errors and design and manufacturing flaws may occur. Even though we attempt to assure that our systems are always reliable in the field, the many technical variables related to their operations can cause a combination of factors that can, and have from time to time, caused performance and service issues with certain of our products. Product defects result in higher product service, warranty and replacement costs and may affect our customer relationships and industry reputation, all of which may adversely impact our results of operations. Despite our testing and quality assurance programs, undetected errors may not be discovered until the product is purchased and used by a customer in a variety of field conditions. If our customers deploy our new products and they do not work correctly, our relationship with our customers may be materially and adversely affected.
As a result of our systems’ advanced and complex nature, we expect to experience occasional operational issues from time to time. Generally, until our products have been tested in the field under a wide variety of operational conditions, we cannot be certain that performance and service problems will not arise. In that case, market acceptance of our new products could be delayed and our results of operations and financial condition could be adversely affected.
We may be unable to obtain broad intellectual property protection for our current and future products and we may become involved in intellectual property disputes; we rely on developing and acquiring proprietary data which we keep confidential.
We rely on a combination of patent, copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technologies. We believe that the technological and creative skill of our employees, new product developments, frequent product enhancements, name recognition and reliable product maintenance are the foundations of our competitive advantage. Although we have a considerable portfolio of patents, copyrights and trademarks, these property rights offer us only limited protection. Our competitors may attempt to copy aspects of our products despite our efforts to protect our proprietary rights, or may design around the proprietary features of our products. Policing unauthorized use of our proprietary rights is difficult, and we are unable to determine the extent to which such use occurs. Our difficulties are compounded in certain foreign countries where the laws do not offer as much protection for proprietary rights as the laws of the United States.
Third parties inquire and claim from time to time that we have infringed upon their intellectual property rights. Many of our competitors own their own extensive global portfolio of patents, copyrights, trademarks, trade secrets and other intellectual property to protect their proprietary technologies. We believe that we have in place appropriate procedures and safeguards to help ensure that we do not violate a third party’s intellectual property rights. However, no set of procedures and safeguards is infallible. We may unknowingly and inadvertently take action that is inconsistent with a third party’s intellectual property rights, despite our efforts to do otherwise. Any such claims from third parties, with or without merit, could be time consuming, result in costly litigation, result in injunctions, require product modifications, cause product shipment delays or require us to enter into royalty or licensing arrangements. Such claims could have a material adverse effect on our results of operations and financial condition.
Much of our litigation in recent years have involved disputes over ours and others’ rights to technology.
In July 2018, we prevailed in an arbitration that we initiated against the Indian Directorate General of Hydrocarbons (“DGH”) relating to our ability to continue to license data under our IndiaSPAN program. The DGH filed a lawsuit in court in India to vacate the arbitration award; in connection with that lawsuit, we were ordered to escrow approximately $4.5 million in sales proceeds that we had received in respect of sales from the IndiaSPAN program, pending the outcome of the DGH’s challenge to the arbitration award. The DGH’s request to vacate the arbitration award is currently scheduled to be heard by the court in India on March 5, 2021. We have not escrowed the money as of December 31, 2020. If we are required to escrow the money or the arbitration award is overturned, it could have a material adverse effect on our liquidity and our financial condition. See Footnote 9 “Litigations” of Footnotes to Consolidated Financial Statements.”
To protect the confidentiality of our proprietary and trade secret information, we require employees, consultants, contractors, advisors and collaborators to enter into confidentiality agreements. Our customer data license and acquisition agreements also identify our proprietary, confidential information and require that such proprietary information be kept confidential. While these steps are taken to strictly maintain the confidentiality of our proprietary and trade secret information, it is difficult to ensure that unauthorized use, misappropriation or disclosure will not occur. If we are unable to maintain the secrecy of our proprietary, confidential information, we could be materially adversely affected.
If we do not effectively manage our transition into new services, products and adjacent markets, our revenues may suffer.
Services and products for our business are characterized by rapid technological advances and innovation in hardware performance, software functionality and features, frequent introduction of new services and products, and improvement in price characteristics relative to product and service performance. Among the risks associated with the introduction of new services and products and diversification to new markets are delays in development or manufacturing, variations in costs, customer acceptance, delays in customer purchases, reductions in price or replacing sales of existing products in anticipation of new offerings, write-offs or write-downs of the carrying costs of materials associated with prior generation products, difficulty in predicting customer demand due to competition, risks associated with customer qualification, evaluation of new products, quality issues or other defects that may not be adequately supported by application software and untimely commercialization. In addition, it may be difficult to ensure performance of new services and products in accordance with our revenue, margin and cost estimations and to achieve operational efficiencies embedded in our estimates. If any of these risks materializes or if we do not make an effective transition, our revenues and results of operations, may suffer.
Goodwill and other long-lived assets (multi-client data library and property, plant and equipment) that we have recorded are subject to impairment evaluations. In addition, our product inventory may become obsolete or excessive due to future changes in technology, changes in market demand, or changes in market expectations. Write-downs of these assets may adversely affect our financial condition and results of operations.
Reductions in or an impairment of the value of our goodwill and other long-lived assets would result in additional charges against our earnings, which could have a material adverse effect on our reported results of operations and financial position in future periods. At December 31, 2020, our remaining goodwill, multi-client data library and property, plant and equipment balances were $19.6 million, $50.9 million and $9.5 million, respectively. For 2020, we wrote down our multi-client data library by $1.2 million resulting from our quarterly impairment review and recognized goodwill impairment of $4.2 million resulting from excess book value vs fair value of our Optimization Software & Services reporting unit included within the Operations Optimization segment.
Our services and products’ technologies often change relatively quickly. Phasing out of old products involves estimating the amounts of inventories we need to hold to satisfy demand for those products and satisfy future repair part needs. Based on changing technologies and customer demand, we may find that we have either obsolete or excess inventory on hand. Because of unforeseen future changes in technology, market demand or competition, we might have to write off unusable inventory, which would adversely affect our results of operations.
Our operations, and the operations of our customers, are subject to numerous government regulations, which could adversely limit our operating flexibility. Regulatory initiatives undertaken from time to time, such as restrictions, sanctions and embargoes, can adversely affect, and have adversely affected, our customers and our business.
In addition to the specific regulatory risks discussed elsewhere in this Item 1A. “Risk Factors” section, our operations are subject to other laws, regulations, government policies and product certification requirements worldwide. Changes in such laws, regulations, policies or requirements could affect the demand for our products or services or result in the need to modify our services and products, which may involve substantial costs or delays in sales and could have an adverse effect on our future operating results. Our export activities in particular are subject to extensive and evolving trade regulations. . We have multiple product lines and services that are sold in many countries throughout the world. Certain countries, entities and persons are subject to restrictions, sanctions and embargoes imposed by the United States government. These restrictions, sanctions and embargoes also prohibit or limit us from participating in certain business activities. Violation of these rules could result in significant penalties. In addition, our operations are subject to numerous local, state and federal laws and regulations in the United States and in foreign jurisdictions concerning the containment and disposal of hazardous materials, the remediation of contaminated properties, and the protection of the environment. These laws have been changed frequently in the past, and there can be no assurance that future changes will not have a material adverse effect on us. In addition, our customers’ operations are also significantly impacted by laws and regulations concerning the protection of the environment and endangered species. Consequently, changes in governmental regulations applicable to our customers may reduce demand for our services and products. To the extent that our customers’ operations are disrupted by future laws and regulations, our business and results of operations may be materially and adversely affected.
Offshore oil and gas exploration and development recently has been a regulatory focus. Future changes in laws or regulations regarding such activities, and decisions by customers, governmental agencies or other industry participants in response, could reduce demand for our services and products, which could have a negative impact on our financial position, results of operations or cash flows. We cannot reasonably or reliably estimate that such changes will occur, when they will occur, or whether they will impact us. Such changes can occur quickly within a region, which may impact both the affected region and global exploration and production, and we may not be able to respond quickly, or at all, to mitigate these changes. In addition, these future laws and regulations could result in increased compliance costs or additional operating restrictions that may adversely affect the financial health of our customers and decrease the demand for our services and products.
Our business is subject to cybersecurity risks and threats.
The secure storage and transmission of confidential information and data, and the ability to reliably utilize our high performance computing infrastructure, are critical elements of our operations. Some of our products and services involve the storage and transmission of sensitive data, owned by us and other parties. If anyone gains improper access to our electronic platforms, networks or databases, they may be able to steal, publish, delete or corrupt our data, and the data of other parties. Breaches of our cybersecurity measures, the deletion or corruption of our files, or the disclosure or unapproved dissemination of proprietary or sensitive information, could expose us and our customers to a risk of loss or misuse of this information, which could result in litigation, liability, and damage to our reputation. All of this could have a material adverse impact on our results of operations, financial condition, and liquidity.
While we operate a security program that is designed to prevent, detect, track and mitigate cyber incidents, we cannot assure you that these measures will be sufficient to protect our business against future attacks. The United States Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (“CISA”) has warned that cybercriminals will take advantage of the disruption and uncertainty created by the COVID-19 pandemic in their cyberattacks. Increased exposure of our employees to phishing and other scams by cybercriminals in this environment could increase the risk of malicious software being installed on our system, and increase our risk of surrendering sensitive or confidential information. In response to COVID-19, we have been allowing a significant portion of our workforce to work from home. In line with this response, we have provided some employees with expanded remote network access options which enable them to work outside of our physical office locations, and, in this environment, more of our employees use their own personal devices, which can further increase these and other cybersecurity risks.
Existing or future laws and regulations related to greenhouse gases and climate change could have a material adverse effect on our business, results of operations, and financial condition.
Changes in environmental requirements related to greenhouse gases and climate change may negatively impact demand for our services. For example, oil and natural gas exploration and production may decline as a result of environmental requirements. Local, state, and federal agencies have been evaluating climate-related legislation and other regulatory initiatives that would restrict emissions of greenhouse gases in areas in which we conduct business. Because our business depends on the level of activity in the oil and natural gas industry, existing or future laws and regulations related to greenhouse gases and climate change, including incentives to conserve energy or use alternative energy sources, could have a negative impact on our business if such laws or regulations reduce demand for oil and natural gas.
Our certificate of incorporation and bylaws, Delaware law and certain contractual obligations under our agreement with BGP contain provisions that could discourage another company from acquiring us.
Provisions of our certificate of incorporation and bylaws, Delaware law and the terms of our investor rights agreement with BGP may have the effect of discouraging, delaying or preventing a merger or acquisition that our stockholders may consider favorable, including transactions in which you might otherwise receive a premium for shares of our common stock. These provisions include:
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authorizing the issuance of “blank check” preferred stock without any need for action by stockholders;
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providing for a classified board of directors with staggered terms;
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requiring supermajority stockholder voting to effect certain amendments to our certificate of incorporation and bylaws;
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eliminating the ability of stockholders to call special meetings of stockholders;
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prohibiting stockholder action by written consent; and
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establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
In addition, the terms of our INOVA Geophysical joint venture with BGP and BGP’s investment in our company contain a number of provisions, such as certain pre-emptive rights granted to BGP with respect to certain future issuances of our stock, that could have the effect of discouraging, delaying or preventing a merger or acquisition of our company that our stockholders may otherwise consider to be favorable.
Our stock price has been volatile, declining and increasing from time to time.
The securities markets in general and our common stock in particular have experienced significant price and volume volatility in recent years. The market price and trading volume of our common stock may continue to experience significant fluctuations due not only to general stock market conditions (such as changes in interest rates, commodity and equity prices and the value of financial assets) but also to a change in sentiment in the market regarding our operations or business prospects or those of companies in our industry. In addition to the other risk factors discussed in this section, the price and volume volatility of our common stock may be affected by:
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the inherent lumpiness and volatility of our customers’ spending cycles;
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operating results that vary from the expectations of securities analysts and investors;
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factors influencing the levels of global oil and natural gas exploration and exploitation activities, such as the decline in crude oil prices and changes in oil and gas supply and demand;
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the operating and securities price performance of companies that investors or analysts consider comparable to us;
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actions by rating agencies related to the Notes; and
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announcements of strategic developments, acquisitions and other material events by us or our competitors.
If the price of our common stock declines, our ability to raise funds through the issuance of equity or otherwise use our common stock as consideration will be reduced. A low price for our equity may negatively impact our ability to access additional debt capital. These factors may limit our ability to implement our operating and growth plans.
If we do not regain compliance with the NYSE’s continued listing requirements, our common stock could be delisted, which could negatively affect the Company, the price of our common stock, and the ability to trade our common stock.
On March 30, 2020, the Company received a notice from the New York Stock Exchange (the “NYSE”) that the Company is non-compliant with NYSE listing standards because our average market capitalization over a consecutive 30 trading-day period was less than $50.0 million at the same time that our stockholders’ equity was less than $50.0 million. We submitted a plan to the NYSE to return to compliance with their listing standards, which was accepted on June 19, 2020. If we are unable to comply with our plan or otherwise unable to meet the continued listing standard before by December 9, 2021, we will be subject to delisting from the NYSE.
Delisting our common stock could negatively impact us by, among other things, reducing the liquidity and the value of our common stock; reducing the number of investors willing to invest in our common stock; and negatively impacting our ability to raise equity and other financing. Delisting from the NYSE could also negatively impact our reputation with our customers.
Note: The foregoing factors pursuant to the Private Securities Litigation Reform Act of 1995 should not be construed as exhaustive. In addition to the foregoing, we wish to refer readers to other factors discussed elsewhere in this report as well as other filings and reports with the SEC for a further discussion of risks and uncertainties that could cause actual results to differ materially from those contained in forward-looking statements. We undertake no obligation to publicly release the result of any revisions to any such forward-looking statements, which may be made to reflect the events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
Our principal operating facilities at December 31, 2020 were as follows:
Square
Operating Facilities
Footage
Segment
Houston, Texas
131,000
Global Headquarters and E&P Technology & Services
Harahan, Louisiana
144,000
Devices group within Operations Optimization
Chertsey, England
18,000
E&P Technology & Services
Edinburgh, Scotland
16,000
Optimization Software & Services group within Operations Optimization
309,000
Each of these operating facilities is leased by us under long-term lease agreements. These lease agreements have terms that expire ranging from 2021 to 2029. See Footnote 14 “Lease Obligations” of Footnotes to Consolidated Financial Statements.
In addition, we lease offices in Dubai, UAE; Beijing, China; Rio de Janeiro, Brazil; and Moscow, Russia to support our global sales force. We lease offices for our seismic data processing centers in Port Harcourt, Nigeria; Luanda, Angola; Cairo, Egypt; and Rio de Janeiro, Brazil. Our executive headquarters is located at 2105 CityWest Boulevard, Suite 100, Houston, Texas. The machinery, equipment, buildings and other facilities owned and leased by us are considered by our management to be sufficiently maintained and adequate for our current operations.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
The information with respect to this Item 3. "Legal Proceedings" is set forth in Footnote 9 "Litigations" of Footnotes to Consolidated Financial Statements.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “IO.”
We have not historically paid, and do not intend to pay in the foreseeable future, cash dividends on our common stock. We presently intend to retain cash from operations for use in our business, with any future decision to pay cash dividends on our common stock dependent upon our growth, profitability, financial condition and other factors our board of directors consider relevant.
The terms of our Credit Facility contain covenants that restrict us from paying cash dividends on our common stock, or repurchasing or acquiring shares of our common stock, unless (i) there is no event of default under the Credit Facility, (ii) there is excess availability under the Credit Facility greater than $20.0 million (or, at the time that the borrowing base formula amount is less than $20.0 million, the borrowers’ level of liquidity (as defined in the Credit Facility) is greater than $20.0 million) and (iii) the agent receives satisfactory projections showing that excess availability under the Credit Facility for the immediately following period of ninety (90) consecutive days will not be less than $20.0 million (or, at the time that the borrowing base formula amount is less than $20.0 million, the borrowers’ level of liquidity is greater than $20.0 million). The aggregate amount of permitted cash dividends and stock repurchases may not exceed $10.0 million in any fiscal year or $40.0 million in the aggregate from and after the closing date of the Credit Facility.
The indenture governing the Existing Second Lien Notes contains certain covenants that, among other things, limit our ability to pay certain dividends or distributions on our common stock or purchase, redeem or retire shares of our common stock, unless (i) no default under the indenture has occurred or would occur as a result of that payment, (ii) we would have, after giving pro forma effect to the payment, been permitted to incur at least $1.00 of additional indebtedness under a fixed charge coverage ratio test under the indenture, and (iii) the total cumulative amount of all such payments would not exceed a sum calculated by reference to, among other items, our consolidated net income, proceeds from certain sales of equity or assets, certain conversions or exchanges of debt for equity and certain other reductions in our indebtedness and in aggregate not to exceed at any one time $25.0 million.
On February 8, 2021, there were 585 holders of record of our common stock.
During the three months ended December 31, 2020, in connection with the vesting of (or lapse of restrictions on) shares of our restricted stock held by certain employees, we acquired shares of our common stock in satisfaction of tax withholding obligations that were incurred on the vesting date. The date of acquisition, number of shares and average effective acquisition price per share were as follows:
(a)
(b)
(c)
(d)
Period
Total Number of Shares Acquired
Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Program
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Program
October 1, 2020 to October 31, 2020
-
$ -
Not applicable
Not applicable
November 1, 2020 to November 30, 2020
-
$ -
Not applicable
Not applicable
December 1, 2020 to December 31, 2020
4,982
$ 1.89
Not applicable
Not applicable
Total
4,982
$ 1.89

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Selected Financial Data
Special Items Affecting Comparability
The selected consolidated financial data set forth below under “Historical Selected Financial Data” with respect to our consolidated statements of operations for 2020, 2019, 2018, 2017 and 2016, and with respect to our consolidated balance sheets at December 31, 2020, 2019, 2018, 2017 and 2016, have been derived from our audited consolidated financial statements.
Our results of operations and financial condition have been affected by restructuring activities, legal contingencies, severance expenses, amortization of government relief and impairments and write-downs of assets during the periods presented, which affect the comparability of the financial information shown. In particular, our results of operations for the fiscal years ended December 31, 2016 - 2020 time period were impacted by the following items (before tax):
Years Ended December 31,
(In thousands)
Cost of sales:
Write-down of multi-client data library
$ (1,167 )
$ (9,072 )
$ -
$ (2,304 )
$ -
Operating expenses:
Impairment of long-lived assets
$ -
$ -
$ (36,553 )
$ -
$ -
Impairment of goodwill
$ (4,150 )
$ -
$ -
Stock appreciation right awards (expense) credit and related expense
$ 2,493
$ (2,910 )
$ (2,105 )
$ (6,141 )
$ -
Severance expense
$ (3,103 )
$ (2,810 )
$ -
$ -
$ -
Other income (expense):
Reversal of (accrual for) loss contingency related to legal proceedings
$ -
$ -
$ -
$ (5,000 )
$ 1,168
Recovery of INOVA bad debts
$ -
$ -
$ -
$
$ 3,983
Loss on bond exchange
$ -
$ -
$ -
$ -
$ (2,182 )
Amortization of government relief funding expected to be forgiven
$ 6,923
$ -
$ -
$ -
$ -
Income tax expense:
Valuation allowance on deferred tax assets
$ (8,492 )
$ -
$ -
$ -
$ -
The historical selected financial data shown below should not be considered as being indicative of future operations, and should be read in conjunction with Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto included elsewhere in this Form 10-K.
Historical Selected Financial Data
Years Ended December 31,
(In thousands, except for per share data)
Statement of Operations Data:
Net revenues
$ 122,674
$ 174,679
$ 180,045
$ 197,554
$ 172,808
Gross profit
41,657
60,022
59,620
75,639
36,032
Loss from operations
(14,589 )
(24,459 )
(54,272 )
(8,699 )
(43,171 )
Net loss attributable to ION
(37,225 )
(48,199 )
(71,171 )
(30,242 )
(65,148 )
Net loss per basic share
$ (2.61 )
$ (3.41 )
$ (5.20 )
$ (2.55 )
$ (5.71 )
Net loss per diluted share
$ (2.61 )
$ (3.41 )
$ (5.20 )
$ (2.55 )
$ (5.71 )
Weighted average number of common shares outstanding
14,272
14,131
13,692
11,876
11,400
Weighted average number of diluted shares outstanding
14,272
14,131
13,692
11,876
11,400
Balance Sheet Data (end of year):
Working capital
$ (150,913 ) (a)
$ (23,561 )
$ 7,891
$ (8,628 )
$ 16,555
Total assets
193,593
233,194
292,552
301,069
313,216
Long-term debt (b)
143,731
121,459
121,741
156,744
158,790
Total (deficit) equity
(71,090 )
(34,632 )
7,824
30,806
53,398
Other Data:
Investment in multi-client data library
$ 27,247
$ 28,804
$ 28,276
$ 23,710
$ 14,884
Capital expenditures
1,121
2,411
1,514
1,063
1,488
Depreciation and amortization (other than multi-client data library)
3,997
3,657
8,763
16,592
21,975
Amortization of multi-client data library
22,299
39,541
48,988
47,102
33,335
(a) Includes $120.6 million in aggregate principal amount outstanding of the Existing Second Lien Notes which mature on December 15, 2021.
(b)
Includes current maturities of long-term debt.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Note: The following should be read in conjunction with our Consolidated Financial Statements and related Footnotes to Consolidated Financial Statements that appear elsewhere in this Annual Report on Form 10-K. References to “Footnotes” in the discussion below refer to the numbered Footnotes to Consolidated Financial Statements.
Executive Summary
Our Business
The terms “we,” “us” and similar or derivative terms refer to ION Geophysical Corporation and its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated.
We have been a leading technology innovator for over 50 years. While the traditional focus of our technology has been on the seismic industry, we are now broadening and diversifying our business into relevant adjacent markets such as E&P logistics and ports and harbors.
Our offerings are focused on improving subsurface knowledge to enhance E&P decision-making and enhancing situational awareness to optimize offshore operations. We serve customers in most major energy producing regions of the world from strategically located offices.
The Company is publicly listed on the New York Stock Exchange under the ticker IO. ION is headquartered in Houston, Texas with regional offices around the world.
We provide our services and products through two business segments - E&P Technology & Services and Operations Optimization.
For a full discussion of our business, see Part I, Item 1. “Business.”
Going Concern and Existing Second Lien Notes Restructuring
As of December 31, 2020, we had $120.6 million in aggregate principal amount outstanding of our 9.125% Senior Secured Second Priority Notes due December 2021, which mature on December 15, 2021 (the “Existing Second Lien Notes”). The Existing Second Lien Notes, which are now classified as a current liability, raise substantial doubt about our ability to continue as a going concern within the next twelve months. Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and satisfaction of liabilities and commitments in the normal course of business. Accordingly, our consolidated financial statements exclude certain adjustments that might result if we are unable to continue as a going concern. If we are unable to repay, refinance or restructure our Existing Second Lien Notes, which could result in the acceleration of the maturity of the outstanding balance on our Credit Facility, our assets may not be sufficient to repay in full the amounts owed to holders of our Existing Second Lien Notes or to lenders under our Credit Facility.
To address the upcoming maturity of our Existing Second Lien Notes, we executed a Restructuring Support Agreement supported by holders of our Existing Second Lien Notes representing approximately 92% of the aggregate principal amount outstanding under our Existing Second Lien Notes, to effect certain restructuring transactions (the "Restructuring Transactions"), and we are seeking stockholder approval of such Restructuring Transactions to be voted at a special meeting of stockholders scheduled for February 23, 2021 ("the Special Meeting"). The Restructuring Transactions, as further discussed in Item 7. “ Liquidity and Capital Resources” and in Footnote 1, "Summary of Significant Accounting Policies" of Footnotes to Consolidated Financial Statements, will allow us to extend the maturity of our Existing Second Lien Notes by four years to December 2025 by exchanging such notes for new convertible notes with a lower interest rate of 8% per annum. Accordingly, the consummation of the Restructuring Transactions and the conversion of the New Second Lien Notes, if converted, will have a substantial dilutive effect on our outstanding common stock. Shareholders will have the opportunity to participate in a concurrent rights offering to purchase the new convertible notes or our common stock in order to minimize dilution from the Restructuring Transactions. We anticipate the completion of the Restructuring Transactions by the end of March 2021.
We also entered into a restructuring support agreement with PNC Bank, National Association (“PNC”), the lender of our Credit Facility, (the "PNC Restructuring Support Agreement") that will allow us, among others, to consummate and implement the Restructuring Transactions and waive any going concern event of default that would otherwise occur under our Credit Facility.
While we believe we will be successful in obtaining stockholders' approval and executing the Restructuring Transactions, there can be no assurances regarding the ultimate success, timing or extent of any such funding, which are dependent upon a variety of factors, many of which are outside of our control. In addition, no assurance can be given that any funding from the Restructuring Transactions, if approved by stockholders and obtained at all, will be adequate to fulfill our obligations and operate our business. Consequently, we may be required to obtain additional funding whether through private or public equity transactions, debt financing or other capital sources. We may not be able to take such actions, if necessary, on commercially reasonable terms or at all. If additional funding cannot be obtained on a timely basis and on satisfactory terms, it will have an adverse effect on our business, financial condition and results of operations.
COVID-19 Business Impact and Response
The COVID-19 pandemic caused the global economy to enter a recessionary period, which may be prolonged and severe. During 2020, the exploration and production (“E&P”) industry faced the dual impact of demand deterioration from COVID-19 and market oversupply from increased production, which caused oil and natural gas prices to decline significantly for most of the year. Brent crude oil prices, which are most relevant to our internationally focused business, dropped 66% during the first quarter from $66 on January 1, 2020 to $23 on March 31, 2020. By the end of the second quarter, Brent crude oil prices rebounded to $41 per barrel, benefiting from increased global demand as pandemic restrictions started to ease and decreased production. Brent crude oil prices have remained relatively stable through the end of the year, increasing during the fourth quarter to end the year at $51 per barrel. Brent crude oil prices further increased to approximately $60 per barrel at the beginning of February 2021, which is consistent with prices a year ago. In an effort to stabilize oil prices by limiting supply, OPEC and other oil producing allies agreed to substantial production cuts throughout 2020 that were extended through March 2021.
While commodity prices can be volatile, the sharp decline throughout 2020 triggered E&P companies to reduce budgets by approximately 25%. Exploration offerings and data purchases are often discretionary and, therefore, receive disproportionately higher reductions than overall budget cuts. Consequently, there has been a material slowdown in offshore seismic spending since the second quarter of 2020, and while we are seeing signs that could improve, we expect the market to remain challenging in 2021. However, the challenging market also serves as a catalyst to drive necessary cost restructuring and digital transformation of the E&P ecosystem.
Our management expects continued portfolio rationalization and high grading as E&P companies seek to find the best return on investment opportunities to meet oil and gas demand in the next decade. Near-term, due to the impact of the COVID-19, project high grading will likely be more acute due to budget reductions. Over the last several years, we strategically shifted our portfolio closer to the reservoir, where revenue tends to be higher and more consistent. New Venture data acquisition offshore and Software and related personnel-based offshore services are expected to continue to be most impacted by COVID-19 travel restrictions. While offshore operations have been temporarily impacted by travel restrictions, we believe the demand for digitalization technologies will remain strong. In some cases, ION technology is expected to be more relevant and valuable in the current environment (for instance, offerings that facilitate remote working).
While 2020 revenues came in lower than prior year due to the repercussions of the oil price volatility in early 2020 and the ongoing uncertainty from the COVID-19 pandemic, we made progress executing our strategy. We continue to work closely with our clients to understand their revised plans and to scale our business appropriately. We partially mitigated the impact of the current macroeconomic environment by fully benefiting from the structural changes and associated cost reductions through salary cuts, reduced capital expenditures, renegotiation of our current leases and application for various government assistance programs, among others, that were outlined in detail in Part I, Item 1. “Business” and Footnote 1 "Summary of Significant Accounting Policies" of Footnotes to Consolidated Financial Statements. The management plan reflects our continued focus on preserving cash and managing liquidity in the current uncertain macroeconomic environment. In the event our customers experience more extensive budget reductions and capital constraints further reducing demand for our services and products, resulting in deterioration of our revenues below our current forecasted levels, management may be required to update its plan by implementing further cost reductions and delaying capital investments. See Part I, Item 1. “Business” and Footnote 1 "Summary of Significant Accounting Policies" of Footnotes to Consolidated Financial Statements for further details.
Impact to Our Business
Our 2020 results were consistent with our expectations of customer spend contraction related to COVID-19 demand deterioration and oil oversupply weighing on the commodity price early this year. In addition, we are fully benefiting from our cost reduction measures taken during the first half of 2020. Active priorities were further limited to improve focus and execution on strategic initiatives, and ultimately deliver better results to shareholders. Management believes we are better positioned to mitigate some of the immediate impacts of the market disruption given our lower cost basis and strategy execution progress.
In 2020, our total net revenues decreased by $52.0 million, or 30%, to $122.7 million for 2020 from $174.7 million for 2019. This decrease is primarily attributable to decline in our New Venture revenues due to delays in new program activity during the year as well as reduced E&P spending levels. The COVID-19 travel and border restrictions impacted the timing and availability of crews for new acquisition programs and delayed access to existing data for new reimaging programs.
Investments in our multi-client data library are dependent upon the timing of our new venture projects and the availability of underwriting by our customers. We continue to maintain high standards for underwriting new projects. Our asset light strategy enables us to scale our business to market conditions avoiding significant fixed costs and maintaining flexibility to manage the timing and amount of our capital expenditures.
In our E&P Technology & Services segment, our New Venture revenues decreased compared to 2019 due to delays in new program activity during the year. Our Data Library sales decreased slightly in 2020 compared to 2019 due to reduced E&P spending levels. Imaging and Reservoir Services revenues decreased due to lower proprietary tender activity and consistent with our strategy to preferentially utilize these resources to generate higher margin multi-client reimaging products. We invested $27.2 million in our multi-client data library during 2020, approximately $1.6 million and $1.0 million less compared to 2019 and 2018, respectively.
At December 31, 2020, our E&P Technology & Services segment backlog increased 4% to $19.7 million, compared with $18.9 million at December 31, 2019 primarily due to our entry in the 3D new acquisition market, and to a lesser extent, launching our Gemini extended frequency source. The majority of our backlog relates to our multi-client seismic programs and our proprietary Imaging and Reservoir Services work. We anticipate that the majority of our backlog will be recognized as revenue over the next twelve months.
Over the last five years, we have made an effort to diversify our offerings across the E&P life cycle and move closer to the reservoir, where capital investment tends to be higher and more consistent. Historically, our data library was largely 2D and exploration focused, which limited our revenues to approximately 3% of a $2.0 to $3.0 billion-dollar offshore multi-client market. In 2020, we entered the 3D multi-client new acquisition market, where revenue and earnings potential are at least five times a typical new 2D exploration program. This strategy shift builds on our 3D multi-client reimaging success and leverages our tier 1 imaging and new Gemini seismic source technology.
Within the Operations Optimization segment, the decrease in Optimization Software & Services revenues was due to COVID-19 related reduced seismic activity and associated services demand. Devices revenues decreased due to a decrease in sales of replacement marine equipment and repairs.
It is our view that technologies that add a competitive advantage through improved imaging, lower costs, higher productivity, or enhanced safety will continue to be valued in our marketplace. We believe that our newest technologies will continue to attract customer interest, because these technologies are designed to deliver those desirable attributes.
The sustained E&P shift to maintain capital discipline and deliver shareholder value has resulted in a leaner, more profitable environment. E&P management focus is now much more closely aligned with customers where emphasis is on value metrics such as return on investment and cash generation as opposed to volume metrics such as production or reserves growth.
International activity has been picking up while North America has slowed down. Sustainable structural changes have made offshore increasingly cost-competitive with shale, with improved payback timeframes. As a result, we are seeing investment start to flow offshore again, which aligns more favorably with ION’s strategy and portfolio. Oil and gas exploration remains competitive with the development of existing opportunities and assets, supporting the case for investment.
Historically, our revenue and EBITDA generation are lower in the first part of the year as customers tend to set budgets in the first quarter, then picks up as they firm up plans throughout the year. The last few years, E&P companies have remained focused on generating cash and shareholder returns prioritizing value over volume.
We expect continued activity to rationalize and high grade portfolios to maximize return on investment, and related data sales opportunities to fill knowledge gaps. With a strong focus on value generation, exploration spending remains very focused on specific geographic areas.
Key Financial Metrics
The table below provides (i) a summary of our net revenues for our company as a whole, and by segment, for 2020, 2019 and 2018, and (ii) an overview of other certain key financial metrics for our company as a whole and our two business segments on a comparative basis for 2020, 2019 and 2018
Years Ended December 31,
(In thousands)
Net revenues:
E&P Technology & Services:
New Venture
$ 10,798
$ 31,188
$ 69,685
Data Library
65,790
71,847
47,095
Total multi-client revenues
76,588
103,035
116,780
Imaging and Reservoir Services
15,179
22,543
19,740
Total
$ 91,767
$ 125,578
$ 136,520
Operations Optimization:
Optimization Software & Services
$ 14,137
$ 23,140
$ 21,129
Devices
16,770
25,961
22,396
Total
$ 30,907
$ 49,101
$ 43,525
Total net revenues
$ 122,674
$ 174,679
$ 180,045
Gross profit (loss)
E&P Technology & Services
$ 29,243
(a)
$ 35,699
(a)
$ 43,369
Operations Optimization
12,414
24,323
22,293
Segment gross profit
41,657
60,022
65,662
Other
-
-
(6,042 ) (f)
Total gross profit
$ 41,657
$ 60,022
$ 59,620
Gross margin:
E&P Technology & Services
%
%
%
Operations Optimization
%
%
%
Segment gross margin
%
%
%
Other
- %
- %
(3 )%
Total
%
%
%
Income (loss) from operations:
E&P Technology & Services
$ 13,134
(a)
$ 8,833
(a)
$ 21,758
Operations Optimization
(4,556 ) (b)
8,189
7,295
Support and other
(23,167 ) (c)
(41,481 )
(83,325 ) (g)
Total
$ (14,589 )
$ (24,459 )
$ (54,272 )
Operating margin:
E&P Technology & Services
%
%
%
Operations Optimization
(15 )%
%
%
Support and other
(19 )%
(24 )%
(46 )%
Total
(12 )%
(14 )%
(30 )%
Net loss attributable to ION
$ (37,225 ) (d)
$ (48,199 ) (e)
$ (71,171 )
Diluted net loss per common share
$ (2.61 )
$ (3.41 )
$ (5.20 )
(a)
Includes impairment of multi-client data library of $1.2 million and $9.1 million for 2020 and 2019, respectively.
(b)
Includes impairment of goodwill of $4.2 million for 2020.
(c)
Includes amortization of the government relief funding expected to be forgiven of $6.9 million, severance expense of $3.1 million and stock appreciation right awards credit of $2.5 million for 2020.
(d)
In addition to item (a), (b) and (c), also affecting net loss attributable to ION was the valuation allowance on our net deferred tax assets of $8.5 million and tax impact of $0.4 million related to the impairment of multi-client data library.
(e)
In addition to item (a), also affecting net loss attributable to ION for 2019 was the tax impact of $0.4 million related to the impairment of multi-client data library.
(f) Primarily relates to depreciation expense of previously reported Ocean Bottom Integrated Technologies segment.
(g)
Includes loss from operations of previously reported Ocean Bottom Integrated Technologies segment of $11.1 million for 2019, which includes Other's gross profit above, operating expenses of $5.1 million for 2018, stock appreciation right awards and related expenses of $2.1 million for 2018 and impairment charge of $36.6 million for 2018.
We intend that the following discussion of our financial condition and results of operations will provide information that will assist in understanding our consolidated financial statements, the changes in certain key items in those financial statements from year to year, and the primary factors that accounted for those changes. The financial results are reported in accordance with Generally Accepted Accounting Principles (“GAAP”). This discussion includes a comparison of our results of operations and liquidity and capital resources for 2020 and 2019. For the discussion of comparison of our results of operations and liquidity and capital resources for 2019 and 2018, refer to Part II, Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations and Liquidity and Capital Resources" in our 2019 Annual Report on Form 10-K, which was filed with the SEC on February 6, 2020.
For a discussion of factors that could impact our future operating results and financial condition, see Item 1A. “Risk Factors” above.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Our overall gross margin remained consistent at 34% for 2020 and 2019 as the impact of our cost-cutting initiatives offset most of the impact of the significant decline in revenues. Our total net revenues of $122.7 million for 2020 decreased $52.0 million, or 30%, compared to total net revenues of $174.7 million for 2019. Total operating expenses as a percentage of total net revenues for 2020 and 2019 were 46% and 48%, respectively. During 2020, our loss from operations was $14.6 million, compared to a loss of $24.5 million for 2019. Our net loss attributable to ION for 2020 was $37.2 million, or a loss of $2.61 per share, compared to net loss attributable to ION of $48.2 million or a loss of $3.41 per share for 2019.
Net Revenues, Gross Profits and Gross Margins
E&P Technology & Services - Net revenues for 2020 decreased by $33.8 million, or 27%, to $91.8 million, compared to $125.6 million for 2019. Within the E&P Technology & Services segment, total multi-client revenues were $76.6 million, a decrease of 26%. This decline is primarily driven by decreased New Venture net revenues resulting from reduced new program activity during 2020. Imaging and Reservoir Services net revenues were $15.2 million, a 33% decrease, attributable to lower proprietary tender activity and consistent with our strategy to preferentially utilize these resources to generate higher margin multi-client reimaging products.
Gross profit decreased by $6.5 million to $29.2 million, resulting in a 32% gross margin, for 2020 compared to $35.7 million, with a 28% gross margin, for 2019. The changes in gross profit primarily resulted from the decrease in New Venture net revenues partially offset by the cost cutting initiatives implemented during the first half of 2020 and lower multi-client data library impairment charge.
Operations Optimization - Net revenues for 2020 decreased by $18.2 million, or 37%, to $30.9 million, compared to $49.1 million for 2019. Optimization Software & Services net revenues decreased by $9.0 million, or 39%, to $14.1 million, compared to $23.1 million for 2019 due to reduced seismic activity and associated services demand resulting from COVID-19. Devices net revenues for 2020 decreased by $9.2 million, or 35%, to $16.8 million, compared to $26.0 million for 2019 due to lower sales of towed streamer equipment spares and repairs. Operations Optimization gross profit for 2020 of $12.4 million, resulting in a 40% gross margin, decreased by $11.9 million compared to $24.3 million, with a 50% gross margin, for 2019 were primarily due to decrease in net revenues as discussed above.
Operating Expenses
Research, Development and Engineering - Research, development and engineering expense decreased $6.0 million, or 32%, to $13.0 million, for 2020, compared to $19.0 million, for 2019. Decrease is primarily due to the cost cutting initiative implemented following the COVID-19 related market impact. We continue to invest in imaging algorithms and infrastructure, devices and software. We see significant long-term potential for investing in technologies that improve image quality, safety and productivity.
Marketing and Sales - Marketing and sales expense decreased $11.5 million, or 50%, to $11.7 million, for 2020, compared to $23.2 million, for 2019. This decrease was primarily due to the reduction of commission expense resulting from lower revenues as well as lower travel and tradeshow expenses resulting from the cost cutting initiative implemented following the COVID-19 related market impact.
General, Administrative and Other Operating Expenses - General, administrative and other operating expenses decreased $14.7 million, or 35% to $27.5 million for 2020 compared to $42.2 million for 2019. The decrease was primarily due to the reduction in expenses resulting from our cost cutting initiatives, including lower compensation and rent expenses.
Impairment of Goodwill - Impairment of goodwill was $4.2 million for 2020 compared to zero for 2019 resulting from an impairment charge recognized during the first quarter of 2020. See further discussion at Footnote 11 “Goodwill” of Footnotes to Consolidated Financial Statements.
Other Items
Interest Expense, net - Interest expense, net, was $13.8 million for 2020 compared to $13.1 million for 2019 due to increased borrowings during 2020. For additional information, please refer to “- Liquidity and Capital Resources - Sources of Capital” below.
Other Income (Expense), net - Other income for 2020 was $6.9 million compared to other expense of $1.6 million for 2019. The increase was primarily due to the amortization of government relief funding expected to be forgiven of $6.9 million. See Footnote 6 "Government Relief Funding" of Footnotes to Consolidated Financial Statements.
Income Tax Expense - Income tax expense for 2020 was $15.6 million compared to $8.1 million for 2019. The income tax expense for 2020 and 2019 primarily relates to profits generated by our non-U.S. businesses in Latin America. The income tax expense includes a $10.7 million non-cash valuation allowance established against our previously recognized deferred tax assets in our non-U.S. businesses. Of this amount, $8.5 million relates to the additional valuation allowance established in the fourth quarter as a result of the substantial doubt about our ability to continue as a going concern. Income tax expense has not been offset by the tax benefits on losses within the U.S. and other jurisdictions, from which we cannot currently benefit. Similarly, our effective tax rate for 2020 and 2019 was negatively impacted by the change in valuation allowance related to U.S. and foreign operating losses for which we cannot currently recognize a tax benefit. Due to the impact of the valuation allowances on tax expense, the Company’s effective tax rates are not meaningful for all periods presented. See further discussion of establishment of the deferred tax valuation allowance at Footnote 8 “Income Taxes” of Footnotes to Consolidated Financial Statements.
Liquidity and Capital Resources
Sources of Capital
At December 31, 2020, we had total liquidity of $44.9 million, consisting of $37.5 million in cash on hand (including net revolver borrowings of $22.5 million) and $7.4 million of available borrowing capacity under our Credit Facility. In recent years, our primary sources of funds have been cash flows generated from operations, existing cash balances, debt and equity issuances and borrowings under our Credit Facility. Our cash requirements include working capital requirements and cash required for our debt service payments, multi-client seismic data acquisition activities and capital expenditures. Working capital requirements are primarily driven by our investment in our (i) multi-client data library ($27.2 million in 2020) and (ii) royalty payments for multi-client sales. Our multi-client data library investment in 2020 includes $10.6 million of payments to our acquisition partners for seismic acquisition costs incurred in prior years. Approximately 30% of our accounts payable balance as of December 31, 2020 relates to amounts owed to our seismic acquisition partners. Also, our headcount has traditionally been a significant driver of our working capital needs. As a significant portion of our business is involved in the planning, processing and interpretation of seismic data services, one of our largest investments is in our employees, which involves cash expenditures for their salaries, bonuses, payroll taxes and related compensation expenses, including stock appreciation rights awards, typically in advance of related revenue billings and collections. Our working capital requirements may change from time to time depending upon many factors, including our operating results and adjustments in our operating plan in response to industry conditions, competition and unexpected events.
Existing Second Lien Notes Restructuring
To address the upcoming maturity of the $120.6 million in aggregate principal amount outstanding of our 9.125% Senior Secured Second Priority Notes, which mature on December 15, 2021 (the “Existing Second Lien Notes”) and to provide a mechanism to reduce our financial leverage in the future, we executed a Restructuring Support Agreement (the “Restructuring Support Agreement”) with holders of the Existing Second Lien Notes representing approximately 92% of the aggregate principal amount outstanding under our Existing Second Lien Notes (the “Supporting Noteholders”), pursuant to which we committed to use our reasonable efforts to effect the following transactions (collectively, the “Restructuring Transactions”):
(i) an offer to exchange (the “Exchange Offer”) all outstanding Existing Second Lien Notes, with each $1,000 principal amount of such Notes tendered exchanged for (a) $150 in cash, (b) $850 of New Second Lien Notes (as defined below), subject to certain rights to instead deliver or receive common stock and (c) $35, at our option, either in (I) cash, (II) common stock at $2.57 per share (the “Deal Price”), or (III) New Second Lien Notes (collectively, the “Exchange Consideration”), plus payment of all accrued and unpaid interest; and
(ii) the granting of the right to all holders of our common stock to participate in a rights offering (the “Rights Offering”) to subscribe for a pro rata share (with over-subscription rights) of up to $50.0 million of New Second Lien Notes issued at par, or common stock issued at the Deal Price.
In connection with the Rights Offering, we intend to enter into backstop agreements (the “Backstop Agreements”) with one or more parties (the “Backstop Providers”) pursuant to which the Backstop Providers agree to purchase New Second Lien Notes at par or shares of common stock at the Deal Price (the “Backstop Commitment”).
The “New Second Lien Notes” will accrue interest at the rate of 8.0% per annum, mature on December 15, 2025, be secured on a second-priority basis, subject to liens securing our obligations under its existing credit agreement, and unconditionally guaranteed by certain of our subsidiaries. Holders of the New Second Lien Notes may convert all or any portion of their notes at their option at any time prior to the maturity date. The initial conversion price of the New Second Lien Notes shall be $3.00 per share. We will have the right, on or after the 18 month anniversary of the issue date, to convert all or part of the outstanding New Second Lien Notes if our common stock has a 20 trading day VWAP of at least 175% of the conversion price then in effect which would currently equal to $5.25 per share. Holders of the New Second Lien Notes will also be entitled to certain voting rights and the right to designate two independent directors to our Board of Directors.
If the Restructuring Transactions are consummated, we could issue up to $151.7 million aggregate principal amount of New Second Lien Notes, which could be converted into 50.6 million shares of common stock, representing approximately 77.1% of the total shares of common stock outstanding following the Restructuring Transactions. This excludes the shares of common stock subject to issuance pursuant to our Long-term Incentive Plan. The actual number of shares of common stock that could be issued as a result of the Restructuring Transactions may be different than the amount indicated, however, due to, among other things, the participation levels in both the Exchange Offer and the Rights Offering and our ability, any noteholders participating in the Exchange Offer, and any participants in the Rights Offering to elect to deliver or receive cash in certain circumstances. We anticipate the completion of the Restructuring Transactions by the end of March 2021.
We also entered into the PNC Restructuring Support Agreement that will allow us, among others, to consummate and implement the Restructuring Transactions and waive any going concern event of default that would otherwise occur under the Credit Facility.
The Restructuring Transactions are also subject to stockholder approval to be voted at a special meeting of stockholders scheduled for February 23, 2021 (the “Special Meeting”).
While we believe we will be successful in obtaining stockholders' approval and executing the Restructuring Transactions, there can be no assurances regarding the ultimate success, timing or extent of any such funding, which are dependent upon a variety of factors, many of which are outside of our control. In addition, no assurance can be given that any funding from the Restructuring Transaction, if approved by stockholders and obtained at all, will be adequate to fulfill our obligations and operate our business. Consequently, we may be required to obtain additional funding whether through private or public equity transactions, debt financing or other capital sources. We may not be able to take such actions, if necessary, on commercially reasonable terms or at all. If additional funding cannot be obtained on a timely basis and on satisfactory terms, it will have an adverse effect on our business, financial condition and results of operations.
Existing Second Lien Notes
At December 31, 2020, we had $120.6 million in aggregate principal amount outstanding of our 9.125% Senior Secured Second Priority Notes, which mature on December 15, 2021 (the " Existing Second Lien Notes"). The Existing Second Lien Notes are senior secured second-priority obligations guaranteed by the Material U.S. Subsidiaries and the Mexican Subsidiary (each as defined above and herein below, with the reference to the Existing Second Lien Notes, the “Guarantors”). Interest on the Existing Second Lien Notes is payable semiannually in arrears on June 15 and December 15 of each year during their term, except that the interest payment otherwise payable on June 15, 2021 will be payable on December 15, 2021.
The April 2016 indenture governing the Existing Second Lien Notes contains certain covenants that, among other things, limits or prohibits our ability and the ability of our restricted subsidiaries to take certain actions or permit certain conditions to exist during the term of the Existing Second Lien Notes, including among other things, incurring additional indebtedness in excess of permitted indebtedness, creating liens, paying dividends and making other distributions in respect of our capital stock, redeeming our capital stock, making investments or certain other restricted payments, selling certain kinds of assets, entering into transactions with affiliates, and effecting mergers or consolidations. These and other restrictive covenants contained in the Existing Second Lien Notes Indenture are subject to certain exceptions and qualifications. All of our subsidiaries are currently restricted subsidiaries.
At December 31, 2020, we were in compliance with all of the covenants under the Existing Second Lien Notes.
On or after December 15, 2019, we may on one or more occasions redeem all or a part of the Existing Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest and special interest, if any, on the Existing Second Lien Notes redeemed during the twelve-month period beginning on December 15th of the years indicated below:
Date
Percentage
103.5 %
100.0 %
To address the upcoming maturity of our Existing Second Lien Notes, we entered into a Restructuring Support Agreement with holders of the Existing Second Lien Notes representing approximately 92% of the aggregate principal amount outstanding under our Existing Second Lien Notes, in connection with the Restructuring Transactions as further discussed above and in Footnote 1 "Summary of Significant Accounting Policies."
Revolving Credit Facility
On August 16, 2018, we and our material U.S. subsidiaries; GX Technology Corporation, ION Exploration Products (U.S.A.), Inc. and I/O Marine Systems, Inc. (the “Material U.S. Subsidiaries”), along with GX Geoscience Corporation, S. de R.L. de C.V., a limited liability company (Sociedad de Responsibilidad Limitada de Capital Variable) organized under the laws of Mexico, and a subsidiary of the Company (the “Mexican Subsidiary,”) (the Material U.S. Subsidiaries and the Mexican Subsidiary are collectively, the “Subsidiary Borrowers”, together with ION Geophysical Corporation are the “Borrowers”), the financial institutions party thereto, as lenders, and PNC, as agent for the lenders, entered into that certain Third Amendment and Joinder to Revolving Credit and Security Agreement (the “Third Amendment”), amending the Revolving Credit and Security Agreement, dated as of August 22, 2014 (as previously amended by the First Amendment to Revolving Credit and Security Agreement, dated as of August 4, 2015 and the Second Amendment to Revolving Credit and Security Agreement, dated as of April 28, 2016, the “Credit Agreement”). The Credit Agreement, as amended by the First Amendment, the Second Amendment and the Third Amendment is herein called, the “Credit Facility”).
The Credit Facility matures on August 16, 2023 and is subject to our retirement or extension of the maturity date of the Existing Second Lien Notes. If by September 15, 2021 we have not (1) repaid the Existing Second Lien Notes, (2) extended the maturity of the Existing Second Lien Notes to a date not earlier than October 31, 2023, or (3) submitted a written proposal summarizing our plan to either repay or extend the notes to the agent for the lenders (as defined in Footnote 5 “Long-term Debt” of Footnotes to Consolidated Financial Statements”) of the Credit Facility that has been approved by the agent, then the Credit Facility shall immediately become due and payable on such date.
We also entered into the PNC Restructuring Support Agreement that will allow us, among others, to consummate and implement the Restructuring Transactions and waive any going concern event of default that would otherwise occur under our Credit Facility.
The maximum amount available under the Credit Facility is the lesser of $50.0 million or a monthly borrowing base. The borrowing base under the Credit Facility will increase or decrease monthly using a formula based on certain eligible receivables, eligible inventory and other amounts, including a percentage of the net orderly liquidation value of our multi-client data library (not to exceed $28.5 million for the multi-client data library component). At December 31, 2020, there was $22.5 million outstanding indebtedness under the Credit Facility and the undrawn remaining borrowing base capacity was $7.4 million.
The Credit Facility requires us to maintain compliance with various covenants. At December 31, 2020, we are in compliance with all of the covenants under our Credit Facility. For further information regarding our Credit Facility see Footnote 5 “Long-term Debt” of Footnotes to Consolidated Financial Statements.
Government Relief Funding
On April 11, 2020, we entered into a Note Agreement with PNC amounting to $6.9 million pursuant to the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”) Paycheck Protection Program (the “PPP Loan”). Amounts outstanding under the PPP Loan will bear interest at 1% per annum beginning on the six-month anniversary of the date of the PPP Loan. Interest will be calculated based on the actual number of days that principal is outstanding over a year of 360 days. The PPP Loan matures in two years after the receipt of the loan proceeds.
During fourth quarter 2020, we applied to PNC for forgiveness of the amount due on the PPP Loan in an amount based on the sum of the following costs incurred by our U.S. operations during the 24-week period beginning on the date of first disbursement (for payroll costs, beginning on the date of the first pay period following disbursement; for non-payroll costs, beginning on the date of first disbursement) of the PPP Loan: (a) payroll costs; (b) any payment on a covered rent obligation; and (c) any covered utility payment. The amount of forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Paycheck Protection Program, including the provisions of Section 1106 of the CARES Act. The forgiveness amount will be subject to the Small Business Administration’s review. Any outstanding principal amount under the PPP Loan that is not forgiven shall convert to an amortizing term loan.
We recognized the PPP Loan following the government grant accounting by analogy to International Accounting Standards (“IAS”) 20, “Accounting for Government Grants and Disclosure of Government Assistance” (“IAS 20”). In accordance with IAS 20, a deferred income liability is recognized for the principal amount estimated to be forgiven and is amortized to other income on a systematic and rational basis. Any outstanding principal amount not expected to be forgiven is recognized as other debt. As we expect that the full amount of the PPP Loan will be forgiven, the entire $6.9 million was recognized as a deferred income liability during second quarter and fully amortized to other income in the consolidated statements of operations during the year, as the related expenses it was intended to offset were incurred from April 2020 to June 2020. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have not been in compliance with these requirements or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties.
Disclosure of Guarantees
As discussed in Footnote 5 “Long-term Debt” of Footnotes to Consolidated Financial Statements, the Existing Second Lien Notes are senior secured second-priority obligations issued by ION Geophysical Corporation and are guaranteed by Guarantors, all of which are wholly-owned subsidiaries. The Existing Second Lien Notes contains certain covenants that, among other things, limits or prohibits us and the ability of our restricted subsidiaries to take certain actions or permit certain conditions to exist during the term of the Existing Second Lien Notes, including among other things, incurring additional indebtedness in excess of permitted indebtedness, creating liens, paying dividends and making other distributions in respect of ION Geophysical Corporation’s capital stock, redeeming ION Geophysical Corporation’s capital stock, making investments or certain other restricted payments, selling certain kinds of assets, entering into transactions with affiliates, and effecting mergers or consolidations.
The following is a description of the terms and conditions of the guarantees:
● The Guarantors jointly and severally, unconditionally guarantees the payment of the principal, premium (if any) and interest on the Existing Second Lien Notes in full when due, whether at maturity, by acceleration or redemption. If we fail to make a scheduled payment, Guarantors will be jointly and severally obligated to pay the same immediately.
● The guarantees are subject to release in the following circumstances: (i) the sale or disposition either through merger, consolidation or otherwise of the assets or capital stock of a Guarantor that does not violate the provisions of the indenture other than to us or any of our restricted subsidiary; or (ii) the designation of a Guarantor as an “Unrestricted Subsidiary” (All of ION Geophysical Corporations subsidiaries are currently restricted subsidiaries) or (iii) upon legal defeasance or covenant defeasance or (iv) upon liquidation or dissolution provided no default of event or (v) if consent is provided by an act of approximately 67% of our noteholders.
● Each guarantee is limited to an amount that will not render the guarantee, as it relates to each Guarantor, voidable under applicable law relating to fraudulent conveyances or fraudulent transfers.
On the basis of historical financial information, operating history and other factors, we believe that each of the Guarantors, after giving effect to the issuance of its guarantee of the Existing Second Lien Notes when the guarantee was issued, was not insolvent and did not and has not incurred debts beyond its ability to pay such debts as they mature. We cannot predict, however, what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.
The following tables includes the summarized financial information of ION Geophysical Corporation, the Guarantors, all other subsidiaries of ION Geophysical Corporation that are not Guarantors and the consolidating adjustments necessary to present ION Geophysical Corporation’s results on a consolidated basis.
Year Ended December 31, 2020
Summarized Income Statement
ION Geophysical Corporation
The Guarantors
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
(In thousands)
Total net revenues
$ -
$ 81,513
$ 41,161
$ -
$ 122,674
Gross profit
17,511
24,146
-
41,657
Income (loss) from operations
(22,726 )
(2,382 )
10,519
-
(14,589 )
Equity earnings (losses)
(8,690 )
10,324
-
(1,634 )
-
Net income (loss)
(37,225 )
(8,933 )
10,680
(1,634 )
(37,112 )
December 31, 2020
Summarized Balance Sheet
ION Geophysical Corporation
The Guarantors
All Other Subsidiaries
Consolidating Adjustments
Total Consolidated
(In thousands)
ASSETS
Total current assets
$ 31,712
$ 22,607
$ 20,857
$ -
75,176
Investment in subsidiaries
837,220
284,984
-
(1,122,204 )
-
Intercompany receivables
-
-
131,312
(131,312 )
-
Total noncurrent assets
860,689
345,243
166,001
(1,253,516 )
118,417
Total assets
$ 892,401
$ 367,850
$ 186,858
$ (1,253,516 )
$ 193,593
LIABILITIES
Total current liabilities
$ 154,024
$ 62,484
$ 9,581
-
226,089
Intercompany payables
789,510
7,140
-
(796,650 )
-
Total noncurrent liabilities
811,079
20,610
3,555
(796,650 )
38,594
Total liabilities
$ 965,103
$ 83,094
$ 13,136
$ (796,650 )
$ 264,683
This summarized financial information should be read in conjunction with the accompanying consolidated financial statements and footnotes.
Meeting our Liquidity Requirements
At December 31, 2020, our total outstanding indebtedness was approximately $143.7 million, consisting primarily of approximately $120.6 million in aggregate principal amount outstanding of our Existing Second Lien Notes, $0.7 million of equipment finance leases and $0.9 million in aggregate principal amount outstanding of other short-term debt, partially offset by $1.0 million of debt issuance costs. In response to the market uncertainty resulting from COVID-19 pandemic combined with weaker oil and gas prices, we drew under our Credit Facility during the first quarter 2020, of which $22.5 million remains outstanding and in our cash balance as of December 31, 2020.
For the Current Period, total capital expenditures, including investments in our multi-client data library, were $28.4 million. We currently expect that our total capital expenditures, primarily related to investments in our multi-client data library will be in the range of $30.0 million to $40.0 million in 2021, a portion of which will be pre-funded by our customers. Investments in our multi-client data library are dependent upon the timing of our New Venture projects and the availability of underwriting by our customers. Whether planned expenditures will actually be spent in 2021 depends on industry conditions, project approval and schedules and careful monitoring of our levels of liquidity. As described at Footnote 9 “Litigations,” we might need to escrow approximately $4.5 million in sales proceeds that we received from the sales of our IndiaSPAN program that could affect our liquidity.
Existing Second Lien Notes Restructuring
To address the upcoming maturity of the $120.6 million in aggregate principal amount outstanding of our 9.125% Senior Secured Second Priority Notes, which mature on December 15, 2021 (the “Existing Second Lien Notes”) and to provide a mechanism to reduce our financial leverage in the future, we executed a Restructuring Support Agreement (the “Restructuring Support Agreement”) with holders of the Existing Second Lien Notes representing approximatel y 92% of the aggregate principal amount outstanding under our Existing Second Lien Notes (the “Supporting Noteholders”), pursuant to which we committed to use our reasonable efforts to effect the following transactions (collectively, the “Restructuring Transactions”):
(i) an offer to exchange (the “Exchange Offer”) all outstanding Existing Second Lien Notes, with each $1,000 principal amount of such Notes tendered exchanged for (a) $150 in cash, (b) $850 of New Second Lien Notes (as defined below), subject to certain rights to instead deliver or receive common stock and (c) $35, at our option, either in (I) cash, (II) common stock at $2.57 per share (the “Deal Price”), or (III) New Second Lien Notes (collectively, the “Exchange Consideration”), plus payment of all accrued and unpaid interest; and
(ii) the granting of the right to all holders of our common stock to participate in a rights offering (the “Rights Offering”) to subscribe for a pro rata share (with over-subscription rights) of up to $50.0 million of New Second Lien Notes issued at par, or common stock issued at the Deal Price.
In connection with the Rights Offering, we intend to enter into backstop agreements (the “Backstop Agreements”) with one or more parties (the “Backstop Providers”) pursuant to which the Backstop Providers agree to purchase New Second Lien Notes at par or shares of common stock at the Deal Price (the “Backstop Commitment”).
The “New Second Lien Notes” will accrue interest at the rate of 8.0% per annum, mature on December 15, 2025, be secured on a second-priority basis, subject to liens securing our obligations under its existing credit agreement, and unconditionally guaranteed by certain of our subsidiaries. Holders of the New Second Lien Notes may convert all or any portion of their notes at their option at any time prior to the maturity date. The initial conversion price of the New Second Lien Notes shall be $3.00 per share. We will have the right, on or after the 18 month anniversary of the issue date, to convert all or part of the outstanding New Second Lien Notes if our common stock has a 20 trading day VWAP of at least 175% of the conversion price then in effect which would currently equal to $5.25 per share. Holders of the New Second Lien Notes will also be entitled to certain voting rights and the right to designate two independent directors to our Board of Directors.
If the Restructuring Transactions are consummated, we could issue up to $151.7 million aggregate principal amount of New Second Lien Notes, which could be converted into 50.6 million shares of common stock, representing approximately 77.1% of the total shares of common stock outstanding following the Restructuring Transactions. This excludes the shares of common stock subject to issuance pursuant to our Long-term Incentive Plan. The actual number of shares of common stock that could be issued as a result of the Restructuring Transactions may be different than the amount indicated, however, due to, among other things, the participation levels in both the Exchange Offer and the Rights Offering and our ability, any noteholders participating in the Exchange Offer, and any participants in the Rights Offering to elect to deliver or receive cash in certain circumstances. We anticipate the completion of the Restructuring Transactions by the end of March 2021.
We also entered into the PNC Restructuring Support Agreement that will allow us, among others, to consummate and implement the Restructuring Transactions and waive any going concern event of default that would otherwise occur under the Credit Facility.
The Restructuring Transactions are also subject to stockholder approval to be voted at a special meeting of stockholders scheduled for February 23, 2021 (the “Special Meeting”).
While we believe we will be successful in obtaining stockholders' approval and executing the Restructuring Transactions, there can be no assurances regarding the ultimate success, timing or extent of any such funding, which are dependent upon a variety of factors, many of which are outside of our control. In addition, no assurance can be given that any funding from the Restructuring Transaction, if approved by stockholders and obtained at all, will be adequate to fulfill our obligations and operate our business. Consequently, we may be required to obtain additional funding whether through private or public equity transactions, debt financing or other capital sources. We may not be able to take such actions, if necessary, on commercially reasonable terms or at all. If additional funding cannot be obtained on a timely basis and on satisfactory terms, it will have an adverse effect on our business, financial condition and results of operations.
Cash Flow from Operations
Net cash provided by operating activities was $9.2 million for 2020, compared to $34.2 million for 2019. The decrease was primarily driven by lower revenues during the year.
Cash Flow Used In Investing Activities
Net cash flow used in investing activities was $28.4 million for 2020, compared to $31.2 million for 2019. The principal uses of cash in our investing activities during 2020 were $27.2 million of investments in our multi-client data library and $1.1 million of investments in property, plant and equipment.
Cash Flow Used in Financing Activities
Net cash flow provided by financing activities was $25.8 million for 2020, compared to net cash flows used in financing activities of $3.5 million in 2019. The net cash provided by financing activities was primarily related to $27.3 million of borrowings under the Credit Facility, receipt of PPP loan of $6.9 million partly offset by $4.8 million of payments on the Credit Facility, $2.4 million of payments on long-term debt, including equipment finance leases and payment for debt issuance costs of $1.0 million during 2020.
Inflation and Seasonality
Inflation in recent years has not had a material effect on our costs of goods or labor, or the prices for our products or services. Traditionally, our business has been seasonal, with strongest demand typically in the second half of our fiscal year.
Future Contractual Obligations
The following table sets forth estimates of future payments of our consolidated contractual obligations, as of December 31, 2020 (in thousands):
Contractual Obligations
Total
Less Than 1 Year
1-3 Years
4-5 Years
More Than 5 Years
Long-term and short-term debt
$ 121,474
$ 121,474
$ -
$ -
$ -
Credit facility
22,500
22,500
-
-
-
Interest on long-term and short-term debt
13,678
11,603
2,075
-
-
Equipment finance leases
-
-
-
Operating leases
61,727
8,956
29,040
13,568
10,163
Purchase obligations
1,838
1,838
-
-
-
Total
$ 221,973
$ 167,127
$ 31,115
$ 13,568
$ 10,163
The long-term and short-term debt at December 31, 2020 included $120.6 million in aggregate principal amount outstanding of our Existing Second Lien Notes that will mature in December 2021 and $0.9 million in aggregate principal amount outstanding of other short-term debt. The $0.8 million of equipment finance leases relates to Imaging and Reservoir Services’ financing of computer and other equipment purchases.
The operating lease commitments at December 31, 2020 relate to our leases for certain equipment, offices, processing centers, and warehouse space. Our purchase obligations primarily relate to our committed inventory purchase orders under which deliveries of inventory are scheduled to be made in 2021.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make choices between acceptable methods of accounting and to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses. The following accounting policies are based on, among other things, judgments and assumptions made by management that include inherent risk and uncertainties. Management’s estimates are based on the relevant information available at the end of each period. We believe that all of the judgments and estimates used to prepare our consolidated financial statements were reasonable at the time we made them, but circumstances may change requiring us to revise our estimates in ways that could be materially adverse to our results of operations and financial condition. We describe our significant accounting policies more fully in Footnote 1 “Summary of Significant Accounting Policies” of Footnotes to Consolidated Financial Statements.
Revenue Recognition
We derive revenue from the (i) sale or license of multi-client and proprietary data, imaging and reservoir services within our E&P Technology & Services segment; (ii) sale, license or repair of seismic data acquisition systems and other equipment and (iii) sale or license of seismic command and control software systems and software solutions for operations management within our Operations Optimization segment. All E&P Technology & Services’ revenues and the services component of Optimization Software & Services’ revenues under Operations Optimization segment are classified as services revenues. All other revenues are classified as product revenues.
We use a five-step model to determine proper revenue recognition from customer contracts. Revenue is recognized when (i) a contract is approved by all parties; (ii) the goods or services promised in the contract are identified; (iii) the consideration we expect to receive in exchange for the goods or services promised is determined; (iv) the consideration is allocated to the goods and services in the contract; and (v) control of the promised goods or services is transferred to the customer. We apply the practical expedient in Accounting Standards Codification Topic 606 (“ASC 606”) and do not disclose the value of contractual future performance obligations such as backlog with an original expected length of one year or less.
Multi-client and Proprietary Surveys, Imaging and Reservoir Services - As multi-client seismic surveys are being designed, acquired or processed (the New Venture phase), we enter into non-exclusive licensing arrangements with our customers, who pre-fund or underwrite these acquisition programs in part. License revenues from these surveys are recognized during the New Venture phase as the seismic data is acquired and/or processed on a proportionate basis as work is performed and control is transferred to the customer. Under this method, we recognize revenue based upon quantifiable measures of progress, such as kilometers acquired or surveys of performance completed to date. Upon completion of a multi-client seismic survey, it is considered on-the-shelf, and licenses to the survey data are granted to customers on a non-exclusive basis.
We also perform seismic surveys, imaging and other services under contracts to specific customers, whereby the seismic data is owned by those customers. We recognize revenue as the seismic data is acquired and/or processed on a proportionate basis as work is performed. We use quantifiable measures of progress consistent with our multi-client seismic surveys.
Acquisition Systems and Other Equipment - For sales of seismic data acquisition systems and other equipment, we recognize revenue when control of the goods has transferred to the customer. Transfer of control generally occurs when (i) we have a present right to payment; (ii) the customer has legal title to the asset; (iii) we have transferred physical possession of the asset; and (iv) the customer has significant rewards of ownership; or (v) the customer has accepted the asset.
Software - Licenses for our navigation, survey design and quality control software systems provide the customer with a right to use the software. We offer usage-based licenses under which we receive a monthly fee based on the number of vessels and licenses used. For these usage-based licenses, revenue is recognized as the performance obligations are performed over the contract term, which is generally two to five years. In addition to usage-based licenses, we offer perpetual software licenses as it exists when made available to the customer. Revenue from these licenses is recognized upfront at the point in time when the software is made available to the customer.
These arrangements generally include us providing related services, such as training courses, engineering services and annual software maintenance. We allocate consideration to each element of the arrangement based upon directly observable or estimated standalone selling prices. Revenue is recognized for these services as control transfers to the customer over time.
Multi-client Data Library
Our multi-client data library consists of seismic surveys that are offered for licensing to customers on a non-exclusive basis. The capitalized costs include the costs paid to third parties for the acquisition of data and related activities associated with the data creation activity and direct internal processing costs, such as salaries, benefits, computer-related expenses and other costs incurred for seismic data project design and management. For 2020, 2019 and 2018, as part of our multi-client data library we capitalized $6.7 million, $9.3 million and $11.9 million, respectively, of direct internal processing costs.
Our method of amortizing the costs of an in-process multi-client survey (the period during which the seismic data is being acquired or processed, the New Venture phase) consists of determining the percentage of actual revenue recognized to the total estimated revenues (which includes both revenues estimated to be realized during the New Venture phase and estimated revenues from the licensing of the resulting “on-the-shelf” survey data) and multiplying that percentage by the total cost of the project (the sales forecast method). We consider a multi-client survey to be complete when all work on the creation of the seismic data is finished and that survey is available for licensing.
Once a multi-client data survey is completed, the data survey is considered “on-the-shelf” and our method of amortization is then the greater of (i) the sales forecast method or (ii) the straight-line basis over a four-year period. The greater amount of amortization resulting from the sales forecast method or the straight-line amortization policy is applied on a cumulative basis at the individual survey level. Under this policy, we first record amortization using the sales forecast method. The cumulative amortization recorded for each survey is then compared with the cumulative straight-line amortization. The four-year period utilized in this cumulative comparison commences when the data survey is determined to be complete. If the cumulative straight-line amortization is higher for any specific survey, additional amortization expense is recorded, resulting in the accumulated amortization being equal to the cumulative straight-line amortization for that survey. We have determined the amortization period to be four years based upon our historical experience that indicates that the majority of our revenues from multi-client surveys are derived during the acquisition and processing phases and during the four years subsequent to survey completion.
Estimated sales are determined based upon discussions with our customers, our experience and our knowledge of industry trends. Changes in sales estimates may have the effect of changing the percentage relationship of cost of services to revenue. In applying the sales forecast method, an increase in the projected sales of a survey will result in lower cost of services as a percentage of revenue and higher earnings when revenue associated with that particular survey is recognized, while a decrease in projected sales will have the opposite effect. Assuming that the overall volume of sales mix of surveys generating revenue in the period was held constant in 2020, an increase of 10% in the sales forecasts of all surveys would have increased our amortization expense by approximately $7.6 million.
We estimate the ultimate revenue expected to be derived from a particular seismic data survey over its estimated useful economic life to determine the costs to amortize, if greater than straight-line amortization. That estimate is made by us at the project’s initiation. For a completed multi-client survey, we review the estimate quarterly. If during any such review, we determine that the ultimate revenue for a survey is expected to be materially more or less than the original estimate of total revenue for such survey, we decrease or increase (as the case may be) the amortization rate attributable to the future revenue from such survey. In addition, in connection with such reviews, we evaluate the recoverability of the multi-client data library, and, if required, record an impairment charge with respect to such data. For 2020, we wrote down our multi-client data library by $1.2 million for programs with capitalized costs exceeding the remaining sales forecast.
Reserve for Excess and Obsolete Inventories
Our reserve for excess and obsolete inventories is based on historical sales trends and various other assumptions and judgments, including future demand for our inventory, the timing of market acceptance of our new products and the risk of obsolescence driven by new product introductions. When we record a charge for excess and obsolete inventories, the amount is applied as a reduction in the cost basis of the specific inventory item for which the charge was recorded. Should these assumptions and judgments not be realized for these or for other reasons, our reserve would be adjusted to reflect actual results. Our reserve for inventory for 2020 and 2019 was $13.0 million and $13.3 million, respectively.
Goodwill
Goodwill is allocated to our reporting units, which is either the operating segment or one reporting level below the operating segment, which includes E&P Technology & Services, Optimization Software & Services and Devices. Goodwill is not amortized, but rather tested and assessed for impairment at least annually on December 31, or more frequently, if facts and circumstances indicate that the carrying amount may exceed fair value. We first perform a qualitative assessment by evaluating relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine that a reporting unit’s carrying value exceeds its fair value, we will then use a quantitative assessment by comparing the fair value of each reporting unit against its carrying value. If the carrying value of the reporting unit exceeds the fair value, an impairment loss shall be recognized in an amount equal to that excess.
During the first quarter of 2020, markets for oil and gas, as well as other commodities and equities, experienced significant volatility and price declines amid concerns over the economic effects of the COVID-19 pandemic. As a result our stock price experienced a significant decline during the first quarter of 2020. Based on these facts, we performed a goodwill impairment test at March 31, 2020 to determine if it was more likely than not that the fair value of certain reporting units were less than their carrying value. As a result of our quantitative assessment using a discounted cash flow analysis, we recorded an impairment charge of $4.2 million for 2020 related to our Optimization Software & Services reporting unit, which is included within the Operations Optimization segment. No impairment charge was recognized for the E&P Technology Services reporting unit for 2020. The goodwill balance after impairment charge at December 31, 2020 was comprised of $16.6 million in our Optimization Software & Services and $2.9 million in our E&P Technology & Services reporting units. However, given the uncertainty in determining the assumptions underlying a discounted cash flow analysis, actual results may differ which could result in additional impairment charge in the future.
Long-lived Asset Impairment
We evaluate the recoverability of our property, plant and equipment, when indicators of impairment exist, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. Impairment in the carrying value of an asset held for use is recognized whenever anticipated future undiscounted cash flows from an asset are estimated to be less than its carrying value. The amount of the impairment recognized is the difference between the carrying value of the asset and its fair value. No indicators of impairment were noted for 2020 and as such, no impairment charge was recognized. However, if management's judgments and assumptions regarding future industry conditions and operations diminish, it is reasonably possible that our expectations of future cash flows may decline and ultimately result in impairment for our long-lived assets.
Deferred Tax Assets
We established a valuation allowance on all of our net deferred tax assets resulting from the substantial doubt about our ability to continue as a going concern. A valuation allowance is established or maintained when it is “more likely than not” that all or a portion of deferred tax assets will not be realized. We will continue to record a valuation allowance for the substantial majority of all of our deferred tax assets until there is sufficient evidence to warrant reversal. In the event our expectations of future operating results change, an additional valuation allowance may be required to be established on our existing unreserved net U.S. deferred tax assets.
Stock-Based Compensation
We estimate the value of stock-based payment awards on the date of grant using an option pricing model such as Black-Scholes or Monte Carlo simulation. The determination of the fair value of stock-based payment awards is affected by our stock price as well as assumptions regarding a number of subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, actual and projected stock-based instrument exercise behaviors, risk-free interest rate and expected dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We recognize stock-based compensation expense on the straight-line basis over the requisite service period of each award that are ultimately expected to vest. For our stock appreciation rights, in the event that the market price of our common stock increases, our expectation of participants’ expected exercise behavior and risk free interest rate change in the future, we may have to recognize additional stock appreciation rights awards expense that could ultimately affect our operating results and cash flows.
Foreign Sales Risks
The majority of our foreign sales are denominated in U.S. dollars. Product revenues are allocated to geographic locations on the basis of the ultimate destination of the equipment, if known. If the ultimate destination of such equipment is not known, product revenues are allocated to the geographic location of initial shipment. Service revenues, which primarily relate to our E&P Technology & Services segment, are allocated based upon the billing location of the customer and the geographic location of the data. For 2020, 2019 and 2018, international sales comprised 92%, 84% and 89%, respectively, of total net revenues.
Years Ended December 31,
Latin America
$ 43,389
$ 64,627
$ 91,833
Africa
27,132
28,203
21,482
Europe
17,950
22,102
18,509
Asia Pacific
16,696
18,321
21,587
North America
9,521
27,953
19,029
Middle East
3,187
7,347
3,728
Other
4,799
6,126
3,877
Total
$ 122,674
$ 174,679
$ 180,045
Off-Balance Sheet Arrangements
Variable interest entities. At December 31, 2020, our investment in INOVA Geophysical constitutes an investment in a variable interest entity, as that term is defined in Accounting Standards Codification Topic 810-10 “Consolidation - Overall” and as defined in Item 303(a)(4)(ii) of SEC Regulation S-K. See Footnote 1 “Summary of Significant Accounting Policies-Equity Method Investments” of Footnotes to Consolidated Financial Statements included elsewhere in this Form 10-K for additional information.
Indemnification
In the ordinary course of our business, we enter into contractual arrangements with our customers, suppliers and other parties under which we may agree to indemnify the other party to such arrangement from certain losses it incurs relating to our products or services or for losses arising from certain events as defined within the particular contract. Some of these indemnification obligations may not be subject to maximum loss limitations. Historically, payments we have made related to these indemnification obligations have been immaterial.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss from adverse changes in market prices and rates. Our primary market risks include risks related to interest rates and foreign currency exchange rates.
Interest Rate Risk
At December 31, 2020, we had outstanding total indebtedness of approximately $143.7 million. At December 31, 2020, all of this indebtedness, other than borrowings under our Credit Facility (described below), accrues interest at fixed interest rates.
As our borrowings under the Credit Facility are subject to variable interest rates, we are subject to interest rate risk to the extent we have outstanding balances under the Credit Facility. On July 27, 2017, the U.K. Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. Our Credit Facility includes provisions to determine a replacement rate for LIBOR if necessary during its term, which require that we and our lenders agree upon a replacement rate based on the then-prevailing market convention for similar agreements. We currently do not expect the transition from LIBOR to have a material impact on us. However, if clear market standards and replacement methodologies have not developed as of the time LIBOR becomes unavailable, we may have difficulty reaching agreement on acceptable replacement rates under our Credit Facility. In the event that we do not reach agreement on an acceptable replacement rate for LIBOR, outstanding borrowings under the Credit Facility would revert to a floating rate equal to the alternative base rate (which, as of the time that LIBOR becomes unavailable, is equal to the greater of the Prime Rate and the Federal Funds effective rate plus 0.50%) plus the applicable margin for the alternative base rate which ranges between 2.0% and 3.0%. If we are unable to negotiate replacement rates on favorable terms, it could have a material adverse effect on our financial condition and results of operations.
We may, from time to time, use derivative financial instruments to help mitigate rising interest rates under our Credit Facility. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors.
Foreign Currency Exchange Rate Risk
Our operations, including that of our subsidiaries, are conducted in various countries around the world, and we receive revenue from these operations in a number of different currencies with the most significant of our international operations using British Pounds Sterling and Brazilian Real. Our financial results may be affected by changes in foreign currency exchange rates. Our consolidated balance sheets at December 31, 2020 reflected approximately $6.8 million of net working capital related to our foreign subsidiaries, a majority of which is within the United Kingdom and Brazil. Our foreign subsidiaries receive their income and pay their expenses primarily in their local currencies. To the extent that transactions of these subsidiaries are settled in the local currencies, a devaluation of these currencies versus the U.S. dollar could reduce the contribution from these subsidiaries to our consolidated results of operations as reported in U.S. dollars. In 2020, we recorded net foreign currency losses of approximately $1.6 million in other expense, a majority of these losses are due to currency fluctuations related to our operations in Brazil.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The financial statements and related notes thereto required by this item begin at page hereof.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file with or submit to the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time period specified by the SEC’s rules and forms. Disclosure controls and procedures are defined in Rule 13a-15(e) under the Exchange Act, and they include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive officer and the principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2020.
(b) Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based upon criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon their assessment, management concluded that the internal control over financial reporting was effective as of December 31, 2020.
The independent registered public accounting firm that has also audited our consolidated financial statements included in this Annual Report on Form 10-K has issued an audit report on our internal control over financial reporting. This report appears below.
(c) Changes in Internal Control over Financial Reporting. There was not any change in our internal control over financial reporting that occurred during the three months ended December 31, 2020, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
ION Geophysical Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of ION Geophysical Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our report dated February 11, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Houston, Texas
February 11, 2021

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
Not applicable.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Reference is made to the information appearing in the definitive proxy statement, under “Item 1 - Election of Directors,” for our annual meeting of stockholders to be held on May 12, 2021 (the “2021 Proxy Statement”) to be filed with the SEC with respect to Directors, Executive Officers and Corporate Governance, which is incorporated herein by reference and made a part hereof in response to the information required by Item 10.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Reference is made to the information appearing in the 2021 Proxy Statement, under “Executive Compensation,” to be filed with the SEC with respect to Executive Compensation, which is incorporated herein by reference and made a part hereof in response to the information required by Item 11.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Reference is made to the information appearing in the 2021 Proxy Statement, under “Item 1 - Ownership of Equity Securities of ION” and “Equity Compensation Plan Information,” to be filed with the SEC with respect to Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, which is incorporated herein by reference and made a part hereof in response to the information required by Item 12.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
Reference is made to the information appearing in the 2021 Proxy Statement, under “Item 1 - Certain Transactions and Relationships,” to be filed with the SEC with respect to Certain Relationships and Related Transactions and Director Independence, which is incorporated herein by reference and made a part hereof in response to the information required by Item 13.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
Reference is made to the information appearing in the 2021 Proxy Statement, under “Principal Auditor Fees and Services,” to be filed with the SEC with respect to Principal Accountant Fees and Services, which is incorporated herein by reference and made a part hereof in response to the information required by Item 14.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(a) List of Documents Filed
(1) Financial Statements
The financial statements filed as part of this report are listed in the “Index to Consolidated Financial Statements” on page hereof.
(2) Financial Statement Schedules
The following financial statement schedule is listed in the “Index to Consolidated Financial Statements” on page hereof, and is included as part of this Annual Report on Form 10-K:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the requested information is shown in the financial statements or noted therein.
(3) Exhibits
3.1
-
Restated Certificate of Incorporation, as amended, filed on November 3, 2016 as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q and incorporated by reference.
3.2
-
Amended and Restated Bylaws of ION Geophysical Corporation filed on September 24, 2007 as Exhibit 3.5 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
4.1
-
Indenture, dated as of April 28, 2016, among ION Geophysical Corporation, the subsidiary guarantors named therein, Wilmington Savings Fund Society, FSB, as trustee and collateral agent filed on April 28, 2016 as Exhibit 4.1 to the Company’s Current Report on Form 8-K and incorporated by reference.
4.2
-
Intercreditor Agreement, dated as of April 28, 2016, by and among PNC Bank, National Association, as first lien representative and first lien collateral agent for the first lien secured parties, and Wilmington Savings Fund Society, FSB, as second lien representative and second lien collateral agent for the second lien secured parties and as third lien representative for the third lien secured parties, and U.S. Bank National Association as third lien collateral agent for the third lien secured parties and acknowledged and agreed to by ION Geophysical Corporation and the other grantors named therein, filed on April 28, 2016 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated by reference.
4.3
-
Description of Securities, filed on February 6, 2020 as Exhibit 4.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019, and incorporated herein by reference.
**10.1
-
Form of Employee Stock Option Award Agreement for ARAM Systems Employee Inducement Stock Option Program, filed on November 14, 2008 as Exhibit 4.4 to the Company’s Registration Statement on Form S-8 (Registration No. 333-155378) and incorporated herein by reference.
**10.2
-
Input/Output, Inc. 2003 Stock Option Plan, dated March 27, 2003, filed as Appendix B of the Company’s definitive proxy statement filed with the SEC on April 30, 2003, and incorporated herein by reference.
**10.3
-
Sixth Amended and Restated - 2004 Long-Term Incentive Plan, filed as Appendix A to the definitive proxy statement for the 2011 Annual Meeting of Stockholders of ION Geophysical Corporation, filed on April 21, 2011, and incorporated herein by reference.
**10.4
-
Form of Employment Inducement Stock Option Agreement for the Input/Output, Inc. - GX Technology Corporation Employment Inducement Stock Option Program, filed on April 4, 2005 as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-123831), and incorporated herein by reference.
**10.5
-
ION Stock Appreciation Rights Plan dated November 17, 2008, filed as Exhibit 10.47 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, and incorporated herein by reference.
10.6
-
Stock Purchase Agreement dated as of March 19, 2010, by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation, filed on March 31, 2010 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.7
-
Investor Rights Agreement dated as of March 25, 2010, by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation, filed on March 31, 2010 as Exhibit 10.2 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.8
-
Share Purchase Agreement dated as of March 24, 2010, by and among ION Geophysical Corporation, INOVA Geophysical Equipment Limited and BGP Inc., China National Petroleum Corporation, filed on March 31, 2010 as Exhibit 10.3 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.9
-
Joint Venture Agreement dated as of March 24, 2010, by and between ION Geophysical Corporation and BGP Inc., China National Petroleum Corporation, filed on March 31, 2010 as Exhibit 10.4 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.11
-
First Amendment to Credit Agreement and Loan Documents dated May 29, 2012, filed on May 29, 2012 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.12
-
Third Amended and Restated 2013 Long-Term Incentive Plan filed on November 1, 2018 as Annex A to the Registrant’s Proxy Statement on Schedule 14A and incorporated herein by reference.
10.13
-
Revolving Credit and Security Agreement dated as of August 22, 2014 among PNC Bank, National Association, as agent for lenders, the lenders from time to time party thereto, as lenders, and PNC Capital Markets LLC, as lead arranger and bookrunner, with ION Geophysical Corporation, ION Exploration Products (U.S.A.), Inc., I/O Marine Systems, Inc. and GX Technology Corporation, as borrowers, filed on November 6, 2014 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, and incorporated herein by reference.
10.14
-
First Amendment to Revolving Credit and Security Agreement dated as of August 4, 2015 among PNC Bank, National Association, as lender and agent, the lenders from time to time party thereto, as lenders, with ION Geophysical Corporation, ION Exploration Products (U.S.A.), Inc., I/O Marine Systems, Inc. and GX Technology Corporation, as borrowers, filed on August 6, 2015 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.15
-
Second Amendment to the Revolving Credit and Security Agreement, dated as of April 28, 2016, among ION Geophysical Corporation and the subsidiary co-borrowers named therein, as borrowers, the financial institutions party thereto, as lenders, and PNC Bank, National Association, as agent for the lenders, filed on April 28, 2016 as Exhibit 10.2 to the Company’s Current Report on Form 8-K and incorporated by reference.
**10.16
-
Form of Rights Agreement dated March 1, 2015 issued under the ION Stock Appreciation Rights Plan dated November 17, 2008, filed on May 7, 2015 as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, and incorporated herein by reference.
**10.17
-
Form of Rights Agreement dated March 1, 2016 issued under the ION Stock Appreciation Rights Plan Dated November 17, 2008, and incorporated herein by reference.
**10.18
-
Equity Investment Agreement dated December 14, 2017, issued under the Second Amended and Restated 2013 Long-Term Incentive Plan dated December 31, 2016, and incorporated herein by reference.
**10.19
-
Employee Stock Purchase Plan dated May 26, 2010, and incorporated herein by reference.
10.20
-
Form of Warrant Agreement, filed on February 16, 2018 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.21
-
Third Amendment and Joinder to the Revolving Credit and Security Agreement, dated as of August 16, 2018, filed on August 21, 2018 as Exhibit 10.1 to the Company’s Current Report on Form 8-K and incorporated herein by reference.
**10.22
-
ION Stock Appreciation Rights Plan dated November 30, 2018, and incorporated herein by reference.
**10.23
-
Form of Stock Appreciation Rights Agreement dated December 1, 2018 issued under the ION Stock Appreciation Rights Plans dated November 30, 2018, and incorporated herein by reference.
**10.24
-
Form of Restricted Stock Awards Agreement dated December 1, 2018 issued under the Third Amended and Restated 2013 Long-Term Incentive Plan dated November 1, 2018, and incorporated herein by reference.
10.25
-
Form of First Amendment to Warrant to Purchase Common Stock dated as of February 4, 2019, filed on February 8, 2019 as Exhibit 10.1 to the Company’s Current Report of Form 8-K, and incorporated herein by reference.
**10.26
-
Restricted Stock Agreement (Time Based) dated September 1, 2019 between the ION Geophysical Corporation and Christopher T. Usher filed on September 4, 2019 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.27
-
Restricted Stock Agreement (Performance Based) dated September 1, 2019 between the ION Geophysical Corporation and Christopher T. Usher filed on September 4, 2019 as Exhibit 10.2 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
10.28 - ION and WesternGeco Settlement Agreement dated April 7, 2020 filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q and incorporated herein by reference.
10.29 - Restructuring Support Agreement dated December 23, 2020, by and between ION Geophysical Corporation, the Subsidiary Guarantors, and the Supporting Noteholders filed on December 23, 2020 as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
**10.30 - Employment Agreement dated January 27, 2020, between Christopher T. Usher and ION Geophysical Corporation, filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, and incorporated herein by reference.
**10.31 - Employment Agreement dated December 22, 2020, between ION Geophysical Corporation and Mike Morrison, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference.
*10.32 - Amended and Restated Restructuring Support Agreement dated February 11, 2021, by and between ION Geophysical Corporation, the Subsidiary Guarantors, and the Supporting Noteholders
*10.33 - Letter Agreement, dated February 11, 2021, by and between ION Geophysical Corporation and Mr. James M. Lapeyre, Jr.
*10.34 - Restructuring Support Agreement, dated February 11, 2021, by and between ION Geophysical Corporation and PNC Bank, National Association
*21.1
-
Subsidiaries of the Company.
*23.1
-
Consent of Grant Thornton LLP.
*24.1
-
The Power of Attorney is set forth on the signature page hereof.
*31.1
-
Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
*31.2
-
Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a).
*32.1
-
Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350.
*32.2
-
Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350.
*101
-
The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets at December 31, 2020 and 2019, (ii) Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018, (iii) Comprehensive Income (Loss) for the years ended December 31, 2020, 2019 and 2018, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018, (v) Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended December 31, 2020, 2019 and 2018, (vi) Footnotes to Consolidated Financial Statements and (vii) Schedule II - Valuation and Qualifying Accounts.
*101.INS - Inline XBRL Instance Document.
*101.SCH - Inline XBRL Taxonomy Schema Document.
*101.CAL - Inline XBRL Taxonomy Calculation Linkbase Document.
*101.DEF - Inline XBRL Taxonomy Definition Linkbase Document.
*101.LAB - Inline XBRL Taxonomy Label Linkbase Document.
*101.PRE - Inline XBRL Taxonomy Presentation Linkbase Document.
*104 - Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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Filed herewith.
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Management contract or compensatory plan or arrangement.
(b)
Exhibits required by Item 601 of Regulation S-K.
Reference is made to subparagraph (a) (3) of this Item 15, which is incorporated herein by reference.
(c)
Not applicable.