io20210331_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED March 31, 2021

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

COMMISSION FILE NUMBER: 1-12691

ION GEOPHYSICAL CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Delaware

22-2286646

(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

2105 CityWest Blvd. Suite 100

Houston, Texas 77042-2855

(Address of principal executive offices) (Zip Code)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (281) 933-3339

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading symbol(s)			Name of each exchange on which registered
Common Stock, $0.01 par value			IO			New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☐

		Emerging growth company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At May 3, 2021, there were 28,811,207 shares of common stock, par value $0.01 per share, outstanding.

Table of Contents

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS FOR FORM 10-Q

FOR THE QUARTER ENDED March 31, 2021

			PAGE
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020			3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020			4
Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2021 and 2020			5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020			6
Condensed Consolidated Statements of Stockholders' Deficit for the three months ended March 31, 2021 and 2020			7
Footnotes to Condensed Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures about Market Risk			31
Item 4. Controls and Procedures			31

PART II. Other Information
Item 1. Legal Proceedings			32
Item 1A. Risk Factors			33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 5. Other Information			35
Item 6. Exhibits			36

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	*March 31,*			*December 31,*
	*2021*			*2020*
	(In thousands, except share data)
*ASSETS*
Current assets:
Cash and cash equivalents	$	34,228		$	37,486
Accounts receivable, net		8,457			8,045
Unbilled receivables		4,085			11,262
Inventories, net		11,031			11,267
Prepaid expenses and other current assets		7,387			7,116
Total current assets		65,188			75,176
Deferred income tax asset, net		7,743			—
Property, plant and equipment, net		9,063			9,511
Multi-client data library, net		50,300			50,914
Goodwill		19,773			19,565
Right-of-use assets		33,330			35,501
Other assets		4,250			2,926
Total assets	$	189,647		$	193,593
*LIABILITIES AND STOCKHOLDERS’ DEFICIT*
Current liabilities:
Current maturities of long-term debt	$	29,233		$	143,731
Accounts payable		28,242			33,418
Accrued expenses		17,737			16,363
Accrued multi-client data library royalties		20,677			21,359
Deferred revenue		4,454			3,648
Current maturities of operating lease liabilities		8,408			7,570
Total current liabilities		108,751			226,089
Long-term debt, net of current maturities		112,737			—
Operating lease liabilities, net of current maturities		36,318			38,372
Other long-term liabilities		212			222
Total liabilities		258,018			264,683
Deficit:
Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 17,344,187 and 14,333,101 shares at March 31, 2021 and December 31, 2020, respectively.		173			143
Additional paid-in capital		968,633			958,584
Accumulated deficit		(1,018,679	)		(1,011,516	)
Accumulated other comprehensive loss		(19,575	)		(19,913	)
Total stockholders’ deficit		(69,448	)		(72,702	)
Noncontrolling interests		1,077			1,612
Total deficit		(68,371	)		(71,090	)
Total liabilities and stockholders' deficit	$	189,647		$	193,593

See accompanying Footnotes to Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	*Three Months Ended March 31,*
	*2021*			*2020*
	(In thousands, except per share data)
Service revenues	$	7,464		$	47,485
Product revenues		6,572			8,929
Total net revenues		14,036			56,414
Cost of services		9,270			22,275
Cost of products		3,907			4,628
Impairment of multi-client data library		—			1,167
Gross profit		859			28,344
Operating expenses:
Research, development and engineering		2,947			4,008
Marketing and sales		2,759			4,858
General, administrative and other operating expenses		5,387			9,002
Impairment of goodwill		—			4,150
Total operating expenses		11,093			22,018
Income (loss) from operations		(10,234	)		6,326
Interest expense, net		(3,262	)		(3,221	)
Other income (expense), net		(607	)		429
Income (loss) before income taxes		(14,103	)		3,534
Income tax expense (benefit), net		(6,849	)		5,874
Net loss		(7,254	)		(2,340	)
Less: Net loss attributable to noncontrolling interests		91			77
Net loss attributable to ION	$	(7,163	)	$	(2,263	)
Net loss per share:
Basic and Diluted	$	(0.46	)	$	(0.16	)
Weighted average number of common shares outstanding:
Basic and Diluted		15,718			14,230

See accompanying Footnotes to Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	*Three Months Ended March 31,*
	*2021*			*2020*
	(In thousands)
Net loss	$	(7,254	)	$	(2,340	)
Other comprehensive loss, net of taxes, as appropriate:
Foreign currency translation adjustments		338			(1,781	)
Comprehensive net loss		(6,916	)		(4,121	)
Comprehensive loss attributable to noncontrolling interests		228			77
Comprehensive net loss attributable to ION	$	(6,688	)	$	(4,044	)

See accompanying Footnotes to Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	*Three Months Ended March 31,*
	*2021*			*2020*
	(In thousands)
Cash flows from operating activities:
Net loss	$	(7,254	)	$	(2,340	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization (other than multi-client library)		959			840
Amortization of multi-client data library		3,285			8,020
Impairment of multi-client data library		—			1,167
Impairment of goodwill		—			4,150
Stock-based compensation expense		286			617
Provision for expected credit losses		396			—
Deferred income taxes		(7,743	)		421
Change in operating assets and liabilities:
Accounts receivable		(798	)		(21,868	)
Unbilled receivables		7,177			2,666
Inventories		217			(772	)
Accounts payable, accrued expenses and accrued royalties		(2,598	)		1,688
Deferred revenue		823			355
Other assets and liabilities		973			(1,910	)
Net cash used in operating activities		(4,277	)		(6,966	)
Cash flows from investing activities:
Investment in multi-client data library		(5,211	)		(9,668	)
Purchase of property, plant and equipment		(576	)		(496	)
Net cash used in investing activities		(5,787	)		(10,164	)
Cash flows from financing activities:
Borrowings under revolving line of credit		—			27,000
Repayments under revolving line of credit		(1,250	)		—
Payments on notes payable and long-term debt		(752	)		(760	)
Costs associated with debt issuance		(806	)		—
Net proceeds from issuance of stocks		9,802			—
Other financing activities		(316	)		(10	)
Net cash provided by financing activities		6,678			26,230
Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash		128			470
Net increase (decrease) in cash, cash equivalents and restricted cash		(3,258	)		9,570
Cash, cash equivalents and restricted cash at beginning of period		39,813			33,118
Cash, cash equivalents and restricted cash at end of period	$	36,555		$	42,688

See accompanying Footnotes to Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

(UNAUDITED)

	*Three Months Ended March 31, 2021*
	*Common Stock*						*Additional*			*Accumulated*			*Accumulated Other*			*Noncontrolling*			*Total*
(In thousands, except shares)	*Shares*			*Amount*			*Paid-In Capital*			*Deficit*			*Comprehensive Loss*			*Interests*			*Deficit*
Balance at January 1, 2021		14,333,101		$	143		$	958,584		$	(1,011,516	)	$	(19,913	)	$	1,612		$	(71,090	)
Net loss		—			—			—			(7,163	)		—			(91	)		(7,254	)
Translation adjustment		—			—			—			—			338			(137	)		201
Dividend payment to noncontrolling interest		—			—			—			—			—			(307	)		(307	)
Stock-based compensation expense		—			—			286			—			—			—			286
Vesting of restricted stock units/awards		24,365			1			(1	)		—			—			—			—
Vested restricted stock cancelled for employee minimum income taxes		(3,280	)		(1	)		(8	)		—			—			—			(9	)
Public equity offering		2,990,001			30			9,772			—			—			—			9,802
Balance at March 31, 2021		17,344,187		$	173		$	968,633		$	(1,018,679	)	$	(19,575	)	$	1,077		$	(68,371	)

	*Three Months Ended March 31, 2020*
	*Common Stock*					*Additional*			*Accumulated*			*Accumulated Other*			*Noncontrolling*			*Total*
(In thousands, except shares)	*Shares*			*Amount*		*Paid-In Capital*			*Deficit*			*Comprehensive Loss*			*Interests*			*Deficit*
Balance at January 1, 2020		14,224,787		$	142	$	956,647		$	(974,291	)	$	(19,318	)	$	2,188		$	(34,632	)
Net loss		—			—		—			(2,263	)		—			(77	)		(2,340	)
Translation adjustment		—			—		—			—			(1,781	)		(457	)		(2,238	)
Stock-based compensation expense		—			—		617			—			—			—			617
Vesting of restricted stock units/awards		16,089			—		—			—			—			—			—
Vested restricted stock cancelled for employee minimum income taxes		(750	)		—		(10	)		—			—			—			(10	)
Balance at March 31, 2020		14,240,126		$	142	$	957,254		$	(976,554	)	$	(21,099	)	$	1,654		$	(38,603	)

See accompanying Footnotes to Condensed Consolidated Financial Statements.

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ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES

FOOTNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1)

Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated balance sheet of ION Geophysical Corporation and its subsidiaries (collectively referred to as the “Company” or “ION,” unless the context otherwise requires) at December 31, 2020, has been derived from the Company’s audited consolidated financial statements at that date. The condensed consolidated balance sheet at March 31, 2021, and the condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss, condensed consolidated statements of stockholders' deficit for the three months ended March 31, 2021 and 2020 and the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, are unaudited. In the opinion of management, all adjustments of a normal recurring nature that are necessary for a fair presentation of the results of the interim period have been included. Interim results are not necessarily indicative of the operating results for a full year or of future operations. Intercompany transactions and balances have been eliminated.

The Company’s condensed consolidated financial statements reflect a non-redeemable noncontrolling interest in a majority-owned affiliate which is reported as a separate component of equity in “Noncontrolling interest” in the condensed consolidated balance sheets. Net (income) loss attributable to noncontrolling interest is stated separately in the condensed consolidated statements of operations. The activity for this noncontrolling interest relates to proprietary processing projects in Brazil.

Certain reclassifications were made to previously reported amounts in the condensed consolidated financial statements and notes thereto; particularly, the presentation of revenue by geographic area to make previously reported amounts consistent with current period presentation.

These condensed consolidated financial statements have been prepared using accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and applicable rules of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in annual financial statements presented in accordance with GAAP have been omitted. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Going Concern and Old Notes Restructuring

On April 20, 2021, the Company completed the Restructuring Transactions (as further discussed below) that extended the maturity of the notes by four years to December 2025 and provided additional liquidity to help meet its anticipated cash needs. As a result of the Restructuring Transactions, $113.5 million in aggregate principal amount outstanding of the Company's 9.125% Senior Secured Second Priority Notes due 2021 (the "Old Notes") has been reclassified from short-term debt to long-term debt in the Condensed Consolidated Balance Sheets. While the Company may continue to explore additional funding through private or public equity transactions, debt financing or other capital sources to meet its ongoing cash needs, management believes the completion of its Restructuring Transactions removes the substantial doubt raised in December 31, 2020 about the Company’s ability to continue as a going concern as of March 31, 2021.

On April 20, 2021, the Company successfully completed its previously announced offer to exchange (the “Exchange Offer”) the Old Notes for newly issued 8.00% Senior Secured Second Priority Notes due 2025 (the “New Notes”) and other consideration in the form of cash and ION common stock, as described in the Company's Prospectus dated March 10, 2021 and its previously announced rights offering (the "Rights Offering") to its holders of the Company's common stock, par value $0.01 per share (the "Common Stock") to purchase for (i) $2.78 principal amount of the New Notes per right, at a purchase price of 100% of the principal amount thereof or (ii) 1.08 shares of common stock per right, at a purchase price of $2.57 per whole share of common stock. The Exchange Offer and the Rights Offering are sometimes referred to herein as the Restructuring Transactions.

In the Exchange Offer, approximately $113.5 million, or approximately 94.1%, of the $120.6 million outstanding Old Notes were accepted and exchanged for (1) $84.7 million aggregate principal amount of its New Notes, (ii) 6.1 million shares of Common Stock, including 1.5 million shares issued as the early participation payment and 4.6 million shares issued as stock consideration in lieu of the New Notes and (iii) $20.7 million paid in cash, including $3.6 million of accrued and unpaid interest that became due on the Old Notes as part of the exchange. The Company has accepted for exchange all such Old Notes validly tendered and not validly withdrawn in the Exchange Offer as of the expiration time on April 12, 2021. Pursuant to the Exchange Offer, the Company will make an offer to participants to repurchase New Notes at par for up to 50% of the proceeds raised in excess of $35.0 million from the Rights Offering valued at $3.4 million.

In the concurrent Rights Offering, an aggregate amount of $41.8 million of rights (including over-subscription) was validly exercised by the holders of the Company's Common Stock, apportioned as $30.1 million in New Notes and $11.8 million in Common Stock allocated in 4.6 million shares. All over-subscription rights were exercised without proration as the $50.0 million limit on proceeds was not exceeded. Backstop parties were paid 5% backstop fees, in kind, resulting in the issuance of an additional $1.5 aggregate principal amount of New Notes and 0.2 million shares of Common Stock.

In total, $116.2 million in aggregate principal amount of New Notes and 10.9 million shares of Common Stock were issued. The Company received approximately $14 million in net proceeds from the transactions after deducting noteholder obligations, estimated transaction fees and accrued and unpaid interest paid on the Old Notes. After the Restructuring Transactions, $7.1 million of Old Notes remain outstanding and a total of 28.8 million shares of Common Stock are outstanding as of April 20, 2021.

The amendment to the Old Notes Indenture (as defined in Footnote 4, "Long-term Debt") is effective as of April 20, 2021. The Old Notes have been modified to, among other things, provide for the release of the second priority security interest in the collateral securing the Old Notes, and deletes in their entirety substantially all of the restrictive covenants and certain events of default pertaining to the Old Notes. For further details, refer to Footnote 4 "Long-term Debt - Old Notes."

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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 2020. Brent crude prices, which are most relevant to ION’s internationally focused business, have rebounded to pre-pandemic levels, increasing to approximately $66 per barrel during April 2021. This reflects the continued expectation of rising oil demand as both the global economic activity and COVID- 19 vaccination rates increase, combined with ongoing crude oil production limits from members of OPEC and partner countries.

The level and consistency of crude prices play an integral role in the trajectory of customers' offshore capital spending programs. 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.

While management expects the E&P market to remain challenging in the near-term, there have been a number of positive developments that point to improving market conditions. Analyst projections and client activity continue to suggest increasing E&P spend and demand for seismic data in the second half of the year. Spurred by increasing global demand and on-going production limits, Brent crude oil pricing, which is most relevant to ION’s internationally-focused business, has rebounded to pre-pandemic levels. In addition, there has been positive momentum across a number of leading indicators for ION's business, such as license rounds, tender activity, services engagements and backlog. Therefore, the Company remains cautiously optimistic market conditions will improve through the second half of 2021. The market backdrop serves as a catalyst to drive necessary cost restructuring and digital transformation of the E&P industry.

In January 2021, the Biden Administration ordered an indefinite moratorium on new U.S. oil and gas leasing and drilling permits on federal lands onshore and offshore waters. Management believes this will have a negligible impact on its business given the Company's diversified global footprint and international offshore focus. Should the moratorium result in longer-term change, this could drive large scale E&P company portfolio investment more towards international offshore, which would be well aligned with the Company's offerings.

The Company 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 pandemic, project high grading will likely be more acute due to budget reductions. Over the last several years, the Company had strategically shifted its 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, the Company believes 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, such as offerings that facilitate remote working.

ION continues to work closely with its clients to understand their budgets and spending priorities and to scale its business appropriately. The Company partially mitigated the impact of the current macroeconomic environment by fully benefiting from the structural changes and associated cost reductions totaling approximately $40 million through salary cuts, reduced capital expenditures, renegotiation of our current leases and application for various government assistance programs, among others. The management plan reflects the Company’s continued focus on preserving cash and managing liquidity in the current uncertain macroeconomic environment. In the event the Company’s customers experience more extensive capital constraint and budget reductions, further reducing demand for ION's services and products, resulting in deterioration of its revenues below its current forecasted levels, management may be required to update its plan by implementing further cost reductions and delaying capital investments. Refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for further details.

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in Footnote 1 “Summary of Significant Accounting Policies” of the Annual Report on Form 10-K for the year ended December 31, 2020. There have been no changes in such policies or the application of such policies during the three months ended March 31, 2021.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates are made at discrete points in time based on relevant market information. These estimates may be subjective in nature and involve uncertainties and matters of judgment and, therefore, cannot be determined with precision. Areas involving significant estimates include, but are not limited to, collectability of accounts and unbilled receivables, inventory valuation reserves, sales forecasts related to multi-client data library, impairment of property, plant and equipment and goodwill and deferred taxes. Actual results could materially differ from those estimates.

(2)

Segment Information

The Company evaluates and reviews its results of operations based on two reporting segments: E&P Technology & Services and Operations Optimization. Refer to Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information about each business segment’s business, products and services.

The segments represent components of the Company for which separate financial information is available that is utilized on a regular basis by the Chief Operating Decision Maker in determining how to allocate resources and evaluate performance. The Company measures segment operating results based on income (loss) from operations.

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A summary of segment information follows (in thousands):

	*Three Months Ended March 31,*
	*2021*		*2020*
Net revenues:
E&P Technology & Services:
New Venture	$	1,087	$	1,441
Data Library		2,484		40,131
Total multi-client revenues		3,571		41,572
Imaging and Reservoir Services		3,665		4,942
Total	$	7,236	$	46,514
Operations Optimization:
Optimization Software & Services	$	2,844	$

SEC Form 10-Q filed by Ion Geophysical Corporation