Ion Geophysical Corporation

Greetings, and welcome to the ION Geophysical Fourth Quarter Earnings Conference Call. At this time, our participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anybody should require assistance during the conference, please press star zero on your telephone. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Rachel White, Vice President, Investor Relations. Thank you. You may begin.

Good morning, and welcome to ION's fourth quarter 2020 earnings conference call. We appreciate your joining us today. As indicated on slide two, our hosts today are Chris Usher, President and Chief Executive Officer, and Mike Morrison, Executive Vice President and Chief Financial Officer. We will be using slides to accompany today's call, which are accessible via a link on our website, iongeo.com. There you will also find a replay of today's call. Before we begin, let me remind you that certain statements made during this call may constitute forward-looking statements. These statements are subject to various risks and uncertainties, including those detailed in our latest 10-K and other SEC filings, including our recent registration statement, which may cause our results or performance to differ materially from those projected in the statement. Our remarks today may also include non-GAAP financial measures. Additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures, can be found in our earnings release issued yesterday. I'll now turn the call over to Chris, who will be in on slide four.

Thank you, Rachel. Good morning, everyone, and thanks again for joining us today. Today I'll discuss our fourth quarter and full-year performance, strategy execution progress, and operational highlights. Mike will elaborate on our financial results and bond restructuring support agreement. Then I will wrap up with our outlook and strategic elements for success in a rapidly evolving market that presents exciting new energy transition and digitalization opportunities. Given considerable press coverage in the U.S., I will also touch on what we believe to be the negligible impact on our business of the Biden administration's brief suspension on oil and gas leasing and drilling permits, given ION's diversified global footprint and international offshore focus. We've delivered substantial sequential improvement in our revenue and earnings in the fourth quarter. We continue to benefit from the refined strategy, cost cuts, and digital approach we outlined in early 2020. While our annual revenue decline is consistent with the contraction in E&P spending, our net loss improved, by $11 million year over year, primarily due to the previously mentioned strategic structural changes and associated cost reduction. As expected, the impact of COVID-19 and associated oil price volatility was most pronounced on our new ventures program activity and our offshore services and equipment sales. Given that data sales tend to be disproportionately impacted by budget cuts, and our sector saw a nearly 50% decrease in multi-client data spend in 2020, I am encouraged with our relative performance for the year. I am also pleased with the progress we made executing our refined strategy this year in spite of unprecedented macroeconomic disruptions. We successfully acquired the initial phase of our mid-North Sea High 3D multi-client program and built backlog for the significantly larger second phase this summer. We commercialized our proprietary Gemini source technology, now seen as the key ingredient for unveiling better 3D images, the de-risk drilling, and the complex geological settings where customers continue to invest. The combination of our entry into the 3D new acquisition multi-client market and commercialization of Gemini enabled us to increase our backlog the last two quarters, reversing several consecutive quarters of steady decline. We continued to build out our successful portfolio of low-cost, high-return 3D data re-imaging programs and started benefiting commercially from the global 2D data collaboration we signed with PGS in June 2020. We installed our first Marlin smart port system, demonstrated several new valuable use cases through pilot projects outside of our core market, and won a highly competitive tender for 17 additional ports. A qualified pipeline to optimize port operations and maritime energy logistics is building respectively, and I will provide more details on that shortly. We have also advanced our market testing for new ESV-compliant offerings. ION's digitalization push across our traditional processes continues to benefit the company. For example, we leverage machine learning to accelerate turnaround and improve 3D images on new full waveform inversion workflows, tightening collaboration with key clients. Using artificial intelligence, new automated source and vessel steering technology enabled customers to improve accuracy in 4D reservoir monitoring services. We also leveraged new digital engagement tools to better connect with customers and joined the AWS partner network to accelerate our cloud offerings. Lastly, from a corporate perspective, we settled a decade-long patent litigation with Western Geco and that's the divestiture of ION's non-strategic equity interest in the Innova joint venture and agreed terms to extend our bond maturity four years to 2025. In our E&P technology and services business, while we had anticipated lower new venture activity in 2020 due to the impact of COVID-19, our data library sales were more resilient, declining only modestly compared to prior year. In fact, well over 50% of our multi-client data sales in 2020 were 2D in a very tough year for expiration, highlighting the value of this global asset. This was driven primarily due to shifts in the customer landscape, new data access frameworks, and the increasing need for E&P clients to high-grade their portfolios for better returns as we enter the energy transition. Furthermore, we are delighted with how that global 2D data collaboration agreement we announced with PGS has progressed. There has been enthusiastic engagement to jointly market the aggregate of nearly 1 million kilometers of data, and both companies are commercially benefiting from more diversified exposure to shared deals globally. In the spirit of the agreement, we are also collaborating on several license-round data packages and reviewing new joint 2D programs. More strategically, as mentioned last quarter, we achieved a top 2020 ION objective to enter the 3D new acquisition multi-client segment with our Mid-North Sea High project, tapping a larger addressable market for us. Our historical focus on 2D exploration data products has constrained us to only 3% of the expansive $2 billion to $3 billion global offshore multi-client market, which is now dominated by 3D data. Importantly, this portfolio pivot towards 3D, which we commenced initially through 3D digital remastering and re-imaging, will shift our new product investment closer to the reservoir, where customer spend tends to be more consistent and programs have larger scale revenue and earnings potential. We believe we can materially increase our market share, even without significant improvement in the industry. This is premised on our combination of 3D multi-client data re-imaging success, our Tier 1 imaging credentials, in our new Gemini seismic source technology. Clients have now had significant exposure to the quality of the ion offering through our nearly 350,000 square kilometers of 3D re-imaging program. Our experience and relationships creating 2D programs translates very well to the 3D program generation. To put the scale into perspective, typical new 3D towed streamer surveys cost between $20 to $40 million, with about five times the revenue and earnings potential of a new 2D program, and at least twice the revenue and earnings potential of a 3D re-imaging program. Our mid-north state high 3D survey will soon provide needed data coverage over more than 14,000 square kilometers of one of the few underexplored sections of the UK continental shelf. Phase 1 data was collected in Q3 of 2020. Play opening drilling and our Phase 1 fast-track imaging results are rallying support for Phase 2, where we have secured permits and underwriting for the main seismic campaign this summer. we will deliver final 3D data by mid-2022. Since our program launched, the UK has awarded additional acreage within the survey area, increasing the potential client base for this new data asset. The multi-client project pipeline reflects our shift, which began a year ago, towards new 3D programs. Approximately two-thirds of the leads are now 3D, evidence of our credibility as an emerging 3D multi-client player, and is stuck with an established seat at the table moving forward. Since commercializing Gemini in September, E&P companies have specified our innovative extended frequency source in a number of tenders. Gemini has been deployed on its first proprietary 90-day project for Supermajor operating in the Middle East. In this long-offset 3D code streamer survey, Gemini's unique source spectrum will efficiently improve subsurface characterization with considerably less environmental impact. Our innovative energy source significantly extends low frequencies while limiting higher frequencies to a more ecologically friendly range. In order to meet market demand, we are building Gemini capacity and seeking regulatory approval in additional jurisdictions. This new ingredient for improving subsurface information differentiates ION as we expand into the larger 3D multi-client market while maintaining our asset-light approach. We continue to commit the majority of ION's imaging capacity to distinguish our multi-client offerings and deploy the balance of resources on challenging proprietary projects that keep ION's Tier 1 imaging tools sharp and relevant. This year, we had high praise from our clients for outstanding results in complex geology spanning the Middle East, Brazil, and West Africa. We earned accolades and repeat work for imaging improvements achieved using ION's proprietary toolkit, including full waveform inversion and least-worth RTM on 3D and 4D streamer and seabed nodal projects where our virtual teams managed very tight exploration or development timelines. Despite radically shifted work methods in 2020, I've been really impressed by our advances in cutting-edge algorithms and the use of artificial intelligence to enhance subsurface imaging, ultimately improving client decision-making. This success led to several umbrella contracts with key customers, which will help de-risk our 2021 revenue plan. Our operations optimization group, which primarily caters to acquisition contractors, has been impacted by the approximately 40% reduction in offshore seismic activity this year. During industry downturns, Most of our software revenue stems from large multi-year command and control subscription. In spite of the distressed market, we secured seven such contracts this year. Although we don't treat these long-term contracts as backlog, this recurring revenue lease model provides stability for our software business. While we have been focused on diversifying our offerings outside our core market for some time, it has become increasingly important given the slowdown in seismic activity. We are leveraging our technologies and core competencies across software and devices to to optimize decision-making in new maritime markets such as port operations, energy logistics, and real-time infrastructure monitoring. In our software group, we continue to gain traction around our Marlin platform through trials and tenders. We cannot disclose details of the competitive tender we initially announced on our third quarter earnings call in November. Our Marlin SmartPort software will supply port management services to 17 of CalMAX harbors over an initial four-year term. CalMAX Ferries is the UK's largest ferry operator, managing 29 routes to over 50 destinations across 200 miles of Scotland's west coast. Marlin Smartport will support CalMac's modernization program to enhance efficiency, improve the customer experience, and reduce environmental impact. This award validates the competitiveness of our offering and demonstrates Marlin Smartport's breadth to support a wide range of applications, including port and ferry management. Several Marlin trials were underway this quarter for both ports and port-to-platform logistics. We are optimistic about accelerating adoption given the range of valuable use cases uncovered through these deployments. Our team is laser-focused on identifying and optimizing the most expensive aspects of offshore operations to maximize client value. Marlin is the only system that links vessel plans and schedules to live offshore activities, providing greater control and transparency in the management of offshore operations. By monitoring plans and providing feedback in real time, Clients can minimize fuel consumption, decrease emissions, and operate with just-in-time efficiency. In a large port-to-platform logistics trial, we completed a highly successful proof-of-concept with an E&P major and are now entering into discussions for what we hope will be a long-term contract. The offshore costs of transporting cargo can be 10 times higher than onshore costs, which Marlin can help reduce by identifying operational efficiency gains. The largest variable expense associated with offshore transit is fuel. When vessel route plans prescribed slower steaming to destination, a 10% reduction in speed can yield up to a 19% reduction in fuel burn, which can significantly reduce costs and emissions. Based on initial results, we see our clients' investment in the Marlin platform yielding a rapid payback and multi-sold return on their investment, making it attractive for near-term implementation. This multi-month project also helped us clarify valuable development requirements for vessel scheduling, planning, and activity tracking common across a number of Marlin opportunities. Between trials and tenders, we are building a robust pipeline of prospects across maritime energy logistics and port operations and believe we are now in position to convert a healthy portion of these opportunities to revenue in 2021. We are expanding our revenue potential in the space through two primary avenues. First, We work through direct outreach for partners to launch pilot projects, quickly demonstrate value, and then progress to pay subscriptions for near-term revenue. Secondly, we are responding directly to tenders for port and logistic software or providing the software SimOps component within much larger offshore infrastructure tenders. In 2020, ION joined the AWS Partner Network as a collaborative effort to accelerate development of our cloud solutions and provide faster adoption of our cloud-enabled products. AWS helps partner companies to build, market, and sell their offerings by leveraging the immense AWS ecosystem. Access to this broad partner network allows us to connect with other companies within the ecosystem to explore relevant business opportunities, such as extending Marlin's functionality with new capabilities or data streams. Last quarter, our devices engineers enhanced our sailing system to include artificial intelligence-based automated source and vessel steering technology that improves 4D repeatability. To accurately image changes in reservoir fluid, seismic surveys need to be repeated as closely as possible in a dynamic marine environment. Based on achieving a 50% closer match to the desired positions during the sea trial, we secured backlog for one of our sailing systems for most of 2021. Our devices group is also progressing to promising adjacent market initiatives that are synergistic with our software business and have the potential to accelerate our diversification efforts across operations optimization. Our initial focus is to develop real-time monitoring solutions to address the challenge of increasingly aged offshore infrastructure and new decommissioning initiatives. We are directly addressing the E&P industry's focus on improving the safety and environmental compliance of offshore oil and gas operations, which aligns with our focus to provide data and analytics to enhance decision-making. Most regulators require subsea infrastructure to be inspected periodically, the frequency of which can vary from months to years. Typically, it's an expensive cursory inspection with high levels of uncertainty. Clients are seeking advancements in technology to cost-effectively shift from reactive to proactive systems that provide more frequent, accurate measurements to assure safe operating environments. We have advanced a promising concept with our new Well Alert branding to monitor wells. Our technology integrates subsea sensing and communications technologies to monitor temporarily plugged and abandoned wells. Well Alert provides on-demand sensor readings, system health and status checks without the need for costly ROV operations. Our prototype has been in development for a year and has attracted strong E&P interest. We are focused on securing funding for sea trials in 2021. We continue to develop defense and commercial interest in our demonstrated capabilities for managing potential waterside security threat. It's a longer wavelength business development cycle with defense customers. Following a successful initial demo at Antics 2019, we were invited back by the U.S. Navy to participate in a second pilot, which was canceled due to COVID-19 in 2020. We are now scheduled to participate in Coastal Trident 21 this summer, where we plan to showcase our progress. With that, I'll turn it over to Mike to walk us through the financials, and then I'll wrap up before taking questions.