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2018 ION Investor Day Presentation
2018 ION Investor Day Presentation
Disrupting Decision-making
New York, NY
May 18, 2018
Disclaimers
Forward-Looking Statements
The information herein contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may include information and other statements that
are not of historical fact. Actual results may vary materially from those described in these forward-looking statements. All forward-looking
statements reflect numerous assumptions and involve a number of risks and uncertainties. These risks and uncertainties include the risks
associated with the timing and development of ION Geophysical Corporation's products and services; pricing pressure; decreased
demand; changes in oil prices; and political, execution, regulatory, and currency risks. These risks and uncertainties also include risks
associated with the WesternGeco litigation and other related proceedings. We cannot predict the outcome of this litigation or the related
proceedings. For additional information regarding these various risks and uncertainties, including the WesternGeco litigation, see our
Form 10-K for the year ended December 31, 2017, filed on February 8, 2018. Additional risk factors, which could affect actual results, are
disclosed by the Company in its fillings with the Securities and Exchange Commission ("SEC"), including its Form 10-K, Form 10-Qs and
Form 8-Ks filed during the year. The Company expressly disclaims any obligation to revise or update any forward-looking statements.
This presentation contains certain non-GAAP financial measures. These measures should not be considered in isolation or as a
substitute for measures prepared in accordance with GAAP. These non-GAAP measures should be evaluated only in connection with our
GAAP results, including those in our Form 10-K. Reconciliations of these non-GAAP measures to the most directly comparable GAAP
measures are in the appendix.
2
Agenda Agenda
8:30 - 9:05 ION Overview
9:05 - 9:50 E&P Technology & Services
9:50 - 10:00 Break
10:00 - 10:45 Operations Optimization
10:45 - 11:20 Ocean Bottom Integrated Technologies
Rachel White
VP, Investor Relations
and Communications
ION at a Glance
50 years in business
HEADQUARTERS 23 years on the NYSE (ticker: IO)
HOUSTON,
TEXAS
$400B E&P market
$198M 2017 revenue
$64M 2017 Adjusted EBITDA
ABOUT
5
Decision-making: From Art to Science
Cost Savings
Delivers efficiencies and HSE Improvements
powerful new capabilities for Operational and Automation, sensors
smarter exploration, easier production efficiency, and alarms to
capital and resource de-man operations,
capture, and safer operations allocation improvements improve maintenance
with better utilized resources and prevent incidents
Enabled by new Cloud Internet of Big data & Automation & Artificial
technologies computing Things analytics robotics intelligence
Ocean Bottom
E&P Technology & Services Operations Optimization
Integrated Technologies
Create digital data assets and Develop mission-critical subscription Integrate ION’s advanced
deliver services that improve offerings and engineering services technologies to accelerate data
decision-making, mitigate risk and that enable operational control and capture and delivery for enhanced
maximize portfolio value. optimization. reservoir decision-making, and
improved returns.
8
Experienced, Highly Capable Leadership Team
Proven Track Records Delivering Returns in Technology & Energy
Cash flow growth allows Cash flow declines, forces Cash flow growth allows
increased investment spending cuts increased investment Landscape
Today
Production undershoots
demand
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
E&P market recovering: healthy global demand and continued OPEC production cuts
Operational cash flow growth: provides opportunity for increased investment
Offerings aligned to market drivers in asset light business models that deliver high returns
Move closer
De-lever Diversify
to reservoir
• Shift business closer to the • Took out $70M debt over • Opportunities to diversify our
reservoir, where capital is last 3 years during downturn technologies into larger, less
flowing, while maintaining our • Raised $47M capital cyclical adjacent markets
exploration offerings for when • Developed a framework for
• Sold warrants for potential
activity resumes identifying, evaluating and
+$61M by March 2019
- 3D multi-client reimaging penetrating adjacent markets
• Leverage ratio ~1X trailing
programs • Evaluating where to focus our
12 months EBITDA
- High-end imaging and resources for the best return
• Positions us to pay $121M
reservoir characterization
bond due in 2021 and be
projects
debt-free
- Commercialization of 4Sea
14 components across ION
Financial Highlights
173 38%
198 64
$ MILLION $ MILLION
64 21%
75
$ MILLION
~1X
TRAILING 12 MONTHS ADJ. EBITDA REVENUE
11
15 Adjusted EBITDA is a non-GAAP financial measure. See the appendix for reconciliations to their comparable GAAP measures.
Strong Growth Trajectory
30 30 35%
30%
25 25
25%
20 20
20%
15 15
15%
10 10
10%
5 5 5%
0 0 0%
Q1-16 Q1-17 Q1-18 Q1-16 Q1-17 Q1-18 2015 2016 2017
16
Driving Shareholder Returns
Higher Gross Margin and Return on Tangible Capital
2017 Return on
Margin 2015 2016 2017 Company Type
Tangible Capital
17 (1) Peer group includes CGG, PGS and PLCS. (2) See the appendix for the calculation of Return on Tangible Capital.
Major Potential Growth Wedges with High Earnings Potential
Rachel White
VP, Investor Relations
and Communications
Agenda Agenda
8:30 - 9:05 ION Overview
9:05 - 9:50 E&P Technology & Services
9:50 - 10:00 Break
10:00 - 10:45 Operations Optimization
10:45 - 11:20 Ocean Bottom Integrated Technologies
Ken Williamson
EVP & COO, E&P
Technology and Services
E&P Technology & Services
Ocean Bottom
E&P Technology & Services Operations Optimization
Integrated Technologies
Multi-client
Imaging Services
E&P Advisors
– Ken
600,000 Km 2D Library – Rapid delivery of high quality imaging – E&P arm of ION
Williamson
over large areas create and capture value
– EVP
210,000 sq km 3D Library
added or in progress – Advanced imaging / velocity model – License round management
estimation
– History of innovation
23
Multi-client
A core business for ION
– Leveraging ION’s technology and capability
– Track record on portfolio returns
Evolution to 3D Library
– Added or in progress ~210,000 sq km since 2016
→ Global footprint
→ Major centers in London, Houston
→ Strategically located data centers
(Brazil, W Africa, Mexico, Egypt)
→ Technology
→ Industry recognized Tier 1 provider
→ Track record of driving breakthroughs in key technologies
→ Centralized private-cloud compute
→ Industry leading efficiency - proprietary software platform
Project heat map , Major Operations Centers Data Processing Centers
→ Experience
→ 600+ projects worldwide to date
→ Significant OBS experience
Leading Geophysical Massively Scalable Rapid delivery of large
Technology (FWI) S/W infrastructure volumes
ION E&P Advisors
UPSTREAM TECHNICAL, COMMERCIAL & STRATEGIC ADVISORY
Commercialization of capabilities
ION’s Multi-client Library
Program Assurance & Risk Mitigation
Prospectively assessment
Reservoir Characterization
Integrated offering with Imaging Services
Service business model
Host Gov.
NOC
Assets
• Data Library
Bus. Dev • Success based Imaging Tier 1 Imaging Service
rights Global Experience
Sales Svc
• Access Rights Industry Reputation – Service Quality
with Host Gov
E&P
Operators
E&P
Advisors
E&P Perspective
Technical, Commercial & Strategic Advice across E&P Life Cycle
Where is E&P Capital Flowing and Why?
Value vs Volume
– Previous upturn cycle focused on volume, increasing reserves
– Next cycle expected to focus on finding best value
2050
Production Optimization Efficient Exploration
2035
Right-size plans to cost-effectively Quickly and cost-effectively identify
maximize recovery from reservoirs and evaluate opportunities
Development plans and Lower cost operating environments
infrastructure Refocusing portfolios to lower
break-even plays
2014
2015
2016
2017
* Does not include test activity, where well was shut-down after completion, ** Vito and Kaikas with 2016 figures, the remaining with 2017. Breakevens exclude exploration, land acquisitions and signature bonuses
30 Source: Rystad Energy NASWellCube Premium; Rystad Energy research and analysis; Company data
Oil Company Views on Round Terms
Transparency and data availability key for licensing rounds
When participating in license rounds, how do you rank the following in terms of importance?
LEGEND
Rounds added since Oct. 2017
2017-19 Licensing Rounds
ION DATA LIBRARY
3D Programs
BasinSPANs
50 80%
40
60%
30
40%
20
10 20%
0 0%
2017 2018 2019
32
Themes for 2018 and Beyond ?
What to Expect
12
Fewer basins/plays that will work based on longer term
economics and fewer explorers
10
2006 07 08 09 10 11 12 13 14 15 16
33 *Statoil, ENI, BP, Total, Shell, Repsol, Chevron, Exxon, Conoco. Source: Company data, SB1 Markets, Factset
Key Strategies to Lead the Recovery & Outperform the Market
Next Cycle Focused on Value vs Volume (Reserves Replacement)
Offerings aligned to market drivers in asset light business models that deliver high returns
New measurements
New acquisition technology/methods
Ocean Bottom Seismic
3rd Generation
Information Content
1st Generation
Data processing
Cloud adoption
36
3D Reimaging Activity
37
Driving Value Creation
Prospectivity Index
Fiscal Attractiveness Index
Integrated Technical, Commercial and Strategic Approach
The result: maximum investor interest; maximum value preservation for the
State
ION Activity
Business models 2 Projects completed
1 Significant project with >50 Marginal field complete
– Service model scope economic evaluations
8 100 12
7
Number of Programs
In Development
80 10 3D Repro
Number of Programs
Investment Multiple (IM)
6
8 2D Repro
5 60
6 SPAN
4 40
4 3D Repro
In Progress
3
20 2D Repro
2 2
SPAN
1 - 0
SPAN 2D 3D License 2015 2016 2017 2018
Reimage Reimage Round
Advisory
Multiple target range
Multiple life to date – Increased velocity of new Multi-client program activity ‘16 - ’18
Multiple Projected for Investment to date – Weighted towards higher return re-imaging programs
Number of Programs – Programs are aligned where capital is flowing
40
Imaging Services Strategic Focus
Investment Multiples
Strategic
Proprietary Imaging Customer / Problem / Technology Dev opportunity
SPAN Basin
Building / Expanding relevant experience
2D Repro
OBN
3D Repro
Expanding capabilities
License Round Advisory
0 1 2 3 4 5 6 7 8 9 10
FWI / Inversion based flows
Cost Stay on the cutting edge of this development
41
Financial Evolution
Ken Williamson
EVP & COO, E&P
Technology and Services
Agenda Agenda
8:30 - 9:05 ION Overview
9:05 - 9:50 E&P Technology & Services
9:50 - 10:00 Break
10:00 - 10:45 Operations Optimization
10:45 - 11:20 Ocean Bottom Integrated Technologies
Agenda Agenda
8:30 - 9:05 ION Overview
9:05 - 9:50 E&P Technology & Services
9:50 - 10:00 Break
10:00 - 10:45 Operations Optimization
10:45 - 11:20 Ocean Bottom Integrated Technologies
Chris Usher
EVP & COO, Operations
Optimization
Operations Optimization
Ocean Bottom
E&P Technology & Services Operations Optimization
Integrated Technologies
Develop mission-critical subscription offerings and engineering
services that enable operational control and optimization.
47
Broad Core Competencies to Develop Cutting-edge Technology
Engineering Telemetry
Offerings aligned to market drivers in asset light business models that deliver high returns
Common UI,
GIS &
Offshore Wind Marine Robotics
Reporting
Farms
Marlin
Inside
26
26
Diversification
Software
Harbor Security & Military AUVs
Port Management
Cloud computing
– Linking onshore and offshore
stakeholders
Artificial intelligence
– Autonomous vessels
– De-manning operations
Internet of Things
– An explosion of sensors drives
IoT, focusing on data analytics
51
Digitalization Shaping Modern Business
Enabling a “Data Analytics Maturity Model” Offshore
Software Revenue ($M) Devices Revenue ($M) Offshore Services Revenue ($M)
100 5
40
30 75 4
20 3
50
10 2
25
0 1
FY14 FY15 FY16 FY17 0 0
Marlin Software Core Software FY14 FY15 FY16 FY17 FY14 FY15 FY16 FY17
53
Software
Leading Data Integration Platform Controls and Optimizes Operations in Real-time
55
Marlin: Air Traffic Control for Marine Environment
Diverse Market
Applications
E&P Offshore Wind Port Mgmt Harbor Security Shipping
Marlin Software:
Enhanced, real-time Proprietary Application Layer
situational awareness
to optimize decisions Integrated GIS Visualization Layer
• Cloud-based
• Dashboards
• Playback Proprietary Data Management Platform
• Open platform…
Diverse Data Inputs GPS/AIS Environmental data Radar Operational plans GIS
57 Source: Icons Courtesy FreePik
The Marlin Platform
Global Oversight to “Street Level” Views and Diagnostics
Inputs
Moving objects via AIS/GPS
Relevant IoT Data
Weather / Waves & Currents
GIS remote sensing
Regulatory Rules
Operational plans & observations
Output
KPI Dashboards
Route Optimization
Audit/Playback
58
Adjacent Market Prospects & Prioritization
Focus Other
Offshore Wind The OECD predicted in 2016 that offshore Marine Robotics
Farms wind power will grow to 8% of ocean
economy by 2030, adding $230B of value.1
Harbor Security & The maritime security market was Military AUVs
Port Management valued at $15B in 2015, and it is
projected to reach USD 21B by 2020 at a
CAGR of 6.72%.2
E&P Supply Vessels The global offshore support vessel Ice Management
market is estimated to be $16B in 2017,
and is expected to grow at a CAGR of
4.92%, from 2017 to 2021.3
Software Software
59 Sources: 1The Ocean Economy in 2030, OECD Publishing, Paris; 2 Oil&Gas360, March 30, 2017; 3 BusinessWIre, November 9, 2017; Icons courtesy FreePik
Devices & Offshore Services
Real-time positioning and control of in-water Offshore engineering and consulting services
devices for marine data collection to optimize E&P offshore projects
– Decades of Positioning leadership in seismic – Working onshore and offshore to plan and
– Poised to change towing paradigms execute complex operations for customers
– Adjacent Market traction with existing offerings – Customizing our technology, and innovating to
fill gaps in existing workflows
Controlling
operations as big
as the Big Apple
Largest moving
objects on the
planet
1.7 x 10 km
deployment
overlaid on
Manhattan
60
SailWing vs. Traditional Diverters
Towing Energy Sources
ION Command
& Control Software
Device float
Actuator
source positioning
SailWing
innovative foil diverter
62
Adjacent Market Use Cases
Smart and Elegant Diverting, Control
Commercial Fishing,
Trawl Control…
63
ION’s 321 Optical Digital Compass
Patented and Proven Technology
3.5”
Can eliminate the need for in-theater ION’s Magnetic Observatory / Heading
calibration with proper integration Calibration facility
64
Example Use Case
Improved Navigation Performance in GPS-Deprived Environments
3 AXIS
SERVO
SENSOR
CAL
STAND
BILLINGSLEY
CLOSED-LOOP FEEDBACK SYSTEM
HELMHOLTZ CONTROLLER
PROCESS
ENCODER FEEDBACK
ION can simulate complete instrument Typically <1% location error in GPS-
operation in any magnetic environment deprived environments over long ranges
worldwide in our Helmholtz lab
0.02km
Φ
END 2.0km START
65
Adjacent Market Use Cases
Long Underwater Missions, Improved Navigation
Acoustic Doppler
Current Measurement
Buoys…
3 AXIS
Extended Mission
SERVO
SENSOR
Wave-gliders
CAL
STAND
BILLINGSLEY
CLOSED-LOOP FEEDBACK SYSTEM
HELMHOLTZ CONTROLLER
PROCESS
ENCODER FEEDBACK
New Underwater
Acoustic Comms
Protocols…
66
Adjacent Market Prospects & Prioritization
Focus
68
Agenda Agenda
8:30 - 9:05 ION Overview
9:05 - 9:50 E&P Technology & Services
9:50 - 10:00 Break
10:00 - 10:45 Operations Optimization
10:45 - 11:20 Ocean Bottom Integrated Technologies
Colin Hulme
EVP, Strategic Marketing and
New Technologies
Key Strategies to Lead the Recovery & Outperform the Market
Next Cycle Focused on Value vs Volume (Reserves Replacement)
Offerings aligned to market drivers in asset light business models that deliver high returns
71
OBS Market Update
1400 25%
1200
20%
OBS spend ($ Millions)
800 15%
46%
600 10%
70%
400
5%
200
0 0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E
73
OBS Demand Growth into New Market Segments
Driven By Technology Turn
OBS 4D Seismic
OBS Future (Full Azimuth / Obstructed) (Towed Streamer
or OBS)
Increasing Cost
OBS Future
OBS Future
Production 3D OBS Technology Turns
WAZ / RAZ / Coil 3D
Increasing efficiency
– Reducing cost
Exploration 3D
Faster data delivery
Towed Streamer
Exploration 2D – Enabling improved
reservoir decisions
Ocean Bottom
Regional 2D
FIRST OIL
ABANDON
LEASE
Frontier
DRILL
Risk Knowledge
E&P Lifecycle
74
Ocean Bottom Crews – Supply Side
We are in a technology turn
75
Next Generation First Fully Integrated Nodal System: 4Sea
Improving the business relevance of OBS data to E&P companies
Improving economics
– Big gains in operational efficiency
– Commercially viable in more fields
77
Next Generation First Fully Integrated Nodal System: 4Sea
Leveraging ION’s Core Competencies
Operations Optimization
– Industry-leading Command & Control system
Operations Optimization
– Industry-leading Command & Control system
– Marlin situational awareness & optimization
– Software platform for additional functionality
82
Ocean Bottom Integrated Technologies
Ocean Bottom
E&P Technology & Services Operations Optimization
Integrated Technologies
Participate in growing,
production-focused $1B ocean
Integrate ION’s advanced bottom seismic (OBS) market
technologies to accelerate OBS
data capture and delivery for
Expand market share through
enhanced reservoir decision- technology differentiation
making, and improved returns.
Deliver step change in image
quality, cost, QHSE and
turnaround time
83
Questions and Answers
Colin Hulme
EVP, Strategic Marketing and
New Technologies
Exciting Opportunities in Data-Driven Decision Optimization
(5.80)
$11
$0
$(6.00)
FY-16 FY-17 FY-16 FY-17 Continued strong backlog of $39M at Dec-
17, vs $40M at Sep-17 and $34M at Dec-16
87 Adjusted EPS and Adjusted EBITDA are non-GAAP financial measures. See the appendix for reconciliations to their comparable GAAP measures.
ION Q1-18 Financial Highlights
Revenue $M Backlog $M
$40 $40
Revenues up 3% vs Q1-17
$35
$(1.00)
(1.34)
$0
$(45)k
$128k Adjusted EBITDA of $128k vs $(45k) in prior year
(1.55)
$(1.50) – 7th consecutive quarter of break-even or better
-$1
$(2.00) Q1-17 Q1-18
Adjusted EBITDA
Q1-17 Q1-18
88 Adjusted EPS and Adjusted EBITDA are non-GAAP financial measures. See the appendix for reconciliations to their comparable GAAP measures.
ION Financial Overview
Cash Flow $M
89
ION Financial Overview
Cash Flow $M
Twelve Months Ended December 31, Three Months Ended March 31,
2017 2016 2018 2017
Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles and should not be
considered in isolation from or as a substitute for net income (loss) or cash flow measures prepared in accordance with generally
accepted accounting principles or as a measure of profitability or liquidity. Adjusted EBITDA may not be comparable to other similarly
titled measures of other companies. The Company has included Adjusted EBITDA as a supplemental disclosure because its
management believes that Adjusted EBITDA provides investors a helpful measure for comparing its operating performance with the
performance of other companies that have different financing and capital structures or tax rates.
91
Reconciliation of Non-GAAP Financial Measures
Adjusted Net Income (Loss) (in thousands)
Twelve Months Ended December 31, 2017 Twelve Months Ended December 31, 2016 Three Months Ended March 31, 2018 Three Months Ended March 31, 2017
Special Special Special Special
As Reported Items As Adjusted As Reported Items As Adjusted As Reported Items As Adjusted As Reported Items As Adjusted
Net revenues $ 197,554 $ — $ 197,554 $ 172,808 $ — $ 172,808 Net revenues $ 33,508 $ — $ 33,508 $ 32,556 $ — $ 32,556
Cost of sales 121,915 — 121,915 136,776 (1,077) (3)
135,699 Cost of sales 26,655 — 26,655 26,455 — 26,455
Gross profit 75,639 — 75,639 36,032 1,077 37,109 Gross profit 6,853 — 6,853 6,101 — 6,101
Operating expenses 84,338 (6,141) (1)
78,197 79,203 (932) (3)
78,271 Operating expenses 19,493 (1,243) (1)
18,250 20,013 — 20,013
Loss from operations (8,699) 6,141 (2,558) (43,171) 2,009 (41,162) Loss from operations (12,640) 1,243 (11,397) (13,912) — (13,912)
Interest expense, net (16,709) — (16,709) (18,485) — (18,485) Interest expense, net (3,836) — (3,836) (4,464) — (4,464)
Other income (expense), net (3,945) 5,000 (2)
1,055 1,350 (2,969) (4)
(1,619) Other expense, net (791) — (791) (5,068) 5,000 (2)
(68)
Income tax expense 24 — 24 4,421 — 4,421 Income tax expense (benefit) 1,072 — 1,072 (418) (418)
Net loss (29,377) 11,141 (18,236) (64,727) (960) (65,687) Net loss (18,339) 1,243 (17,096) (23,026) 5,000 (18,026)
Net income attributable to Net income attributable to
noncontrolling interests (865) — (865) (421) — (421) noncontrolling interest (87) — (87) (316) — (316)
Net loss applicable to ION $ (30,242) $ 11,141 $ (19,101) $ (65,148) $ (960) $ (66,108) Net loss attributable to ION $ (18,426) $ 1,243 $ (17,183) $ (23,342) $ 5,000 $ (18,342)
Net loss per share: Net loss per share:
Basic $ (2.55) $ (1.61) $ (5.71) $ (5.80) Basic $ (1.44) $ (1.34) $ (1.98) $ (1.55)
Diluted $ (2.55) $ (1.61) $ (5.71) $ (5.80) Diluted $ (1.44) $ (1.34) $ (1.98) $ (1.55)
The financial results are reported in accordance with GAAP. However, management believes that certain non-GAAP performance measures may
provide users of this financial information, additional meaningful comparisons between current results and results in prior operating periods. This
adjusted income (loss) amount is not a measure of financial performance under GAAP. Accordingly, it should not be considered as a substitute for
income (loss) from operations, net income (loss) or other income data prepared in accordance with GAAP.
92
Calculation of Return on Tangible Capital
(in thousands)
Twelve Months Ended
December 31, 2017
Income from operations before DD&A, after investments in Data Library and PP&E
Loss from operations $ (8,699)
Add: Depreciation and amortization expense 65,998
Less: Investment in mult-client data library 23,710
Less: Purchase of property, plant and equipment 1,063
Income from operations before DD&A, after investments in Data Library and PP&E $ 32,526
Tangible capital:
Total assets $ 301,069
Less: Cash and cash equivalents 52,056
Less: Goodwill 24,089
Less: Intangible assets, net 1,666
Net tangible assets $ 223,258
To calculate Return on Tangible Capital, income (loss) from operations is adjusted for depreciation and amortization expense, then
reduced by investments in multi-client data library and purchases of property, plant and equipment. This adjusted income (loss) from
operations is applied to net tangible capital. Net tangible capital is calculated as total assets less cash and cash equivalents, goodwill
and intangible assets (net), net of current liabilities excluding current maturities of long-term debt.
93