UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERSeptember 30, 20192020
OR
¨☐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)
DELAWAREDelaware22-2286646
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
2105 CityWest Blvd. Suite 100
2105 CityWest Blvd. Suite 100
Houston, Texas77042-2839
(Address of principal executive offices)(Zip Code)
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 classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueIONew 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  ý☒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  ý☒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☒
Large accelerated fileroAccelerated filerý
Non-accelerated filer
o
☐		Smaller reporting companyo☐
Emerging growth companyo☐
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  ý☒
At October 28, 2019,November 2, 2020, there were 14,201,65014,993,474 shares of common stock, par value $0.01 per share, outstanding.
1


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS FOR FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 20192020
 
PAGE
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 20192020 and December 31, 20182019
3
Condensed Consolidated Statements of Operations for the three- and nine-months ended September 30, 20192020 and 20182019
4
Condensed Consolidated Statements of Comprehensive Loss for the three- and nine-months ended September 30, 20192020 and 20182019
5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20192020 and 20182019
6
Condensed Consolidated Statements of Stockholders' (Deficit) EquityDeficit for the three- and nine-months ended September 30, 20192020 and 20182019
7
Footnotes to Condensed Consolidated Financial Statements
9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2729
Item 3. Quantitative and Qualitative Disclosures about Market Risk
3740
Item 4. Controls and Procedures
3740
PART II. Other Information
Item 1. Legal Proceedings
3841
Item 1A. Risk Factors
3942
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
4044
Item 5. Other Information
4045
Item 6. Exhibits
4146
2


PART I. FINANCIAL INFORMATION
Item 1.Financial Statements


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, 2019 December 31, 2018September 30, 2020December 31, 2019
(In thousands, except share data) (In thousands, except share data)
ASSETS   ASSETS
Current assets:   Current assets:
Cash and cash equivalents$27,894
 $33,551
Cash and cash equivalents$51,056 $33,065 
Accounts receivable, net23,832
 26,128
Accounts receivable, net8,288 29,548 
Unbilled receivables30,990
 44,032
Unbilled receivables9,629 11,815 
Inventories, net12,934
 14,130
Inventories, net11,873 12,187 
Prepaid expenses and other current assets6,626
 7,782
Prepaid expenses and other current assets5,861 6,012 
Total current assets102,276
 125,623
Total current assets86,707 92,627 
Deferred income tax asset, net8,435
 7,191
Deferred income tax asset, net8,092 8,734 
Property, plant and equipment, net12,903
 13,041
Property, plant and equipment, net11,227 13,188 
Multi-client data library, net69,723
 73,544
Multi-client data library, net53,289 60,384 
Goodwill22,276
 22,915
Goodwill18,684 23,585 
Right-of-use assets37,155
 47,803
Right-of-use assets37,730 32,546 
Other assets2,222
 2,435
Other assets2,136 2,130 
Total assets$254,990
 $292,552
Total assets$217,865 $233,194 
LIABILITIES AND (DEFICIT) EQUITY   
LIABILITIES AND DEFICITLIABILITIES AND DEFICIT
Current liabilities:   Current liabilities:
Current maturities of long-term debt$1,110
 $2,228
Current maturities of long-term debt$23,527 $2,107 
Accounts payable43,565
 34,913
Accounts payable35,107 49,316 
Accrued expenses42,807
 31,411
Accrued expenses29,197 30,328 
Accrued multi-client data library royalties17,514
 29,256
Accrued multi-client data library royalties20,534 18,831 
Deferred revenue5,310
 7,710
Deferred revenue2,156 4,551 
Current maturities of operating lease liabilities11,648
 12,214
Current maturities of operating lease liabilities6,727 11,055 
Total current liabilities121,954
 117,732
Total current liabilities117,248 116,188 
Long-term debt, net of current maturities119,402
 119,513
Long-term debt, net of current maturities119,349 119,352 
Operating lease liabilities, net of current maturities35,214
 45,592
Operating lease liabilities, net of current maturities40,380 30,833 
Other long-term liabilities1,526
 1,891
Other long-term liabilities412 1,453 
Total liabilities278,096
 284,728
Total liabilities277,389 267,826 
(Deficit) Equity:   
Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 14,201,650 and 14,015,615 shares at September 30, 2019 and December 31, 2018, respectively.142
 140
Deficit:Deficit:
Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 14,315,453 and 14,224,787 shares at September 30, 2020 and December 31, 2019, respectively.Common stock, $0.01 par value; authorized 26,666,667 shares; outstanding 14,315,453 and 14,224,787 shares at September 30, 2020 and December 31, 2019, respectively.144 142 
Additional paid-in capital955,705
 952,626
Additional paid-in capital958,189 956,647 
Accumulated deficit(959,797) (926,092)Accumulated deficit(998,380)(974,291)
Accumulated other comprehensive loss(21,440) (20,442)Accumulated other comprehensive loss(21,012)(19,318)
Total stockholders’ (deficit) equity(25,390) 6,232
Total stockholders’ deficitTotal stockholders’ deficit(61,059)(36,820)
Noncontrolling interest2,284
 1,592
Noncontrolling interest1,535 2,188 
Total (deficit) equity(23,106) 7,824
Total liabilities and (deficit) equity$254,990
 $292,552
Total deficitTotal deficit(59,524)(34,632)
Total liabilities and deficitTotal liabilities and deficit$217,865 $233,194 
See accompanying Footnotes to Condensed Consolidated Financial Statements.
3


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 2018 2020201920202019
(In thousands, except per share data) (In thousands, except per share data)
Service revenues$41,990
 $37,105
 $100,525
 $77,943
Service revenues$10,202 $41,990 $73,234 $100,525 
Product revenues11,249
 10,095
 31,445
 27,508
Product revenues6,032 11,249 22,145 31,445 
Total net revenues53,239
 47,200
 131,970
 105,451
Total net revenues16,234 53,239 95,379 131,970 
Cost of services22,690
 25,924
 61,931
 70,286
Cost of services11,491 22,690 47,033 61,931 
Cost of products5,261
 4,801
 15,256
 13,354
Cost of products3,454 5,261 12,962 15,256 
Impairment of multi-client data libraryImpairment of multi-client data library0 0 1,167 0 
Gross profit25,288
 16,475
 54,783
 21,811
Gross profit1,289 25,288 34,217 54,783 
Operating expenses:       Operating expenses:
Research, development and engineering4,878
 5,030
 15,421
 13,544
Research, development and engineering2,899 4,878 9,943 15,421 
Marketing and sales5,591
 5,209
 17,444
 16,314
Marketing and sales2,811 5,591 8,888 17,444 
General, administrative and other operating expenses10,961
 8,688
 36,550
 29,564
General, administrative and other operating expenses6,743 10,961 21,546 36,550 
Impairment of goodwillImpairment of goodwill0 0 4,150 0 
Total operating expenses21,430
 18,927
 69,415
 59,422
Total operating expenses12,453 21,430 44,527 69,415 
Income (loss) from operations3,858
 (2,452) (14,632) (37,611)Income (loss) from operations(11,164)3,858 (10,310)(14,632)
Interest expense, net(3,155) (3,022) (9,378) (9,769)Interest expense, net(3,669)(3,155)(10,304)(9,378)
Other income (expense), net(242) 91
 (938) (616)Other income (expense), net(525)(242)6,675 (938)
Income (loss) before income taxes461
 (5,383) (24,948) (47,996)Income (loss) before income taxes(15,358)461 (13,939)(24,948)
Income tax expense3,790
 2,079
 7,916
 3,305
Income tax expense1,056 3,790 9,982 7,916 
Net loss(3,329) (7,462) (32,864) (51,301)Net loss(16,414)(3,329)(23,921)(32,864)
Less: Net income attributable to noncontrolling interest(394) (74) (841) (527)Less: Net income attributable to noncontrolling interest(193)(394)(168)(841)
Net loss attributable to ION$(3,723) $(7,536) $(33,705) $(51,828)Net loss attributable to ION$(16,607)$(3,723)$(24,089)$(33,705)
Net loss per share:       Net loss per share:
Basic$(0.26) $(0.54) $(2.39) $(3.81)Basic$(1.16)$(0.26)$(1.69)$(2.39)
Diluted$(0.26) $(0.54) $(2.39) $(3.81)Diluted$(1.16)$(0.26)$(1.69)$(2.39)
Weighted average number of common shares outstanding:       Weighted average number of common shares outstanding:
Basic14,181
 14,003
 14,104
 13,586
Basic14,278 14,181 14,255 14,104 
Diluted14,181
 14,003
 14,104
 13,586
Diluted14,278 14,181 14,255 14,104 
See accompanying Footnotes to Condensed Consolidated Financial Statements.




4


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
(In thousands)
Net loss$(16,414)$(3,329)$(23,921)$(32,864)
Other comprehensive loss, net of taxes, as appropriate:
Foreign currency translation adjustments772 (1,028)(1,743)(998)
Comprehensive net loss(15,642)(4,357)(25,664)(33,862)
Comprehensive income attributable to noncontrolling interest(144)(394)(119)(841)
Comprehensive net loss attributable to ION$(15,786)$(4,751)$(25,783)$(34,703)
 Three Months Ended September 30, Nine Months Ended September 30,
 2019 2018 2019 2018
 (In thousands)
Net loss$(3,329) $(7,462) $(32,864) $(51,301)
Other comprehensive loss, net of taxes, as appropriate:       
Foreign currency translation adjustments(1,028) 43
 (998) (712)
Comprehensive net loss(4,357) (7,419) (33,862) (52,013)
Comprehensive income attributable to noncontrolling interest(394) (74) (841) (527)
Comprehensive net loss attributable to ION$(4,751) $(7,493) $(34,703) $(52,540)
See accompanying Footnotes to Condensed Consolidated Financial Statements.


5


ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 Nine Months Ended September 30,
 2019 2018
 (In thousands)
Cash flows from operating activities:   
Net loss$(32,864) $(51,301)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:   
Depreciation and amortization (other than multi-client data library)2,903
 6,902
Amortization of multi-client data library29,787
 32,544
Stock-based compensation expense3,736
 2,508
Deferred income taxes(1,248) (2,310)
Changes in operating assets and liabilities:   
Accounts receivable2,115
 (4,383)
Unbilled receivables12,772
 13,156
Inventories729
 (646)
Accounts payable, accrued expenses and accrued royalties1,528
 (9,567)
Deferred revenue(2,398) 1,479
Other assets and liabilities2,244
 4,294
Net cash provided by (used in) operating activities19,304
 (7,324)
Cash flows from investing activities:   
Investment in multi-client data library(21,225) (19,911)
Purchase of property, plant and equipment(1,272) (313)
Net cash used in investing activities(22,497) (20,224)
Cash flows from financing activities:   
Payments under revolving line of credit(15,000) (10,000)
Borrowings under revolving line of credit15,000
 —
Payments on notes payable and long-term debt(1,960) (30,071)
Net proceeds from issuance of stock—
 46,999
Dividend payment to noncontrolling interest—
 (200)
Other financing activities(655) (1,489)
Net cash (used in) provided by financing activities(2,615) 5,239
Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash151
 296
Net decrease in cash, cash equivalents and restricted cash(5,657) (22,013)
Cash, cash equivalents and restricted cash at beginning of period33,854
 52,419
Cash, cash equivalents and restricted cash at end of period$28,197
 $30,406
The following table is a reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets:
 September 30,
 2019 2018
 (In thousands)
 Cash and cash equivalents$27,894
 $30,043
 Restricted cash included in prepaid expenses and other current assets303
 60
 Restricted cash included in other long-term assets—
 303
 Total cash, cash equivalents, and restricted cash shown in statements of cash flows$28,197
 $30,406
See accompanying Footnotes to Condensed Consolidated Financial Statements.

ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(UNAUDITED)
 Three Months Ended September 30, 2019
 Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Noncontrolling Interests 
Total Equity
(Deficit)
 (In thousands, except shares)Shares Amount 
Balance at July 1, 201914,171,561
 $142
 $954,904
 $(956,074) $(20,412) $2,059
 $(19,381)
Comprehensive income (loss):            

Net (loss) income—
 —
 —
 (3,723) 

 394
 (3,329)
Translation adjustments—
 —
 —
 

 (1,028) (169) (1,197)
Stock-based compensation expense—
 —
 905
 —
 —
 —
 905
Exercise of stock options58,400
 —
 26
 —
 —
 —
 26
Vesting of restricted stock units/awards1,066
 —
 —
 —
 —
 —
 —
Vested restricted stock cancelled for employee minimum income taxes(29,377) —
 (130) —
 —
 —
 (130)
Balance at September 30, 201914,201,650
 $142
 $955,705
 $(959,797) $(21,440) $2,284
 $(23,106)
 Nine Months Ended September 30, 2019
 Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Noncontrolling Interests 
Total Equity
(Deficit)
 (In thousands, except shares)Shares Amount 
Balance at January 1, 201914,015,615
 $140
 $952,626
 $(926,092) $(20,442) $1,592
 $7,824
Comprehensive income (loss):             
Net (loss) income—
 —
 —
 (33,705) —
 841
 (32,864)
Translation adjustments—
 —
 —
 —
 (998) (149) (1,147)
Stock-based compensation expense—
 —
 3,736
 —
 —
 —
 3,736
Exercise of stock options82,900
 1
 102
 —
 —
 —
 103
Vesting of restricted stock units/awards202,697
 2
 (2) —
 —
 —
 —
Vested restricted stock cancelled for employee minimum income taxes(99,562) (1) (757) —
 —
 —
 (758)
Balance at September 30, 201914,201,650
 $142
 $955,705
 $(959,797) $(21,440) $2,284
 $(23,106)
 Three Months Ended September 30, 2018
 Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Noncontrolling Interests Total Equity
 (In thousands, except shares)Shares Amount 
Balance at July 1, 201814,002,999
 $140
 $951,349
 $(899,213) $(19,634) $1,279
 $33,921
Comprehensive income (loss):            

Net (loss) income—
 —
 —
 (7,536) —
 74
 (7,462)
Translation adjustment—
 —
 —
 —
 43
 (50) (7)
Stock-based compensation expense—
 —
 465
 —
 —
 —
 465
Exercise of stock options—
 —
 (3) —
 —
 —
 (3)
Balance at September 30, 201814,002,999
 $140
 $951,811
 $(906,749) $(19,591) $1,303
 $26,914

 Nine Months Ended September 30, 2018
 Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Noncontrolling Interests Total Equity
 (In thousands, except shares)Shares Amount 
Balance at January 1, 201812,019,701
 $120
 $903,247
 $(854,921) $(18,879) $1,239
 $30,806
Comprehensive income (loss):             
Net (loss) income—
 —
 —
 (51,828) —
 527
 (51,301)
Translation adjustment—
 —
 —
 —
 (712) (263) (975)
Dividend payment to noncontrolling interest—
 —
 —
 —
 —
 (200) (200)
Stock-based compensation expense—
 —
 2,508
 —
 —
 —
 2,508
Exercise of stock options70,086
 —
 214
 —
 —
 —
 214
Vesting of restricted stock units/awards137,844
 2
 (2) —
 —
 —
 —
Vested restricted stock cancelled for employee minimum income taxes(22,176) —
 (527) —
 —
 —
 (527)
Public equity offering1,820,000
 18
 46,981
 —
 —
 —
 46,999
Employee purchases of unregistered shares of common stock(22,456) —
 (610) —
 —
 —
 (610)
Balance at September 30, 201814,002,999
 $140
 $951,811
 $(906,749) $(19,591) $1,303
 $26,914
 Nine Months Ended September 30,
20202019
 (In thousands)
Cash flows from operating activities:
Net loss$(23,921)$(32,864)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization (other than multi-client data library)2,936 2,903 
Amortization of multi-client data library16,674 29,787 
Stock-based compensation expense1,637 3,736 
Impairment of multi-client data library1,167 0 
Impairment of goodwill4,150 0 
Amortization of government relief funding expected to be forgiven(6,923)0 
Deferred income taxes237 (1,248)
Changes in operating assets and liabilities:
Accounts receivable21,065 2,115 
Unbilled receivables1,181 12,772 
Inventories77 729 
Accounts payable, accrued expenses and accrued royalties(6,429)1,528 
Deferred revenue(2,246)(2,398)
Other assets and liabilities3,563 2,244 
Net cash provided by operating activities13,168 19,304 
Cash flows from investing activities:
Investment in multi-client data library(19,841)(21,225)
Purchase of property, plant and equipment(865)(1,272)
Net cash used in investing activities(20,706)(22,497)
Cash flows from financing activities:
Borrowings under revolving line of credit27,000 15,000 
Payments under revolving line of credit(4,500)(15,000)
Proceeds from government relief funding6,923 0 
Payments on notes payable and long-term debt(1,814)(1,960)
Dividend payment to noncontrolling interest(217)0 
Other financing activities(91)(655)
Net cash provided by (used in) financing activities27,301 (2,615)
Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash501 151 
Net increase (decrease) in cash, cash equivalents and restricted cash20,264 (5,657)
Cash, cash equivalents and restricted cash at beginning of period33,118 33,854 
Cash, cash equivalents and restricted cash at end of period$53,382 $28,197 
See accompanying Footnotes to Condensed Consolidated Financial Statements.

6



ION GEOPHYSICAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
Three Months Ended September 30, 2020
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossNoncontrolling InterestsTotal
Deficit
 (In thousands, except shares)SharesAmount
Balance at July 1, 202014,245,829 $142 $957,746 $(981,773)$(21,833)$1,608 $(44,110)
Comprehensive income (loss):
Net (loss) income— — — (16,607)— 193 (16,414)
Translation adjustments— — — — 821 (49)772 
Dividend payment to noncontrolling interest
— — — — — (217)(217)
Stock-based compensation expense— — 543 — — — 543 
Exercise of stock options— — — — — — 0 
Vesting of restricted stock units/awards111,094 2 (2)— — — 0 
Vested restricted stock cancelled for employee minimum income taxes(41,470)— (98)— — — (98)
Balance at September 30, 202014,315,453 $144 $958,189 $(998,380)$(21,012)$1,535 $(59,524)
Nine Months Ended September 30, 2020
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossNoncontrolling InterestsTotal
Deficit
 (In thousands, except shares)SharesAmount
Balance at January 1, 202014,224,787 $142 $956,647 $(974,291)$(19,318)$2,188 $(34,632)
Comprehensive income (loss):
Net (loss) income— — — (24,089)— 168 (23,921)
Translation adjustments— — — — (1,694)(604)(2,298)
Dividend payment to noncontrolling interest
— — — — — (217)(217)
Stock-based compensation expense— — 1,637 — — — 1,637 
Exercise of stock options5,000 — 15 — — — 15 
Vesting of restricted stock units/awards128,183 2 (2)— — — 0 
Vested restricted stock cancelled for employee minimum income taxes(42,517)— (108)— — — (108)
Balance at September 30, 202014,315,453 $144 $958,189 $(998,380)$(21,012)$1,535 $(59,524)
Three Months Ended September 30, 2019
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossNoncontrolling InterestsTotal
Deficit
 (In thousands, except shares)SharesAmount
Balance at July 1, 201914,171,561 $142 $954,904 $(956,074)$(20,412)$2,059 $(19,381)
Comprehensive income (loss):
Net (loss) income— — — (3,723)394 (3,329)
Translation adjustment— — — (1,028)(169)(1,197)
Stock-based compensation expense— — 905 — — — 905 
Exercise of stock options58,400 — 26 — — — 26 
Vesting of restricted stock units/awards1,066 — — — — — 0 
Vested restricted stock cancelled for employee minimum income taxes(29,377)— (130)— — — (130)
Balance at September 30, 201914,201,650 $142 $955,705 $(959,797)$(21,440)$2,284 $(23,106)
7

Nine Months Ended September 30, 2019
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossNoncontrolling InterestsTotal Deficit
 (In thousands, except shares)SharesAmount
Balance at January 1, 201914,015,615 $140 $952,626 $(926,092)$(20,442)$1,592 $7,824 
Comprehensive income (loss):
Net (loss) income— — — (33,705)— 841 (32,864)
Translation adjustment— — — — (998)(149)(1,147)
Stock-based compensation expense— — 3,736 — — — 3,736 
Exercise of stock options82,900 1 102 — — — 103 
Vesting of restricted stock units/awards202,697 2 (2)— — — 0 
Vested restricted stock cancelled for employee minimum income taxes(99,562)(1)(757)— — — (758)
Balance at September 30, 201914,201,650 $142 $955,705 $(959,797)$(21,440)$2,284 $(23,106)
See accompanying Footnotes to Condensed Consolidated Financial Statements.

8


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, 2018,2019, has been derived from the Company’s audited consolidated financial statements at that date. The condensed consolidated balance sheet at September 30, 2019,2020, and the condensed consolidated statements of operations, condensed consolidated statements of comprehensive loss, and condensed consolidated statements of stockholders' (deficit) equitydeficit for the three and nine months ended September 30, 20192020 and 20182019 and the condensed consolidated statements of cash flows for the nine months ended September 30, 20192020 and 2018,2019, 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(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.
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, 2018.2019.
Certain priorOverview
The COVID-19 pandemic caused the global economy to enter a recessionary period, amountswhich may be prolonged and severe, and significantly reduce the availability of capital and liquidity from banks and other providers of credit. The exploration and production (“E&P”) industry is facing 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 since the start of the year. Brent crude oil prices, which are most relevant to ION’s 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 at that level throughout the third quarter. While the consistency is beneficial, prices are significantly lower compared to the start of the year. The record production cut agreed to by OPEC and other oil producing countries was extended through December 2020 in an effort to stabilize oil prices by limiting supply.
The dramatic commodity price decline earlier this year triggered E&P companies to reduce budgets and delay near-term spending, but also provided a catalyst to drive necessary cost restructuring and digital transformation of the E&P ecosystem. ION is focused on offshore international markets, which have been reclassifiedless steeply impacted than onshore North America. However, exploration offerings and data purchases are often discretionary and, therefore, receive disproportionately higher reductions than overall budget cuts. There has been a material slowdown in offshore seismic spending during the second and third quarters, and while we are seeing signs that could improve during the fourth quarter, we expect the market to conformremain challenging into 2021.
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, project high grading will likely be more acute due to budget reductions. Over the last several years, the Company has already 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 period presentation, includingenvironment (for instance, offerings that facilitate remote working).  
While third quarter revenues came in lower than prior year due to the changerepercussions of the oil price volatility earlier this year and the ongoing uncertainty from the COVID-19 pandemic, the Company made progress executing its strategy. Backlog
9

increased 77% sequentially, reversing several consecutive quarters of steady decline, driven by the strategic shift to enter the 3D new acquisition multi-client market. The Company continues to work closely with its clients to understand revised budgets 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 that were outlined in reportable segments presentation which had nothe first quarter. To further mitigate the impact of COVID-19 and oil price volatility, management implemented a plan to preserve cash and manage liquidity as follows:
•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 condensed consolidated financial statementsover $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 the Company’s worldwide workforce. The Company executives have taken a 20% base salary reduction and a tiered reduction scheme has been cascaded to the rest of the worldwide workforce. The Company’s Board of Directors have taken a 20% reduction in directors’ fees. In addition, the Company has curtailed use of external contractors, decreased travel and event costs and implemented new systems and processes that more efficiently support its business.
•Reduced capital expenditures to an estimated $25.0 million to $35.0 million (a portion of which will be pre-funded or underwritten by the 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. 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 $7.0 million was received and applied against qualifying expenditures during the second quarter. Receipt of this assistance allowed the Company to avoid further staff reductions while supporting its ongoing operations.
•Re-negotiated existing lease agreements for its significant locations to obtain rent relief of approximately $4.0 million. The majority of the cash savings from the rent relief is expected to benefit the Company from July 2020 to March 2021. See Note 12 “Lease Obligations” for further details.
•Announced the sale of its 49% ownership interest in INOVA Geophysical Equipment Limited for $12.0 million, subject to regulatory approvals and other closing conditions. As the regulatory review is taking longer than anticipated, closing will likely extend into 2021.
•Entered into a settlement agreement with WesternGeco ending the decade-long patent litigation. See Note 9 “Litigation” for further details.
The Company believes that the above management plan, which includes the use of government assistance programs, along with the Company’s existing cash balance and the recognitionundrawn remaining borrowing capacity under its Credit Facility will provide sufficient liquidity to meet the Company’s anticipated cash needs for the next twelve months. At September 30, 2020, the Company’s liquidity was $59.4 million, consisting of right-of-use (“ROU”$51.1 million of cash (including net revolver borrowings of $22.5 million) and $8.3 million of remaining available borrowing capacity under the revolving credit facility, slightly below liquidity of $65.5 million from one year ago. The outlined 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 budget reductions and capital constraints further reducing demand for its 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. Additionally, the Company is actively exploring a number of strategic options to optimally address the $121 million Second Lien Notes (as defined in Note 5, “Long-term Debt”) assets and operating lease liabilitiesahead of its scheduled maturity on December 15, 2021. If by September 15, 2021 the condensed consolidated balance sheets as a resultCompany has not (1) repaid the Second Lien Notes, (2) extended the maturity of the adoptionSecond Lien Notes to a date not earlier than October 31, 2023, or (3) submitted a written proposal summarizing its plan to either repay or extend the notes to the agent for the lenders (as defined in Note 5, “Long-term Debt”) of the new lease standard. SeeCredit Facility that has been approved by the agent, then the Credit Facility shall immediately become due and payable on such date. If the written proposal is submitted and approved by the agent by September 15, 2021, but the Company is unable to execute the approved proposal on or before October 31, 2021, the Credit Facility shall immediately become due and payable on such date. The Company reviewed its debt covenants as of September 30, 2020, and expects that it will remain in compliance for the next twelve months (see Note 25, “Recent Accounting Pronouncements.Long-term Debt” for further discussion of our covenants).
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in Note 1 “Summary of Significant Accounting Policies.” of the Annual Report on Form 10-K for the year ended December 31, 2018.2019. There have been no changes in such policies or the application of such policies during the nine months ended September 30, 20192020 except as discussed in Note 2 “Recent Accounting Pronouncements.” and Note 11 “Lease Obligations.”

10

Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions by management that affects the reported amounts in the condensed consolidated financial statements and accompanying notes. Areas involving significant estimates include, but are not limited to, accounts and unbilled receivables, inventory valuation, sales forecast related to multi-client data libraries,library, impairment of property, plant and equipment and goodwill and deferred taxes. Actual results could materially differ from those estimates.
(2)    Recent Accounting Pronouncements
Accounting Pronouncements Recently Adopted
On January 1, 2019,2020, the Company adopted Accounting Standards Update (“ASU”) 2016-2, “Leases (Topic 842)” using the modified retrospective method. This ASU requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under the previous guidance. The Company used January 1, 2018, the beginning of the earliest comparative period presented in its condensed consolidated financial statements, as the date of initial application. The Company elected the practical expedients upon transition which will retain the lease classification for leases and any unamortized initial direct costs that existed prior to the adoption of the standard.
The adoption of the standard resulted in ROU assets of $59.5 million and operating lease liabilities of $70.6 million on the condensed consolidated balance sheets as of January 1, 2018. The difference between the ROU assets and operating lease liabilities is due to the derecognition of $11.1 million in deferred rent recorded within other long-term liabilities. There was no

impact on the condensed consolidated statements of operations and cash flows. The adoption of the standard had no impact on the debt covenant compliance under existing agreements. The Company elected the practical expedient related to short-term leases, which are leases with a duration of twelve months or less, as such, they have not been recorded in the condensed consolidated balance sheets. See Note 11 “Lease Obligations.” for further discussion.
Accounting Pronouncements Not Yet Adopted
In June 2016, the Financial Accounting Standards Board issued ASU No. 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.” The guidance will replacereplaces the incurred loss impairment methodology under the current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.estimates referred to as the current expected credit loss (“CECL”) methodology. The guidancemeasurement of expected credit losses under the CECL methodology is effective for public companies for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018.applicable to financial assets ranging from short-term accounts receivables to long-term receivable financing. The Company is inadopted the initial stagesstandard using the prospective transition approach for its trade receivables and unbilled receivables. The adoption of evaluating the standard had no material impact of this standard on the Company’s condensed consolidated financial statements.
On January 1, 2020, the Company adopted ASU 2017-04, “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This guidance simplifies the accounting for goodwill impairment by eliminating step 2 from the goodwill impairment test. As a result, an entity should recognize a goodwill impairment charge for the amount by which the reporting unit’s carrying amount exceeds its fair value. If fair value exceeds the carrying amount, no impairment should be recorded. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Impairment loss on goodwill cannot be reversed once recognized. The Company does not currently expectrecognized an impairment charge related to the adoption of this standard to have a material impact on the condensed consolidated financial statements.
(3)Segment Information
During the first quarter of 2019, the Company consolidated its operating segments from three into two, eliminating the separate presentationgoodwill of its Ocean Bottom Integrated Technologies segment. This consolidation aligns withOptimization Software & Service reporting unit, included within Operations Optimization segment, of $4.2 million for the Company’s asset light business model and evolved strategy to commercialize componentsnine months ended September 30, 2020. See Note 10 “Details of the Company’s next generation ocean bottom nodal system, 4Sea™, instead of operating a crew. The Company is offering 4Sea components more broadly to the growing number of Ocean Bottom Seismic (“OBS”) service providers under recurring revenue commercial strategies. The Company may also license the right to manufacture and use the 4Sea nodal technology to a service provider on a value-based pricing model, such as a royalty stream. Revenues from 4Sea are being recognized through the relevant segments, either E&P Technology & Services or Operations Optimization.Selected Balance Sheet Accounts” for details.
Accordingly, as of first quarter 2019, the
(3)    Segment Information
The Company evaluates and reviews its results of operations based on two2 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.
Previously reported segment information has been retrospectively revised throughout the condensed consolidated financial statements, as applicable, for all periods presented to reflect the changes in the Company’s reporting segments. These changes did not have an impact on the Company’s condensed consolidated financial statements. These changes did not affect the Company’s reporting units used for allocating and testing goodwill for impairment.
11


The following table is a summary of segment information (in thousands):
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended September 30,Nine Months Ended September 30,
2019 2018 2019 2018  2020201920202019
Net revenues:        Net revenues:
E&P Technology & Services:        E&P Technology & Services:
New Venture$5,905
 $18,218
 $24,394
 $40,069
 New Venture$1,213 $5,905 $7,340 $24,394 
Data Library27,288
 13,956
 55,030
 21,629
 Data Library5,085 27,288 52,083 55,030 
Total multi-client revenues33,193
 32,174
 79,424
 61,698
 Total multi-client revenues6,298 33,193 59,423 79,424 
Imaging Services7,048
 4,147
 16,443
 14,379
 
Imaging and Reservoir ServicesImaging and Reservoir Services3,795 7,048 12,410 16,443 
Total40,241
 36,321
 95,867
 76,077
 Total10,093 40,241 71,833 95,867 
Operations Optimization:        Operations Optimization:
Optimization Software & ServicesOptimization Software & Services3,007 6,895 10,811 17,648 
Devices6,103
 5,356
 18,455
 14,275
 Devices3,134 6,103 12,735 18,455 
Optimization Software & Services6,895
 5,523
 17,648
 15,099
 
Total12,998
 10,879
 36,103
 29,374
 Total6,141 12,998 23,546 36,103 
Total net revenues$53,239
 $47,200
 $131,970
 $105,451
 Total net revenues$16,234 $53,239 $95,379 $131,970 
Gross profit (loss):





  Gross profit (loss):
E&P Technology & Services$18,316
 $12,139
 $36,113
 $11,626
 E&P Technology & Services$(1,092)$18,316 $24,902 $36,113 
Operations Optimization6,972
 5,736
 18,670
 14,980
 Operations Optimization2,381 6,972 9,315 18,670 
Segment gross profit25,288
 17,875
 54,783
 26,606
 
Other—
 (1,400)(a)—
 (4,795)(a)
Total gross profit$25,288
 $16,475
 $54,783
 $21,811
 Total gross profit$1,289 $25,288 $34,217 $54,783 
Gross margin:        Gross margin:
E&P Technology & Services46% 33 % 38% 15 % E&P Technology & Services(11)%46 %35 %38 %
Operations Optimization54% 53 % 52% 51 % Operations Optimization39 %54 %40 %

52 %
Segment gross margin47% 38 % 42% 25 % 
Other—% (3)% —% (5)% 
Total gross margin47% 35 % 42% 21 % Total gross margin8 %47 %36 %42 %
Income (loss) from operations:        Income (loss) from operations:
E&P Technology & Services$11,878
 $6,578
 $15,500
 $(4,422) E&P Technology & Services$(4,591)$11,878 $13,803 (a)$15,500 
Operations Optimization2,994
 1,963
 5,808
 3,992
 Operations Optimization(232)2,994 (3,965)(b)5,808 
Support and other(11,014)(b)(10,993)(b)(35,940)(c)(37,181)(c)Support and other(6,341)(11,014)(20,148)(35,940)
Income (loss) from operations3,858
 (2,452) (14,632) (37,611) Income (loss) from operations(11,164)3,858 (10,310)(14,632)
Interest expense, net(3,155) (3,022) (9,378) (9,769) Interest expense, net(3,669)(3,155)(10,304)(9,378)
Other income (expense), net(242) 91
 (938) (616) Other income (expense), net(525)(242)6,675 (c)(938)
Income (loss) before income taxes$461
 $(5,383) $(24,948) $(47,996) Income (loss) before income taxes$(15,358)$461 $(13,939)$(24,948)
(a) Relates to gross loss primarily related to depreciation expenseIncludes impairment of previously reported Ocean Bottom Integrated Technologies segment.
(b) Includes loss from operationsmulti-client data library of previously reported Ocean Bottom Integrated Technologies segment of $0.7 million and $2.8 million for the three months ended September 30, 2019 and 2018, respectively, which consists of item (a) above and operating expenses of $0.7 million and $1.4 million for the three months ended September 30, 2019 and 2018, respectively.
(c) Includes loss from operations of previously reported Ocean Bottom Integrated Technologies segment of $2.3 million and $8.6$1.2 million for the nine months ended September 30, 2019 and 2018, respectively, which consists2020.
(b)     Includes impairment of item (a) above and operating expensesgoodwill of $2.3 million and $3.8$4.2 million for the nine months ended September 30, 2019 and 2018, respectively.2020.
(c)     Includes amortization of the government relief funding expected to be forgiven of $6.9 million for the nine months ended September 30, 2020.
Intersegment sales are insignificant for all periods presented.
(4)     Revenue From Contracts With Customers
The Company derives revenue from the (i) sale or license of multi-client and proprietary data, imaging services and E&P Advisors consultingreservoir services within its E&P Technologies & Services segment; (ii) sale, license and 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 its 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 service revenues. All other revenues are classified as product revenues.

The Company uses a five-step model to determine proper revenue recognition from customer contracts in accordance with Accounting Standards Codification Topic 606 (“ASC 606”).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 expectthe Company expects 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. The Company applies the practical expedient in ASC 606 and doesis not required to disclose information about remaining contractual future performance obligations with an original term of one year or less within the footnotes.less. The Company does not have any contractual future performance obligations with an original term of over one year.

12

Revenue by Geographic Area
The following table is a summary of net revenues by geographic area (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
Three Months Ended September 30, Nine Months Ended September 30, 2020201920202019
2019 2018 2019 2018
North AmericaNorth America$479 $12,182 $37,920 $32,984 
Latin America$22,720
 $19,910
 $50,572
 $37,356
Latin America7,925 22,720 22,695 50,572 
North America12,182
 13,095
 32,984
 25,452
Asia PacificAsia Pacific3,777 2,744 15,696 8,287 
Europe8,335
 8,202
 24,850
 19,811
Europe3,011 8,335 12,997 24,850 
Asia Pacific2,744
 3,718
 8,287
 11,581
Middle EastMiddle East306 3,899 2,202 6,364 
Africa2,874
 1,121
 7,541
 8,362
Africa344 2,874 1,939 7,541 
Middle East3,899
 717
 6,364
 1,907
Commonwealth of Independent States485
 437
 1,372
 982
OtherOther392 485 1,930 1,372 
Total$53,239
 $47,200
 $131,970
 $105,451
Total$16,234 $53,239 $95,379 $131,970 
See Note 3“Segment Information” for net revenue by segment for the three and nine months ended September 30, 20192020 and 2018.2019.
Unbilled Receivables
Unbilled receivables balances relate to revenues recognized on multi-client surveys, imaging and reservoir services and devices equipment repairs on a proportionate basis, and on licensing of multi-client data libraries for which invoices have not yet been presented to the customer. The following table is a summary of unbilled receivables (in thousands):
September 30, 2020December 31, 2019
New VentureNew Venture$4,144 $5,222 
Imaging and Reservoir ServicesImaging and Reservoir Services3,705 6,539 
DevicesDevices1,780 54 
TotalTotal$9,629 $11,815 
September 30, 2019 December 31, 2018
New Venture$22,373
 $38,430
Imaging Services7,016
 5,075
Devices1,601
 527
Total$30,990
 $44,032
The changes in unbilled receivables are as follows (in thousands):
 Unbilled receivables at December 31, 2018$44,032
 Recognition of unbilled receivables125,586
 Revenues billed to customers(138,628)
Unbilled receivables at September 30, 2019$30,990
 Unbilled receivables at December 31, 2019$11,815 
 Recognition of unbilled receivables (a)
91,024 
 Revenues billed to customers (a)
(93,210)
Unbilled receivables at September 30, 2020$9,629 

(a) Includes all gross revenue recognition and related billing activity of the Company. As a matter of process, all net revenue recognized is initially reflected as an unbilled receivable and subsequently billed to customers, as applicable, including net revenue for all of software and a portion of devices within the Operations Optimization segment, although they are billed at the time of recognition.
Deferred Revenue
Billing practices are governed by the terms of each contract based upon achievement of milestones or pre-agreed schedules. Billing does not necessarily correlate with revenue recognized on a proportionate basis as work is performed and control is transferred to the customer. Deferred revenue represents cash received in excess of revenue recognized as of the reporting period but willto be recognized in future periods. The following table is a summary of deferred revenues (in thousands):
September 30, 2020December 31, 2019
New Venture$500 $1,956 
Imaging and Reservoir Services608 1,501 
Optimization Software & Services1,000 642 
Devices48 452 
Total$2,156 $4,551 
13
 September 30, 2019 December 31, 2018
New Venture$1,973
 $5,797
Imaging Services1,219
 307
Devices1,018
 626
Optimization Software & Services1,100
 980
Total$5,310
 $7,710

The changes in deferred revenues are as follows (in thousands):
Deferred revenue at December 31, 2019$4,551 
Cash collected in excess of revenue recognized1,961 
Recognition of deferred revenue (a)
(4,356)
Deferred revenue at September 30, 2020$2,156 
Deferred revenue at December 31, 2018$7,710
Cash collected in excess of revenue recognized3,984
Recognition of deferred revenue (a)
(6,384)
Deferred revenue at September 30, 2019$5,310
(a) The majority of deferred revenue recognized relates to Company’s Ventures group.
The Company expects to recognize allthe majority of deferred revenue within the next 12 months.
Credit Risks
For the nine months ended September 30, 20192020 and 2018,2019, the Company had one customer with sales that exceeded 10% of the Company’s consolidated net revenues. Revenues related to each of these customers are included within the E&P Technology & Services segment.
At September 30, 2019,2020, the Company had two customers with balances that accounted for 39% of the Company’s total combined accounts receivable and unbilled receivable balances. The Company routinely evaluates the financial stability and creditworthiness of its customers. At September 30, 2019, the Company had two customers with a combined balance that accounted for 40% of the Company’s total combined accounts receivable and unbilled receivable balances. At September 30, 2018,
The Company routinely evaluates the financial stability and creditworthiness of its customers. The Company had one customer withhas a balancecorporate credit policy that accountedis intended to minimize the risk of financial loss due to a customer’s inability to pay. Credit coverage decisions for 29% of the Company’s total combined accounts receivablecustomers are based on references, payment histories, financial and unbilled receivable balances.other data. The Company utilizes a third party trade credit insurance policy. The Company has historically not extended long-term credit to its customers.
(5)Long-term Debt

The following table is a summary of long-term debt (in thousands):    
 September 30, 2019 December 31, 2018September 30, 2020December 31, 2019
Senior secured second-priority lien notes (maturing December 15, 2021)
 $120,569
 $120,569
Senior secured second-priority lien notes (maturing December 15, 2021)
$120,569 $120,569 
Revolving credit facility (maturing August 16, 2023) (a)
 —
 —
Revolving credit facility (maturing August 16, 2023) (a)
22,500 0 
Equipment finance leases (Note 11) 2,138
 2,938
Equipment finance leases (Note 12)Equipment finance leases (Note 12)1,027 1,869 
Other debt —
 1,159
Other debt0 972 
Costs associated with issuances of debt (2,195) (2,925)Costs associated with issuances of debt(1,220)(1,951)
Total 120,512
 121,741
Total142,876 121,459 
Current maturities of long-term debt (1,110) (2,228)Current maturities of long-term debt(23,527)(2,107)
Long-term debt, net of current maturities $119,402
 $119,513
Long-term debt, net of current maturities$119,349 $119,352 
(a) The maturity of the Credit Facility will accelerate to October 31, 2021 if the Company is unable to repay or extend the maturity of the Second Lien Notes.Notes (see detailed discussion below in “Revolving Credit Facility”).
Revolving Credit Facility
On August 16, 2018, ION Geophysical Corporation and its 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 Bank, National Association (“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 is available to provide for the Borrowers’ general corporate needs, including working capital requirements, capital expenditures, surety deposits and acquisition financing.
The Third Amendment amended the Credit Agreement to, among other things:
extend the maturity date of the Credit Facility by approximately four years (from August 22, 2019 tomatures on August 16, 2023),2023 and is subject to the Company’s retirement or extension of the maturity date of itsION Geophysical Corporation’s 9.125% Senior Secured Second Priority Notes due December 2021 (the “Second Lien Notes”). If by September 15, 2021 the Company has not (1) repaid the Second Lien Notes, as defined below, which mature on December 15, 2021;
increase(2) extended the maximum revolver amount by $10.0 million (from $40.0 million to $50.0 million);
increase the borrowing base percentagematurity of the net orderly liquidation value as it relates to the multi-client data library (not to exceed $28.5 million, up from the previous maximum of $15.0 million for the multi-client data library component);
include the eligible billed receivables of the Mexican Subsidiary upSecond Lien Notes to a maximum of $5.0 million indate not earlier than October 31, 2023, or (3) submitted a written proposal to PNC summarizing its plan
14

to either repay or extend the borrowing base calculationnotes that has been approved by PNC, then the Credit Facility shall immediately become due and joinspayable on such date. If the Mexican Subsidiary as a borrower thereunder (with a maximum exposure of $5.0 million)written proposal is submitted and requireapproved by PNC by September 15, 2021, but the equityCompany is unable to execute the approved proposal on or before October 31, 2021, the Credit Facility shall immediately become due and assets of the Mexican Subsidiary to be pledged to secure obligations under the facility;payable on such date.
modify the interest rate such that theThe maximum interest rate remains consistent with the fixed interest rate prior to the Third Amendment (that is 3.00% per annum for domestic rate loans and 4.00% per annum for LIBOR rate loans), but now lowers the range down toloans with a minimum interest rate of 2.00% for domestic rate loans and 3.00% for LIBOR rate loans based on a leverage ratio for the preceding four-quarter period;
decrease theperiod. The terms include a minimum excess borrowing availability threshold (excess borrowing availability less than $6.25 million for five consecutive days or $5.0 million on any given day), which (if the Borrowers have minimum excess borrowing availability below any such threshold) triggers the agent’s right to exercise dominion over cash and deposit accounts; and
modify the trigger required to test for compliance with the fixed charges coverage ratio, which is further described below.accounts.
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 the Borrowers’ multi-client library.  Aslibrary (not to exceed $28.5 million for the multi-client data library component). The borrowing base calculation includes the eligible billed receivables of the Mexican Subsidiary up to a maximum of $5.0 million. At September 30, 2019, the undrawn borrowing base availability under the Credit Facility was $37.6 million, and2020, there was no$22.5 million outstanding indebtedness under the Credit Facility.Facility and the undrawn remaining borrowing base capacity was $8.3 million.
The obligations of Borrowers under the Credit Facility are secured by a first-priority security interest in 100% of the stock of the Subsidiary Borrowers and 65% of the equity interest in ION International Holdings L.P., and by substantially all other assets of the Borrowers. However, the first-priority security interest in the other assets of the Mexican Subsidiary is capped to a maximum exposure of $5.0 million.
The Credit Facility contains covenants that, among other things, limit or prohibit the Borrowers, subject to certain exceptions and qualifications, from incurring additional indebtedness in excess of permitted indebtedness (including finance lease obligations), repurchasing equity, paying dividends or distributions, granting or incurring additional liens on the Borrowers’ properties, pledging shares of the Borrowers’ subsidiaries, entering into certain merger transactions, entering into transactions with the Company’s affiliates, making certain sales or other dispositions of the Borrowers’ assets, making certain investments, acquiring other businesses and entering into sale-leaseback transactions with respect to the Borrowers’ property. The Credit Facility contains customary event of default provisions (including a “change of control” event affecting ION Geophysical Corporation).
The Credit Facility requires that the Borrowers maintain a minimum fixed charge coverage ratio of 1.1 to 1.0 as of the end of each fiscal quarter during the existence of a covenant testing trigger event. The fixed charge coverage ratio is defined as the ratio of (i) ION Geophysical Corporation’s earnings before interest, taxes, depreciation and amortization (“EBITDA”), minus unfunded capital expenditures made during the relevant period, minus distributions (including tax distributions) and dividends made during the relevant period, minus cash taxes paid during the relevant period, to (ii) certain debt payments made during the relevant period. A covenant testing trigger event occurs upon (a) the occurrence and continuance of an event of default under the Credit Facility or (b) by a two-step process based on (i) a minimum excess borrowing availability threshold (excess borrowing availability less than $6.25 million for five consecutive days or $5.0 million on any given day), and (ii) the Borrowers’ unencumbered cash maintained in a PNC deposit account is less than the Borrowers’ then outstanding obligations.
At September 30, 2019,2020, the Company was in compliance with all of the covenants under the Credit Facility.
The Credit Facility contains customary event of default provisions (including a “change of control” event affecting ION Geophysical Corporation), the occurrence of which could lead to an acceleration of ION Geophysical Corporation’s obligations under the Credit Facility.


Senior Secured Notes
ION Geophysical Corporation’s 9.125% Senior SecuredThe Second PriorityLien Notes due December 2021 (the “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 Second Lien Notes, the “Guarantors”). Interest on the 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 Second Lien Notes contains certain covenants that, among other things, limits or prohibits ION Geophysical Corporation’s ability and the ability of its restricted subsidiaries to take certain actions or permit certain conditions to exist during the term of the 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. These and other restrictive covenants contained in the Second Lien Notes Indenture are subject to certain exceptions and qualifications. All of ION Geophysical Corporation’s subsidiaries are currently restricted subsidiaries.
At September 30, 2019,2020, the Company was in compliance with all of the covenants under the Second Lien Notes.
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On or after December 15, 2019, the Company may, on one or more occasions, redeem all or a part of the Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest and special interest, if any, on the Second Lien Notes redeemed during the twelve-month period beginning on December 15th of the years indicated below:
DatePercentage
2019105.50%
2020103.50%
2021100.00%
(6)    Government Relief Funding
Date Percentage
2019 105.50%
2020 103.50%
2021 and thereafter 100.00%
On April 11, 2020, the Company entered into a Note Agreement (“Note”) with PNC amounting to $6.9 million pursuant to the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”) Paycheck Protection Program (“PPP”). Amounts outstanding under this Note will bear interest at 1% per annum as of the date of disbursement. Interest will be calculated based on the actual number of days that principal is outstanding over a year of 360 days. The Note matures in two years after the receipt of the loan proceeds.
The Company is in the process of applying to PNC for forgiveness of the amount due on this Note in an amount based on the sum of the following costs incurred by the Company’s US operations during the 24-week period beginning on the date of first disbursement (For payroll costs, it is beginning on the date of the first pay period following disbursement. For non-payroll costs, it is beginning on the date of first disbursement.) of this Note: (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 PPP, 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 this Note that is not forgiven under the PPP shall convert to an amortizing term loan.
(6)The Company recognized the Note 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 the Company expects that the full amount of the Note 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 condensed consolidated income statements for the six months ended June 30, 2020, as the related expenses it was intended to offset were incurred from April 2020 to June 2020. If, despite the Company’s good-faith belief that given its circumstances the Company satisfied all eligible requirements for the PPP Loan, the Company is later determined to have not been in compliance with these requirements or it is otherwise determined that it was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. Should the Company 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 a change in the Company’s estimate of the amount of forgiveness recorded in the condensed consolidated financial statements.
(7)    Net Loss Per Share
Basic net loss per share is computed by dividing net loss applicableattributable to common sharesION by the weighted average number of common shares outstanding during the period. DilutedIn computing diluted net loss per commonshare, basic net loss per share is determinedadjusted based on the assumption that dilutive restricted stock and restricted stock unit awards have vested and outstanding dilutive stock options have been exercised and the aggregate proceeds were used to reacquire common stock using the average price of such common stock for the period. The total number of shares issuable pursuant to outstanding stock options at September 30, 2020 and 2019 of 569,673 and 2018 of 700,759, and 804,936, respectively, were excluded as their inclusion would have an anti-dilutive effect. The total number of shares issuable pursuant to restricted stock unitsunit awards outstanding at September 30, 2020 and 2019 of 762,277 and 2018 of 926,917, and 128,131, respectively, were excluded as their inclusion would have an anti-dilutive effect.
(7)(8)    Income Taxes
The Company maintains a valuation allowance for substantially all of its deferred tax assets. 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. The Company will continue to record a valuation allowance for the substantial majority of its deferred tax assets until there is sufficient evidence to warrant reversal.
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The tax provision for the nine months ended September 30, 20192020 has been calculated using the Company’s overall estimated annual effective tax rate based on projected 20192020 full year results. The Company’s effective tax rates for the three months ended September 30, 2019 and 2018 were 822.1% and (38.6)%, respectively. The Company’s effective tax rates for the nine months ended September 30, 2019 and 2018 were (31.7)% and (6.9)%, respectively. The Company’s effective tax rates for the three and nine months ended September 30, 20192020 and 20182019 were negatively impacted by the change in valuation allowance related to U.S. operating losses for which the Company cannot currently recognize a tax benefit. The Company’s effective tax rates for the nine months ended September 30, 2020 were also negatively impacted by the valuation allowance related to certain foreign losses. Due to the impact of the valuation allowances on tax expense, the Company’s effective tax rates are not meaningful for all periods presented. The Company’s income tax expense for the nine months ended September 30, 20192020 of $7.9$10.0 million primarily relates to results from the Company’s non-U.S. businesses.businesses, including $2.2 million of valuation allowance. The valuation allowance was established as a result of a change in the expectation of future revenues after entering into the settlement agreement with WesternGeco described in Note 9 “Litigation”.
AsIn response to the global pandemic related to COVID-19, the President of the United States signed into law the CARES Act on March 27, 2020.  The CARES Act provides numerous relief provisions for corporate tax payers, including modification of the utilization limitations on net operating losses, favorable expansions of the deduction for business interest expense under Internal Revenue Code Section 163(j), and the ability to accelerate timing of refundable AMT credits. For the nine months ended September 30, 2019,2020, there were no material tax impacts to our condensed consolidated financial statements as it relates to COVID-19 measures. The Company received an AMT credit refund of $0.8 million for the nine months ended September 30, 2020. The Company continues to monitor additional guidance issued by the U.S. Treasury Department, the Internal Revenue Service and others.
At September 30, 2020, the Company has approximately $0.4 million of unrecognized tax benefits and does not expect to recognize significant increases in unrecognized tax benefits during the next twelve-month period. Interest and penalties, if any, related to unrecognized tax benefits are recorded in income tax expense.

As ofAt September 30, 2019,2020, the Company’s U.S. federal tax returns for 2016 and subsequent years remain subject to examination by tax authorities. In the Company’s foreign tax jurisdictions, tax returns for 20122014 and subsequent years generally remain open to examination.


(8)(9)Litigation
WesternGeco
Settlement
On April 7, 2020, the Company entered into a settlement agreement with WesternGeco that ended the ongoing litigation.
Pursuant to the settlement agreement, WesternGeco granted the Company a license to the underlying patents, lifted the injunction that prevented the Company from manufacturing DigiFIN® in the United States and, on April 13, 2020, the District Court permanently dismissed the pending lawsuit.
In exchange, the Company agreed to pay WesternGeco a settlement based on future revenues from the Company’s multi-client data library, consisting of (1) small percentage of 2D multi-client data library sales for a ten-year period, and (2) the transfer of a majority of the Company’s future revenue share relating to the parties’ existing joint multi-client reimaging programs offshore Mexico.
Background
In June 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against the Company in the United States District Court for the Southern District of Texas (the “District Court”). In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleged that the Company had infringed four4 of their patents concerning marine seismic surveys.
Trial began in July 2012, and the jury returned a verdict in August 2012. The jury found that the Company infringed the six6 “claims” contained in four4 of WesternGeco’s patents by supplying the Company’s DigiFIN®DigiFIN lateral streamer control units from the United States. (In patent law, a “claim” is a technical legal term; an infringer infringes on one or more “claims” of a given patent.)
In May 2014, the District Court entered a Final Judgment against the Company in the amount of $123.8 million. The Final Judgment also enjoined the Company from supplying DigiFINs or any parts unique to DigiFINs in or from the United States. The Company has conducted its business in compliance with the District Court’s orders, and has reorganized its operations such that it no longer supplies DigiFINs or any parts unique to DigiFINs in or from the United States.
As of 2018, the Company hashad paid WesternGeco the $25.8 million of the Final Judgment (the portion of the judgment representing reasonable royalty damages and enhanced damages, plus interest).
However, as further described below, the
17

The balance of the judgment against the Company ($98.0 million,million), representing lost profits from surveys performed by the Company’s customers outside of the United State,States, plus interest) has beenwas vacated by the United States Court of Appeals for the Federal Circuit (the award of lost profit damages was vacated because the Patent Trial and Appeal Board of the Patent and Trademark Office invalidated four of the five patent claims that could have supported an award of lost profit), and a new trial ordered, to determine what lost profit damages, if any, WesternGeco iswas entitled to.
The Final Judgment was vacated afterAs noted above, the lawsuit has been dismissed in accordance with the parties’ settlement agreement.
Other Litigation
In July 2018, the Company prevailed in an arbitration that it was appealedinitiated against the Indian Directorate General of Hydrocarbons (“DGH”) relating to the United States CourtCompany’s ability to continue to license data under the Company’s IndiaSPAN program. The DGH filed a lawsuit in court in India to vacate the arbitration award; in connection with that lawsuit, the Company was ordered to escrow approximately $4.5 million in sales proceeds that it had received in respect of Appeals forsales from the Federal Circuit in Washington, D.C. (the “CourtIndiaSPAN program, pending the outcome of Appeals”), thenthe DGH’s challenge to the arbitration award. The Company challenged the escrow order, but on December 9, 2019, the Supreme Court of India ordered the United States, which remandedCompany to comply with it. The Company prepared a petition to file with the case, again,court to request that a March 2020 deadline to deposit approximately $4.5 million in escrow in early 2020 be extended due to the Court of Appeals.
On January 11, 2019, the Court of Appeals refusedchanges to disturb the award of reasonable royalties to WesternGeco (which the Company paid in 2016), but did not reinstate the lost profits award; rather, the Court of Appeals remanded the case back to the District Court to determine whether to hold a new trial as to lost profits.
On August 30, 2019, the District Court refused WesternGeco’s request to reinstate the lost profits awards against the Company, and instead ordered a new trial to determine what lost profits, if any, WesternGeco is entitled to from surveys performed by the Company’s customers outside of the United States.
The District Court’s basis for granting the new trial as to lost profits was that, subsequent to the jury verdict that awarded lost profits, the Patent Trial and Appeal Board (“PTAB”) of the Patent and Trademark Office, in an administrative proceeding, invalidated four of the five patent claims that formed the basis for the lost profits judgment against the Company (that is, the PTAB held that those four patent claims should never have been granted), and the Court of Appeals and the Supreme Court both subsequently refused to overturn that finding. A trial date for the new trial has not yet been set.
The Company may not ultimately prevail in the litigation and it could be required to pay lost profits if and when a new judgment issues in the new trial. The Company’s assessment that it does not have a loss contingency may change in the future due to developments at the District Court, and other events, such as changes in applicable law, and such reassessment could lead to the determination that a significant loss contingency is probable, which could have a material effect on the Company’s business, financial condition and resultsto the markets, that have been spurred by the COVID-19 pandemic. The Company was unable to file the application because the courts in India were closed due to the pandemic (other than for emergencies), and were not accepting filings at that time. The Company served a copy of operations.its draft petition on the DGH’s counsel and intends to file it in advance of the next hearing, which has been repeatedly delayed due to the COVID-19 pandemic. The Company prevailed on the merits in the arbitration and expects to have that award upheld in Indian court, which would result in release of the Company’s assessments disclosedportion of the escrowed money. The DGH’s request to vacate the arbitration award is currently scheduled to be heard by the court in this Quarterly ReportIndia on Form 10-Q or elsewhere are based on currently available information and involve elementsJanuary 18, 2021. The Company has not escrowed the money as of judgment and significant uncertainties.
Other LitigationSeptember 30, 2020.
The Company has been named in various other lawsuits or threatened actions that are incidental to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time-consuming, cause the Company to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. The Company currently believes that the ultimate resolution of these matters will not have a material adverse effect on its financial condition or results of operations.

(9)(10)    Details of Selected Balance Sheet Accounts
Inventories
A summary of inventories follows (in thousands):September 30, 2020December 31, 2019
Raw materials and subassemblies$18,622 $18,509 
Work-in-process1,372 2,079 
Finished goods4,652 4,932 
Less: reserve for excess and obsolete inventories(12,773)(13,333)
Inventories, net$11,873 $12,187 
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A summary of inventories follows (in thousands):September 30, 2019 December 31, 2018
Raw materials and subassemblies$18,269
 $20,011
Work-in-process2,460
 1,032
Finished goods5,166
 8,111
Reserve for excess and obsolete inventories(12,961) (15,024)
Inventories, net$12,934
 $14,130
Property, Plant and Equipment
A summary of property, plant and equipment follows (in thousands):September 30, 2019 December 31, 2018A summary of property, plant and equipment follows (in thousands):September 30, 2020December 31, 2019
Buildings$15,714
 $15,707
Buildings$15,739 $15,486 
Machinery and equipment133,257
 132,135
Machinery and equipment133,900 133,048 
Seismic rental equipment1,572
 1,423
Seismic rental equipment1,851 1,669 
Furniture and fixtures3,867
 3,859
Furniture and fixtures3,164 3,347 
Other30,560
 30,104
Other (a)
Other (a)
30,269 31,142 
Total184,970
 183,228
Total184,923 184,692 
Less accumulated depreciation(135,514) (133,634)
Less impairment of long-lived assets(36,553) (36,553)
Less: accumulated depreciationLess: accumulated depreciation(137,143)(134,951)
Less: impairment of long-lived assetsLess: impairment of long-lived assets(36,553)(36,553)
Property, plant and equipment, net$12,903
 $13,041
Property, plant and equipment, net$11,227 $13,188 
(a) Consists primarily of cable-based ocean bottom acquisition technologies that were fully impaired.
Total depreciation expense, including amortization of assets recorded under equipment finance leases, for both the nine months ended September 30, 2020 and 2019 was $2.8 million and 2018 was $2.4 million, respectively. NaN impairment charge was recognized during the nine months ended September 30, 2020 and $6.0 million, respectively.2019.
Multi-ClientMulti-client Data Library
The change in multi-client data library are as follows (in thousands):September 30, 2019 December 31, 2018The change in multi-client data library are as follows (in thousands):September 30, 2020December 31, 2019
Gross costs of multi-client data creation$998,275
 $972,309
Gross costs of multi-client data creation$1,018,509 $1,007,762 
Less accumulated amortization(806,647) (776,860)
Less impairments to multi-client data library(121,905) (121,905)
Less: accumulated amortizationLess: accumulated amortization(833,075)(816,401)
Less: impairments to multi-client data libraryLess: impairments to multi-client data library(132,145)(130,977)
Multi-client data library, net$69,723
 $73,544
Multi-client data library, net$53,289 $60,384 
Total amortization expense for the nine months ended September 30, 2020 and 2019 was $16.7 million and 2018 was $29.8 million, respectively. For the nine months ended September 30, 2020, the Company recognized an impairment to multi-client data library of $1.2 million. NaN impairment to multi-client data library was recognized during the nine months ended September 30, 2019.
  GoodwillE&P Technology & Services Optimization Software & ServicesTotal
(In thousands)
Balance at January 1, 2019$2,943 $19,972 $22,915 
Impact of foreign currency translation adjustments0 670 670 
Balance at December 31, 20192,943 20,642 23,585 
Impairment of goodwill0 (4,150)(4,150)
Impact of foreign currency translation adjustments0 (751)(751)
Balance at September 30, 2020$2,943 $15,741 $18,684 
The Company, following the qualitative consideration, assessed the relevant events and $32.5circumstances in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. 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, the Company’s stock price experienced a significant decline. Based on these facts, the Company 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 was less than their carrying value.
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The Company, following the quantitative consideration, compared 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. The fair value of each reporting unit at March 31, 2020 was determined using a discounted cash flow model. The Company utilized a discount rate of 19% for both reporting units. The Company used reasonable assumptions based on historical data supplemented by anticipated market conditions and estimated growth rates. However, given the uncertainty in determining the assumptions underlying a discounted cash flow analysis, actual results may differ which could result in additional impairment charges in the future.
As a result of this assessment, the Company recorded an impairment charge of $4.2 million respectively.for the nine months ended September 30, 2020 related to its 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 the nine months ended September 30, 2020.
(10)(11)    Stockholder's Equity and Stock-Based Compensation Expense
Public Equity Offering
On February 21, 2018, the Company completed a public equity offering (“Offering”) of its 1,820,000 shares of common stock at a public offering price of $27.50 per share, and warrants to purchase an additional 1,820,000 shares of the Company’s common stock pursuant to the Registration Statement on Form S-3 (No. 33-213769) filed with the Securities and Exchange Commission under the Securities Act of 1933 and declared effective on December 2, 2016.  The net proceeds from this offering were $47.0 million, including transaction expenses. A portion of the net proceeds were used to retire the Company’s $28.5 million Third Lien Notes in March 2018. The warrants have an exercise price of $33.60 per share, are immediately exercisable and were to expire on March 21, 2019. On February 4, 2019, the Company extended expiration of the warrants to March 21, 2020.

Stock-Based Compensation
The total number of shares issued or reserved for future issuance under outstanding stock options at September 30, 2020 and 2019 was 569,673 and 2018 was 700,759, and 804,936, respectively, and the total number of shares of restricted stock and shares reserved for restricted stock units outstanding at September 30, 2020 and 2019 was 762,277 and 2018 was 926,917, and 128,131, respectively. The total number of stock appreciation rights (“SARs”) awards outstanding at September 30, 2020 and 2019 was 811,415 and 2018 was 963,013, and 530,865, respectively. The following table presents a summary of the activity related to stock options, restricted stock, restricted stock unit awards and SARs awards for the nine months ended September 30, 2019:2020:
 Stock Options Restricted Stock and Unit Awards Stock Appreciation Rights
 Number of Shares
Outstanding at December 31, 2018785,890
 1,044,125
 1,481,541
Granted10,000
 152,155
 —
Stock options and SARs exercised/restricted stock and unit awards vested(82,900) (202,697) (150,000)
Cancelled/forfeited(12,231) (66,666) (368,528)
Outstanding at September 30, 2019700,759
 926,917
 963,013
Cancelled/forfeited SARs relates to the 2015 issuance of 176,528 awards that expired during the current period and also 192,000 forfeited awards of the former Chief Executive Officer. On September 1, 2019, the Company granted 130,000 shares of restricted stock to the new Chief Executive Officer. The vesting of the 65,000 shares is achieved through a time based condition and the vesting of the remaining 65,000 shares is achieved through both a time based condition and performance based condition.
Stock OptionsRestricted Stock and Unit AwardsStock Appreciation Rights
Number of Shares
Outstanding at December 31, 2019689,209 908,754 954,679 
Granted0 67,500 0 
Stock options and SARs exercised/restricted stock and unit awards vested(5,000)(128,183)0 
Cancelled/forfeited(114,536)(85,794)(143,264)
Outstanding at September 30, 2020569,673 762,277 811,415 
Stock-based compensation expense recognized for the nine months ended September 30, 2020 and 2019, totaled $1.6 million and 2018, totaled $3.7 million, and $2.5 million, respectively. SARs (credit) expense recognized for the nine months ended September 30, 2020 and 2019, and 2018, totaled $2.7$(1.0) million and $2.8$2.7 million, respectively.
SARs awards are considered liability awards as they are ultimately settled in cash. As such, these amounts are incrementally accrued in the liability section of the condensed consolidated balance sheets over the service period. All of the Company’s currently outstanding SARs awards achieve vesting through both a market condition and a service condition. SARs awards that are fully vested under both conditions are measured at intrinsic value (i.e. the difference between the market price on the last day of the quarter and the strike price of the awards times the number of awards vested and outstanding) and marked to market each quarter until settled. SARs awards that are not fully vested are incrementally accrued over the service period and adjusted to their fair value each quarter until settled based on a valuation model. The Company calculated the fair value of each award as ofat September 30, 20192020 and December 31, 20182019 using a Monte Carlo simulation model. The following assumptions were used:
Risk-free interest rates1.9 %
Expected lives (in years)5.31
Expected dividend yield0 %
Expected volatility79 %

20
 September 30, 2019 December 31, 2018
Risk-free interest rates1.97% 3.0%
Expected lives (in years)5.31
 5.31
Expected dividend yield—% —%
Expected volatility86.1% 82.9%

(11)(12)    Lease Obligations
The Company determines if an arrangement is a lease at inception by considering whether (1) explicitly or implicitly identified assets have been deployed in the agreement and (2) the Company obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the agreement. Amounts related to operating leases are included in “Right-of-use assets”, “Current maturities of operating lease liabilities” and “Operating lease liabilities, net of current maturities” in the condensed consolidated balance sheets. Amounts related to finance leases are included in “Property, plant and equipment, net”, “Current maturities of long-term debt”, and “Long-term debt, net of current maturities” in the condensed consolidated balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are recognized at the commencement date and consist of the present value of remaining lease payments over the lease term, initial direct costs, prepaid lease payments less

any lease incentives. Operating lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. The Company uses the implicit rate, when readily determinable or the incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. The lease terms may include options to extend or terminate the lease which are recorded in the financial statements if it is reasonably certain that the Company will exercise such options. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease agreements with lease and non-lease components are accounted for separately. The Company does not recognize leases with terms of less than twelve months in the condensed consolidated balance sheets and will recognize those lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term.
The Company leases offices, processing centers, warehouse spaces and, to a lesser extent, certain equipment. These leases have remaining terms of 1 year to 710 years, some of which have options to extend for up to 10 years and/or options to terminate within 1 year. The options to renew are not recognized as part of the Company’s ROUright-of-use assets and operating lease liabilities as the Company is not reasonably certain that it will exercise these options.
In January 2020, the Company amended its existing Houston, Texas headquarters lease agreement by extending the lease term from September 30, 2023 to June 30, 2029 and surrendering back to the landlord floors for which the Company had previously vacated. In July 2020, the Company re-negotiated the above-mentioned lease agreement to modify the rent abatement period from October 2023 through February 2024 to July 2020 through March 2021.
In May 2020, the Company amended its Houston data center lease agreement to reflect changes in the monthly base rent throughout the term of the lease and extend the lease term three months to December 2025. The execution of this amendment and the amendment to the Houston, Texas headquarters lease resulted in the Company obtaining rent relief of approximately $4.0 million.
Total operating lease expense, including short-term lease expense was $8.9$8.1 million and $12.3$8.9 million for the nine months ended September 30, 20192020 and 2018, respectively.
Future maturities of lease obligations follows (in thousands):
For the year ending September 30,Operating Leases Finance Leases Total
2020$13,193
 $1,254
 $14,447
202111,975
 1,070
 13,045
202211,404
 —
 11,404
202311,389
 —
 11,389
20245,257
 —
 5,257
Thereafter5,242
 —
 5,242
Total lease payments58,460
 2,324
 60,784
Less imputed interest(11,598) (186) (11,784)
Total$46,862
 $2,138
 $49,000
The weighted average remaining lease term as of September 30, 2019, and December 31, 2018 was 5.00 years and 5.26 years, respectively. The weighted average discount rate used to determine the operating lease liability as of September 30, 2019 and December 31, 2018 was 6.53% and 6.25%, respectively.
Equipment Finance Leases
The Company has entered into equipment finance leases that are due in installments for the purpose of financing the purchase of computer equipment through August 2021. Interest accrues under these leases at rates from 4.3% toa rate of 8.7% per annum, and the leases are collateralized by liens on the computer equipment. The assets are amortized over the lesser of their related lease terms or their estimated useful lives and such charges are reflected within depreciation expense.
(12)(13)    Supplemental Cash Flow Information and Non-cash Activity
Supplemental disclosure of cash flow information are as follows (in thousands):
Nine Months Ended September 30,
20202019
Cash paid during the period for:
Interest$6,628 $6,085 
Income taxes6,759 7,607 
Non-cash items from investing and financing activities:
Investment in multi-client data library in accounts payable and accrued expenses0 4,741 

The following table is a reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets:
September 30,
20202019
(In thousands)
 Cash and cash equivalents$51,056 $27,894 
 Restricted cash included in prepaid expenses and other assets2,326 (a)303 
 Total cash, cash equivalents, and restricted cash shown in statements of cash flows$53,382 $28,197 
(a) Relates to letters of credit issued during third quarter 2020, primarily in connection with the Houston office lease deposit.

21
 Nine Months Ended September 30,
 2019 2018
Cash paid during the period for:   
Interest$6,085
 $6,733
Income taxes7,607
 2,257
Non-cash items from investing and financing activities:   
Purchases of computer equipment financed through capital leases—
 3,298
Investment in multi-client data library in accounts payable and accrued expenses4,741
 6,657


(13)(14)    Fair Value of Financial Instruments
Authoritative guidance on fair value measurements defines fair value, establishes a framework for measuring fair value and stipulates the related disclosure requirements. The Company follows a three-level hierarchy, under which the fair value hierarchy prioritizes the inputs used to measure fair value into three broad levels, moving from quotedvalue. The three-tiered hierarchy is summarized as follows:
Level 1—Quoted prices in active markets for identical assets and liabilities.
Level 2—Other significant observable inputs including quoted prices or other market data for similar assets and liabilities in (Level 1) toactive markets or quoted prices for identical or similar assets and liabilities in less active markets.
Level 3—Significant unobservable inputs in (Level 3).that require significant judgment for which there is little or no market data.
Due to their highly liquid nature, the amount of the Company’s other financial instruments, including cash and cash equivalents, restricted cash, accounts and unbilled receivables, short term investments, accounts payable and accrued multi-client data library royalties, represent their approximate fair value.
The carrying amounts of the Company’s long-term debt as ofSecond Lien Notes at September 30, 20192020 and December 31, 20182019 were $122.7$120.6 million and $124.7 million, respectively, compared to its fair values of $118.8$87.9 million and $120.7$113.8 million as ofat September 30, 20192020 and December 31, 2018,2019, respectively. Market conditions could cause an instrument to be reclassified from Level 1 to Level 2, or Level 2 to Level 3. The fair value of the Second Lien Notes was reclassified from Level 1 to Level 2 during the nine months ended September 30, 2020 resulting from less active market trading. The fair value of the Second Lien Notes was calculated using Level 12 inputs including an activeusing significant observable data points for similar liabilities where estimated values are determined from observable transactions.
The carrying amount of any borrowings outstanding under the Credit Facility approximate fair value, as the interest rate is variable based on LIBOR and reflective of market price.rates.
Fair value measurements are applied with respect to non-financial assets and liabilities on a non-recurring basis,when possible indicators of impairment exist, which would consist primarily of goodwill, multi-client data library and property, plant and equipment. The fair value of these assets is determined based on valuation techniques using the best information available and may include market comparables and discounted cash flow projections.

(14)(15)    Condensed Consolidating Financial Information
The Second Lien Notes were issued by ION Geophysical Corporation and are guaranteed by Guarantors, all of which are wholly-ownedwholly owned subsidiaries. The Guarantors have fully and unconditionally guaranteed the payment obligations of ION Geophysical Corporation with respect to the Second Lien Notes. The following condensed consolidating financial information presents the results of operations, financial position and cash flows for:
•ION Geophysical Corporation and the Guarantors (in each case, reflecting investments in subsidiaries utilizing the equity method of accounting).
•All other subsidiaries of ION Geophysical Corporation that are not Guarantors.
•The consolidating adjustments necessary to present ION Geophysical Corporation’s results on a consolidated basis.
This condensed consolidating financial information should be read in conjunction with the accompanying condensed consolidated financial statements and footnotes. For additional information pertaining to the Second Lien Notes, See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Form 10-Q.
22


September 30, 2020
Balance SheetION Geophysical CorporationThe GuarantorsAll Other SubsidiariesConsolidating AdjustmentsTotal Consolidated
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents$32,106 $31 $18,919 $0 $51,056 
Accounts receivable, net0 4,985 3,303 0 8,288 
Unbilled receivables0 7,186 2,443 0 9,629 
Inventories, net0 7,182 4,691 0 11,873 
Prepaid expenses and other current assets3,858 1,006 997 0 5,861 
Total current assets35,964 20,390 30,353 0 86,707 
Deferred income tax asset0 7,982 110 0 8,092 
Property, plant and equipment, net1,439 6,550 3,238 0 11,227 
Multi-client data library, net0 44,957 8,332 0 53,289 
Investment in subsidiaries847,775 280,647 0 (1,128,422)0 
Goodwill0 0 18,684 0 18,684 
Intercompany receivables0 279,010 118,944 (397,954)0 
Right-of-use assets20,656 12,770 4,304 0 37,730 
Other assets1,300 786 50 0 2,136 
Total assets$907,134 $653,092 $184,015 $(1,526,376)$217,865 
LIABILITIES AND (DEFICIT) EQUITY
Current liabilities:
Current maturities of long-term debt$22,500 $1,027 $0 $0 $23,527 
Accounts payable1,948 31,401 1,758 0 35,107 
Accrued expenses14,917 7,544 6,736 0 29,197 
Accrued multi-client data library royalties0 20,319 215 0 20,534 
Deferred revenue0 1,143 1,013 0 2,156 
Current maturities of operating lease liabilities1,938 3,630 1,159 0 6,727 
Total current liabilities41,303 65,064 10,881 0 117,248 
Long-term debt, net of current maturities119,349 0 0 0 119,349 
Operating lease liabilities, net of current maturities22,227 14,359 3,794 0 40,380 
Intercompany payables784,937 0 0 (784,937)0 
Other long-term liabilities377 35 0 0 412 
Total liabilities968,193 79,458 14,675 (784,937)277,389 
(Deficit) Equity:
Common stock144 290,460 47,776 (338,236)144 
Additional paid-in capital958,189 180,700 203,909 (384,609)958,189 
Accumulated earnings (deficit)(998,380)398,464 26,645 (425,109)(998,380)
Accumulated other comprehensive income (loss)(21,012)4,238 (23,770)19,532 (21,012)
Due from ION Geophysical Corporation0 (300,228)(86,755)386,983 0 
Total stockholders’ (deficit) equity(61,059)573,634 167,805 (741,439)(61,059)
Noncontrolling interest0 0 1,535 0 1,535 
Total (deficit) equity(61,059)573,634 169,340 (741,439)(59,524)
Total liabilities and (deficit) equity$907,134 $653,092 $184,015 $(1,526,376)$217,865 
23

September 30, 2019December 31, 2019
Balance SheetION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total ConsolidatedBalance SheetION Geophysical CorporationThe GuarantorsAll Other SubsidiariesConsolidating AdjustmentsTotal Consolidated
(In thousands)(In thousands)
ASSETS         ASSETS
Current assets:         Current assets:
Cash and cash equivalents$7,153
 $45
 $20,696
 $—
 $27,894
Cash and cash equivalents$8,426 $26 $24,613 $0 $33,065 
Accounts receivable, net8
 11,338
 12,486
 —
 23,832
Accounts receivable, net8 19,493 10,047 0 29,548 
Unbilled receivables—
 10,758
 20,232
 —
 30,990
Unbilled receivables0 7,314 4,501 0 11,815 
Inventories, net—
 7,192
 5,742
 —
 12,934
Inventories, net0 6,902 5,285 0 12,187 
Prepaid expenses and other current assets3,160
 986
 2,480
 —
 6,626
Prepaid expenses and other current assets3,292 1,513 1,207 0 6,012 
Total current assets10,321
 30,319
 61,636
 —
 102,276
Total current assets11,726 35,248 45,653 0 92,627 
Deferred income tax asset805
 7,510
 120
 —
 8,435
Deferred income tax asset402 8,417 (85)0 8,734 
Property, plant and equipment, net754
 7,931
 4,218
 —
 12,903
Property, plant and equipment, net786 8,112 4,290 0 13,188 
Multi-client data library, net—
 65,790
 3,933
 —
 69,723
Multi-client data library, net0 54,479 5,905 0 60,384 
Investment in subsidiaries847,183
 268,398
 —
 (1,115,581) —
Investment in subsidiaries841,522 279,327 0 (1,120,849)0 
Goodwill—
 —
 22,276
 —
 22,276
Goodwill0 0 23,585 0 23,585 
Intercompany receivables—
 91,534
 80,264
 (171,798) —
Intercompany receivables0 287,692 99,884 (387,576)0 
Right-of-use assets15,206
 16,897
 5,052
 —
 37,155
Right-of-use assets11,934 15,802 4,810 0 32,546 
Other assets1,223
 945
 54
 —
 2,222
Other assets1,171 905 54 0 2,130 
Total assets$875,492
 $489,324
 $177,553
 $(1,287,379) $254,990
Total assets$867,541 $689,982 $184,096 $(1,508,425)$233,194 
LIABILITIES AND (DEFICIT) EQUITY         LIABILITIES AND (DEFICIT) EQUITY
Current liabilities:         Current liabilities:
Current maturities of long-term debt$—
 $1,110
 $—
 $—
 $1,110
Current maturities of long-term debt$972 $1,135 $0 $0 $2,107 
Accounts payable2,460
 37,508
 3,597
 —
 43,565
Accounts payable2,259 44,641 2,416 0 49,316 
Accrued expenses15,338
 15,840
 11,629
 —
 42,807
Accrued expenses9,933 9,982 10,413 0 30,328 
Accrued multi-client data library royalties—
 17,299
 215
 —
 17,514
Accrued multi-client data library royalties0 18,616 215 0 18,831 
Deferred revenue—
 3,802
 1,508
 —
 5,310
Deferred revenue0 3,465 1,086 0 4,551 
Current maturities of operating lease liabilities5,026
 5,422
 1,200
 —
 11,648
Current maturities of operating lease liabilities4,429 5,469 1,157 0 11,055 
Total current liabilities22,824
 80,981
 18,149
 —
 121,954
Total current liabilities17,593 83,308 15,287 0 116,188 
Long-term debt, net of current maturities118,375
 1,027
 —
 —
 119,402
Long-term debt, net of current maturities118,618 734 0 0 119,352 
Operating lease liabilities, net of current maturities14,090
 16,647
 4,477
 —
 35,214
Operating lease liabilities, net of current maturities11,208 15,346 4,279 0 30,833 
Intercompany payables744,102
 —
 —
 (744,102) —
Intercompany payables755,524 0 0 (755,524)0 
Other long-term liabilities1,491
 35
 —
 —
 1,526
Other long-term liabilities1,418 35 0 0 1,453 
Total liabilities900,882
 98,690
 22,626
 (744,102) 278,096
Total liabilities904,361 99,423 19,566 (755,524)267,826 
(Deficit) Equity:         (Deficit) Equity:
Common stock142
 290,460
 47,776
 (338,236) 142
Common stock142 290,460 47,776 (338,236)142 
Additional paid-in capital955,705
 180,700
 203,909
 (384,609) 955,705
Additional paid-in capital956,647 180,700 203,909 (384,609)956,647 
Accumulated earnings (deficit)(959,797) 401,351
 10,981
 (412,332) (959,797)Accumulated earnings (deficit)(974,291)396,793 18,837 (415,630)(974,291)
Accumulated other comprehensive income (loss)(21,440) 4,281
 (23,877) 19,596
 (21,440)Accumulated other comprehensive income (loss)(19,318)4,281 (21,907)17,626 (19,318)
Due from ION Geophysical Corporation—
 (486,158) (86,146) 572,304
 —
Due from ION Geophysical Corporation0 (281,675)(86,273)367,948 0 
Total stockholders’ (deficit) equity(25,390) 390,634
 152,643
 (543,277) (25,390)Total stockholders’ (deficit) equity(36,820)590,559 162,342 (752,901)(36,820)
Noncontrolling interest—
 —
 2,284
 —
 2,284
Noncontrolling interest0 0 2,188 0 2,188 
Total (deficit) equity(25,390) 390,634
 154,927
 (543,277) (23,106)Total (deficit) equity(36,820)590,559 164,530 (752,901)(34,632)
Total liabilities and (deficit) equity$875,492
 $489,324
 $177,553
 $(1,287,379) $254,990
Total liabilities and (deficit) equity$867,541 $689,982 $184,096 $(1,508,425)$233,194 
24


Three Months Ended September 30, 2020
Income StatementION Geophysical CorporationThe GuarantorsAll Other SubsidiariesConsolidating AdjustmentsTotal Consolidated
(In thousands)
Net revenues$0 $9,799 $6,435 $0 $16,234 
Cost of sales0 11,326 3,619 0 14,945 
Gross profit (loss)0 (1,527)2,816 0 1,289 
Total operating expenses6,335 4,270 1,848 0 12,453 
Income (loss) from operations(6,335)(5,797)968 0 (11,164)
Interest expense, net(3,368)(322)21 0 (3,669)
Intercompany interest, net(247)(1,425)1,672 0 0 
Equity in earnings (losses) of investments(6,081)1,722 0 4,359 0 
Other expense, net(4)(282)(239)0 (525)
Net income (loss) before income taxes(16,035)(6,104)2,422 4,359 (15,358)
Income tax expense572 185 299 0 1,056 
Net income (loss)(16,607)(6,289)2,123 4,359 (16,414)
Net income attributable to noncontrolling interest0 0 (193)0 (193)
Net income (loss) attributable to ION$(16,607)$(6,289)$1,930 $4,359 $(16,607)
Comprehensive net income (loss)$(15,786)$(6,289)$2,746 $3,687 $(15,642)
Comprehensive income attributable to noncontrolling interest0 0 (144)0 (144)
Comprehensive net income (loss) attributable to ION$(15,786)$(6,289)$2,602 $3,687 $(15,786)
Three Months Ended September 30, 2019
Income StatementION Geophysical CorporationThe GuarantorsAll Other SubsidiariesConsolidating AdjustmentsTotal Consolidated
(In thousands)
Net revenues$0 $21,474 $31,765 $0 $53,239 
Cost of sales0 20,165 7,786 0 27,951 
Gross profit0 1,309 23,979 0 25,288 
Total operating expenses9,514 7,976 3,940 0 21,430 
Income (loss) from operations(9,514)(6,667)20,039 0 3,858 
Interest expense, net(3,197)(49)91 0 (3,155)
Intercompany interest, net65 (2,077)2,012 0 0 
Equity in earnings of investments8,988 18,398 0 (27,386)0 
Other income (expense), net16 (55)(203)0 (242)
Net income (loss) before income taxes(3,642)9,550 21,939 (27,386)461 
Income tax expense (benefit)81 (403)4,112 0 3,790 
Net income (loss)(3,723)9,953 17,827 (27,386)(3,329)
Net income attributable to noncontrolling interest0 0 (394)0 (394)
Net income (loss) attributable to ION$(3,723)$9,953 $17,433 $(27,386)$(3,723)
Comprehensive net income (loss)$(4,751)$9,953 $16,403 $(25,962)$(4,357)
Comprehensive income attributable to noncontrolling interest0 0 (394)0 (394)
Comprehensive net income (loss) attributable to ION$(4,751)$9,953 $16,009 $(25,962)$(4,751)
25
 December 31, 2018
Balance SheetION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
 (In thousands)
ASSETS         
Current assets:         
Cash and cash equivalents$13,782
 $47
 $19,722
 $—
 $33,551
Accounts receivable, net8
 17,349
 8,771
 —
 26,128
Unbilled receivables—
 12,697
 31,335
 —
 44,032
Inventories, net—
 8,721
 5,409
 —
 14,130
Prepaid expenses and other current assets3,891
 1,325
 2,566
 —
 7,782
Total current assets17,681
 40,139
 67,803
 —
 125,623
Deferred income tax asset805
 6,261
 125
 —
 7,191
Property, plant and equipment, net489
 8,922
 3,630
 —
 13,041
Multi-client data library, net—
 70,380
 3,164
 —
 73,544
Investment in subsidiaries836,002
 247,359
 —
 (1,083,361) —
Goodwill—
 —
 22,915
 —
 22,915
Intercompany receivables—
 305,623
 60,255
 (365,878) —
Right-of-use assets18,513
 21,350
 7,940
 —
 47,803
Other assets1,723
 643
 69
 —
 2,435
Total assets$875,213
 $700,677
 $165,901
 $(1,449,239) $292,552
LIABILITIES AND (DEFICIT) EQUITY         
Current liabilities:         
Current maturities of long-term debt$1,159
 $1,069
 $—
 $—
 $2,228
Accounts payable2,407
 29,602
 2,904
 —
 34,913
Accrued expenses7,011
 10,036
 14,364
 —
 31,411
Accrued multi-client data library royalties—
 29,040
 216
 —
 29,256
Deferred revenue—
 6,515
 1,195
 —
 7,710
Current maturities of operating lease liabilities5,155
 5,633
 1,426
 —
 12,214
Total current liabilities15,732
 81,895
 20,105
 —
 117,732
Long-term debt, net of current maturities117,644
 1,869
 —
 —
 119,513
Operating lease liabilities, net of current maturities17,841
 21,237
 6,514
 —
 45,592
Intercompany payables716,051
 —
 

 (716,051) —
Other long-term liabilities1,713
 178
 —
 —
 1,891
Total liabilities868,981
 105,179
 26,619
 (716,051) 284,728
Equity:         
Common stock140
 290,460
 47,776
 (338,236) 140
Additional paid-in capital952,626
 180,700
 203,908
 (384,608) 952,626
Accumulated earnings (deficit)(926,092) 390,691
 (12,475) (378,216) (926,092)
Accumulated other comprehensive income (loss)(20,442) 4,324
 (22,023) 17,699
 (20,442)
Due from ION Geophysical Corporation—
 (270,677) (79,496) 350,173
 —
Total stockholders’ (deficit) equity6,232
 595,498
 137,690
 (733,188) 6,232
Noncontrolling interest—
 —
 1,592
 —
 1,592
Total equity6,232
 595,498
 139,282
 (733,188) 7,824
Total liabilities and equity$875,213
 $700,677
 $165,901
 $(1,449,239) $292,552


Nine Months Ended September 30, 2020
Income StatementION Geophysical CorporationThe GuarantorsAll Other SubsidiariesConsolidating AdjustmentsTotal Consolidated
(In thousands)
Net revenues$0 $61,969 $33,410 $0 $95,379 
Cost of sales0 46,357 13,638 0 59,995 
Impairment of multi-client data library0 1,167 0 0 1,167 
Gross profit0 14,445 19,772 0 34,217 
Total operating expenses19,787 13,974 6,616 0 40,377 
Impairment of goodwill0 0 4,150 0 4,150 
Income (loss) from operations(19,787)471 9,006 0 (10,310)
Interest expense, net(9,923)(484)103 0 (10,304)
Intercompany interest, net(705)(4,884)5,589 0 0 
Equity in earnings (losses) of investments1,865 7,614 0 (9,479)0 
Other expense, net8,139 (276)(1,188)0 6,675 
Net income (loss) before income taxes(20,411)2,441 13,510 (9,479)(13,939)
Income tax expense3,678 770 5,534 0 9,982 
Net income (loss)(24,089)1,671 7,976 (9,479)(23,921)
Net income attributable to noncontrolling interest0 0 (168)0 (168)
Net income (loss) attributable to ION$(24,089)$1,671 $7,808 $(9,479)$(24,089)
Comprehensive net income (loss)$(25,783)$1,628 $6,113 $(7,622)$(25,664)
Comprehensive income attributable to noncontrolling interest0 0 (119)0 (119)
Comprehensive net income (loss) attributable to ION$(25,783)$1,628 $5,994 $(7,622)$(25,783)
Nine Months Ended September 30, 2019
Income StatementION Geophysical CorporationThe GuarantorsAll Other SubsidiariesConsolidating AdjustmentsTotal Consolidated
(In thousands)
Net revenues$0 $65,552 $66,418 $0 $131,970 
Cost of sales0 56,106 21,081 0 77,187 
Gross profit0 9,446 45,337 0 54,783 
Total operating expenses31,330 26,204 11,881 0 69,415 
Income (loss) from operations(31,330)(16,758)33,456 0 (14,632)
Interest expense, net(9,560)(156)338 0 (9,378)
Intercompany interest, net588 521 (1,109)0 0 
Equity in earnings of investments7,330 26,786 0 (34,116)0 
Other income (expense), net4 (265)(677)0 (938)
Net income (loss) before income taxes(32,968)10,128 32,008 (34,116)(24,948)
Income tax expense (benefit)737 (532)7,711 0 7,916 
Net income (loss)(33,705)10,660 24,297 (34,116)(32,864)
Net income attributable to noncontrolling interests0 0 (841)0 (841)
Net income (loss) applicable to ION$(33,705)$10,660 $23,456 $(34,116)$(33,705)
Comprehensive net income (loss)$(34,703)$10,617 $22,444 $(32,220)$(33,862)
Comprehensive income attributable to noncontrolling interest0 0 (841)0 (841)
Comprehensive net income (loss) attributable to ION$(34,703)$10,617 $21,603 $(32,220)$(34,703)
26
 Three Months Ended September 30, 2019
Income StatementION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
 (In thousands)
Net revenues$—
 $21,474
 $31,765
 $—
 $53,239
Cost of sales—
 20,165
 7,786
 —
 27,951
Gross profit—
 1,309
 23,979
 —
 25,288
Total operating expenses9,514
 7,976
 3,940
 —
 21,430
Income (loss) from operations(9,514) (6,667) 20,039
 —
 3,858
Interest expense, net(3,197) (49) 91
 —
 (3,155)
Intercompany interest, net65
 (2,077) 2,012
 —
 —
Equity in earnings of investments8,988
 18,398
 —
 (27,386) —
Other income (expense), net16
 (55) (203) —
 (242)
Net income (loss) before income taxes(3,642) 9,550
 21,939
 (27,386) 461
Income tax expense (benefit)81
 (403) 4,112
 —
 3,790
Net income (loss)(3,723) 9,953
 17,827
 (27,386) (3,329)
Net income attributable to noncontrolling interest—
 —
 (394) —
 (394)
Net income (loss) attributable to ION$(3,723) $9,953
 $17,433
 $(27,386) $(3,723)
Comprehensive net income (loss)$(4,751) $9,953
 $16,403
 $(25,962) $(4,357)
Comprehensive income attributable to noncontrolling interest—
 —
 (394) —
 (394)
Comprehensive net income (loss) attributable to ION$(4,751) $9,953
 $16,009
 $(25,962) $(4,751)
          

 Three Months Ended September 30, 2018
Income StatementION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
 (In thousands)
Net revenues$—
 $39,211
 $7,989
 $—
 $47,200
Cost of sales—
 26,328
 4,397
 —
 30,725
Gross profit—
 12,883
 3,592
 —
 16,475
Total operating expenses7,349
 7,911
 3,667
 —
 18,927
Income (loss) from operations(7,349) 4,972
 (75) —
 (2,452)
Interest expense, net(3,046) (7) 31
 —
 (3,022)
Intercompany interest, net265
 (3,649) 3,384
 —
 —
Equity in earnings (losses) of investments2,291
 (301) —
 (1,990) —
Other income (expense), net19
 (2) 74
 —
 91
Net income (loss) before income taxes(7,820) 1,013
 3,414
 (1,990) (5,383)
Income tax expense (benefit)(284) (2,358) 4,721
 —
 2,079
Net income (loss)(7,536) 3,371
 (1,307) (1,990) (7,462)
Net income attributable to noncontrolling interest—
 —
 (74) —
 (74)
Net income (loss) attributable to ION$(7,536) $3,371
 $(1,381) $(1,990) $(7,536)
Comprehensive net income (loss)$(7,493) $3,370
 $11,382
 $(14,678) $(7,419)
Comprehensive income attributable to noncontrolling interest—
 —
 (74) —
 (74)
Comprehensive net income (loss) attributable to ION$(7,493) $3,370
 $11,308
 $(14,678) $(7,493)
          
Nine Months Ended September 30, 2020
Statement of Cash FlowsION Geophysical CorporationThe GuarantorsAll Other SubsidiariesTotal Consolidated
(In thousands)
Cash flows from operating activities:
Net cash provided by operating activities$3,917 $2,253 $6,998 $13,168 
Cash flows from investing activities:
Cash invested in multi-client data library0 (8,344)(11,497)(19,841)
Purchase of property, plant and equipment(35)(415)(415)(865)
Net cash used in investing activities(35)(8,759)(11,912)(20,706)
Cash flows from financing activities:
Borrowings under revolving line of credit27,000 0 0 27,000 
Payments under revolving line of credit(4,500)0 0 (4,500)
Proceeds from government relief funding6,923 0 0 6,923 
Payments on notes payable and long-term debt(972)(842)0 (1,814)
Intercompany lending(6,289)7,353 (1,064)0 
Dividend payment to non-controlling interest0 0 (217)(217)
Other financing activities(91)0 0 (91)
Net cash provided by (used in) financing activities22,071 6,511 (1,281)27,301 
Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash0 0 501 501 
Net increase (decrease) in cash, cash equivalents and restricted cash25,953 5 (5,694)20,264 
Cash, cash equivalents and restricted cash at beginning of period8,479 26 24,613 33,118 
Cash, cash equivalents and restricted cash at end of period$34,432 $31 $18,919 $53,382 


 Nine Months Ended September 30, 2019
Income StatementION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
 (In thousands)
Net revenues$—
 $65,552
 $66,418
 $—
 $131,970
Cost of sales—
 56,106
 21,081
 —
 77,187
Gross profit—
 9,446
 45,337
 —
 54,783
Total operating expenses31,330
 26,204
 11,881
 —
 69,415
Income (loss) from operations(31,330) (16,758) 33,456
 —
 (14,632)
Interest expense, net(9,560) (156) 338
 —
 (9,378)
Intercompany interest, net588
 521
 (1,109) —
 —
Equity in earnings of investments7,330
 26,786
 —
 (34,116) —
Other income (expense), net4
 (265) (677) —
 (938)
Net income (loss) before income taxes(32,968) 10,128
 32,008
 (34,116) (24,948)
Income tax expense (benefit)737
 (532) 7,711
 —
 7,916
Net income (loss)(33,705) 10,660
 24,297
 (34,116) (32,864)
Net income attributable to noncontrolling interest—
 —
 (841) —
 (841)
Net income (loss) attributable to ION$(33,705) $10,660
 $23,456
 $(34,116) $(33,705)
Comprehensive net income (loss)$(34,703) $10,617
 $22,444
 $(32,220) $(33,862)
Comprehensive income attributable to noncontrolling interest—
 —
 (841) —
 (841)
Comprehensive net income (loss) attributable to ION$(34,703) $10,617
 $21,603
 $(32,220) $(34,703)
          
 Nine Months Ended September 30, 2018
Income StatementION Geophysical Corporation The Guarantors All Other Subsidiaries Consolidating Adjustments Total Consolidated
 (In thousands)
Net revenues$—
 $63,465
 $41,986
 $—
 $105,451
Cost of sales—
 60,869
 22,771
 —
 83,640
Gross profit—
 2,596
 19,215
 —
 21,811
Total operating expenses26,592
 22,050
 10,780
 —
 59,422
Income (loss) from operations(26,592) (19,454) 8,435
 —
 (37,611)
Interest expense, net(9,876) (20) 127
 —
 (9,769)
Intercompany interest, net842
 (8,779) 7,937
 —
 —
Equity in earnings (losses) of investments(13,826) 14,081
 —
 (255) —
Other income (expense), net(206) 66
 (476) —
 (616)
Net income (loss) before income taxes(49,658) (14,106) 16,023
 (255) (47,996)
Income tax expense (benefit)2,170
 (3,141) 4,276
 —
 3,305
Net income (loss)(51,828) (10,965) 11,747
 (255) (51,301)
Net income attributable to noncontrolling interests—
 —
 (527) —
 (527)
Net income (loss) applicable to ION$(51,828) $(10,965) $11,220
 $(255) $(51,828)
Comprehensive net income (loss)$(52,540) $(11,013) $10,505
 $1,035
 $(52,013)
Comprehensive income attributable to noncontrolling interest—
 —
 (527) —
 (527)
Comprehensive net income (loss) attributable to ION$(52,540) $(11,013) $9,978
 $1,035
 $(52,540)
          

 Nine Months Ended September 30, 2019
Statement of Cash FlowsION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated
 (In thousands)
Cash flows from operating activities:       
Net cash provided by operating activities$8,955
 $9,619
 $730
 $19,304
Cash flows from investing activities:       
Cash invested in multi-client data library—
 (15,197) (6,028) (21,225)
Purchase of property, plant and equipment(259) (118) (895) (1,272)
Net cash used in investing activities(259) (15,315) (6,923) (22,497)
Cash flows from financing activities:       
Payments under revolving line of credit(15,000) —
 —
 (15,000)
Borrowings under revolving line of credit15,000
 —
 —
 15,000
Payments on notes payable and long-term debt(1,159) (801) —
 (1,960)
Intercompany lending(13,511) 6,495
 7,016
 —
Other financing activities(655) —
 —
 (655)
Net cash provided by (used in) financing activities(15,325) 5,694
 7,016
 (2,615)
Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash—
 —
 151
 151
Net increase (decrease) in cash, cash equivalents and restricted cash(6,629) (2) 974
 (5,657)
Cash, cash equivalents and restricted cash at beginning of period14,085
 47
 19,722
 33,854
Cash, cash equivalents and restricted cash at end of period$7,456
 $45
 $20,696
 $28,197
The following table is a reconciliation of cash and cash equivalents to total cash, cash equivalents, and restricted cash:
September 30, 2020
ION Geophysical CorporationThe GuarantorsAll Other SubsidiariesTotal Consolidated
(In thousands)
 Cash and cash equivalents$32,106 $31 $18,919 $51,056 
 Restricted cash included in prepaid expenses and other assets2,326 0 0 2,326 
 Total cash, cash equivalents, and restricted cash shown in statements of cash flows$34,432 $31 $18,919 $53,382 

27

 September 30, 2019
 ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated
 (In thousands)
 Cash and cash equivalents$7,153
 $45
 $20,696
 $27,894
 Restricted cash included in prepaid expenses and other current assets303
 —
 —
 303
 Total cash, cash equivalents, and restricted cash shown in statements of cash flows$7,456
 $45
 $20,696
 $28,197
Nine Months Ended September 30, 2019
Statement of Cash FlowsION Geophysical CorporationThe GuarantorsAll Other SubsidiariesTotal Consolidated
(In thousands)
Cash flows from operating activities:
Net cash provided by operating activities$8,955 $9,619 $730 $19,304 
Cash flows from investing activities:
Investment in multi-client data library0 (15,197)(6,028)(21,225)
Purchase of property, plant and equipment(259)(118)(895)(1,272)
Net cash used in investing activities(259)(15,315)(6,923)(22,497)
Cash flows from financing activities:
Borrowings under revolving line of credit15,000 0 0 15,000 
Payments under revolving line of credit(15,000)0 0 (15,000)
Payments on notes payable and long-term debt(1,159)(801)0 (1,960)
Intercompany lending(13,511)6,495 7,016 0 
Other financing activities(655)0 0 (655)
Net cash provided by (used in) financing activities(15,325)5,694 7,016 (2,615)
Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash0 0 151 151 
Net increase (decrease) in cash, cash equivalents and restricted cash(6,629)(2)974 (5,657)
Cash, cash equivalents and restricted cash at beginning of period14,085 47 19,722 33,854 
Cash, cash equivalents and restricted cash at end of period$7,456 $45 $20,696 $28,197 




 Nine Months Ended September 30, 2018
Statement of Cash FlowsION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated
 (In thousands)
Cash flows from operating activities:       
Net cash provided by (used in) operating activities$(32,495) $28,151
 $(2,980) $(7,324)
Cash flows from investing activities:       
Investment in multi-client data library—
 (17,427) (2,484) (19,911)
Proceeds from sale (purchase) of property, plant and equipment(282) 91
 (122) (313)
Net cash used in investing activities(282) (17,336) (2,606) (20,224)
Cash flows from financing activities:       
Payments under revolving line of credit(10,000) —
 —
 (10,000)
Payments on notes payable and long-term debt(29,879) (192) —
 (30,071)
Intercompany lending8,555
 (10,671) 2,116
 —
Net proceeds from issuance of stock46,999
 —
 —
 46,999
Dividend payment to non-controlling interest(200) —
 —
 (200)
Other financing activities(1,489) —
 —
 (1,489)
Net cash provided by (used in) financing activities13,986
 (10,863) 2,116
 5,239
Effect of change in foreign currency exchange rates on cash, cash equivalents and restricted cash—
 —
 296
 296
Net decrease in cash, cash equivalents and restricted cash(18,791) (48) (3,174) (22,013)
Cash, cash equivalents and restricted cash at beginning of period39,707
 66
 12,646
 52,419
Cash, cash equivalents and restricted cash at end of period$20,916
 $18
 $9,472
 $30,406
The following table is a reconciliation of cash and cash equivalents to total cash, cash equivalents, and restricted cash:
September 30, 2019
ION Geophysical CorporationThe GuarantorsAll Other SubsidiariesTotal Consolidated
(In thousands)
 Cash and cash equivalents$7,153 $45 $20,696 $27,894 
 Restricted cash included in prepaid expenses and other current assets303 0 0 303 
 Total cash, cash equivalents, and restricted cash shown in statement of cash flows$7,456 $45 $20,696 $28,197 
28
 September 30, 2018
 ION Geophysical Corporation The Guarantors All Other Subsidiaries Total Consolidated
 (In thousands)
 Cash and cash equivalents$20,553
 $18
 $9,472
 $30,043
 Restricted cash included in prepaid expenses and other current assets60
 —
 —
 60
 Restricted cash included in other long-term assets303
 —
 —
 303
 Total cash, cash equivalents, and restricted cash shown in statement of cash flows$20,916
 $18
 $9,472
 $30,406


Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary
Our Business
In this Form 10-Q, “ION Geophysical,” “ION,” “the company” (or, “the Company”), “we,” “our,” “ours” and “us” refer to ION Geophysical Corporation and its consolidated subsidiaries, except where the context otherwise requires or as otherwise indicated.
The information contained in this Quarterly Report on Form 10-Q 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 term “DigiFIN” refers to DigiFIN® , a registered mark owned by ION or its affiliates, and the terms “Marlin,”“Gemini”, “Marlin SmartPorts,” “Gator,” “SailWing,”SmartPort”, “SailWing”, and “4Sea” refers to the Marlin™Gemini™, Marlin SmartPorts™, Gator™SmartPort™, SailWing™ and 4Sea™ trademarks and service marks owned by ION.
Executive Summary
Overview
The COVID-19 pandemic caused the global economy to enter a recessionary period, which may be prolonged and severe, and significantly reduce the availability of capital and liquidity from banks and other providers of credit. The exploration and production (“E&P”) industry is facing 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 since the start 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 from increased global demand as pandemic restrictions started to ease and decreased production and remained relatively stable at that level throughout the third quarter. While the consistency is beneficial, prices are significantly lower compared to the start of the year. The record production cut agreed to by OPEC and other oil producing countries was extended through December 2020 in an effort to stabilize oil prices by limiting supply.
While commodity prices can be volatile, the sharp decline earlier this year triggered E&P companies to reduce budgets and delay near-term spending, but is also a catalyst to drive necessary cost restructuring and digital transformation of the E&P ecosystem. However, exploration offerings and data purchases are often discretionary and, therefore, receive disproportionately higher reductions than overall budget cuts. There has been a material slowdown in offshore seismic spending during the second and third quarters, and while we are seeing signs that could improve during the fourth quarter, we expect the market to remain challenging into 2021.
ION 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 have already 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 third quarter revenues came in lower than prior year due to the repercussions of the oil price volatility earlier this year and the ongoing uncertainty from the COVID-19 pandemic, we made progress executing our strategy. Backlog increased 77% sequentially, reversing several consecutive quarters of steady decline due to the strategic shift to enter the 3D new acquisition multi-client market. We continue to work closely with our clients to understand their revised budgets 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 the first quarter. To further mitigate the impact of COVID-19 and oil price volatility, management implemented a plan to preserve cash and manage liquidity as follows:
•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 an estimated $25.0 million to $35.0 million (a portion of which will be 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.
29

•Applied for and continue to explore various government assistance programs, of which approximately $7.0 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 expected to benefit us from July 2020 to March 2021. See Note 12 “Lease Obligations” of Footnotes to Condensed 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. As the regulatory review is taking longer than anticipated, closing will likely extend into 2021.
•Entered into a settlement agreement with WesternGeco ending the decade-long patent litigation. See Note 9 “Litigation” of Footnotes to Condensed Consolidated Financial Statements” for further details.
We believe that the above management plan, which includes the use of government assistance programs, along with our existing cash balance and the undrawn remaining borrowing capacity under our Credit Facility will provide sufficient liquidity to meet our anticipated cash needs for the next twelve months. At September 30, 2020, our liquidity was $59.4 million, consisting of $51.1 million of cash (including net revolver borrowings of $22.5 million) and $8.3 million of remaining available borrowing capacity under the revolving credit facility, slightly below liquidity of $65.5 million from one year ago. The outlined 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. Additionally, we are actively exploring a number of strategic options to optimally address ION Geophysical Corporation’s 9.125% Senior Secured Second Priority Notes due December 2021 (the “Second Lien Notes”), which mature on December 15, 2021. If by September 15, 2021 we have not (1) repaid the Second Lien Notes, (2) extended the maturity of the 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 Note 5, “Long-term Debt” of Footnotes to Condensed 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. If the written proposal is submitted and approved by the agent by September 15, 2021, but we are unable to execute the approved proposal on or before October 31, 2021, the Credit Facility shall immediately become due and payable on such date. We reviewed our debt covenants as of September 30, 2020, and expect to remain in compliance for the next twelve months (see Note 5, “Long-term Debt” of Footnotes to Condensed Consolidated Financial Statements” for further discussion of our covenants).
Our three and nine month 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. Our backlog significantly improved compared to the prior quarter. In addition, we are fully benefiting from our cost reduction measures taken earlier in the year. 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.
Our Business
ION is an innovative, asset light global technology company that delivers powerful data-driven decision-making offerings to offshore energy, ports and defense industries. 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, enabling our clients to enhance decisions, gain a competitive edge and deliver superior returns.
We have been a leading technology leaderinnovator for over 50 years with a strong history of innovation.years. While the traditional focus of our cutting-edge technology has been on the exploration and production (“E&P”)&P industry, we are now broadening and diversifying our business into relevant adjacent markets such as offshore logistics, port management, harbor security,ports and harbors, defense and marine robotics.
Leveraging innovative technologies, we create value through data capture, analysis and optimization to enhance companies’ critical decision-making abilities and returns. Our offerings are focused on improving subsurface knowledge to enhance E&P decision-making and optimizingimproving situational awareness to optimize offshore operations. Our E&P offerings are designed to enable oil and gas companies to obtain higher resolution images of the Earth’s subsurface to reduce their risk in hydrocarbon exploration and development. We acquire, process and interpret data from seismic surveys on a multi-client or proprietary basis. Multi-client surveys are pre-funded, or underwritten, in part by our customers, and we contract with third party seismic data acquisition companies to acquire the seismic data, all of which is intended to minimize our risk exposure. We serve customers in most major energy producing regions of the world from strategically located offices.
Seismic imaging plays a fundamental role in hydrocarbon exploration and reservoir development by delineating structures, rock types and fluid locations inThe Company is publicly listed on the subsurface. Our technologies and services are used by E&P companies to generate high-resolution images ofNew York Stock Exchange under the Earth’s subsurface to identify hydrocarbons and pinpoint drilling locations for wells and to monitor production from existing wells.
During the first quarter of 2019, we consolidated our operating segments from three into two, eliminating the separate presentation of our Ocean Bottom Integrated Technologies segment. This consolidation aligns with our asset light business model and evolved strategy to commercialize components of our next generation ocean bottom nodal system, 4Sea, instead of operating a crew.ticker IO. We are offering 4Sea components more broadly toheadquartered in Houston, Texas with regional offices around the growing numberworld. We have approximately 450 employees, 42% of OBS service providers under recurring revenue commercial strategies that will enable us to sharewhom are in the value our technology delivers. We may also license the right to manufacturetechnical roles and use the 4Sea nodal technology to a service provider on a value-based pricing model, such as a royalty stream. Revenues from 4Sea are being recognized through the relevant segments, either E&P Technology & Services or Operations Optimization.20% have advanced degrees.
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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 our INOVA Geophysical Equipment Limited joint venture (“INOVA Geophysical” or “INOVA”).
The advanced technologies we currently offer include our Orcaand Gator command and control software systems, Full Waveform Inversion (“FWI”) data processing technology, Marlin operations optimization software, and other technologies, each of which is designed to deliver improvements in image quality, safety and/or productivity. In 2017, we introduced our fully integrated ocean bottom nodal system, 4Sea, which is designed to deliver, a step change in economics, QHSE performance and final image delivery time, creating more value for clients by providing data in time for critical reservoir decisions, such as determining drilling locations and informing enhanced recovery techniques.
We made significant headway on the commercialization of 4Sea and SailWing, which target one of the real growth segments in our industry.
We have approximately 600 patents and pending patent applications in various countries around the world. Approximately 40% of our employees are in technical roles and over 19% of our employees have advanced degrees.
As of September 30, 2019,joint venture with BGP Inc. (“BGP”) owns 10.6% of our outstanding common stock. BGP is, a subsidiary of China National Petroleum Corporation, and is generally regarded asCorporation. BGP owns the world’s largest land geophysical service contractor.
E&P Technology & Services. Our E&P Technology & Services segment provides three distinct activities that often work together.

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. For example,Across the E&P Technology & Services provides informationlifecycle, our E&P offerings focus on driving customer decisions, such as which blocks to better understand new frontiers or complex subsurface geologies,bid on and for how much, how to maximize portfolio value, where to drill wells or how to optimize license round successproduction.
Our Operations Optimization segment develops mission-critical subscription offerings and acreage values.provides engineering services that enable operational control and optimization offshore. This segment is comprised of our Optimization Software & Services and Devices offerings. While we primarily sell to service providers, we began selling existing technology to new customers in E&P, ports and harbors, defense and academic industries.
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.
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 cutting-edge 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 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, most 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 both the Imaging and Reservoir Services and E&P Advisors groupsgroup to create global digital data assets that are licensed to multiple E&P companies to optimize their investment decisions. TheOur global data library consists of over 652,000740,000 km of 2-D2D and 250,000over 355,000 sq. km of 3-D3D multi-client seismic data in virtually all major offshore petroleum provinces. Ventures provides services 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.
Our Imaging Services group offersWe offer our services to customers on both a proprietary and multi-client (non-exclusive) basis. In both cases, a majority of our survey expenses 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 program becomes 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 processing and imaging services designed to maximize image quality, helping E&P companies reduce exploration and production risk, evaluate and develop reservoirs, and increase production. Imaging Services develops subsurface images by applying its processing technology toreceive ongoing revenue from subsequent data owned or licensed by its customers. We maintain approximately 19 petabytes of digital seismic data storage in four global data centers, including a core data center located in Houston.license sales.
Our E&P Advisors provide technical, commercialTechnology & Services segment net revenues decreased compared to the third quarter of 2019 due to decline in multi-client data library sales. We invested $19.8 million in our multi-client data library during the first nine months of 2020 and strategic advicewe expect investments in our multi-client data library to host governments, E&P companies and private equity firms to evaluate oil and gas opportunities and/or assets worldwide, sharingbe in the valuerange of $25.0 million to $30.0 million for 2020 (a portion of which will be pre-funded or underwritten by our customers) compared to the $28.8 million invested in 2019 and down from the $30.0 million to $40.0 million initial range for 2020 due to COVID-19.
At September 30, 2020, our E&P Technology & Services segment backlog, which consists of commitments for (i) imaging and reservoir services work and (ii) new venture projects (both multi-client and proprietary) by our Ventures group underwritten by our customers, was $17.7 million compared to $10.0 million at June 30, 2020, $18.9 million at December 31, 2019 and $24.8 million at September 30, 2019. We anticipate that most of our backlog will be recognized as revenue over the next twelve months.
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In the E&P Technology & Services segment, to accelerate our shift in portfolio weighting from 2D to 3D, we create.restructured our multi-client business development and streamlined our product delivery strategy.
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 exploration focused. We had not materially participated in 3D multi-client projects. As a result, our 3D revenues and data volumes only accounted for 3% of the market, giving us substantial upside growth potential. In 2019, we grew our 3D multi-client data library 56% to 350,000 sq. km. through cost effective, contiguous reimaging of existing data. 37% of our 2019 multi-client revenue was from 3D data, an offering that barely registered just four years ago. Our successful foray into 3D reimaging has given us credibility and experience in the 3D market segment, creating a pipeline of opportunities for new 3D towed streamer and/or seabed programs we have not seen prior. We also completed development of enabling technologies like our Gemini enhanced frequency source and 4Sea ocean bottom platform to further increase the likelihood of our participation success in new 3D multi-client programs.
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 and informed decisions in challenging offshore environments. Our industry-leading mission management, navigation, communications and sensing technologies enable the operations of modern 3D operations.
This segment is comprised of our Optimization Software & Services and Devices offerings. While we primarily sell to oil and gas service providers, we began selling existing technology to new customers in E&P, ports and harbors, defense and academic industries. Service providers rely on our industry-leading marine imaging systems and services to acquire the highest quality data - safely and efficiently - in both towed streamer and seabed operations. Our integrated technology platforms combined with advanced prediction tools enable survey optimization.
We also leverage our core competencies to develop custom solutions. Our capabilities include data management, navigation, software development, acoustics, sensing, telemetry, fluid dynamics, positioning and control devices and electrical and mechanical engineering expertise.
Our Optimization Software & Services group provides survey design, command and control software systems and related services for marine towed streamer and ocean bottom seismic operations as well as survey designseabed operations. We are market leaders in our core business and adapted our platform to more broadly optimize operations. Our software offerings leverage a leading data integration platform to control and related services. Our Orca software is installed on towed streamer marine vessels worldwide,optimize operations. Engineering services experts deliver in-field optimization services, equipment maintenance and training to maximize value from our Gator software is used by ocean bottom seismic crews. Our latest offering, Marlin is used to optimize offshore operations, including a holistic digital management of ports and harbors operations through Marlin SmartPorts.offerings.
Our Devices group is engaged in the manufacturedevelops intelligent equipment controlled by our software to optimize operations. Our Devices group develops, manufactures and repair ofrepairs marine towed streamer positioning and control systems, analog geophoneseabed data acquisition technology, sensors and compasses which have been deployed in marine robotics, scientific,defense, E&P and other commercial applications.
Our team develops re-deployable OBS acquisition technology. We introduced our fully integrated ocean bottom nodal system, 4Sea, in 2017. 4Sea is differentiated in its ability to deliver a step change in economics, QHSE performance and final image delivery time, creating more value for the client by providing information in time for critical decisions, such as determining drilling locations, fluid injections, and the like.
We are pursuing two asset light business models for commercializing our 4Sea technology that we believe will deliver a higher, more sustainable return over the long-term for our shareholders. The first is making the individual components of 4Sea available more broadly to all OBS service providers on a value-based pricing model, allowing us to participate in the success we enable. The second approach is to license the right to manufacture and use the 4Sea nodal technology to a service provider on a value-based pricing model, such as a royalty stream.
INOVA Geophysical. Historically, we conducted our land seismic equipment business through INOVA Geophysical, which is a joint venture with BGP. BGP owns a 51% equity interest in INOVA Geophysical, and we own the remaining 49% interest. INOVA manufactures cable-based and cableless data acquisition systems, digital sensors, vibroseis vehicles (i.e., vibrator trucks) and source controllers for land seismic surveys. We wrote our investment in INOVA down to zero as of December 31, 2014.
WesternGeco Litigation Update
On August 30, 2019, the District Court refused WesternGeco’s request to reinstate the lost profits awards against us, and instead ordered a new trial to determine what lost profits, if any, WesternGeco is entitled to from surveys performed by our customers outside of the United States.
The District Court’s basis for granting the new trial as to lost profits was that, subsequent to the jury verdict that awarded lost profits, the Patent Trial and Appeal Board (“PTAB”) of the Patent and Trademark Office, in an administrative proceeding, invalidated four of the five patent claims that formed the basis for the lost profits judgment against us (that is, the PTAB held that those four patent claims should never have been granted), and the Court of Appeals and the Supreme Court both subsequently refused to overturn that finding. A trial date for the new trial has not yet been set.

See Note 8 “Litigation” of Footnotes to Unaudited Condensed Financial Statements” and Part II - Item 1. “Legal Proceedings” for further details.
Macroeconomic Conditions
Demand for our services and products is cyclical and dependent upon activity levels in the oil and gas industry, particularly our customers’ willingness to invest capital in the exploration for oil and natural gas. Our customers’ capital spending programs are generally based on their outlook for near-term and long-term economic growth, resource supply and demand, and commodity prices. Oil and gas projections suggest continued demand growth may create a supply gap in the middle of the next decade that production from US shale developments may be unable to meet, necessitating offshore exploration and development.  The decline rate in existing oil fields is about 10%, which can be reduced to about 5% per year with infill and other enhanced recovery techniques. Due to the time it takes to develop and start producing oil and gas from new discoveries offshore, there’s an increasing need to reinvest in conventional resources offshore to meet demand in the middle of the next decade. We’re starting to see increasing pressure for a resumption in offshore investment and exploration activity to replace reserves and existing production.
Third-party reports indicate that global exploration and production spending is expected to increase by 8% in 2019, consistent with 8% in 2018 and up from 4% growth in 2017. In addition, this is the second consecutive year that international spending is expected to increase, where our offerings are more relevant.
The following is a summary of recent oil and gas pricing trends:
  
Average Price (a)
Quarter Ended Brent Crude (per bbl) WTI Crude (per bbl) Henry Hub Natural Gas (per mcf)
9/30/2019 61.95
 56.34
 2.38
6/30/2019 69.04
 59.88
 2.57
3/31/2019 63.10
 54.82
 2.92
12/31/2018 67.99
 59.50
 3.77
9/30/2018 75.07
 69.69
 2.93
6/30/2018 74.44
 67.60
 2.84
3/31/2018 66.95
 62.96
 3.08
(a)
Source: U.S. Energy Information Administration (“EIA”).
Oil prices rose pretty steadily in the first half of 2018 due to moderate global demand growth and continued OPEC production cut compliance, the combination of which resulted in relative market equilibrium. In late June 2018, OPEC voted to boost production to offset potential losses due to sanctions in Venezuela and Iran as well as underproduction by some OPEC countries. However, those shortage concerns quickly dissipated as supply started outpacing demand due to Iran sanction waivers and higher than expected United States production. Crude prices dropped to nearly $50 per barrel before the end of 2018, reflecting global oil inventory builds and at or near record levels of production from the world’s three largest producers - the United States, Saudi Arabia and Russia. The EIA forecasts the Brent crude oil spot price will average $59 per barrel in the fourth quarter of 2019 and $60 per barrel in 2020, compared with an average of $71 per barrel in 2018. The EIA further noted that despite the recent increase in supply disruption due to attacks on major Saudi Arabian oil infrastructure, continued oil price pressure is expected as global inventories rise during the first half of 2020. The lower 2019 price forecast largely reflects uncertainty about the strength of global oil demand growth.
Given the historical volatility of crude prices, there is a continued risk that if commodity prices do not continue to improve, or if they start to deteriorate again, demand for our services and products could decline.

Impact to Our Business
We are seeing signs of increasing activity in our business, primarily due to the strategic shift we made to move our offerings closer to the reservoir and the associated continued success of our 3-D multi-client reimaging programs as well as clients starting to renew interest in conventional offshore exploration. Generally, our revenue and EBITDA generation starts off slowly as customers set budgets in the first quarter, then picks up as they firm up plans throughout the year. 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, new ventureOperations Optimization net revenues decreased compared to the third quarter of 2018. This decrease was more than offset by the significant increase2019 resulting from COVID-19 reduced seismic activity and vessel stacking. When E&P companies reviewed their 2020 exploration plans and budgets in our data library revenues. We invested $21.2 million in our multi-client data library during the first three quarterslight of 2019lower commodity prices, many contracts were postponed or canceled, and we expect investments in our multi-client data library to be in the range of $30.0 million to $35.0 million for 2019 (a portion of which will be pre-funded or underwritten by our customers) compared to the $28.3 million invested in 2018.
As of September 30, 2019, our E&P Technology & Services segment backlog, which consists of commitments for (i) Imaging Services work, (ii) new venture projects (both multi-client and proprietary) by our Ventures group underwritten by our customers and (iii) E&P Advisor projects, was $24.8 million compared to $21.9 million at December 31, 2018 and $33.1 million at September 30, 2018. The majority of our backlog relates to our multi-client seismic programs and our proprietary Imaging Services work. We anticipate that the majority of our backlog will be recognized as revenue over the remainder of 2019 and early 2020.
Within the Operations Optimization segment, both our Optimization Software & Services revenues and Devices revenues increased compared to the third quarter of 2018.tender activity dropped dramatically.
It is our view that technologies that provide a competitive advantage through improved imaging, lower costs, higher productivity, or enhanced safety will continue to be valued in our marketplace.the market. We believe that our newest technologies such as Marlin and 4Sea, will continue to attract customer interest because these technologies are designed to deliver those desirable attributes.
INOVA Geophysical. INOVA manufactures land acquisition systems, land source products, vibroseis vehicles, and source controllers and multicomponent sensors.
In March 2020, we announced an agreement to sell our 49% ownership interest in INOVA Geophysical joint venture for $12.0 million, subject to regulatory approvals and other closing conditions. As the regulatory review is taking longer than anticipated, closing will likely extend into 2021.
WesternGeco Litigation Settlement
On April 7, 2020, we entered into a settlement agreement with WesternGeco that ended the ongoing litigation.
Pursuant to the settlement agreement, WesternGeco granted us a license to the underlying patents, lifted the injunction that prevented us from manufacturing DigiFIN in the United States and, on April 13, 2020, the District Court permanently dismissed the pending lawsuit.
In exchange, we agreed to pay WesternGeco a settlement based on future revenues from our multi-client data library, consisting of 1) small percentage of 2-D multi-client data library sales for a ten-year period, and 2) the transfer of a majority of our revenue share relating to the parties’ existing joint multi-client reimaging programs offshore Mexico.
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See Note 9 “Litigation” of Footnotes to Condensed Consolidated Financial Statements” and Part II - Item 1. “Legal Proceedings” for further details.
Key Financial Metrics
The table below provides an overview of key financial metrics for our company as a whole and our two business segments for the three and nine months ended September 30, 2019,2020, compared to the same period of 2018.2019.
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
(in thousands, except share data)
Net revenues:
E&P Technology & Services:
New Venture$1,213 $5,905 $7,340 $24,394 
Data Library5,085 27,288 52,083 55,030 
Total multi-client revenues6,298 33,193 59,423 79,424 
Imaging and Reservoir Services3,795 7,048 12,410 16,443 
Total10,093 40,241 71,833 95,867 
Operations Optimization:
Optimization Software & Services3,007 6,895 10,811 17,648 
Devices3,134 6,103 12,735 18,455 
Total6,141 12,998 23,546 36,103 
Total net revenues$16,234 $53,239 $95,379 $131,970 
Gross profit (loss):
E&P Technology & Services$(1,092)$18,316 $24,902 (a)$36,113 
Operations Optimization2,381 6,972 9,315 18,670 
Total gross profit$1,289 $25,288 $34,217 $54,783 
Gross margin:
E&P Technology & Services(11)%46 %35 %38 %
Operations Optimization39 %54 %40 %52 %
Total gross margin8 %47 %36 %42 %
Income (loss) from operations:
E&P Technology & Services$(4,591)$11,878 $13,803 (a)$15,500 
Operations Optimization(232)2,994 (3,965)(b)5,808 
Support and other(6,341)(11,014)(20,148)(c)(35,940)
Income (loss) from operations$(11,164)$3,858 $(10,310)$(14,632)
Operating margin:
E&P Technology & Services(45)%30 %19 %16 %
Operations Optimization(4)%23 %(17)%16 %
Support and other(39)%(21)%(21)%(27)%
Total operating margin(69)%7 %(11)%(11)%
Net loss(16,414)(3,329)(23,921)(32,864)
Less: Net income attributable to noncontrolling interest(193)(394)(168)(841)
Net loss attributable to ION$(16,607)$(3,723)$(24,089)$(33,705)
Net loss per share:
Basic$(1.16)$(0.26)$(1.69)$(2.39)
Diluted$(1.16)$(0.26)$(1.69)$(2.39)
Weighted average number of common shares outstanding:
Basic14,278 14,181 14,255 14,104 
Diluted14,278 14,181 14,255 14,104 
 Three Months Ended September 30, Nine Months Ended September 30, 
 2019 2018 2019 2018 
 (in thousands, except share data) 
Net revenues:        
E&P Technology & Services:        
New Venture$5,905
 $18,218
 $24,394
 $40,069
 
Data Library27,288
 13,956
 55,030
 21,629
 
Total multi-client revenues33,193
 32,174
 79,424
 61,698
 
Imaging Services7,048
 4,147
 16,443
 14,379
 
Total40,241
 36,321
 95,867
 76,077
 
Operations Optimization:        
Devices6,103
 5,356
 18,455
 14,275
 
Optimization Software & Services6,895
 5,523
 17,648
 15,099
 
Total12,998
 10,879
 36,103
 29,374
 
Total net revenues$53,239
 $47,200
 $131,970
 $105,451
 
(a) Includes impairment of multi-client data library of $1.2 million.

 Three Months Ended September 30, Nine Months Ended September 30, 
 2019 2018 2019 2018 
Gross profit (loss):        
E&P Technology & Services$18,316
 $12,139
 $36,113
 $11,626
 
Operations Optimization6,972
 5,736
 18,670
 14,980
 
Segment gross profit25,288
 17,875
 54,783
 26,606
 
Other—
 (1,400)(a)—
 (4,795)(a)
Total gross profit$25,288
 $16,475
 $54,783
 $21,811
 
Gross margin:        
E&P Technology & Services46 % 33 % 38 % 15 % 
Operations Optimization54 % 53 % 52 % 51 % 
Segment gross margin47 % 38 % 42 % 25 % 
Other— % (3)% — % (4)% 
Total gross margin47 % 35 % 42 % 21 % 
Income (loss) from operations:        
E&P Technology & Services$11,878
 $6,578
 $15,500
 $(4,422) 
Operations Optimization2,994
 1,963
 5,808
 3,992
 
Support and other(11,014)(b)(10,993)(b)(35,940)(c)(37,181)(c)
Income (loss) from operations$3,858
 $(2,452) $(14,632) $(37,611) 
Operating margin:        
E&P Technology & Services30 % 18 % 16 % (6)% 
Operations Optimization23 % 18 % 16 % 14 % 
Support and other(21)% (23)% (27)% (35)% 
Total operating margin7 % (5)% (11)% (36)% 
         
Net loss attributable to ION$(3,723) $(7,536) $(33,705) $(51,828) 
Special items:732
(d)275
(e)5,552
(f)4,013
(g)
Net loss attributable to ION, as adjusted$(2,991) $(7,261) $(28,153) $(47,815) 
         
Net loss per share:        
Basic$(0.26) $(0.54) $(2.39) $(3.81) 
Diluted$(0.26) $(0.54) $(2.39) $(3.81) 
         
Net loss per share as adjusted:        
Basic$(0.21) $(0.52) $(2.00) $(3.52) 
Diluted$(0.21) $(0.52) $(2.00) $(3.52) 
         
Weighted average number of common shares outstanding:        
Basic14,181
 14,003
 14,104
 13,586
 
Diluted14,181
 14,003
 14,104
 13,586
 
(a) Relates to gross loss primarily related to depreciation expense(b) Includes impairment of our previously reported Ocean Bottom Integrated Technologies segment.
(b) Includes loss from operationsgoodwill of our previously reported Ocean Bottom Integrated Technologies segment of $0.7 million and $2.8 million for the three months ended September 30, 2019 and 2018, respectively, which consists of item (a) above and operating expense of $0.7 million and $1.4 million for the three months ended September 30, 2019 and 2018, respectively.
(c) Includes loss from operations of our previously reported Ocean Bottom Integrated Technologies segment of $2.3 million and $8.6$4.2 million for the nine months ended September 30, 2019 and 2018, respectively, which consists2020.
(c) Includes amortization of item (a) above and operating expensethe government relief funding expected to be forgiven of $2.3 million and $3.8$6.9 million for the nine months ended September 30, 2019 and 2018, respectively.
(d) Represents stock appreciation right awards expense in the third quarter of 2019.
(e) Represents stock appreciation right awards and related expenses in the third quarter of 2018.
(f) Represents severance expense of $2.8 million and stock appreciation right awards expense of $2.7 million for the nine months ended September 30, 2019.
(g) Represents stock appreciation right awards and related expenses for the nine months ended September 30, 2018.

We intend that the following discussion of our financial condition and results of operations will provide information that will assist in understanding our condensed consolidated financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes. The financial results are reported in2020.
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accordance with Generally Accepted Accounting Principles (“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. One such non-GAAP financial measure is Net loss attributable to ION as adjusted or adjusted net loss, which excludes certain charges or amounts. This adjusted net 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 loss or other income data prepared in accordance with GAAP.
For a discussion of factors that could impact our future operating results and financial condition, see (i) Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018,2019, and (ii) Item 1A. “Risk Factors” in Part II of this Form 10-Q.
Results of Operations
Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 Compared to Three Months Ended
Our consolidated net revenues of $16.2 million for the three months ended September 30, 2018
Our2020 (the “Current Quarter”) decreased by $37.0 million, or 70%, compared to consolidated net revenues of $53.2 million for the three months ended September 30, 2019 (the “Current Quarter”) increased by $6.0 million, or 13%, compared to total net revenues of $47.2 million for the three months ended September 30, 2018 (the “Comparable Quarter”). Our total gross margin was 47%8% in the Current Quarter, as compared to 35% in the Comparable Quarter. Our segment gross margin was 47% in the Current Quarter as compared to 38% in the Comparable Quarter. For the Current Quarter, our incomeloss from operations was $3.9$11.2 million, compared to a lossan income of $2.5$3.9 million for the Comparable Quarter.
Net loss attributable to ION for the Current Quarter was $3.7$16.6 million, or $(0.26)$1.16 loss per share, compared to $7.5a Net loss attributable to ION of $3.7 million, or $(0.54)$0.26 loss per share, for the Comparable Quarter. Adjusted net loss for the Current Quarter was $3.0 million, or $(0.21) per share, compared to $7.3 million, or $(0.52) per share for the Comparable Quarter.
Net Revenues, Gross Profits and Gross Margins
E&P Technology & Services — Net revenues for the Current Quarter increaseddecreased by $3.9$30.1 million, or 11%75%, to $40.2$10.1 million, compared to $36.3$40.2 million for the Comparable Quarter. Within the E&P Technology & Services segment, total multi-client net revenues were $33.2$6.3 million, an increasea decrease of 3%. The increase81% primarily due to lower volume of ION’s global library sales, as well as a decline in our Data Librarynew venture revenues was primarily attributabledue to salescompleting acquisition of our Brazil 3Da large new program in Comparable Quarter compared to revenues from smaller reimaging programs in the Current Quarter. Imaging and toReservoir Services net revenues were $3.8 million, a lesser extent revenues from data sales in North America. Our Current Quarter New Venture revenues decreased$3.3 million decrease compared to the Comparable Quarter primarilyQuarter due to the scalelower proprietary tender activity, and timing of newconsistent with our strategy to preferentially utilize these resources to generate higher margin multi-client programs. Imaging Services revenues were $7.0 million, a $2.9 million increase compared to the Comparable Quarter. reimaging products. The Current Quarter reflects a gross profit of $18.3$1.1 million, representing a 46%an (11)% gross margin, compared to a gross profit of $12.1$18.3 million, or 33%46% gross margin, in the Comparable Quarter. These improvementsChanges in gross profit and margin were due to an increasedecrease in Imaging Servicesour net revenues and a more favorable mix of multi-client revenues.as discussed above, as well as the cost cutting initiatives implemented earlier in the year.
Operations Optimization — Total netNet revenues for the Current Quarter increaseddecreased by $2.1$6.9 million, or 19%53% to $13.0$6.1 million, compared to $10.9$13.0 million for the Comparable Quarter. Optimization Software & Services net revenues for the Current Quarter increaseddecreased by $1.4$3.9 million, or 25%57% to $6.9$3.0 million, compared to $5.5$6.9 million for the Comparable Quarter due to an increase in deployments ofreduced seismic activity and associated engineering services related to our Marlin offshore operations optimization software.demand resulting from COVID-19. Devices net revenues for the Current Quarter increaseddecreased by $0.7$3.0 million, or 14%49%, to $6.1$3.1 million, compared to $5.4$6.1 million for the Comparable Quarter primarily due to an increase inlower sales of marinetowed streamer equipment replacement partsspares and repair revenues.repairs. The Current Quarter reflects a gross profit of $2.4 million, representing a 39% gross margin compared to a gross profit of $7.0 million, representing a 54% gross margin compared to a gross profit of $5.7 million, representing a 53% gross margin for the Comparable Quarter. Changes in gross profit and margin were due to the decline in our net revenues as discussed above.
Operating Expenses
Research, Development and Engineering — Research, development and engineering expense was consistent withwere $2.9 million for the Current Quarter, a decrease of $2.0 million, or 41% compared to $4.9 million for the Comparable Quarter.Quarter primarily due to the cost cutting initiative implemented following the COVID-19 related market impact.
Marketing and Sales — Marketing and sales expense was consistent withwere $2.8 million for the Current Quarter, a decrease of $2.8 million, or 50% compared to $5.6 million for the Comparable Quarter.Quarter primarily due to the reduction of commission expense resulting from reduced revenues during the Current Quarter, as well as the cost cutting initiatives implemented earlier in the year.
General, Administrative and Other Operating Expenses — General, administrative and other operating expenses were $11.0$6.7 million for the Current Quarter, an increasea decrease of $2.3$4.3 million, or 26%39% compared to $8.7$11.0 million for the Comparable Quarter primarily due to an increasethe reduction in expenses resulting from our cost cutting initiatives, including lower compensation, expense.travel, rent and professional services expenses.
Other Items
Interest Expense, Net — Interest expense, net, was $3.2$3.7 million for the Current Quarter compared to $3.0$3.2 million for the Comparable Quarter. The increase in interest expense resulted from finance leases that startedQuarter, due to increased borrowings during the third quarter of 2018.Current Quarter. For additional information, please refer to “Liquidity and Capital Resources — Sources of Capital” below.
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Income Tax Expense — Income tax expense for the Current Quarter was $3.8$1.1 million compared to $2.1$3.8 million for the Comparable Quarter. Our effective tax rates for the Current Quarter and Comparable Quarter were 822.1% and (38.6)%, respectively. The income tax expense for the Current Quarter and Comparable Quarter primarily relates to results generated by our non-U.S. businesses.businesses in Latin America. Our effective tax rates for the Current Quarter and Comparable Quarter were negatively impacted by the change in valuation allowanceallowances related to U.S.U.S and certain foreign operating losseslosses. Due to the impact of the valuation allowances on tax expense, our effective tax rates are not meaningful for which we cannot currently recognize a tax benefit.all periods presented. See further discussion of establishment of the deferred tax valuation allowance at Footnote 7Note 8 “Income Taxes”of Footnotes to Condensed Consolidated Financial Statements.
Nine Months Ended September 30, 20192020 Compared to Nine Months Ended September 30, 20182019
Our consolidated net revenues of $95.4 million for the nine months ended September 30, 2020 (the “Current Period”) decreased by $36.6 million, or 28%, compared to total net revenues of $132.0 million for the nine months ended September 30, 2019 (the “Current Period”) increased by $26.5 million, or 25%, compared to total net revenues of $105.5 million for the nine months ended September 30, 2018 (the “Comparable Period”). Our total gross margin for the Current Period was 42%36%, compared to 21%42%, for the Comparable Period. Our segment gross margin was 42% in the Current Period as compared to 25% in the Comparable Period. For the Current Period, our loss from operations was $14.6$10.3 million, compared to $37.6a loss of $14.6 million, for the Comparable Period.
Net loss attributable to ION for the Current Period was $33.7$24.1 million, or $(2.39)$1.69 loss per share, compared to $51.8a Net loss attributable to ION of $33.7 million, or $(3.81)$2.39 loss per share, in the Comparable Period. Adjusted net loss for the Current Period was $28.2 million, or $(2.00) per share, compared to $47.8 million, or $(3.52) per share for the Comparable Period.
Net Revenues, Gross Profits and Gross Margins
E&P Technology & Services— Net revenues for the Current Period increaseddecreased by $19.8$24.1 million, or 26%25%, to $95.9$71.8 million, compared to $76.1$95.9 million for the Comparable Period. Within ourE&P Technology & Services segment, multi-client Data Librarynet revenues increased primarily due to saleswere $59.4 million, a decrease of North and South American data.25%. This increaseresult was partially offsetpredominantly driven by a decline in our New Venturedecreased new venture net revenues due to the scale and timing ofreduced new multi-client programs. Increase in Imaging Services revenues resulted from utilization of backlogprogram activity during the Current Quarter. Period.Data library revenues were fairly consistent with the Comparable Period largely due to increased sales of global 2D data library in the first quarter of 2020. Imaging and Reservoir Services net revenues were $12.4 million, a decrease of 24% from the Comparable period due 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 increaseddecreased by $24.5$11.2 million to $24.9 million, or 35% gross margin, compared to $36.1 million, or 38% gross margin, compared to $11.6 million, or 15% gross margin, in the Comparable Period. These improvementsThis decline in gross profit and margin were due toresulted from the higher volume and mixdecrease in new venture revenues, as well as the $1.2 million impairment of the multi-client data library programs not subject to royalty expenses.in the Current Period.
Operations Optimization — Total netNet revenues for the Current Period increaseddecreased by $6.7$12.6 million or 23%35%, to $36.1$23.5 million compared to $29.4$36.1 million for the Comparable Period. Optimization Software & Services net revenues for the Current Period increaseddecreased by $2.5$6.8 million, or 17%39%, to $17.6$10.8 million compared to $15.1$17.6 million for the Comparable Period. Devices net revenues for the Current Period increaseddecreased by $4.2$5.8 million, or 29%31%, to $18.5$12.7 million, compared to $14.3$18.5 million. The change in net revenues during the Current Period is consistent with the changes described for the Current Quarter discussed above. Gross profit increaseddecreased by $3.7$9.4 million to $9.3 million, representing a 40% gross margin, for the Current Period compared to $18.7 million, representing a 52% gross margin, for the CurrentComparable Period compareddue to $15.0 million, representing a 51% gross margin, for the Comparable Period.decline in our net revenues.
Operating Expenses
Research, Development and Engineering — Research, development and engineering expense was $15.4$9.9 million for the Current Period, an increasea decrease of $1.9$5.5 million, or 14%36%, compared to $13.5$15.4 million for the Comparable Period due to higher spendprimarily due to the cost cutting initiative implemented in developing imaging algorithmsJanuary 2020 and infrastructure, devices and software. We see significant long-term potential to invest in offerings that are designed to improve image quality, safety and productivity, which drives our investment decisions.following the COVID-19 related market impact.
Marketing and Sales — Marketing and sales expense was $17.4$8.9 million for the Current Period, an increasea decrease of $1.1$8.5 million, or 7%49%, compared to $16.3$17.4 million, for the Comparable Period, primarily due to increasedthe reduction of commission expenses driven by increased salesexpense resulting from reduced revenues during the Current Period, as well as the cost cutting initiative implemented earlier in the E&P Technology and Services segment.year.
General, Administrative and Other Operating Expenses — General, administrative and other operating expenses were $36.6$21.5 million for the Current Period, an increasea decrease of $7.0$15.1 million, or 24%41%, compared to $29.6$36.6 million for the Comparable Period. This increasedecrease was primarily due to an increasethe reduction in compensation, expense related to severance expensetravel, rent and stock compensation expense.professional services expenses resulting from our cost cutting initiatives.
Other Items
Interest Expense, netImpairment of Goodwill — Interest expense, net,Impairment of goodwill was $9.4$4.2 million for the Current Period compared to $9.8zero for the Comparable Period resulting from impairment charge recognized during the first quarter of 2020. See further discussion at Note 10 “Details of Selected Balance Sheet Accounts”of Footnotes to Condensed Consolidated Financial Statements.
Other Items
Interest Expense, net — Interest expense, net, was $10.3 million for the Current Period compared to $9.4 million for the Comparable Period. The decrease in interest expense resulted from lower outstanding debtPeriod due to increased borrowings during the Current Period. For additional information, please refer to “Liquidity and Capital Resources — Sources of Capital” below.
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Income Tax Expense — Income tax expense for the Current Period was $7.9$10.0 million compared to $3.3$7.9 million for the Comparable Period. Our effective tax rates for the Current Period and Comparable Period were (31.7)% and (6.9)%, respectively. Our income tax expense for the Current Period and Comparable Period, were primarily related to results from our non-US businesses in Latin America. The income tax expense for the Current Period includes $2.2 million of valuation allowance related to our non-U.S. businesses. Our effective tax rate for the Current Period and Comparable Period was negatively impacted by the change in valuation allowance related to U.S. operating losses for which we cannot currently recognize a tax benefit. Due to the impact of the valuation allowances on tax expense, our effective tax rates are not meaningful for all periods presented. See further discussion of establishment of the deferred tax valuation allowance at Footnote 7Note 8 “Income Taxes”of NotesFootnotes to Condensed Consolidated Financial Statements.
Other income (expense), net — Other income for the Current Period was $6.7 million compared to other expense of $0.9 million for the Comparable Period, an increase of $7.9 million primarily due to the amortization of government relief funding expected to be forgiven of $6.9 million. See further discussion at Note 6 “Government Relief Funding”of Footnotes to Condensed Consolidated Financial Statements.
Liquidity and Capital Resources
Sources of Capital
As of At September 30, 2019,2020, we had total liquidity of $65.5$59.4 million, consisting of $27.9$51.1 million of cash on hand and $37.6$8.3 million of availableremaining borrowing capacity under our Credit Facility. In response to the market uncertainty resulting from the 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 balances as of September 30, 2020.
Our cash requirements include working capital requirements and cash required for our debt service payments, multi-client seismic data acquisition activities and capital expenditures. As of September 30, 2019,2020, we had negative working capital of $(19.7) million. Excluding current maturities of operating lease liabilities, our$30.5 million compared to negative working capital would have been $(8.1) million.of $23.6 million as of December 31, 2019. Working capital requirements are primarily driven by our investment in our multi-client data library ($21.219.8 million in the Current Period and $25.0 million to $30.0 million to $35.0 millionexpected, for the full year, a portion of which will be pre-funded or underwritten by our customers) and royalty payments for multi-client sales. Also,Whether remaining planned expenditures will actually be spent in 2020 depends on industry conditions, project approvals and schedules, and careful monitoring of our levels of liquidity.
Our headcount has traditionally been a significant driver of our working capital needs. Our headcount decreased to approximately 450 employees as of September 30, 2020 from approximately 520 employees as of December 31, 2019 resulting from our cost reduction initiative earlier this year, a significant portion of which is reduction in our personnel costs. 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 requires cash expenditures for their salaries, bonuses, payroll taxes and related compensation expenses, including stock appreciation 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. 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.
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 Bank, National Association (“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 Third Amendment amended the Credit Agreement to, among other things:
extend the maturity date ofmaximum amount available under the Credit Facility by approximately four years (from August 22, 2019 to August 16, 2023), subject to our retirementis the lesser of $50.0 million or extension of the maturity date of our Second Lien Notes, as defined below, which mature on December 15, 2021;
increase the maximum revolver amount by $10.0 million (from $40.0 million to $50.0 million);
increase thea monthly borrowing base percentage of the net orderly liquidation value as it relates to the multi-client data library (not to exceed $28.5 million, up from the previous maximum of $15.0 million for the multi-client data library component);
include the eligible billed receivables of the Mexican Subsidiary up to a maximum of $5.0 million in the borrowing base calculation and joins the Mexican Subsidiary as a borrower thereunder (with a maximum exposure of $5.0 million) and require the equity and assets of the Mexican Subsidiary to be pledged to secure obligations under the facility;
modify the interest rate such that the maximum interest rate remains consistent with the fixed interest rate prior to the Third Amendment (that is, 3.00% per annum for domestic rate loans and 4.00% per annum for LIBOR rate loans), but now lowers the range down to a minimum interest rate of 2.00% for domestic rate loans and 3.00% for LIBOR rate loans based on a leverage ratio for the preceding four-quarter period;
decrease the minimum excess borrowing availability threshold which (if the Borrowers have minimum excess borrowing availability below any such threshold) triggers the agent’s right to exercise dominion over cash and deposit accounts; and

modify the trigger required to test for compliance with the fixed charges coverage ratio.
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 the Borrowers’ multi-client data library. As ofAt September 30, 2019, the undrawn borrowing base availability under the Credit Facility was $37.6 million, and2020, there was no$22.5 million outstanding indebtedness under the Credit Facility.Facility and the undrawn remaining borrowing base capacity was $8.3 million. The maturity of the Credit Facility will accelerate to October 31, 2021 if we are unable to repay or extend the maturity of the Second Lien Notes.
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The Credit Facility requires us to maintain compliance with various covenants. At September 30, 2019,2020, we were in compliance with all of the covenants under the Credit Facility. For further information regarding our Credit Facility, see above FootnoteNote 5 “Long-term Debt” of Footnotes to Condensed Consolidated Financial Statements.
Senior Secured Notes
As of September 30, 2019,2020, ION Geophysical Corporation’s 9.125% Senior Secured Second Priority Notes due December 2021 (the “Second Lien Notes”) had an outstanding aggregate principal amount of $120.6 million and are senior secured second-priority obligations guaranteed by the Material U.S. Subsidiaries and the Mexican Subsidiary. Interest on the 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 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 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 Second Lien Notes Indenture are subject to certain exceptions and qualifications. All of our subsidiaries are currently restricted subsidiaries.
At September 30, 2019,2020, we were in compliance with all of the covenants under the Second Lien Notes.
On or after December 15, 2019, we may, on one or more occasions, redeem all or a part of the Second Lien Notes at the redemption prices set forth below, plus accrued and unpaid interest and special interest, if any, on the Second Lien Notes redeemed during the twelve-month period beginning on December 15th of the years indicated below:
DatePercentage
2019105.50%
2020103.50%
2021100.00%
Government Relief Funding
On April 11, 2020, we entered into a Note Agreement (“Note”) with PNC amounting to $6.9 million pursuant to the Coronavirus Aid, Relief, and Economic Security Act’s (“CARES Act”) Paycheck Protection Program (“PPP”). Amounts outstanding under this Note will bear interest at 1% per annum beginning on the six-month anniversary of the date of the Note. Interest will be calculated based on the actual number of days that principal is outstanding over a year of 360 days. The Note matures in two years after the receipt of the loan proceeds.
We are in the process of applying to PNC for forgiveness of the amount due on this Note in an amount based on the sum of the following costs incurred by our US 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 this Note: (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 PPP, 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 this Note that is not forgiven under the PPP shall convert to an amortizing term loan.
We recognized the Note 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 Note 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 condensed consolidated income statements for the six months ended June 30, 2020, 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. 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 costs.
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Date Percentage
2019 105.50%
2020 103.50%
2021 and thereafter 100.00%

Meeting our Liquidity Requirements
As ofAt September 30, 2019,2020, our total outstanding indebtedness (including equipment finance leases) was approximately $120.5$142.9 million, consisting primarily of approximately $120.6 million outstanding Second Lien Notes, $2.1$1.0 million of equipment finance leases and other short-term debt, partially offset by $2.2$1.2 million of debt issuance costs. AsIn 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 balances as of September 30, 2019, there was no outstanding indebtedness under our Credit Facility.2020.
For the Current Period, total capital expenditures, including the investments in our multi-client data library, were $22.5 million.$20.7 million. We expect that our total capital expenditures, primarily related to investments in our multi-client data library, this year to be in the range of $30.0$25.0 million to $35.0 million, a portion of which will be pre-funded or underwritten by our customers. Whether remaining planned expenditures will actually be spent in 2020 depends on industry conditions, project approvals and schedules, and careful monitoring of our levels of liquidity.
While Current Quarter revenues came in lower than prior year due to the repercussions of the oil price volatility earlier this year and the ongoing uncertainty from the COVID-19 pandemic, we made progress executing our strategy. Backlog increased 77% sequentially, reversing several consecutive quarters of steady decline due to the strategic shift to enter the 3D new acquisition multi-client market. We expectcontinue to work closely with our clients to understand their revised budgets 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 the first quarter. To further mitigate the impact of COVID-19 and oil price volatility, management implemented a plan to preserve cash and manage liquidity as follows:
•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 related to property, plant and equipment to be in the range of $3.0an estimated $25.0 million to $5.0$35.0 million (a portion of which will be 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 2019.multi-client data. This provides flexibility to aggressively reduce cash outflows while shifting to much lower cost reimaging programs.
•Applied for and continue to explore various government assistance programs, of which approximately $7.0 million was received and applied against qualifying expenditures during the period. 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 expected to benefit us from July 2020 to March 2021. See Note 12 “Lease Obligations” for further details.
•Announced the sale of our 49% ownership interest in INOVA Geophysical joint venture for $12.0 million subject to regulatory approvals and other closing conditions. As the regulatory review is taking longer than anticipated, closing will likely extend into 2021.
•Entered into a settlement agreement with WesternGeco ending the decade-long patent litigation. See Note 9 “Litigation” for further details.
We believe that the above management plan, which includes the use of government assistance programs, along with our existing cash balance cash from operations and the undrawn availabilityremaining borrowing capacity under our Credit Facility will beprovide sufficient liquidity to meet our anticipated cash needs for at least the next twelve months. However, as described at Part II, Item 1. “Legal Proceedings,” there are possible scenarios involving an outcomeAt September 30, 2020, our liquidity was $59.4 million, slightly below liquidity of $65.5 million from one year ago. The outlined management plan reflects our continued focus on preserving cash and managing liquidity in the WesternGeco lawsuitcurrent 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. Additionally, we are actively exploring a number of strategic options to optimally address the Second Lien Notes, which mature on December 15, 2021. If by September 15, 2021 we have not (1) repaid the Second Lien Notes, (2) extended the maturity of the 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
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the lenders (as defined in Note 5, “Long-term Debt” of Footnotes to Condensed Consolidated Financial Statements”) of the Credit Facility that could materiallyhas been approved by the agent, then the Credit Facility shall immediately become due and adversely affectpayable on such date. If the written proposal is submitted and approved by the agent by September 15, 2021, but we are unable to execute the approved proposal on or before October 31, 2021, the Credit Facility shall immediately become due and payable on such date. We reviewed our liquidity, financial conditiondebt covenants as of September 30, 2020, and resultsexpect to remain in compliance for the next twelve months (see Note 5, “Long-term Debt” of operations.Footnotes to Condensed Consolidated Financial Statements” for further discussion of our covenants).
Cash Flow from Operations
In the Current Period, we generated $19.3 million of cash from operating activities of $13.2 million compared to cash usedgenerated from operating activities of $7.3$19.3 million for the Comparable Period. The increasedecrease was driven primarily by collectionsa reduction in net revenues during the Current Period, partially offset by a reduction of operating expenses due to cost savings initiatives fully realized during the Current Period, as well as collection of our combined accounts and unbilled receivable balance resulting from improved revenuesreceivables in the Current Period.

second quarter of 2020.
Cash Flow from Investing Activities
Cash used in investing activities was $22.5$20.7 million in the Current Period compared to $20.2 $22.5 million for the Comparable Period. The principal uses of cash in our investing activities during the Current Period were $19.8 million invested in our multi-client data library and $0.9 million for capital expenditures related to property, plant and equipment.
The principal use of cash in our investing activities during the Comparable Period were $21.2 million invested in our multi-client data library and $1.3 million for capital expenditures related to property, plant and equipment.
The principal use of cash in our investing activities during the Comparable Period were $19.9 million invested in our multi-client data library and $0.3 million for capital expenditures related to property, plant and equipment.
Cash Flow from Financing Activities
Net cash used inprovided by financing activities was $2.6$27.3 million in the Current Period, compared to $5.2net cash used in financing activities of $2.6 million of cashfor the Comparable Period. Cash provided by financing activities induring the Comparable Period. CashCurrent Period was related to a $22.5 million net drawdown on our credit facility, $6.9 million of government relief funding, partially offset by $1.8 million of payments of long-term debt, including equipment finance leases.
The net cash used in financing activities during the Comparable Period was related to $2.0 million of payments of long-term debt, including equipment finance leases in the Current Period.
The net cash provided by financing activities during the Comparable Period was related to $47.0 million of net cash received from our equity offering, $30.1 million of payments of long-term debt, including equipment finance leases, and a $10.0 million repayment of our Credit Facility in the Comparable Period.
Inflation and Seasonality
Inflation in recent years has not had a material effect on our cost of goods or labor, or the prices for our products or services. Traditionally, our business has been seasonal, with strongest demand often occurring in the second half of our fiscal year.
Critical Accounting Policies and Estimates
Refer to our Annual Report on Form 10-K for the year ended December 31, 2018,2019, for a complete discussion of our significant accounting policies and estimates.
Leases
On January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-2, “Leases (Topic 842)” using the modified retrospective method. This ASU requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under the previous guidance. We used January 1, 2018, the beginning of the earliest comparative period presented in our condensed consolidated financial statements as our date of initial application. We elected the practical expedients upon transition which will retain the lease classification for leases and any unamortized initial direct costs that exist prior to the adoption of the standard.
The adoption of the standard resulted in $59.5 million and $70.6 million of right-of-use (“ROU”) assets and operating lease liabilities, respectively, on our condensed consolidated balance sheets as of January 1, 2018 and no impact on our condensed consolidated statements of operations and cash flows. The difference between the ROU assets and operating lease liabilities is due to the derecognition of $11.1 million in deferred rent recorded within other long-term liabilities. There was no impact on the condensed consolidated statements of operations and cash flows. The standard had no impact on our debt covenant compliance under existing agreements.
We determine if an arrangement is a lease at inception by considering whether (1) explicitly or implicitly identified assets have been deployed in the agreement and (2) we obtain substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the agreement. Amounts related to operating leases are included in “Right-of-use assets”, “Current maturities of operating lease liabilities” and “Operating lease liabilities, net of current maturities” in the condensed consolidated balance sheets. Amounts related to finance leases are included in “Property, plant and equipment, net”, “Current maturities of long-term debt”, and “Long-term debt, net of current maturities” in the condensed consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets are recognized at commencement date and consist of the present value of remaining lease payments over the lease term, initial direct costs, prepaid lease payments less any lease incentives. Operating lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. We use the implicit rate, when readily determinable or the incremental borrowing rate based on the information available at commencement date to determine the present value of lease payments. The lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease agreements with lease and non-lease components are accounted for separately. We do not recognize leases with terms of less than twelve months on the condensed consolidated balance sheets and recognize those lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term. In the event that our assumptions and expectations change, we may have to revise our ROU assets and operating lease liabilities. See Note 2

“Recent Accounting Pronouncements.” and Note 11 “Lease Obligations.” of Notes to Condensed Consolidated Financial Statements for further discussion.
Foreign Sales Risks
The majority of our foreign sales are denominated in U.S. dollars. Product revenues are allocated to geographical 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 geographical 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. For the Current and Comparable Periods, international sales comprised 75%60% and 76%75%, respectively, of total net revenues.
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Nine Months Ended September 30,Nine Months Ended September 30,
2019 2018 20202019
Net revenues by geographic area:(In thousands)Net revenues by geographic area:(In thousands)
North AmericaNorth America$37,920 $32,984 
Latin America$50,572
 $37,356
Latin America22,695 50,572 
North America32,984
 25,452
Asia PacificAsia Pacific15,696 8,287 
Europe24,850
 19,811
Europe12,997 24,850 
Asia Pacific8,287
 11,581
Middle EastMiddle East2,202 6,364 
Africa7,541
 8,362
Africa1,939 7,541 
Middle East6,364
 1,907
Commonwealth of Independent States1,372
 982
OtherOther1,930 1,372 
Total$131,970
 $105,451
Total$95,379 $131,970 
Credit Risks
For the nine months ended September 30, 20192020 and 2018,2019, we had one customer with sales that each exceeded 10% of ourthe Company’s consolidated net revenues.
At September 30, 2019,2020, we had two customers with balances that combined, accounted for 40%39% of our total combined accounts receivable and unbilled receivable balances. At September 30, 2018,2019, we had one customertwo customers with a combined balance that accounted for 29%40% of our total combined accounts receivable and unbilled receivable balances.
The loss of these customers or deterioration in our relationship with these customers could have a material adverse effect on our results of operations and financial condition.
We routinely evaluate the financial stability and creditworthiness of our customers. We have a corporate credit policy that is intended to minimize the risk of financial loss due to a customer’s inability to pay. Credit coverage decisions for customers are based on references, payment histories, financial and other data. We utilize a third party trade credit insurance policy. We have historically not extended long-term credit to its customers.
Item 3.Quantitative and Qualitative Disclosures about Market Risk
For the three and nine months ended September 30, 2020, we recorded net foreign currency translation losses of approximately $0.5 million and $1.8 million, respectively, primarily due to currency fluctuations related to our operations in Brazil.
Refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, 20182019 for a discussion regarding our quantitative and qualitative disclosures about market risk. There have been no material changes to those disclosures during the Current Period.
Item 4.Controls and Procedures
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 Securities and Exchange Commission (the “SEC”)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 September 30, 2019.2020. Based upon that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of September 30, 2019.2020.
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 September 30, 2019,2020, which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1.Legal Proceedings
WesternGeco
Settlement
On April 7, 2020, we entered into a settlement agreement with WesternGeco that ended the ongoing litigation.
Pursuant to the settlement agreement, WesternGeco granted us a license to the underlying patents, lifted the injunction that prevented us from manufacturing DigiFIN in the United States and, on April 13, 2020, the District Court permanently dismissed the pending lawsuit.
In exchange, we agreed to pay WesternGeco a settlement based on future revenues from our multi-client data library, consisting of 1) small percentage of 2-D multi-client data library sales for a ten-year period, and 2) the transfer of a majority of our revenue share relating to the parties’ existing joint multi-client reimaging programs offshore Mexico.
Background
In June 2009, WesternGeco L.L.C. (“WesternGeco”) filed a lawsuit against us in the United States District Court for the Southern District of Texas (the “District Court”). In the lawsuit, styled WesternGeco L.L.C. v. ION Geophysical Corporation, WesternGeco alleged that we infringed four of their patents concerning marine seismic surveys.
Trial began in July 2012, and the jury returned a verdict in August 2012. The jury found that we infringed the six “claims” contained in four of WesternGeco’s patents by supplying our DigiFIN®DigiFIN lateral streamer control units from the United States. (In patent law, a “claim” is a technical legal term; an infringer infringes on one or more “claims” of a given patent.)
In May 2014, the District Court entered a Final Judgment against usthe Company in the amount of $123.8 million. The Final Judgment also enjoined usthe Company from supplying DigiFINs or any parts unique to DigiFINs in or from the United States. We conducted our business in compliance with the District Court’s orders, and has reorganized our operations such that we no longer supplies DigiFINs or any parts unique to DigiFINs in or from the United States.
As of 2018, we paid WesternGeco the $25.8 million of the Final Judgment (the portion of the judgment representing reasonable royalty damages and enhanced damages, plus interest).
However, as further described below, theThe balance of the judgment against us ($98.0 million, representing lost profits from surveys performed by our customers outside of the United State,States, plus interest) has beenwas vacated by the United States Court of Appeals for the Federal Circuit (the award of lost profit damages was vacated because the Patent Trial and Appeal Board of the Patent and Trademark Office invalidated four of the five patent claims that could have supported an award of lost profit), and a new trial ordered, to determine what lost profit damages, if any, WesternGeco iswas entitled to.
The Final Judgment was vacated after it was appealed toAs noted above, the United States Court of Appeals forlawsuit has been dismissed in accordance with the Federal Circuit in Washington, D.C. (the “Court of Appeals”), then to the Supreme Court of the United States, which remanded the case, again, to the Court of Appeals.parties’ settlement agreement.
On January 11, 2019, the Court of Appeals refused to disturb the award of reasonable royalties to WesternGeco (which the Company paid in 2016), but did not reinstate the lost profits award; rather, the Court of Appeals remanded the case back to the District Court to determine whether to hold a new trial as to lost profits.
On August 30, 2019, the District Court refused WesternGeco’s request to reinstate the lost profits awards against us, and instead ordered a new trial to determine what lost profits, if any, WesternGeco is entitled to from surveys performed by our customers outside of the United States.
The District Court’s basis for granting the new trial as to lost profits was that, subsequent to the jury verdict that awarded lost profits, the Patent Trial and Appeal Board (“PTAB”) of the Patent and Trademark Office, in an administrative proceeding, invalidated four of the five patent claims that formed the basis for the lost profits judgment against us (that is, the PTAB held that those four patent claims should never have been granted), and the Court of Appeals and the Supreme Court both subsequently refused to overturn that finding. A trial date for the new trial has not yet been set.
We may not ultimately prevail in the litigation and we could be required to pay lost profits if and when a new judgment issues in the new trial. Our assessment that we do not have a loss contingency may change in the future due to developments at the District Court, and other events, such as changes in applicable law, and such reassessment could lead to the determination that a significant loss contingency is probable, which could have a material effect on our business, financial condition and results of operations. Our assessments disclosed in this Quarterly Report on Form 10-Q or elsewhere are based on currently available information and involve elements of judgment and significant uncertainties. See Note 89 “Litigation” of Notes to Condensed Consolidated Financial Statements.
Other Litigation
In July 2018, we prevailed in an arbitration that we initiated against the Indian Directorate General of Hydrocarbons (“DGH”) relating 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 our IndiaSPAN program, pending the outcome of the DGH’s challenge to the arbitration award. We challenged the escrow order, but on December 9, 2019, the Supreme Court of India ordered us to comply with it. We prepared a petition to file with the court to request that a March 2020 deadline to deposit approximately $4.5 million in escrow in early 2020 be extended due to the changes to our business, and to the markets, that have been spurred by the COVID-19 pandemic. We were unable to file the application because the courts in India were closed due to the pandemic (other than for emergencies), and were not accepting filings at that time. We served a copy of our draft petition on the DGH’s counsel and intend to file it in advance of the next hearing, which has been repeatedly delayed due to the COVID-19 pandemic. We prevailed on the merits in the arbitration and expect to have that award upheld in Indian court, which would result in release of our portion of the escrowed money. The DGH’s request to vacate the arbitration award is currently scheduled to be heard by the court in India on January 18, 2021. We have not escrowed the money as of September 30, 2020.
We have been named in various other lawsuits or threatened actions that are incidental to our ordinary business. Litigation is inherently unpredictable. Any claims against us, whether meritorious or not, could be time-consuming, cause us to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. We currently believe that the ultimate resolution of these matters will not have a material adverse effect on our financial condition or results of operations or our liquidity.
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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:
any additional damages or adverse rulings in •the WesternGeco litigation and future potential adverse effectsimpact of the COVID-19 pandemic on our business, financial condition, and results and liquidity;of operations;
•future levels of our capital expenditures and of our customers for seismic activities;
•future oil and gas commodity prices;
•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;
•future implication of our negative working capital and shareholdersstockholders’ deficit, including future cash needs and availability of cash, to fund our operations and pay our obligations;
•the effects of current and future unrest in the Middle East, North Africa South America, and other regions;
•the timing of anticipated revenues and the recognition of those revenues for financial accounting purposes;
•the effects of ongoing and future industry consolidation, including, in particular, the effects of consolidation and vertical integration in the towed marine seismic streamers market;consolidation;
•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;
•future government laws or regulations pertaining to the oil and gas industry, including trade restrictions, embargoes and sanctions imposed by the U.S government;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;
•expected net revenues, gross margins, income from operations and net income for our services and products;
•future seismic industry fundamentals, including future demand for seismic services and equipment;
•future benefits to our customers to be derived from new services and products;
•future benefits to be derived from our investments in technologies, joint ventures and acquired companies;
•future growth rates for our services and products;
•the degree and rate of future market acceptance of our new services and products;
•expectations regarding E&P companies and seismic contractor end-users purchasing our more technologically-advanced services and products;
•anticipated timing and success of commercialization and capabilities of services and products under development and start-up costs associated with their development, including 4Sea and Marlin SmartPorts;SmartPort;
•future opportunities for new products and projected research and development expenses;
•expected continued compliance with our debt financial covenants;
•expectations regarding realization of deferred tax assets;
•expectations regarding the impact of the U.S. Tax Cuts, Jobs Act and JobsCARES Act;
•expectations regarding the approval of our request for forgiveness of the PPP loan.
•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; and
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•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;
•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.parties; and
•anticipated approval of the INOVA sale by applicable regulators
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.
Crude oil prices have declined significantly in 2020 and, if oil prices fail to rebound, our operations and financial condition will be materially and adversely affected.
During the first nine months of 2020, crude oil prices fell dramatically due to significantly decreased demand as a result of the COVID-19 pandemic and an increase in global production. While members of OPEC and other oil producing countries agreed to production cuts in April 2020 that were extended through December 2020, these cuts are not expected to offset near-term demand loss attributable to the COVID-19 pandemic. If crude oil prices fail to rebound for a prolonged period, or if demand for our products and services does not rebound commensurately with oil prices, our operations, financial condition, and cash flows will be materially and adversely affected.
We face a significant debt maturity in December 2021 and if not addressed as contemplated by our Credit Facility, all amounts outstanding under our Credit Facility shall immediately become due and payable.
Our $120.6 million aggregate principal amount of Senior Secured Second-Priority Lien notes mature on December 15, 2021. If our cash flows from operations and other capital resources are insufficient to pay off or if we are unable to re-negotiate such notes, we may face substantial liquidity problems and may be forced to reduce or delay investments, dispose of material assets or operations, or issue additional debt or equity. We may not be able to take such actions, if necessary, on commercially reasonable terms or at all. In addition, if by September 15, 2021 we have not (1) repaid the Second Lien Notes, (2) extended the maturity of the 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 Note 5, “Long-term Debt” of Footnotes to Condensed 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. If the written proposal is submitted and approved by the agent by September 15, 2021, but we are unable to execute the approved proposal on or before October 31, 2021, the Credit Facility shall immediately become due and payable on such date. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results or operations.
We may not be entitled to forgiveness of our Paycheck Protection Program (PPP) 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 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.
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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 that is not forgiven, along with accrued interest.
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.
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. 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 costs. Any of these events could have a material adverse effect on our business, results of operations and financial condition.
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchase of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended September 30, 2019,2020, 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:
Period(a)
Total Number of
Shares Acquired		(b)
Average Price Paid Per Share		(c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Program		(d)
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Program
July 1, 2020 to July 31, 2020— $— Not applicableNot applicable
August 1, 2020 to August 31, 2020— $— Not applicableNot applicable
September 1, 2020 to September 30, 202041,470 $2.39 Not applicableNot applicable
Total41,470 $2.39 

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Period 
(a)
Total Number of
Shares Acquired
 (b)
Average Price Paid Per Share		 (c)
Total Number of Shares Purchased as Part of Publicly Announced Plans or Program		 (d)
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Program
July 1, 2019 to July 31, 2019 —
 $—
 Not applicable Not applicable
August 1, 2019 to August 31, 2019 —
 $—
 Not applicable Not applicable
September 1, 2019 to September 30, 2019 29,377
 $9.69
 Not applicable Not applicable
Total 29,377
 $9.69
    


Item 5. Other Information
None.
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Item 6.Exhibits
31.1
31.1
31.2
32.1
32.2
10.22101
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.
10.23
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.

101The following materials are formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets as of September 30, 20192020 and December 31, 2018,2019, (ii) Condensed Consolidated Statements of Operations for the three- and nine-months ended September 30, 20192020 and 2018,2019, (iii) Condensed Consolidated Statements of Comprehensive Loss for the three- and nine-months ended September 30, 20192020 and 2018,2019, (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20192020 and 2018,2019, (v) Condensed Consolidated Statements of Stockholders' (Deficit) EquityDeficit for the three- and nine-months ended September 30, 20192020 and 20182019 and (vi) Footnotes to Condensed Consolidated Financial Statements.
104Cover page interactive Data File



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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
ION GEOPHYSICAL CORPORATION
(Registrant)
By/s/ Steven A. Bate
BySteven A. Bate/s/ Mike Morrison
Mike Morrison
Executive Vice President and Chief Financial Officer
Date: October 31, 2019

November 5, 2020
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