ION Geophysical's (IO) CEO Chris Usher on Q1 2021 Results - Earnings Call Transcript

May 08, 2021 2:40 PM ETION Geophysical Corporation (IOGPQ)1 Like
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ION Geophysical Corporation (IO) Q1 2021 Earnings Conference Call May 6, 2021 10:00 AM ET

Company Participants

Rachel White – Vice President-Investor Relations

Chris Usher – President and Chief Executive Officer

Mike Morrison – Executive Vice President and Chief Financial Officer

Conference Call Participants

Jeffrey Campbell – Alliance Global Partners

Joe Beninati – Oppenheimer

Sameer Joshi – H.C. Wainwright

Amit Dayal – H.C. Wainwright

Operator

Greetings, and welcome to the Ion Geophysical First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host, Rachel White, Vice President, Investor Relations. Thank you. You may begin.

Rachel White

Good morning, and welcome to Ion’s first quarter 2021 earnings conference call. We appreciate your joining us today. As indicated on Slide 2, our hosts today are Chris Usher, President and Chief Executive Officer; and Mike Morrison, Executive Vice President and Chief Financial Officer. We’ll be using Slides to accompany today’s call, which are accessible via link on our website at iongeo.com. There, you will also find a replay of today’s call.

Before we begin, let me remind you that certain statements made during this call may constitute forward-looking statements. These statements are subject to various risks and uncertainties, including those detailed in our latest 10-K and other SEC filings, which may cause our results or performance to differ materially from those projected in these statements.

Our remarks today may also include non-GAAP financial measures additional details regarding these non-GAAP financial measures, including reconciliations to the most directly comparable GAAP financial measures can be found in our earnings release issued yesterday.

I’ll now turn the call over to Chris who will begin on Slide 4.

Chris Usher

Thank you, Rachel. Good morning, everyone. And thanks again for joining us today. During today’s call, I’ll discuss our first quarter performance, market outlook and strategy execution progress. Mike will then review our financial results and successful bond restructuring after which I will close with our roadmap for long-term profitable growth, including promising new energy transition, sustainability and digitalization strategies for today’s rapidly changing market.

While we expect that the E&P market would remain challenging in the near term, our first quarter results were weaker than expected due to lower multi-client data sales. Many of our clients were restructuring their organizations and finalizing their budgets late into the quarter, which delayed commercial discussions and negatively impacted data sales. This hiatus exacerbated the typical low sales and EBITDA seasonality associated with our first quarter and increased the gap from last year’s unusually strong first quarter results, where we booked a large 2019 year-end carry over deal.

Looking forward, we are encouraged that backlog grew for the third consecutive quarter to levels nearly 50% higher than a year ago, benefiting from our strategic decision to participate in the new 3D acquisition multi-client market. I am extremely pleased with the successful transformation of our capital structure, the result of creativity, alignment and support across our stakeholder groups. Our restructured balance sheet strengthens our platform for strategy execution to reshape our core data business, accelerate our software growth and diversify our offerings. Michael will elaborate on these transactions shortly.

Shifting to the market outlook, analyst projections and client activity continue to suggest increasing E&P spend in demand for seismic data in the second half of the year. Spurred by increasing global demand and ongoing crude oil production limits, Brent pricing, which is most relevant to Ion’s internationally focused business has rebounded to pre-pandemic levels. E&P spending is not expected to recover some stability over the next couple of years, linked to higher sustained oil prices in the range of $55 to $65 a barrel.

In addition, we have seen positive momentum across a number of leading indicators for our business, such as license rounds, tender activity, services engagements and backlog. We remain cautiously optimistic that market conditions will improve through the back half of 2021. In our E&P technology and services business, our multi-client revenues were significantly lower sequentially, primarily due to reduce volume of data library sales. A silver lining is that the majority of deals in our pipeline remain active following an increasing pace of customer data reviews of available products and work in progress through the quarter.

Disappointingly, the pace of the procurement process did not catch up with the end-user interest by quarter end. Backlog, a leading indicator of the trajectory of our business continued to grow with our entry into the 3D new acquisition multi-client market. We are looking forward to starting the second major phase of our Mid North Sea High 3D survey later this month. At 6 times the size of 2020’s first phase, this season’s second phase will be significantly more creative to earnings.

During the last quarter, we garnered additional industry support for the program and find a contract with Shearwater for the data acquisition. The field campaign is expected to occur from late May to October with final products scheduled for mid-2022. Based on our phase one fast-track results we expect to provide around 11,000 square kilometers of unprecedented subsurface image quality that provides new insights that were a promising under explored section of the UK continental shelf.

Infrastructure led exploration can deliver faster time to first oil and higher returns and our Mid North Sea High program as close to shore based infrastructure, with a relatively low cost of development, makes it attractive for existing players and new entrance. During a challenging period of uncertainty, our team has remained focused on our change and product mix, earned industry credibility and cultivated a robust pipeline of new 3D program opportunities. This quarter’s exclusive agreement, we announced for 3D development rights off-shore Kenya, is just one example.

Importantly, this portfolio pivot towards 3D, which initially commenced through 3D re-imaging will shift our new product investment closer to the reservoir where customer spend tends to be more consistent and programs have larger scale revenue and earnings potential. Since commercializing Gemini in September E&P companies have specified our innovative, extended frequency source and a number of tenders.

During the first quarter, Gemini was deployed on its first proprietary survey, a 90-day project for a super major, operating in the Middle East. Gemini performed extraordinarily well, as exhibited by the extension we received that nearly doubled the duration and area of the survey. The survey extension is a significant vote of confidence by the super major validating the technology’s commercial readiness, data quality and operational and environmental benefits.

In response to the industry demand we are quadrupling Gemini’s, current capacity for programs we’re targeting this summer and seeking regulatory approval in additional jurisdictions. This cost effective yet important ingredient for improving subsurface characterization differentiates Ion as we expand into the 3D multi-client market while maintaining our asset light approach. We continue to commit the majority of Ions imaging capacity to distinguish our multi-client offerings, such as the eight library programs underway during the quarter, and while deploying the balance of resources on challenging proprietary projects that help maintain our top-tier capabilities.

Last quarter, I described how algorithmic advances in artificial intelligence, enhanced client decision-making and led to several umbrella contracts that helps de-risk our 2021 revenue plan. With an eye to increasing backlog we are pleased to have landed another multi-year umbrella contract with an E&P major. We are now in discussions on specific project commitments under this umbrella, which is another leading indicator of improving market conditions.

Our operations optimizations group, which primarily caters to acquisition contractors, had relatively consistent revenue sequentially. The multi-year command and control subscriptions and routine equipment spares and repairs business provides a level of stability for this business segment. Encouragingly, seismic tender activity is increasing and postponed 2020 projects are resuming. During the quarter we had three remote services engagements of Ion Anywhere, a sign of increasing client endorsement of this new business model. Our market diversification strategy to optimize decision making in new maritime markets across software and devices is progressing well. In our software group, we continue to gain traction around our Marlin platform through trials and tenders. Marlin links vessel plans and schedules to live offshore activities, providing greater control and transparency in the management of offshore operations.

Following on from the tender award we announced last earnings call, we collaborated with CalMac to successfully deploy Marlin SmartPort across their port and ferry terminals in Q1. CalMac Ferries is the UK’s largest ferry operator managing 29 routes, over 50 destinations across 200 miles of Scotland’s west coast. We now add their very positive feedback to the growing client consensus around our port digitalization value proposition.

During the second half of 2020, we gained significant insights from the proof of concept trials across both ports and port-to-platform logistics segments. Our teams focused on identifying and optimizing the most costly aspects of our client’s offshore operations and have added these valuable new requirements, common across a number of Marlin opportunities, to our product roadmap. For example, this quarter we deployed advanced dashboard analytics, that enhanced decision-making processes.

Our largest development effort is to analyze planned versus actual vessel schedules, identifying opportunities for clients to minimize fuel consumption, decrease emissions and operate with just-in-time efficiency. We’re optimistic about accelerating adoption given the range of valuable use cases uncovered through these deployments. Between trials and tenders, we are building a robust pipeline of prospects across maritime, energy logistics and port operations, and believe we can convert a healthy portion of these opportunities to revenue in 2021.

As part of our crossing-the-chasm efforts, we added regional business development coverage in North America with the addition of a seasoned port logistics resource and have leveraged U.S. Department of Commerce support for Marlin in emerging markets, this being touted as climate smart digital infrastructure for the recently announced U.S. Trade and Development agency efforts around the world.

Over the years the geophysical industry has made numerous advances in sensing technologies and field deployment methods that have significantly improved data acquisition. However, until recently seismic source technologies evolved more slowly. Ion’s industry-leading source capabilities now address increasingly important industry requirements such as environmental considerations, enhanced low-frequency content, flexible toe configurations and improved positioning accuracy.

In addition to the Gemini Source Extension, I mentioned earlier, our devices group received a sailing lease extension for smart and efficient source telling. Reason automated source and vessel steering enhancements using artificial intelligence further increased 4D repeatability. Due to strong in-field performance and oil company interests the system will be in use throughout the summer. We were in discussions for continued engagement with the aforementioned sailing client for deployment through 2022.

A current wave of our devices diversification strategy is to develop real-time monitoring solutions that improve the safety and environmental compliance of offshore oil and gas operations. Well Alert, leverages our core competencies, targets a growing market associated with sustainability and aligns with our strategy to provide decision support data and analytics. Subsea is typically inspected only periodically via costly ROV operations.

Clients are seeking advancements in technology to cost effectively shift from reactive to proactive systems that provide more frequent, accurate measurements to assure safe operating environments. Our solution integrates sensing and communications technologies to monitor temporarily plugged and abandoned wells. Through our energy company commercial outreach seeking funding for sea trials we captured a range of further use cases for well alert including carbon capture and monitoring. During the quarter, we also continue to make advancements in both the hardware and software of our prototype.

With that, I’ll turn it over to Mike to walk us through the financials, and then I will wrap up for taking questions.

Mike Morrison

Thanks, Chris. Good morning, everyone. Our first quarter revenues of $14 million, declined 49% sequentially and 75% year-on-year. As Chris mentioned, the prior period comparison is compounded by a large data library deal we closed a year ago. Adjusted EBITDA was a negative $7 million compared to a positive $1 million sequentially. The over $14 million of cost savings achieved in 2020 remained intact.

E&P technology and services segment revenues of $7 million decreased by 64% sequentially, primarily due to lower multi-client data cells from the lengthy E&P budgeting process this year and subdued spending levels. Operations Optimization segment revenues of $7 million declined 8% sequentially due to the COVID-19 related slowdown in offshore seismic activity and associated demand for services and equipment.

Importantly, backlog increase for the third consecutive quarter driven by continued client investment in our Mid North Sea High program. Backlog, which consists of commitments for multi-client programs and proprietary imaging and reservoir services work was $21 million at quarter end and 9% higher sequentially and 47% higher versus last year. We expect to recognize the majority of backlog is revenues during the second and third quarters as our Mid North Sea High program progresses some.

As a result of our low revenues, we expect it to consume cash during the quarter. Our cash balance was $34 million a quarter in including $21 million we drew on a revolver last March. Our total liquidity defined as a combination of our cash balance and the available borrowing capacity under our revolving credit facility was $40 million. We were very pleased with the positive outcome of three important capital market transactions this year. In February, we raised $10 million in net proceeds from a registered direct offering where we issued nearly 3 million shares at $3.50 per share. In April, we successfully completed our bond restructuring and concurrence rights offerings. Approximately 94% of the existing notes due in December 2021 were exchanged for new notes due in December 2025 and other consideration in form of cash and stock. The deal extended our bond maturity four years with a lower 8% interest rate and has the convertible feature that provides a path to convert nearly all the debt to equity as we execute our strategy over the coming years.

The holders of the new notes may convert any portion of their notes at any time prior to the maturity date at a conversion price at $3 per share. ION has the right 18 months post issuance to convert all or part of the outstanding new notes, if the stock has a 20-day trading average of $5.25 per share. And the concurrence rights offering, shareholders exercise subscription rights totaling 42 million out of a maximum 50 million to purchase either new notes or common stock.

In total, approximately 116 million of new notes and 11 million shares of common stock were issued through the exchange offer in rights offering. In April, we received approximately $14 million in net proceeds from the transactions after deducting note holder obligation, transaction fees and interest paid on the old notes. After these restructuring transactions, only $7 million of old notes remain outstanding and due in December 2021. While we may explore additional funding options in the future to meet ongoing cash needs. We believe the completion of the restructuring transactions removes a substantial doubt about the company’s ability to continue as a going concern raised last quarter.

With that, I’ll turn it back to Chris.

Chris Usher

Thanks, Mike. While we expect the market will remain challenging in the near-term, there have been a number of positive developments which we highlighted throughout the call that point to improving market conditions in the back half of the year. In addition, offshore E&P is advisement market projections were revised upwards by industry analysts in the last quarter. These macro indicators and our increased backlog combined to support a cautiously optimistic view of an improving market landscape in the second half of the year.

Throughout 2020, we recrafted ION’s platform for growth. We now plan to capitalize on the modest market tailwinds with a refocus strategy, reduced cost structure, realigned executive team, and most recently transformed capital structure. With the latter, we can focus exclusively on executing our refined asset light strategy to drive long-term profitable growth. We are concentrating on building backlog from existing offerings while accelerating technology adoption and promising new markets. Both business segments are making progress with clear strategies to penetrate much larger addressable markets.

The summer second phase of our Mid North Sea High program is a hallmark of our 3D new acquisition multi-client market entry strategy and we look forward to launching further related programs as funding coalesces. We described increasing traction on a global basis around our maturing Marlin platform through trials, tenders and broader government initiatives. The smooth rollout of our newest Marlin SmartPort offerings to most of come exports in the fourth – in the first quarter further highlights the ease of use and scalability of the solution.

We embarked on a diversification strategy several years ago to develop new offerings that capitalize on ION’s proven competencies and leadership in our core markets. While selectively addressing new markets and energy and beyond that address maritime needs associated with the energy transition, sustainability and digitalization. Maturing new businesses takes time and although many of these themes have been amplified and accelerated during the pandemic, ION has been walking this road for some time and beginning to see the fruits of our labor.

This quarter, we stepped up our research at the intersection of ION’s geoscience capacity and the emerging needs of the energy transition such as CO2 storage and monitoring to explore and incubate the most promising opportunities. Overall, we expect that our provision of well-designed high quality seismic data will be sought out by energy clients throughout the energy transition as existing customers rebalance their portfolios and new E&P companies fill gaps created by this process.

E&P companies are seeking better investment opportunities including geographies with lower cost barrels, better fiscal regimes and lower carbon footprint. The offshore energy industry will remain an important market pillar for ION, but we will strengthen the franchise through a concerted participation in other maritime sectors where our technology and competencies unlock new value.

With that, we’ll turn it back to the operator for Q&A.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, at this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Jeffrey Campbell with Alliance Global Partners.

Jeffrey Campbell

Good morning.

Chris Usher

Good morning.

Jeffrey Campbell

I wondered if we could get a little bit more color on the recent Kenya announcement since it, the press release references, both new 3D and reimaging. It’d be interesting to know if this is happening concurrently or if it’s going to develop in some sort of sequence?

Chris Usher

Yes. Jeff, this is Chris. Thanks for that question. Yes. We’ve been working on that deal for some time. It’s really good connections in that part of the world and COVID slowed it down probably about a year. But the idea is, has been instilled continues to be, to access the public data there, get access to the tapes, which in Africa has been hard during COVID to get the tapes delivered back to our data private cloud in Houston. But the plans to look at the 3D first to really assess where to go next and look at some of the other existing 2D data in there yet before we jump in and do a new 3D acquisition there.

And that would also depend on customer interest generated from the 3D program and legacy 2D to put a 3D in place there. We have the right we’d love to do it, but it’s not going to happen this year that’s going to be 2022 or beyond before we put a boat in the water there with sufficient client underwriting. And we have plenty of other 3Ds in the pipe that would come online before that.

Jeffrey Campbell

Okay. That’s very good color. Thank you. And you mentioned that it got stalled by the pandemic. My memory is that in late 2019 Qatar was planning to invest in Kenya. And I assume now we’re not going to talk about specific names. Just wondering if we get a sense of the size and makeup of the producers that might be supporting this effort. I’m thinking NOCs, and maybe some EU IOCs. I was just wondering if there might be any on that so you’re aware?

Chris Usher

No, exactly. That’s the same complexion and I think we need to reassess with the whole energy transition and however it’s reshaping their portfolios post 2020. There’ll be interesting to see who those players tend to be at. And that’s a great way to test it is with the 3D reprocessing cause it’s low cost, a little bit of risk there it’s a few hundred thousand dollars to kick off a reprocessing job. And see who comes in through that initial phase and shaping, that will shape up the interest for the new acquisition. The nice thing with these kinds of announcements though, is in a very competitive data library landscape, getting some geographic exclusivity to buy time, to do it properly and not rushing in is really, really helpful.

Jeffrey Campbell

I’ll close with one last question, if I may. You mentioned the evolving Marlin Port logistics effort and the increased data that you’re getting from CalMac, I thought I’d ask if you’re seeing any progress with regard to both [indiscernible] desire to expand within the UK?

Chris Usher

Yes, and I may have touched on that in a prior meeting and call. Basically, we just won that end of last year. It’s turned out to be really easy to drop the software in from the cloud, do remote training with those folks. The port software is really working great and there is an interest for them, they’re very interested in expanding into other parts of the UK, into the Southern UK, into England. And they want to leverage our technology to carry that forward. That intent, we haven’t had a lot of activity on that yet because we just went through the deployment in Q1 and we’ve only got, I think we’re deployed in 14 of the 17 port and ferry terminals.

We’ve still got to get the rest deployed to those people up to speed and then we’re on. But the income that’s just one, that’s nice just cause it’s a ferry network as well. And there’s, you look around the Baltic there’s lots of similar kind of targets we’re looking at. So – and that’s just one use case.

Jeffrey Campbell

Right. Thank you for the color.

Operator

Our next question comes from Colin Rusch with Oppenheimer.

Joe Beninati

Hey, guys. It’s Joe on for Colin this morning. Thanks for taking the questions. As you look at emerging geographies – how you doing? As you look at emerging geographies, what are you most excited about?

Chris Usher

Well, good. Yes, it depends on which side of the business, but I’d say on the data library business, if I picked one, we have a lot of investment in Brazil with all the reprocessing that’s going on in a large number of the eight concurrent re-imaging programs that we’ve had in the quarter are in Brazil, different phases of expanding our Kenya data product there. But the most exciting one for the venture side is actually the UK. And we have had a lot of processing experience with our London data processing team in the proprietary market for years, but really didn’t have a huge focus on multi-client data there and certainly not 3D.

So the Mid North Sea High that we kicked off last year, a small phase one just to garner interest and cover some areas that are actually getting covered by wind farms right now. That initial product is not done. Fast Track was out early, looked great. We’ve completed the products pretty quickly, and that is phenomenal data in that area. No one has actually seen quality for that particular geological play. They haven’t seen data quality like that from any of the few other surveys around there. Actually, when I was a data person guide back in the 1990s, I lived in London and worked on data from there and it was just, it was night and day when we saw the product.

So that is creating a lot of interest around the phase 2 that we’re launching in a few weeks and actually quite a lot of interest for other 3Ds in our pipeline, in the vicinity and that same geological play with different underwriters. So we may get something else going in that part of the world, even this year. Extremely exciting. And it’s near infrastructure, which is the theme. People can develop that acreage, if it’s successful, pretty economically compared to other areas.

So it ticks all the right boxes and there may even be used for as we go to phase 3 down the road next year, there could be multi-use for the data. There’s one customer talking about using the data for CCUs, basically carbon sequestration. So it’s a very interesting area. On the other side of the house, with Marlin penetration, we’ve been going, port by port piecemeal targeting, leading off of trials and then converting the trials to revenue. We do have a bigger one going and east Africa. It could be the same country that we talked about with the 3D exclusivity.

So that’s exciting. But that’s actually led to a broader geographical strategy, much more ambitious in scale, which is to really go country by country in Africa using U.S. Trade Department support, and our embassies, to get initial discussions going with the country-wide port infrastructure and off shore digital surveillance infrastructure, which those countries sorely need in Coastal Africa, both in west and east.

And that is a pretty orchestrated program we have underway, which will lead to trials and then port installations. And then broader, off shore surveillance with Marlin over the years. So those could be, more on the scale of our ventures programs as they have been in the past. So it could be an exciting time for our whole Marlin portfolio.

Joe Beninati

That’s great color. And then switching gears a little bit, how are you guys thinking about incremental technology additions to the platform?

Chris Usher

We are. What we have been trying to do on all sides of the house are really leverage our existing competencies to penetrate new markets, whether it’s going from 2D to 3D in the seismic sides, or whether that’s moving our software into specific markets, like ports and offshore logistics and suchlike. And on the devices side, the well alert I just touched on is actually leveraging a lot of our underwater competencies, but also some third-party stuff that we can integrate quite easily. And that’s an exciting new area for us.

And that is starting to leverage other technologies that are out there that we don’t develop in house, but we can integrate with our specific things and build something brand new. And that’s a big shift for us to go into ESG focused, sea-bottom, oil and gas monitoring. It could also be with changing the sniffer out. We could be doing CO2 monitoring very quickly and effectively with that same hardware platform.

So we’re looking at those things, but they’re building out sequentially. We haven’t looked too hard at things that are just completely different that would shift our portfolio in other directions. But we do have a technology incubation group that is starting to look at some of those things.

Joe Beninati

Thanks very much.

Chris Usher

Yes. And I will say just one more thing. Gemini is a radically new technology that ties into our seismic strategy. That has proven to be extremely robust – as I mentioned, it’s gone really well. We have like 400,000 airgun pops on that already in Egypt, a great track record, very little downtime, actually lower downtime than some of the traditional airgun arrays, and it’s a much more simple device. So that’s something we developed, it’s brand new for the industry. Obviously, seismic sources have been out there forever, but this is a new twist on it. And it’s been very successful out of the gate.

Operator

[Operator Instructions] Our next question comes from Sameer Joshi with H.C. Wainwright.

Sameer Joshi

Thanks for taking my questions. Just digging a little bit deeper. I think on the E&P clients not finalizing their budgets too late in the quarter. Have you since gotten any visibility or any better visibility on your multi-client data sales going forward?

Chris Usher

Yes. It’s been – I would characterize January is being very quiet. We had a lot of discussions in Q4, which is not unusual. The first month of Q1 was very quiet. So that was a bit disconcerting. And we always know that happens every year. As people finalize their budgets, they sometimes push that well out into the quarter. And we don’t finalize our budget until the first third of the quarter. So that part wasn’t as surprising. But then by February, we started having a lot of discussions with the technical teams and doing a lot of virtual data rooms where we would take people on a tour of our Picanha data or the Mid North Sea High data or whatever, which was very encouraging.

We had a lot of excitement around the quality of our data and the coverage of our data relative to upcoming license rounds. So I’d say we had technical buyers that were geared up and actually things were shifting from, hey, we just need something in this potential acreage here. And then they would say, what if we could get all of your data? Once they saw that we had contiguous data, for example, over most of from offshore Brazil. They’re like, wow. We didn’t realize that.

So we had these guys saying, well, give us quotes for something of massive scale. So we got pretty excited around that, but then it gets bumped to procurement. It’s like, well, we’re not sure where the budget’s coming for that. Is it exploration, is it production because you’re now covering a large part of the country or the geography. So those things, that’s what slows us down. So those are still in play and we do still have active discussions around those things.

The bigger thing has been also some of the majors who are principally have been traditionally the buyers of our data, have been going through a lot of restructuring and downsizing of their geoscience groups since the end of last year, which are the technical buyers. And, some of them have just started the reapplication, reapplying for your jobs thing that happens every few years. So there’s still some disarray there, but it is really down to company by company. And the NSCs have been more steady, they’re not reducing their teams. They’re trying to expand into new areas in kind of the vacuum created by some of the IOCs.

And some of these new, like in the UK, we have a lot of private equity backed, pure exploration companies that are coming in as well, along with the majors. So there’s a new class of customers coming up as well, but they’re slower because they need to make sure they have their private equity funding for the next stage of their growth and all that. So it’s a very complicated landscape, but there’s a lot of, certainly we’re now in a part of the year where we’re having a lot more active discussions.

And the other thing I mentioned in the main script was that since Q4 into Q1, the industry analysts have basically kind of increased their positivity modestly around exploration budgets and spending for the full year. So – but I do think a lot of that is going to be second-half loaded, which there is always a ramp-up every year from first quarter, the final quarter, but this one was just particularly low, unfortunately.

Sameer Joshi

Understood. Thanks for that color. Switching gears and maybe we have discussed this in the past on Marlin, but what is the scope of every potential transaction agreement that you have with these Boards? How does it look like? Are there long-term contracts? If so, what are the size of those contracts? Just a little bit more clarity on that trend?

Chris Usher

Yes. They’re actually similar to our seismic contracts for software, which are multi-year typically, and they’re paid monthly through a lease payments are essentially software as a service in that regard. But they’re not month to month. They are typically – they’re paid month to month. So it’s essentially a long-term lease. They could be anywhere from, on the seismic side, anywhere from two to five years. And we talked a bit about that on our last earnings call, but the Marlin port ones are interesting that so far, they’ve all been, like, four years.

Now the ports want to contract four or five years with a technology suite that they’re, as they go digital, they want to get in. Get the technology in place and then define their objectives for advancing it for their particular needs and getting that in our roadmap. So they, that has to happen over a year or so as we drop in new features or expand the scope of the offering. So yes, they want to line up as partners in that regard. And I don’t think that they want to, the ones that have been tendered they’re not going to go out to tender again, obviously, for a period of time, it’s disruptive. But even the ones we’ve come off of pilots with, they’re just like, yes, we want four years. So that seems to be the nature of it in the port side.

Sameer Joshi

Got it. And one last one, on the operating expenses front, I guess, is this lower level of operator OpEx tied to lower revenues. Because as the year progresses, we are expecting higher correction and OpEx to increase. But even in the first quarter we were slightly all shooting, we were at 12.4, you came in at 11.1. How do you look? How do you see this going forward these levels of OpEx?

Mike Morrison

Yes, no, good question. This is Mike. So I’d say a little bit of it is obviously tied to – M&S is tied to revenues some part. I’d say that is a smaller portion. We obviously, I would say our lowest level of operating expenses. So as the year unfold, as revenues improve, I would think there would be some increase to the sales expenses, but it’s not a significant portion of that total OpEx line.

Sameer Joshi

Understood. Thanks for that. I will take other questions offline. Thanks.

Mike Morrison

Yes. Thanks, Sameer.

Operator

Our next question comes from Amit Dayal with H.C. Wainwright.

Amit Dayal

Thank you. Hey, good morning, guys. With respect to the devices opportunity that you’re pursuing, is there – are these efforts targeted at customers you already have? Or are these a different set of customers? I’m just trying to see if there is some basis or relationship with some of these potential customers in this effort? Or is this completely sort of a new set of customers you’re going after?

Chris Usher

Yes. Amit, that’s a good question. So on the devices side, in this particular case – yes, it’s a news – it’s kind of you’re chasing something beyond exploration. This is not even production. This is kind of how are you going to monitor wealth that are already done? So it’s more in the regulatory regime and how do you work towards fully decommissioning things and get rid of their footprint? So it’s essentially environmental monitoring. But interestingly enough, this opportunity arose out of our normal channels of discussion with a major oil company in South America, and where there is a strong regulatory regime already in place, and there’s existing ROV monitoring required by the operators there both the national oil company and all the IOCs that have come in over the years.

So they were seeking a solution and we got involved in that and said, hey, we’ve got the tools, let’s have a crack at it, and we’ve ended up getting into their kind of new technology review for this area and made kind of the short list, and are working towards sea trials with them. But what we’ve then done is tried to work out what else do we get going in parallel there so that we can have multiple opportunities to get these trials and get to revenue on that product and not drag it out with just one customer.

So we’ve actually then started targeting. We have a BDF – we’re targeting other E&P companies working in again through the name – the people we know and the geophysical operations side to get to the other side of the house with those folks. And we’re also talking to regulators as well or industry organizations. For example, in the UK where regulations are coming and with talking to the oil and gas association there as well as some of the majors there around what they believe they’re going to have to do for compliance in this area or just to do the right thing as part of the business and getting interest there too.

So we’re continuing that outreach. We’re also, now we just started outreached leveraging our industry trade association who has good connections into Washington. And we’ve got some direction on where we should go in terms of U.S. regulation for the U.S. continental shelf and where – maybe we can get some government support there as well.

Amit Dayal

Understood. And in the past, we’ve sort of highlighted potentially maybe considering M&A opportunities, et cetera, once the debt restructuring was accomplished. Is that still sort of in play for you or is that something you are not really going to focus on right now?

Chris Usher

Yes, so we keep an eye on that. And actually that kind of restructure we did with a focus on innovation and technical incubation also includes looking at partners where there’s touch points across both business segments or particularly strategic. So we’re keeping an eye on that. We have a strong focus on partnership that we reviewed the long list of partners in all business lines every quarter with a view that at some point in time, some of those could be flipped over as M&A targets, if they prove to be quite complimentary to what we’re doing.

Certainly, on the software side, we have ideas of what we’d like to do to get a creative scale pretty quick. But I think looking at the numbers, you can see what the week Q1 that’s going to mean that there’s not as much cash flowing into – although we’ve done we raised some money, obviously in Q1, as Mike highlighted through different means. We need to keep an eye on keeping the liquidity right, and generating cash flow from operations before we actually would start doing something like that.

It’s something we’d like to do. If our quarters improve and cash flow lifts up we’ve obviously got a lot more of shares outstanding now that we could, through the bond restructure and the shareholder vote, we do have more currency there should we want to leverage shares for that purpose as well. So we’ll see how that goes. It’s something it’s not going to happen this quarter or next quarter just given the shape of things, but we would really like to be doing something like that modestly down the line. Does that make sense?

Amit Dayal

Yes. Understood. And just one last one, I’ve asked this previously as well. With INOVA, is there any new updates in terms of potentially getting this done this year? Or will this potentially just keep dragging on for you given the bureaucracy?

Chris Usher

Yes. That one is painfully slow. You probably noted. We didn’t mention it in the script of the fund, just cause there’s no movement to, of note this quarter. Well, actually that’s not true. There has been some realignment within our partners’ organization their PGP. There is a new chairman, a higher level person involved as the chair. And we’re having good engagement with him so far.

So I think we’re going to be able to have an attempt to get that going faster. Our expectation that is still is by the end of this year, but we’re looking at how do we re-fire that up. There’s also a new President of PGP, who’s also on our Board. So we’re trying to have those dialogues more focused so that we can unlock the bureaucratic pieces and get that moving again if the buyer’s still interested. So yes, that’s pretty much where we are. Suddenly not a big amount of movement to report this quarter.

Amit Dayal

Okay. Thank you so much.

Chris Usher

Thanks, Amit.

Operator

There are no further questions in the queue. I’d like to turn the call back over to Chris for any closing remarks.

Chris Usher

Yes. I really appreciate everyone coming on and the wide range of focus questions we had from the group. So yes, thanks for taking your time today, I’m sure you all have busy earnings call scheduled this week. So we won’t take any more of your time. And we look forward to catching up with you next time. All the best.

Operator

Ladies and gentlemen, this concludes today’s teleconference. Thank you for your participation. You may now disconnect at this time and have a wonderful day.

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