ION Geophysical Corporation (IO) Q2 2021 Earnings Conference Call August 12, 2021 10:00 AM ET
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
Colin Rusch - Oppenheimer
Amit Dayal - H.C. Wainwright
Greetings, and welcome to the ION Geophysical Second Quarter Earnings Conference Call. [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.
Good morning, and welcome to ION's Second Quarter 2021 Earnings Conference Call. We appreciate you 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 will be using slides to accompany today's call, which are accessible via link on our website, iongeo.com. There, you'll 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.
Thank you, Rachel. Good morning, everyone, and thanks again for joining us. In our prepared remarks today, we'll discuss our financial results, strategy execution progress and outlook for both the energy and maritime operations market. I will also describe our promising new energy transition, sustainability and digitalization strategies for today's rapidly evolving market.
We delivered a 40% sequential improvement in revenues during the second quarter. Adjusted EBITDA was slightly positive, benefiting from the over $40 million of cost reductions from 2020 that remain intact. The second, significantly larger phase of our North Sea 3D program is proceeding ahead of schedule, and we made great progress on our maritime digitalization strategy in new markets during the second quarter. In April, we completed our bond exchange and rights offering, which Mike will describe shortly.
Before I get to the operational highlights of the quarter, I'll describe the market dynamics and our strategy for both the energy and maritime operations industries. The global economy is improving, and commodity prices have rebounded nearly 50% this year above pre-pandemic levels with Brent crude currently around $70 a barrel. However, our core seismic market is expected to remain challenging in the near term as energy company's capital discipline remains firmly in place with a priority on cash flow generation. The majority of spending today is tied to legacy projects and existing commitments with very limited discretionary funds.
On the positive side, analysts predict minimum downside risk to the current seismic spending levels above $50 per barrel. We still believe discretionary spending will eventually return above $50 per barrel, and we are selectively investing where we anticipate that capital will be directed. We expect data purchases to largely be aligned with lower risk, higher return strategies, focused on proven basins and infrastructure-led exploration that leverages existing nearby facilities. Encouragingly, even in this uncertain environment, we are seeing early movers to start to strategically purchase data again. Our customer mix is also changing as major shift investments to renewables, creating opportunities for independent or national oil companies to fill the void.
Investment in the energy transition is rapidly approaching that of traditional oil and gas. We are focused on helping companies efficiently find and develop energy resources with lower emissions and environmental impact, whether it's more traditional sources or renewable ones. For example, our data is already being used to help evaluate potential sites for carbon storage to help combat climate change. Even in the most aggressive energy transition scenarios, offshore oil and gas is expected to remain an important part of the energy production mix needed to meet global demand for at least the next few decades. We expect the seismic market will continue gradually improving, and then our strategic decision to participate in the 3D new acquisition multiclient market will enable us to capture market share even without an improvement in industry conditions.
That said, we are also focused on rapidly diversifying outside of energy into much larger markets, where we can increase the stability and share of recurring software revenue in our business. Our strategy is to empower clients to sustainably use marine resources and combat climate change through our technology. We are focused on optimizing port management, energy logistics and maritime digitalization market. In these large capital-intensive industries, there are significant digitalization opportunities to enable smarter, safer management of maritime assets and people and reduce environmental impact and greenhouse gas emissions.
In our E&P Technology and Services business, multiclient revenues improved sequentially, primarily due to starting our Mid North Sea High 3D multiclient program and an increase in 2D data library sales. Importantly, this portfolio pivots towards 3D, which initially commenced through 3D reimaging shifts our new product investment closer to reservoir, where clients then tend to be more consistent and programs have larger scale revenue and earnings potential. In the last 5 years, our 3D data library has grown nearly 10,000% from approximately 4,000 square kilometers to 400,000 square kilometers today, with substantially all of the 3D investment in basins that are well positioned to support the E&P sector in the energy transition, such as the North Sea and offshore Brazil. By comparison, our 2D data library increased 35% during the same time frame.
The U.K. remains attractive for investment with one of the highest global returns per barrel. Until recently, parts of the [indiscernible] play in the North Sea had been largely overlooked because [FireFly] technology wasn't able to properly resolve this complex variable play. Our Mid North Sea High 3D program demonstrates how [indiscernible] high-quality data can unlock the potential of promising new acreage.
In May, we started the second significantly larger phase for our Mid North Sea High 3D multiclient program. We are pleased to be partnering with Shearwater again on the data acquisition, which, upon completion in late September, will increase the survey area 6-fold.
We deployed our proprietary digital technologies to collect the data in a more efficient, eco-friendly manner. Prior to the survey start, we evaluated several time and motion analyses in MESA SimSurvey to design the survey in the most efficient manner. Then in the field, Orca incorporated impacts from ocean current to survey plan to optimally acquire the lines in an order that maximizes efficiency while minimizing emissions. In addition, through Marlin, we are collaborating with fisheries to minimize disruption to both operations by coordinating vessel and equipment movement. The combination resulted in about 25% time savings on the first phase of our Mid North Sea High program.
Our team is actively cultivating additional 3D program opportunities. Almost all our multiclient programs in progress consist of 3D data. In addition to the North Sea, we are continuing to expand the highly successful Picanha 3D reimaging data set offshore Brazil. Our carbon footprint per dollar of revenue is significantly less than our peers, principally due to our reimaging emphasis and highly efficient proprietary software infrastructure that maximizes the quality and insights of existing subsurface data.
In addition, we continue to benefit commercially from the global 2D data collaboration with PGS, which helps diversify both companies' geographic exposure to opportunities globally, but also increasing sales efficiency. Our innovative Gemini extended frequency source continued to perform extraordinarily well during the quarter as we wrapped up its first proprietary deployment. Shell nearly doubled the initial program size offshore Egypt and highlighted Gemini's role in enhancing exploration insight in a more eco-friendly manner. The innovative acquisition design paired with Gemini delivered the expected uplift in low frequency content in this large long offset survey.
Many attractive geographies for continued investment are in complex geological setting, where more accurate imaging of the subsurface is essential for effective resource development. Industry demand for low frequency data continues to build as clients recognize the value it provides and involve survey designs to take advantage of new technologies such as Gemini. We have submitted several proposals for additional Gemini deployments on both multiclient and proprietary projects.
In the quarter, we were also approached by customers to tender vertical sizing profiling, VSP, production applications of our stores. We continue to commit the majority of ION's imaging capacity to distinguish our multiclient offering while deploying the balance of resources on challenging proprietary projects that help maintain our top-tier capability.
During the quarter, we secured the first project commitment under the multiyear umbrella contract with an energy major that we mentioned on last quarter's conference call.
Operations Optimization revenues improved during the second quarter, consistent with offshore seismic activity improving seasonally. Seismic tender activity is increasing primarily for production-focused contract work. The multiyear command and control subscriptions and routine equipment spares and repairs business provide a level of stability for this business segment. Remote services engagements of ION AnyWare continue to enable clients to overcome COVID-19 operational access challenges, a significant departure from what was historically an in-person services-led business for ION.
We continue to advance our diversification strategy in new maritime markets across software and devices. In our software group, the Marlin SmartPort deployments across nearly 20 U.K. ports continue to receive positive client feedback on the value our software delivers, such as enhancing decision-making via simple visual dashboard. Based on the local success in the U.K., our business development team recently expanded and increased outreach in North America, Latin America and Africa.
The climate-smart digital infrastructure we are promoting with the U.S. Department of Commerce's support is garnering significant interest for country-scale digitalization solutions spanning maritime detection, port management and illegal fishing, with an initial engagement focus on coastal Africa. These multimillion-dollar government projects are well aligned with the qualification criteria for EXIM Bank financing, and introductions have already been made to more than 15 countries.
Our technology is focused on creating high-value information that drives efficiency and related resource utilization and reductions in HSE exposure and greenhouse gas emission. For example, in the energy logistics market, our largest development effort is to analyze plan versus the actual supply vessel schedules, identifying opportunities for clients to minimize fuel consumption, decrease emissions and operate with just-in-time efficiency. Based on the range of these cases we've uncovered and magnitude of efficiency and environmental benefits our technology can deliver, we are optimistic about accelerating adoption.
Our devices' diversification strategy is to develop real-time monitoring solutions that improve the safety and environmental compliance of offshore oil and gas operations, from oil abandonment to carbon storage application. WellAlert leverages our core competencies from the seabed [indiscernible] world and targets the growing market associated with sustainability and aligns with our strategy to provide decision support data and analytics. Our expectation is that regulators will drive adoption of proactive monitoring systems that provide more frequent, accurate measurements to assure safe operating environment. We are systematically working to understand the challenges and requirements of these systems in various geographies. WellAlert conversations have advanced beyond our initial target market, receiving positive feedback in a number of regulatory environments. And as a result, we started developing a full-scale prototype.
With that, I'll turn it over to Mike to walk us through the financials, and then I'll wrap up before taking questions.
Thanks, Chris. Good morning, everyone. Our second quarter revenues of $20 million improved 40% sequentially. Adjusted EBITDA was slightly positive compared to negative $7 million in the first quarter. E&P Technology & Services segment revenues of $12 million increased by 62% sequentially, primarily due to starting the second phase of our Mid North Sea High 3D multiclient program and an increase in 2D data library cells. Operations Optimization segment revenues of $8 million improved 18% from the first quarter due to increased production-focused seismic vessel activity offshore.
Backlog, which consists of commitments for multiclient programs and proprietary imaging and reservoir services work, was $14 million at quarter end. The sequential decline was driven in part by revenue recognition on our Mid North Sea High 3D multiclient program as acquisition proceeded ahead of schedule this quarter.
As a result of our lower first half revenues, we expected to consume cash during the quarter. Our cash balance was $27 million at quarter end, including $20 million we drew on our revolver last year. Our total liquidity, defined as a combination of our cash balance and our available borrowing capacity under our revolving credit facility, was $33 million.
As we reported last call, in April, we successfully completed our bond restructuring and concurrent rights offering. The deal extended our bond maturity 4 years with a convertible feature that provides a path to convert the debt to equity in coming years.
In the rights offering, shareholders exercised subscription rights totaling $42 million, purchasing either new notes or common stock. In total, $116 million in new notes and 11 million shares of common stock were issued that generated $14 million in net proceeds for the company. $7 million of old notes remain outstanding and due in December 2021.
While we completed these favorable transactions and revenues improved sequentially, the timing of the market recovery remains uncertain, and revenues for the first half of 2021 were lower than expected. These lower-than-planned revenues will have an impact on second half cash collections necessary to fund our operations and to meet our debt and other obligations, therefore, triggering a growing concern issue for ION. We continually evaluate conditions in the capital markets, and we'll continue to explore additional funding opportunities through private or public equity transactions, debt financing or other capital sources such as the sale of nonstrategic assets to meet our ongoing cash needs.
In addition, in the third quarter, we are implementing a significant cost reduction program, building on the over $40 million eliminated last year, in an effort to continue to rightsize our business while still being able to capitalize on evolving market opportunities. We are targeting approximately $15 million to $20 million in annualized savings through a combination of both short-term and long-term initiatives. These efforts continue our focus on supporting and strategically growing our business while maintaining capital discipline.
We reinvigorated efforts to close the $12 million sale of our 49% equity stake in the nonstrategic INOVA joint venture with BGP by bringing additional interested parties to the table to increase competition and accelerate closure. We will continue to evaluate other nonstrategic asset sales and pursue additional sources of government relief, such as employee retention credits.
During the second quarter, the $7 million PPP loan we received last year was fully forgiven. Our top fiscal focus remains for supporting cash and managing liquidity in the current uncertain macroeconomic environment.
In July, we submitted a preliminary S-1 in anticipation of a potential public offering of our common stock. While the S-1 remains on file, there are several variables to consider, such as macro factors and our share price. To date, we have decided not to issue our common stock at these price levels, but we'll continue to monitor market conditions.
With that, I'll turn it back to Chris.
Thanks, Mike. In today's rapidly evolving landscape, we are focused on empowering clients to operate more efficiently and sustainably. Our offshore data and digitalization technologies are key ingredients for enabling the sustainable use of marine resources, combating climate change and optimizing traditional energy development while supporting the transition to renewable resources.
Both business segments are making progress, penetrating much larger addressable market. Our 3D strategy shifts our offerings closer to the reservoir, where capital is flowing to programs that have greater earnings potential. The second phase of our Mid North Sea High program is a hallmark of our 3D new acquisition multiclient market entry strategy, and we look forward to launching additional programs as funding coalesces.
We described increasing traction around our maturing Marlin platform through trials, tenders and broader government initiatives. We continue to increase brand awareness and new target markets, refine new customer acquisition strategies and expand sales coverage to overcome crossing the causing challenges.
We are laser-focused on strategy execution, prioritizing deals that front-load cash and projects with scale, such as the African government maritime digitalization outreach. We are looking to accelerate speed to market and/or enhance our offerings through strategic partnerships, for instance, the global 2D data library deal with PGS. Our radical sequencing culture is focused on doing fewer things better and minimizing distraction. We expect momentum to continue building as the year unfolds and are committed to continuing to rightsize the business to provide sufficient runway for successful diversification efforts while the seismic market continues to recover.
With that, I'll turn it back to the operator for Q&A.
[Operator Instructions] And our first question comes from Jeffrey Campbell from Alliance Global Partners.
My first question is, could you provide some color on where you're seeking the further cost reductions that you made reference to? That would be helpful.
Sure, Jeff. Thanks for asking the question. So one of the biggest things we're going to be looking at is our real estate footprint. The pandemic has, of course, totally changed the way most companies, and certainly ourselves, think about on-premises office space. We have quite a lot in Houston and also in other parts of the world. So we are -- we've been in motion on a process to reduce substantially our footprint, move to more hybrid, with people coming part-time to the office, part-time remote. Remote working has worked extremely well for us during the pandemic and continues to do so. And we will be shifting that as fast as we can. We're working with brokers to find ways to do that. Certainly, in our headquarters in Houston, where we have a lot of space, but other parts of the world as well.
And then other things will be looking at consolidating supply chain, looking at -- human resources elements will be part of that as well. We need to look at all aspects of the business.
Okay. Now that's very helpful. And I appreciate the color on the remote.
And just one more piece of that. I mean we did mention divestments. Some of that's cash generation divesting potentially parts of our technology stack or legacy stack as well as IP that's nonstrategic. We have quite a lot of patents and technology in the background. So I think that would be one, but that doesn't necessarily reduce cost, but some divestment of businesses obviously takes cost away with those businesses as well. So that's the other side of it.
Okay. You noted that WellAlert is advanced beyond your initial target market. So I was wondering if you could remind us again what that first market was and what sort of regulatory goals or actions are expanding the WellAlert horizon?
Yes. So the initial focus of WellAlert was unplugged and abandoned wells, where in certain geographies, there's regulatory requirements to monitor those. So that was our target, really driven by a major oil and gas company that wants to have a solution in their operating regime. But we thought we go in parallel with that to get to see trials faster, we would look at other geographies that will probably have emerging regulatory requirements like the U.K., the U.S., and perhaps Australia and New Zealand area. So we have done outreach there. There's definitely other lines of interest.
And the other piece that came there is also just CCUS, CO2 monitoring as CO2 is reinjected. So physical monitoring with seabed type systems will make sense. So that's really just a changing out of a methane sniffer for a CO2 sniffer on the device.
Okay. And I'll ask one last one and then turn it over to others. I just want to ask you about Slide 8. I think that was probably referring to the government acting as the chaperone and after that we've talked about before, if I'm wrong, you'll correct me, but I was wondering if the 15 country introductions that you referenced: a, was that within or did it exceed your expectations? Any sense at this point of how many of those introductions might continue on to next levels of discussion?
And finally, do you have any sense that this government assistance effort might extend beyond Africa at some point?
Yes. Great question. This is one of the bigger shifts in our strategy for 2021. I mean, we really just started -- I mentioned it briefly on the earnings call last time. We had really just started it, and we have – it has exceeded expectations. We have worked with the U.S. Department of Commerce, their trade attaches and the embassies, the U.S. ambassadors to these countries and we have had -- I’ve personally been on multiple calls with the -- U.S. government has introduced us to the ministries involved, whether that’s the port industries, the Department of Interior, the fisheries department. And we have generated follow-on discussions with those ministries from those sponsored engagements and introductions.
And we are working towards – we’re making proposals to several of those countries now. So yes, with a view that we would hope to get a funded pilot done before the end of the year, kind of on the $1 million to $2 million scale, to basically determine the relevance of our solutions for their challenges, which are broad and significant. We’re having excellent minister-level discussions about our solution and how we can help them and how we would back that for them with EXIM Bank funding or other sorts of – for those countries for the product. So it’s been pretty exciting, and it really is a shift to a much larger scale, more like we’ve done with our data library business in Africa and other areas in the past.
And secondly, your other question about other areas. We are also looking at – the U.S. Department of Commerce supports these initiatives also in other parts of the world. So we are thinking about South America as well. Some initial inroads there, but we’re really focusing on converting something before the end of the year in Africa, with the view that 2022 would be when solutions get rolled out at larger scale.
And our next question comes from Colin Rusch from Oppenheimer.
Given these new technology efforts that you're looking at, I want to get a sense of kind of ongoing R&D spend and any sort of incremental increases and what that, in that case, might look like as we get through the balance of this year and into next year?
Yes. So that's a good question, Colin. Thanks for joining. So we've -- typically, if you've watched this over the last probably 5, 6 years with revenues down and up and down, we've been about 10% -- R&D, 10% of revenue. We continue to be around that even with the COVID impact on -- substantial impact on revenues over the last 3, 4 quarters. And we did scale R&D down. And certainly, outside spend on technology has been curtailed. We've contained the headcount in our R&D group, but we have felt it's been essential to stay differentiated in the selected areas we're focusing on. And most of our R&D is deployed to the business lines, whether that's imaging, whether that's data library, whether that's software. And we have a very small centralized team of subject matter experts that look at things that add on to those.
What we've said really at the beginning of the year is we're not going to increase R&D spend from the baseline. It's been also stressed that we need to have R&D funding from customers., ,That they need to vote with their wallet that they want these technologies, given the nature of our industry. And we're not going to repeat mistakes in the past where we built things that -- and they will come, it's going to be -- we want them to ask for things, and we will build what they ask for and pay for.
So yes, we've had an overlay now of customer funding. We had funding for the Gemini source that we rolled out very successfully at the end of last year and early this year into Q2. And we also had funding for some very small new things that we're looking at, and we anticipate before we scale up WellAlert that we would also have customer funding for that.
Okay. That's super helpful. And then just on the revolver -- sorry for the detail here, but I just want to understand how much incremental capacity you still have left on that -- as you exited the quarter from a cash perspective?
Yes. Mike, why don't you jump in on that one?
Yes. Thanks, Colin. The capacity is borrowing base calculated. So the capacity is dependent upon receivables, inventory, and our data library is a significant piece of that. What I would say with the low first half revenues even into Q2, receivables are not a big piece of that. So when things improve and receivables are bigger, it will naturally increase that underlying level of capacity. What I’d say at Q2 and today, with where we’re at, essentially, we borrowed to the – about to the amount that we can. So it’s really looking to improvement, feeding the collateral, increasing the collateral would give us more availability.
And our next question comes from Amit Dayal from H.C. Wainwright.
Chris, in terms of the seismic challenges you've highlighted in the -- the seismic challenges in the seismic market, are these more longer-term, given all of these regulatory pressures in the legacy energy markets, like how do you see you guys sort of coming through or overcoming some of these challenges? Any color on that would be helpful.
Amit, thank you so much. Great question. Obviously, the largest percentage of our revenues do come from the seismic data market in the oil and gas sector. And it's been a challenging -- the rest of oil and gas has become frothy with the commodity price coming back in the first half of the year. Seismic has not participated, particularly in that yet. Usually, it would have started by now, with the correlation with the energy price or the oil and gas price. So we do anticipate that will come back. We -- I will say, obviously, that we did have a sequential improvement, which relates to customers underwriting our new program in the North Sea. I think it's about having those assets, as we said, in the script, in the right places that serve the new needs of our customers during the energy transition, and I think we're well placed for that in Brazil and the U.K.
And so we did see that sequential improvement, perhaps not shown by some of our other peers. So -- but I do think they all expect to see kind of a linear increase through the end of the year and I think we have line of sight on things improving. In that regard, not leaps and bounds, but improving nonetheless. And some of that is the IOCs that have been really working under a changed remit with the energy transition from their sea fleet are starting to realign and get engaged, and we're having discussions in select areas where, again, the purchase of data fits their overarching goals. And we do have a major -- supporting our Mid North Sea High program as well as independents.
The other sector is emerging independents who, as IOCs divest some of their traditional assets, as they progress their energy transition strategy. Other people pick those up and develop them and need data. And independents are moving into the fray and we're having independents to support seismic data library spend with us, again, on Mid North Sea High and others.
And then -- and the third is NOCs. NOCs are progressing ahead. They have a slow pace generally. They're not the rapid responders to data needs, perhaps that we've seen in the past with IOCs. But they are expanding out around the world out of their home countries. They're investing in data in a thoughtful manner as they support asset sales and license rounds, et cetera.
And deals that we see coming in the pipe are predominantly driven by NOCs in the areas where we have large data sets such as Brazil, which is all our reprocessing and remastering program. So that's kind of the flavor we see now. And I think all of that together supports a modest but sequential increase in data library sales. For us, we can say what we see in our pipeline, but I think it probably also our peers will see some of that as well.
Okay. The backlog pickup, maybe potentially expected over the course of the year, is that coming from 2D or 3D contracts, you think?
Yes, almost all the backlog is coming from both on the -- the place we have backlog is basically from our underwritten new seismic 3D programs, and that's where backlog will turn back up. We have some things coming soon, we believe. And then the rest is the 3D processing also, both on the multiclient side, gets late underwriting as we get close to finalizing those products, in Brazil for example. And then we get backlog based on the 3D services -- the umbrella contract I mentioned, for example. So all of our proprietary imaging is 3D.
And lastly, the Gemini deployment is when we booked services contracts with that as we did in the first half with Shell and jointly with PGS. The -- that was also 3D.
Okay. Okay. Earlier in the year, you had highlighted securing a proof of concept for your Board to platform logistics application within E&P major. Has that moved forward in any way?
Yes, it has. I mentioned that last time. So we do have -- the proof of concept has led to tendering, and we're in the final discussions. There are a couple of other participants in that tender. It has been kind of reshaped, but it's due in the next couple of weeks. We're going to hear one way or the other on that one, on the large-scale supply vessel management.
I am showing no further questions. I would now like to turn the -- I'd like to turn the call back to Chris Usher for closing remarks.
Yes. Thank you so much. Appreciate it. Yes. So I just would close…
Pardon me, Mr. Usher. We have 1 person, Will Crawley from Gates Capital.
Got it. Okay.
Chris, this is Jeff. So why the magic number 15% to 20% on cost-cutting? Why is it not more than that? And the question is, is 15% to 20% enough to get you to cash flow breakeven for the balance of the year? Or are you content to continue burning cash?
No. We're not content to continue burning cash for sure. It's been painful for all of us, all stakeholders to watch that, with the unprecedented drop in revenues despite the cuts we had already made. So 15% to 20% seems to be when we look at the things we can control and move on in the current market, something -- the next steps. And looking at, obviously, where we think revenues are going to go and our most conservative revenue models and what costs we can take out across the spectrum of real estate, asset divestments and the cost to go with them. And then vendor control, contractor and employee costs and all those things. That's what we think we can get to whilst also retaining the agility and responsiveness of our kind of basically organizational base to respond to the -- a very modest recovery and a market share grab that we have underway in the 3D space.
So we believe it's enough, and if we need to do more, we would, and it becomes harder and harder to do that, given the costs we've taken out already. So it's a great question. I'm not surprised you asked it. Glad someone did.
Mike, do you want to add anything else to that?
Chris, I think you added the appropriate level of color and answered it, so.
Yes. And then the other side of that, Jeff, is not just reducing the cost. We do need -- I mean, we basically need to take out the structural cost that will handle the uncertainty of the times we're in. We need to be cash flow breakeven or better in the first half of next year and in a sustainable way, and we believe 2022 will be a better year than 2021 has played out to be, even in the seismic space and the other areas where we believe we're going to get some scale in.
And then the other side of that is cash beyond just cash freed up from cost-cutting. It is -- we have a real commitment to looking at the assets we have that are not core to our strategy. We publicly, of course, talked about the INOVA thing, which is frustratingly long to materialize, hence, our reopening of that process, which is encouraging.
And secondly, other things. We can't say what they are at this point, but I think there's interest in other things ION has built up as a technology company over the years in business lines that probably may not be as core to the strategy we have going forward. So again, fewer things better and generate some cash from that as part of that bridge to a sustainable marketplace to participate in with a sustainable platform.
Yes. And can you -- secondly, can you talk about the level of multiclient investment has been greater than the new venture revenue for several quarters now. And I'm wondering -- so the net investment in the library seems to be going up. And I'm just kind of wondering what the -- is there less underwriting? Are you doing more with less underwriting? Or -- and then also, can you talk about the late sale environment and the prospects for -- do you expect to catch up in late sales in the second half of the year? Or do you expect those budgets just not to be used by the oil companies?
Yes. So good question, and I'm going to let Mike jump on a little bit too, but I'll start. And so the -- yes. So if you look at it, we've done about $12 million of multiclient spend in the first half, which some of that is stuff really catching up from things that were done in our accounts payable that were done several years ago. So it's not a new investment, and we are working that out of the system. So the real investment in the first half is about $8 million. And that does outstrip, as you note, the prefunded revenues that we've noted in the numbers. So we are seeing -- so it's not 100% prefunded. It's at the level that we -- it's probably about the level we've seen for a while. I don't -- but I think going forward, the thing we're going to see through the rest of the year, which may not take us to the high end of that range we discussed, but the range is such because we're doing fewer projects, but they're 3D.
I think any new one you see will be pretty much 100% prefunded on the new acquisition side, just for the cash issues and working capital side of things, obviously. So that's what you would see there. And on the -- the only other area that's not necessarily prefunded upfront is the 3D reprocessing, where we're in areas where we are creating on to our Picanha 3D program that has delivered 4 to 6x returns on the very low investments due to getting public tapes from governments and reimaging with our fixed cost infrastructure.
So those tend to be late underwriting, but as you get closer to the lease sales and others that basically the clients come in, you will see in the second half that it's in that $8 million number that outstrips the $5 million or so that we have funded so far. You will see that the sales that will come from that commitment from ION on those reprocessing projects will outstrip the cost in the second half in a material way.
Mike, have you got anything else to add on that?
Yes. The only other color I’d add, and you gave the numbers, but in the 10-Q we filed this morning, you’ll see of that spin. We disclosed about $5 million of that was related to past work in previous years that we’re catching up to it. So Jeff, yes, to your question in numbers, it’s about $8 million of first half spend on a pretty low $5 million revenue number. Most of that had been the internal work that Chris had mentioned on the 3D reprocessing that is more typical to, a, when it’s closer to being finished is when that late underwriting comes in, and that’s what we’re seeing and is looking to transpire in the back half of this year, like we’ve seen in past years other than kind of excluding last year’s activity.
There are no further questions in queue. I'd like to hand the call back to Chris Usher for closing remarks.
Yes. So actually, Jeff’s very timely question kind of covered the kind of the summary topics I was going to make around the structural costs and the – and the way we see things improving through the rest of the year in terms of the library, new acquisition and reprocessing project. So that’s fine. I guess, all I’d other – I’d just say is like watching the trend in our market seismic in general is we’re suffering from the same things as the others, perhaps with the exception of PGS, and we need to figure out the best way to navigate out of there.
And I think being smaller and nimble, we’re working very hard to do that and have the right structural level to do that and take some market share out of a modest market.
I think the other thing I would say around that is that the WesternGeco organization used to be one of the largest players out there. And definitely, with Schlumberger’s overall refocus, which is good for them, I think the WesternGeco side has perhaps changed focus. And we noted their low level of multiclient investment in Q2. And I think it gives market share potential for all of us to address.
So I think that’s kind of the macro for seismic in the multiclient space with regards to our strategy. So yes, so basically, very focused on our strategy execution in a tough space and definitely addressing structural issues to address the cash flow side of things.
I’ll leave you with that. And thank you so much for everyone joining and asking some really relevant questions.
Ladies and gentlemen, this concludes today's teleconference. Thank you for participating. You may disconnect your lines at this time, and have a wonderful day.