Geospace Technologies Corporation

Welcome to the Geospace Technologies 4th Quarter 2021 Earnings Conference Call. Hosting the call today from Geospace is Mr. Rick Wheeler, President and Chief Executive Officer. He is joined by Robert Kurta, the company's Chief Financial Officer, and Mark Tinker, CEO of Geospace Subsidiary Quantum Technology Sciences. Today's call is being recorded and will be available on the Geospace Technologies Investor Relations website following the call. At this time, all participants have been placed in a listen-only mode. and the floor will be open for your questions following the presentation. If you would like to ask a question at any time, please press star 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We ask that you please pick up your handset to allow optimal sound quality. Lastly, if you should require operator assistance, please press star 0. It is now my pleasure to turn the floor over to Rick Wheeler. Sir, you may begin.

Thank you, Brittany. Good morning and welcome to Geospace Technology's conference call for the fourth quarter of our 2021 fiscal year. I'm Rick Wheeler, the company's President and Chief Executive Officer, and I'm joined by Robert Curta, the company's Chief Financial Officer, and also with us this morning is Dr. Mark Tinker, CEO of Quantum Technology Sciences, our subsidiary. I'll first give an overview of the year end, and Robert will follow with in-depth commentary on our financial performance. And after a few last remarks, we'll open the line for questions for Robert, Mark, and I to try and answer. Some of today's statements may be forward-looking, as defined in the Private Securities Litigation Reform Act of 1995. This includes comments about markets, revenue recognition, planned operations, and capital expenditures. Such statements are based on our present awareness while actual outcomes are affected by factors and uncertainties we cannot predict or control. Both known and unknown risks can lead to performance and results that differ from what we say or imply today. Such risks and uncertainties include those discussed in our SEC Form 10-K and 10-Q filings. For convenience, we'll link a recording of this call on the investor relations page of our geospace.com website, and I encourage everyone to browse the site to learn more about GeoSpace and our products. Note that the information we record this morning is time sensitive and may not be accurate at the time one listens to a replay. After the markets closed yesterday, we released our financial results for the fourth and final quarter of fiscal year 2021. which ended September 30th, 2021. While the year was challenged by the ongoing havoc and instabilities related to COVID-19, we were pleased that revenue for the full fiscal year increased by 8% over last year. This is a near match to the revenue we achieved just before the pandemic in fiscal year 2019. However, performance over the year for each of our market segments was mixed. The oil and gas market segment experienced a reduction in revenue of 15%. Lower demand for our traditional marine products was a factor. However, the largest reduction stemmed from fewer rentals of our OBX ocean bottom recording systems. Despite this overall reduction, the last two quarters of the year experienced consecutive increases in rental revenue from our OBX equipment. This suggests that OBX demand is improving as both new and earlier stalled projects move forward. As the world emerges from the pandemic, fueling global economic recovery has increased energy demands, resulting in higher oil prices. This bolsters the likelihood of improved demand for our seismic products. However, a lag in time typically occurs between higher oil prices and greater demand for our products. This lag in part is the result of decisions by exploration and production or E&P companies to allocate major portions of their cash flow toward shareholder reward initiatives such as stock buybacks, and dividends, as well as debt reduction. While this may be a short-term trend, until E&P operators begin to reinvest capital in exploration and production, challenges will remain for our oil and gas market segment. In more upbeat news, we received a new request for a proposal from a major oil company for a permanent reservoir monitoring, or PRM, system. If, after due consideration, we provide a proposal, there is no assurance that a contract will be awarded, nor, if so, that it would be awarded to us. However, the presenting of this formal request, in conjunction with the level of interest and quality discussions underway with other E&P companies, gives us great encouragement that the potential for future PRM contracts is high. In contrast to the oil and gas market segment, our adjacent market segment reported an increase in full-year revenue of 27% over last year. Industrial products made up the largest increase due to greater demand for our water and radio cables and connectors, as well as for our contract manufacturing services. Higher sales of our graphic imaging products also boosted revenue in this segment. These products, as used in merchandise and textile printing, have seen demand grow with the reopening of sporting, entertainment, and other social events and gatherings. There was no revenue from our IoT smart water valves and cloud platforms secured through our recent Aquana acquisition. However, we are actively rolling out these products in close cooperation with potential customers to incorporate their requirements. We expect revenue from our Aquana products to begin in fiscal year 2022, this coming fiscal year. As our emerging market segment, fiscal year 2021 marked a major milestone in the achievement of meaningful revenue from our quantum technology sciences subsidiary. For the full year, this segment generated over $10 million, primarily associated with our contract to provide the U.S. Border Patrol with an advanced high-tech border security solution. We firmly believe the value of actionable information provided by our quantum solutions will lead to future contracts across multiple U.S. government entities. Now, just ahead of turning the call over to Robert, I'm pleased to announce that as of this week, we have succeeded in fully executing the $7.5 million stock repurchase plan that our Board of Directors approved in November of 2020. Under this program, we return meaningful value to our shareholders through the repurchase of nearly 842,000 shares of our common stock. And with that, I'll now turn the call over to Robert for financial details.

Thanks, Rick, and good morning. Before I begin, I'd like to remind everyone that we will not provide any specific revenue or earnings guidance during our call this morning. In yesterday's press release for our fourth quarter ended September 30th, 2021, we reported revenue of $19.4 million compared to last year's revenue at $21.5 million. The net loss for the quarter was $5 million or $0.39 per diluted share compared to last year's net loss of $3.9 million or $0.29 per diluted share. For the 12 months ended September 30th, 2021, we reported revenue of $94.9 million compared to revenue of $87.8 million last year. Our net loss for the 12-month period was $14.1 million, or $1.05 per diluted share, compared to last year's net loss of $19.2 million, or $1.42 per diluted share. Our oil and gas markets revenue is as follows. Our traditional seismic product revenue for the fourth quarter was $800,000, a decrease of 29% compared to revenue of $1.1 million last year. The decrease in revenue for the comparative three-month period is due to lower demand for the rental and sale of our traditional seismic products. Revenue for the 12 months of 2021 was $4.5 million, a decrease of 32% compared to revenue of $6.7 million for the same prior year period. The reduction of revenue is due to lower sales of our marine seismic products, lower utilization of our traditional rental seismic products, offset by higher sales of our seismic sensors. Our wireless product revenue for the quarter was 9.6 million, a decrease of 26% compared to revenue of 13 million last year. Wireless product revenue for 12 months was 45.8 million, a decrease of 15%. compared to revenue of $54.1 million for the same period last year. The reduction in revenue for both the three-month and 12-month period is due to lower utilization of our OBX rental fleet caused by the effects from the COVID-19 pandemic. The reduction in revenue for the 12-month period is offset by the recognition of a $12.5 million sale related to a land-based seismic wireless system delivered to a customer in the prior year, a $9.9 million sale of a used OBX rental equipment to the former lessee, and a $2.9 million sale of land-based wireless products. Our reservoir product revenue for the three and 12 months periods ended September 30, 2021, was $300,002 million, respectively. These reflect increases of $200,000 and $1 million when compared to the three and 12 months periods last year. The increase in both periods is due to a higher level of performed engineer services. We believe the best opportunity for meaningful revenue from this segment will be from the future contracts for the design, manufacturing, deployment of PRM systems. We continue to discuss PRM products with multiple customers. Moving on to our adjacent market segments, our industrial product revenue for the fourth quarter of fiscal year 2021 was $5 million, an increase of 24% over the fourth quarter of 2020. Industrial products 12-month revenue for fiscal year 2021 is $21.5 million, an increase over the same period in 2020 of 37%. Both periods revenue increases are due to higher sales of our water meter cable and connector products and higher demand for our contract manufacturing services. Imaging product revenue for the fourth quarter was 3.1 million, an increase of 13% compared to last year's revenue of 2.7 million. The 12-month revenue for imaging products for fiscal year 2021 is 11.1 million, a 13% increase when compared to the same period in 2020. The increase in revenue for both periods is due to increased demand for our thermal imaging products. Finally, revenue from our emerging market segment totaled $170,000 for the three-month and $10.2 million for the 12-month period ending September 30, 2021. Prior year revenue was $177,000 for the fourth quarter and $734,000 for the 12-month period ending September 30, 2020. The increase in revenue for the 12-month period over the prior year is due to the contract awarded in April 2020 with the US Border Patrol. We expect to complete this contract during the second quarter of fiscal year 2022. Our fourth quarter of the fiscal year 2021 operating expenses decreased by $1.2 million 14% compared to the fourth quarter of 2020. The 12-month operating expenses decreased by 8.3 million or 20% when compared to the same prior year period. The decrease in operating expenses for the three-month and 12-month periods is due to reduced personnel costs related to our cost reduction program that began in fiscal year 2020. a non-cash decrease to the fair value of contingent earn-out liabilities for our quantum and opto-size acquisition, a decrease in research and development project costs, and a reduction in general business expenses related to our business operation. The decrease in operating expenses for the three-month period was partially offset by higher selling and marketing costs related to travel, Related to an increase in travel, conferences and trade shows previously restricted by the COVID-19 pandemic. Our 12-month cash investments into property, plant, and equipment were $3.2 million. Our cash investment into our rental fleet was $2.1 million as of September 30, 2021. We expect fiscal year 2022 cash investments into our rental fleet to be approximately $3 million. and cash investments into our property, plant, and equipment to be $4 million. Our balance sheet at the end of the fourth quarter reflected $23.6 million of cash and short-term investments. We currently have no debt and own numerous real estate holdings in Houston and around the world that are owned free and clear and without any leverage. That concludes my discussion, and I'll turn the call back to Rick.