Geospace Technologies Corporation

Welcome to the Geospace Technologies second quarter 2022 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 this time, please press star one 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, press star zero. It is now my pleasure to turn the floor over to Mr. Rick Wheeler. Sir, you may begin.

Thank you very much. Good morning and welcome to Geospace Technology's conference call for the second quarter of fiscal year 2022. 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. Also with us this morning is Dr. Mark Tinker, CEO of our subsidiary, Quantum Technology Sciences. First, I'll provide an overview of the second quarter, and Robert will then follow up with in-depth commentary on our financial performance. After that, we'll open the line for questions that Robert, Mark, and I will try to 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. As mentioned, for convenience, we will link a recording of this call on the Investor Relations page of our geospace.com website. and I encourage everyone to browse our 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 the replay. Yesterday, after the market closed, we released our financial results for the second quarter of fiscal year 2022, which ended March 31, 2022. We were pleased to see that revenue in the quarter reached $24.7 million, a figure representing the second highest quarterly result in the last two years. Moreover, the quarter reflected positive momentum for the company on several fronts. In March, we recorded our first significant sale of Deepwater OBX Ocean Bottom Nodes when a longstanding customer exercised a purchase option in an ongoing rental contract. This sale, along with our recent announcement of new OBX rental contracts, serves to confirm geospaces leadership in the ocean bottom noble market. Based on current inquiries, I believe we will see higher utilization of our OBX rental fleet in the second half of fiscal year 2022 and beyond. Although challenges certainly remain for our oil and gas market segment, increases in OBX inquiries along with our highly engaged discussions with oil and gas companies for permanent reservoir monitoring or PRM systems are encouraging. The rewards of our focused business diversification strategy were resoundingly demonstrated in the second quarter performance for our adjacent market segment. Revenue for the segment increased 21% over last year's second quarter, topping $9.2 million. This is the second highest quarterly amount ever recorded for these products. And for the six months ended March 31st, 2022, this segment produced $17.4 million in revenues. setting a new company record for this segment's fiscal mid-year results. This was notably achieved despite the effects of ubiquitous supply chain problems broadly exhibited throughout all industry. Although this has introduced some delay in the rollout of our Aquana smart water valves, the debut of these products is on the near horizon. We expect our industrial Internet of Things enabled smart water valves and cloud management platforms developed through our acquisition of Aquana LLC last summer will add yet another vehicle of growth to our already expanding adjacent market segment. Our diversification efforts were also evident in our emerging market segment. Building on the technologies originally invented for advanced border and perimeter security, Verification tests we performed through our joint industry partnership with Carbon Management Canada have proven quantum technology sciences SADAR product as a highly effective tool for precise micro seismic monitoring of surface reservoirs. This has opened doors and established new discussions on how this information can uniquely facilitate high confidence decision making in critical applications that include carbon storage, hydraulic fracking, and steam-assisted gravity drainage. In other events, we're pleased to announce the completion of a new credit facility. Robert will provide more details on this arrangement in his remarks. We don't have an anticipated need to use this facility. However, we believe this proactive step gives us additional financial flexibility. As fiscal year 2022 progresses, we will continue to exercise the conservative financial stewardship that has been a hallmark of geospace management. With that said, let me now turn over the call to Robert to provide some 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 second quarter ended March 31, 2022, we reported revenue of $24.7 million compared to last year's revenue of $23.9 million. The net loss for the quarter was $1.5 million or $0.11 per diluted share compared to last year's net loss of $7.2 million or $0.53 per diluted share. For the six months ended March 31, 2022, we reported revenue of $42.7 million compared to revenue of $52.4 million last year. Our net loss for the six-month period was $8.2 million or $0.64 per diluted share compared to last year's net loss of $8.2 million or 61 cents per diluted share. Our adjacent market segment revenue is as follows. Our industrial product revenue for the second quarter of fiscal year 2022 was $6 million, an increase of 20% over the second quarter of 2021. Industrial products six-month revenue for fiscal year 2022 is $11 million, an increase over the same period in 2021 of 17%. Both periods' revenue increases are due to higher sales of our water meter cable and connector products and higher demand for our industrial sensor products. Image product revenue for the second quarter was $3.2 million, an increase of 23% compared to last year's revenue of $2.6 million. The six-month revenue for imaging products for fiscal year 2022 is $6.4 million, a 25% increase compared to the same period in 2021. The increase in revenue for both periods is due to higher demand for our thermal imaging equipment and consumable film products. Now our oil and gas market segment revenue. The oil and gas markets Segment produced revenue of $15.1 million for the three months ended March 31, 2022. This compares with revenue of $16.1 million for the same period of the prior fiscal year, a decrease of 6%. For the six-month period of fiscal year 2022, the segment contributed revenue of $24.8 million versus $28.9 million, a decrease of 14%. The three and six-month periods of fiscal year 2021 included revenue recognized in the second quarter for a $12.5 million land-based wireless system that was delivered to the customer in the second quarter of 2020. The decrease in revenue for both periods is offset by higher utilization of the company's OBX rental fleet. Finally, revenue from our emerging Merging market segment for the second quarter was $299,000 compared to $165,000 for the same period in 2021. The increase in revenue was primarily due to higher service revenue. The six-month revenue for this segment for fiscal year 2022 was $436,000 compared to $9 million for the same period in 2021. Our second quarter of fiscal year 2022 operating expenses decreased by 600,000 or 6% when compared to the second quarter of 2021. The six month operating expenses decreased by 200,000 or 1% when compared to the same prior year period. The decrease in operating expenses for the three and six month periods is due to a non-cash decrease to the fair value of contingent earn-out liabilities for our quantum and optosite acquisitions, offset by an increase in selling, administrative, and engineering costs, as well as higher engineering project costs. Our six-month cash investments into our rental fleet is $2.4 million, and cash investments into property and plant equipment is $500,000. Our balance sheet at the end of the second quarter reflected $11.9 million of cash in short-term investments, We recently closed on a credit facility with Amerisource Funding Inc. and Wood Forest Bank to provide up to $10 million in additional liquidity. In addition, we own numerous real estate holdings in Houston and around the world that are owned free and clear without any leverage. That concludes my discussion and I'll turn the call back to Rick.