Geospace Technologies Corporation

Welcome to the Geospace Technologies Third 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 that 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.

All right, thank you. Good morning, and welcome to Geospace Technology's conference call for the third quarter of fiscal year 2022. As mentioned, 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 our subsidiary, Quantum Technology Sciences. I'll initially provide an overview of the third quarter, which Robert will follow up with in-depth commentary on our financial performance. After that, we'll open the line for questions that we'll 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. These risks and uncertainties include those discussed in our SEC Form 10-K and 10-Q filings. For convenience, we will link a recording of this call on the investor relations page of our geospace.com website. very much encourage everyone to browse the site to learn more about GeoSpace and its 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 third quarter of fiscal year 2022, which ended June 30, 2022. Although the three- and six-month periods that ended on that date experienced decreases in oil and gas segment revenue from earlier periods, We are nonetheless pleased that demand for our OBX ocean bottom marine recording nodes continued to climb. As such, this led to the highest quarterly figure for rental revenue so far this fiscal year. Evidence of this growing OBX demand was earlier demonstrated in our two recent news announcements of signed OBX rental contracts, valued separately at $4 million and $12 million, respectively. Moreover, the base value of OBX rental contracts signed so far in fiscal year 2022 now exceeds $24 million compared to just $8.2 million in fiscal year 2021. The discussions and quoting activities currently underway with our valued customers gives us increased confidence that demand for the OBX will remain strong. Another important highlight of the quarter is the strong performance of our adjacent market segments. Quarterly revenue from this collection of products reached an all-time high in the third quarter, setting a new company record for this segment. Contributing to this revenue growth is increasing demand for our U.S. manufactured water meter cables and connectors, driven by greater domestic infrastructure spending on smart city projects. Our presence in this market is poised to penetrate even deeper with the rollout to customers of our Aquana smart water valves and cloud control software. which is expected to occur before the end of the fiscal year. Other factors contributing to solid third quarter adjacent market revenue include our Exile electronic pre-press printing solutions. These computer to screen printers bring added automation and time savings to the graphic arts screen printing industry, helping these customers to reduce labor and increase efficiency. In addition, our specialty contract manufacturing business is also seeing positive results as more and more customers want to increase the domestic content and control of their product manufacturing. With that, now I'll turn the call over to Robert to provide more financial detail on the third quarter.

Thanks, Rick. 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 third quarter ended June 30, 2022, We reported revenue of 20.7 million compared to last year's revenue of 23.1 million. The net loss for the quarter was 6.6 million or 51 cents per diluted share compared to last year's net loss of 800,000 or six cents per diluted share. For the nine months into June 30th, 2022, we reported revenue of 63.4 million compared to revenue of $75.4 million last year. Our net loss for the nine-month period was $14.8 million or $1.14 per diluted share compared to last year's net loss of $9 million or $0.67 per diluted share. Our adjacent market segment revenue is as follows. Our industrial product revenue for the third quarter of fiscal year 2022 was $7.5 million, an increase of 16% over the third quarter of 2021. Industrial products nine-month revenue for fiscal year 2022 is $18.5 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, industrial sensor products, and contract manufacturing services. Imaging product revenue for the third quarter was $3.5 million, an increase of 19% compared to last year's revenue of $2.9 million. The nine-month revenue for imaging products for fiscal year 2022 is $9.8 million, a 23% increase when 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 market segment produced revenue of $9.5 million for the three months into June 30, 2022. This compares with revenue of $12.6 million for the same period of the prior fiscal year, a decrease of 26%. For the nine-month period into June 30, 2022, the segment contributed revenue of $34.3 million versus $41.5 million, a decrease of 17%. The decrease in revenue for the three-month and nine-month periods are due to lower demand for our land wireless equipment and marine wireless equipment. Fiscal year 2021 revenue included $12.5 million from a sale of GCL land wireless equipment delivered to a customer in fiscal year 2020. The decrease in revenue is partially offset by higher rental revenue due to increased utilization of the company's OBX rental fleet. Finally, revenue from emerging markets segment for the third quarter was $135,000 compared to $1.1 million for the same period in 2021. The nine-month revenue for this segment for fiscal year 2022 was $571,000 compared to $10 million for the same prior year period. Our third quarter of fiscal year 2022 operating expenses increased by $2.1 million or $21.5 excuse me, 26% compared to the third quarter of 2021. The increased operating expenses for the three months period was due to increases in personnel costs, incremental operating costs associated with our recent acquisition of Aquana, increased sales, marketing, and other general expenses, and a decrease in a favorable non-cash adjustment to the contingent consideration related to our Aquana and Optus ISA. The nine-month operating expenses increased by 2 million or 8% compared to the same prior year period. The increase in operating expenses for the nine-month period is due to higher engineering project costs, increased personnel costs, incremental operating costs associated with our recent acquisition of Aquata, and increased sales, marketing, and other general expenses. The increase was partially offset by an increase in a favorable non-cash adjustment to the contingent consideration related to our quantum and opti-size acquisitions. Our nine-month cash investment into our rental fleet is $4.1 million, and cash investments into our property, plant, and equipment is $900,000. Our balance sheet at the end of the third quarter reflected $9.1 million of cash and short-term investments and we have $8.5 million of additional liquidity from our credit facility. 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 discussions, and I'll turn the call back to Rick.