Geospace Technologies Corporation

Welcome to the Geospace Technologies First Quarter 2023 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. 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 one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star two. 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 Rick Wheeler. Sir, you may begin.

Thank you, Brittany. Good morning and welcome to Geospace Technology's conference call for the first quarter of fiscal year 2023. I'm Rick Wheeler, the company's president and chief executive officer, and I'm joined by Robert Kurta, the chief financial officer of the company. In these prepared remarks, I'll first provide an overview of the first quarter, and Robert will then provide an in-depth commentary on our financial performance. After some final comments, we'll open the line for questions. Some of today's comments about markets, revenue recognition, planned operations, and capital expenditures may be considered forward-looking, as defined in the Private Securities Litigation Reform Act of 1995. Statements we make are based on our present awareness, while actual outcomes are affected by uncertainties we cannot predict or control. Both known and unknown risks can lead to 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. And I recommend that you browse our website to learn more about GeoSpace and our products. Note that the information recorded this morning is time sensitive. It may not be accurate at the time one listens to the replay. Yesterday, after the market closed, we released our financial results for the first quarter of fiscal year 2023, spanning October 1st through December 31st of 2022. We were pleased to see that revenue for the quarter reached $31.1 million, reflecting an increase of 73% over last year's same period. Moreover, the amount represents the company's highest quarterly revenue in the last eight and a half years, going back to June of 2014. Gross profits for the quarter were also strong and reached a three-year high of $10.5 million. Factoring in all other expenses, the first quarter posted a narrow net loss of a penny per share, However, it must be noted that the slight loss comes after including $1.4 million in one-time charges. These charges were a combination of restructuring costs, write-offs of ruptured inventory, and non-recurring repair costs. Those actions stem from our commitment to achieve future profitability through streamlining our operations, reducing operating costs, and increasing revenue in each of our business segments. The majority of first quarter revenue came from our oil and gas segment, led by wireless seismic products. While a sale of GSX land equipment from our rental fleet was a contributing factor, the largest portion of wireless seismic revenue came from our OBX ocean bottom nodes. Rental revenue from performing OBX rental contracts was certainly the largest component. However, a significant amount of OBX related revenue was the result of compensation for OBX equipment that was lost by a rental customer during a survey. We intend to build out additional OBX nodes to replenish this lost equipment in the rental fleet as demand for both the deep water and shallow water OBX models continues to strengthen. Many of our existing customers have stated an intention to move their crews and to follow on client contracts after their existing surveys are complete. Combining this demand with an increasing number of shallow water surveys being put out for bid, interest in using our new Mariner nodal technology is also growing significantly. Our strategic diversification efforts continue to bear fruit as evidenced by the performance of our adjacent market segment. First quarter revenue from these products came within 1% of its all-time record set in last year's third quarter, adding traction to our move toward profitability. As a premier manufacturer and supplier of ruggedized water meter connector cabling, our market position in these products continues to climb. To maintain this position, we work closely with trusted water meter companies to meet the design and specifications of their domestic municipality customers. The breadth of discussions taking place with these partners for specialty cables, as well as the Aquana SmartVal products, gives us confidence that future growth in this market will continue. With that, I'll now turn the call over to Robert to give more financial detail on first quarter performance.

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 first quarter ended December 31st, 2022, we reported revenue of $31.1 million compared to last year's revenue of $18 million. Net loss for the quarter was $100,000. or $0.01 per diluted share, compared to the first quarter of last year's net loss of $6.8 million, or $0.52 per diluted share. Our oil and gas product revenue is as follows. Traditional product revenue for the three-month period ending December 31, 2022, was $2.8 million compared to revenue of $600,000 for the last year. The increase in revenue is due to higher demand for seismic sensors and marine products. Seismic sensor sales erupted due to the long-term order with an international company and a modest increase in domestic sales in our Russian entity. Our wireless product revenue for the quarter was $17.2 million, an increase of 98% compared to revenue of $8.7 million last year. The increase in revenue is due to higher rental revenue from higher utilization of our OBX rental fleet. and higher marine wireless product revenue from a rental customer's compensation for lost OBX nodes. Moving to our adjacent markets product segment, our industrial product revenue for the first quarter was $7.9 million, an increase of 58% compared to last year's revenue of $5 million. The increase in revenue is due to higher demand for our smart water meter connectors and cables. Imaging product revenue for the three months ending December 31st, 2022 was 2.9 million, a decrease of 8% when compared to 3.2 million from the same period last year. Lower demand for thermal film products during the holiday season explains the slight reduction in revenue for the first quarter as compared to the same prior year period. Revenue from our emerging market segments for the first quarter of fiscal year 2023 is $93,000 compared to $137,000 for the first quarter of fiscal year 2022. The revenue for both periods is related to the ongoing contract with the U.S. Customs and Border Protection Agency. Our consolidated gross profit for the first quarter of fiscal year 2023 was $10.5 million compared to $1.7 million last year. The increase in gross profit was due to higher utilization of our OBX rental fleet higher marine wireless exploration product sales, and increased demand for our water meter cables and connector products. The first quarter of fiscal year 2023 operating expenses are 10.8 million. This is an increase of 26% when compared to 8.6 million for the first three months of fiscal year 2022. The increase is due to a favorable non-cash adjustment reported in the prior year for a change in the estimated fair value of contingent consideration related to our quantum and apta size acquisitions. Severance costs we announced in our prior teleconference and higher selling general and administrative expenses resulting from our increase in revenue. These increases are partially offset by a decrease in R&D project costs. Q1 2023 cash investments into our property plant equipment are $265,000, and cash investments into our rental fleet is $162,000. Our 2023 capital investments into the rental fleet could be as much as $6 million, provided new rental contracts warrant the additions to our fleet. Investments in property plant and equipment could be as much as $1 million for the fiscal year. Our balance sheet at the end of the first quarter of fiscal year 2023 reflected $12.3 million of cash and short-term investments, and we maintained an additional borrowing ability of $8.5 million under our bank credit agreement. Thus, the company's total liquidity was $20.8 million. We currently have no debt and own numerous real estate holdings in Houston and around the world that are owned free and clear without any leverage. This concludes my discussion. I'll turn the call back to Rick.