Geospace Technologies Corporation

Good day and welcome to the Geospace Technologies second 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 1 on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing star 2. 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.

Thanks, Todd. Good morning, and welcome to Geospace Technology's conference call for the second quarter of fiscal year 2023. 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. In our prepared remarks, I'll first provide an overview of the second 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 commentary on markets, revenue recognition, planned operations, and capital expenditures may be considered forward-looking as defined in the Private Securities Litigation Reform Act of 1995. The statements we make are based on our present awareness that actual incomes or outcomes are affected by uncertainties we cannot control or predict. Both known and unknown risks can lead to results that differ from what is said or implied today. Some of these risks and uncertainties are discussed in our SEC Form 10-K and 10-Q filings. As mentioned, for convenience, we will leak a recording of this call on the investor relations page of our geospace.com website, which I hope everyone will visit and browse to learn more about GeoSpace and our products. Note that the information recorded today 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 2023, spanning January 1st through March 31st, 2023. We were delighted to report such solid performance in our second quarter results for fiscal year 2023. Revenue of $31.4 million represents the highest quarterly figure recorded in almost nine years, and net income exceeding $4.6 million serves to demonstrate our real commitment to profitability. Although net income includes a $1.3 million gain on the sale of our Langfield facility, it's clear that most of the income came from profits on our operations. The largest single contribution to both revenue and profits for the second quarter and the first half of the fiscal year came from rentals of our OBX ocean bottom nodes. Our OBX customers report that projects requiring their ocean bottom seismic services have increased beyond pre-pandemic levels and will remain strong throughout the year. This translates to greater demand and utilization of our OBX rental fleet. We believe these improved market conditions will persist for the foreseeable future and should provide leverage for greater revenue from our oil and gas segment with less volatility. Furthermore, field demonstrations of our latest ocean bottom node technology are either planned or underway, creating more customer interest in our mariner and new deepwater offerings. Driven by increased sales of our water meter cables and connectors, Second quarter revenue from our adjacent market segment set yet another quarterly record. Moreover, revenue generated by this segment in the first half of fiscal year 2023 represents the greatest figure ever achieved over any six-month period. It is rewarding to see such firm evidence of the positive impact our strategic diversification efforts are making in this segment, and its growing strength only adds stability to the company's overall performance. We believe this segment will remain on an upward trajectory of generating reliable revenue as domestic municipalities continue to update their smart meter infrastructure. We further anticipate these infrastructure updates will translate into meaningful contracts for our QANAS smart water shutoff valves. The second quarter and first half of the fiscal year reflected only a small amount of revenue from quantum in our emerging market segment. However, current efforts on the previously announced DARPA contract, as well as a smaller contract with an undisclosed major defense contractor, offer potential for significant future contracts, utilizing our SADAR acoustic arrays and unique analysis, and we're pleased to see backlog developing for this group. Ongoing discussions with energy companies and service providers related to carbon capture monitoring also hold promise for the future of this segment. With that, I'll now turn the call over to Robert to give more financial detail on the second 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, our second quarter ended March 31, 2023. We reported revenue of $31.4 million compared to last year's revenue of $24.7 million. The net income for the quarter was $4.7 million or $0.35 per diluted share compared to last year's net loss of $1.5 million or $0.11 per diluted share. For the six months ended March 31, 2023, we reported revenue of $62.5 million compared to revenue of $42.7 million last year. Our net income for this six-month period was $4.5 million or $0.35 per diluted share compared to last year's net loss of $8.2 million, or $0.64 per dually share. Our oil and gas market segment produced revenue of $18.4 million for the three months ended March 31, 2023. This compares with revenue of $15.1 million for the same period of the prior fiscal year, an increase of 22%. For the six-month period, the segment contributed revenue of $38.6 million versus $24.8 million, an increase of 56%. The increase in revenue for the three-month and six-month periods are due to higher utilization of our OBX rental fleet and higher demand for our seismic sensors. The six-month period increase in revenue is partially offset by a decrease in demand for our wireless exploration products. Our adjacent market segment revenue is as follows. Our industrial product revenue for the second quarter of fiscal year 2023 was $9.6 million, an increase of 61% over the second quarter of 2022. Industrial product six-month revenue for the fiscal year 2023 is $17.6 million, an increase over the same period of 2022 of 60%. Both period revenue increases are due to higher sales of our water meter cable and connector products and higher demand for our industrial sensor products. Imaging product revenue for the second quarter was $3.1 million compared to last year's revenue of $3.2 million. The six-month revenue for imaging products for fiscal year 2023 is $6 million, a 6% increase when compared to the same period in 2022. Finally, the revenue from our emerging market segment for the second quarter was $191,000 compared to $299,000 for the same period in 2022. The six-month revenue for this segment for fiscal year 2023 was $284,000 compared to $436,000 for the same period in 2022. Their emerging market segment currently has $2.1 million in backlog, and we expect to begin to recognize a portion of this revenue in the third quarter of fiscal year 2023. Excluding non-cash decreases to the fair value of contingent earn-out liabilities recorded in fiscal year 2022, our operating expenses decreased by $800,000, or 7% for the second quarter, and by one million or 5% for the six month period ended March 31st, 2023. The decrease in operating expenses for both period is the result of our cost cutting measures that we began in our first quarter of this fiscal year. Our six month cash investments into our rental fleet and property planning equipment are 1.8 million. Our balance sheet at the end of the second quarter reflected 22.8 million of cash and cash equivalents Our credit facility has available borrowings of 5.5 million, thus our total liquidity is 28.3 million as of March 31st, 2023. We are also happy to report we expect to complete negotiations for a new credit facility during our third fiscal quarter that will further expand our available liquidity. Lastly, we own 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.