Welcome to the Geospace ‘24 Earnings Conference Call. Today’s call is hosted by Rick Wheeler.

Alright. Thanks, Natalie. Good morning and welcome to Geospace Technologies conference call for the first quarter of fiscal year 2024. I am Rick Wheeler, the company’s President and Chief Executive Officer, and I’m joined by Robert Curda, the company’s Chief Financial Officer. In our prepared remarks, I’ll first provide an overview of the first quarter and Robert will then follow up with more in-depth commentary on our financial performance. After some final comments, we will then open the line for questions. Today’s commentary on markets, revenue, planned operations and capital expenditures may be considered forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on what we know now, but actual outcomes are affected by uncertainties beyond our control or prediction. 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. 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 visit and browse the site to learn more about Geospace and our products. Note that today’s recorded information 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 first quarter of fiscal year 2024, which ended December 31, 2023. We were gratified to start the new fiscal year with our fourth straight quarter of profitability. Along with improved industry demand for products in our oil and gas market segment, we believe our streamlining of operations over the last year and our attention to financial discipline were instrumental in carrying over profitability to the new fiscal year. First quarter revenue of $50 million represents the highest quarterly figure achieved in nearly 10 years. And net income exceeding $12.7 million solidly demonstrates the type of value we strive to deliver to our shareholders. The sale and delivery of our newest technology ocean bottom node known as the Mariner was the pinnacle element in delivering our first quarter performance. As we previously announced, a $20 million rental contract for the Mariner system was converted to a $30 million sale in late December. This brought a significant amount of revenue forward into the first quarter that would have otherwise been received from incremental rental payments over the course of the year. Given that we don’t anticipate another such sale in the imminent future, this transaction serves as a stark reminder of how commerce in our oil and gas market segment can be very lumpy from quarter to quarter. Navigating these ups and downs is familiar territory for Geospace. And despite the volatility, we are encouraged by industry reports of major energy companies investing more broadly in conventional seismic exploration and 4D time lapse monitoring. Those endeavors are known to benefit from our latest technology offerings such as our Mariner and our Aquanaut ocean bottom nodes. This leads us to anticipate healthy utilization of our ocean bottom node rental fleet during the second half of the fiscal year. The first quarter reflected a modest decrease in revenue from our adjacent markets segment compared to last year. We believe that reduction is the result of customers working through inventory purchases made earlier in quarters before to stay ahead of their supply chain concerns. Despite the slightly lower revenue, we expect continued growth overall from this segment to remain strong into the foreseeable future. We believe our strategy of cultivating and delivering stable, predictable and profitable revenue from this segment is working. Our confidence for continued improvement is supported by an ever-expanding commercial demand for smart infrastructure solutions, both domestically and abroad. This is further evidenced by the recent signing of a modest contract in the international market for our Aquanaut smart water valves, which should begin contributing to revenue in the second quarter. Revenue in the first quarter from our emerging markets segment was generated through existing contracts between Aquanaut subsidiary and the U.S. federal government. Note that the opportunity for future contracts with the Customs and Border Protection Agency is solid, but those government decisions are not expected until later in the calendar year. Progress toward meaningful revenue contributions from this segment has developed more slowly than desired. However, quoting inquiries from energy companies for carbon capture monitoring projects as well as other new and unique applications for Aquanaut’s analytical methods are increasing. But despite high public interest in carbon capture utilization and storage, these projects seem to move slowly as country requirements and industry commitments still evolve. With that, I’ll turn the call over to Robert to give a little bit more financial detail on our first quarter of 2024.

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 first quarter ended December 31, 2023, we reported revenue of $15 million compared to last year’s revenue of $31.1 million. Net income for the quarter was $12.7 million or $0.94 per diluted share compared to the first quarter of last year’s net loss of $100,000 or $0.01 per diluted share. Our oil and gas product revenue for the 3-month period ending December 31, 2023, was $1.8 million compared to revenue of $2.8 million last year. The decrease in revenue is due to lower demand for seismic sensors. Our wireless product revenue for the quarter was $38.1 million, an increase of 121% compared to revenue of $17.2 million last year. The increase in revenue is due to the sale of our newest ocean bottom node called the Mariner. The increased revenue is partially offset by lower utilization of our OBX rental fleet. We do not expect this level of revenue to continue in the remaining quarters of this fiscal year. Moving to the adjacent markets product segment, our industrial product revenue for the first quarter was $6.4 million, a decrease of 19% compared to last year’s revenue of $7.9 million. The decrease in revenue was due to lower demand for our smart water meter connectors and cables. Imaging product revenue for the 3 months ending December 31, 2023, was $3.4 million, an increase of 17% when compared to $2.9 million from the same prior year period. The increase in revenue is due to higher demand for our thermal film products and imaging equipment. Revenue from our emerging market segments for the first quarter of fiscal year 2024 is $234,000 compared to $93,000 from the first quarter of fiscal year 2023. The emerging markets segment has a backlog of approximately $1.8 million, which is expected to be recognized during the current first fiscal year. Our consolidated gross profit for the first quarter of the fiscal year 2024 was $22.8 million compared to $10.5 million last year. The increase in gross profit is a result of the gross profit from the sale of the Mariner Ocean bottom nodes, which was partially offset by lower utilization of our OBX rental fleet and lower demand for our water meter cables and connectors. The first quarter’s operating expenses were $9.4 million. This is a decrease of 13% when compared to $10.8 million for the first 3 months of fiscal year 2023. The decrease is due primarily to lower personnel costs attributable to our workforce reduction in the first quarter of the prior fiscal year. Fiscal year 2024 cash investments into our property, plant and equipment was $779,000, and cash investments into our rental fleet is $2.6 million. We expect fiscal year 2024 capital investments into our rental fleet to be $5 million. Investments in property, plant and equipment could be as much as $2 million for the fiscal year. Our balance sheet at the end of the first quarter reflected $34 million of cash and short-term investments and we maintained additional borrowing availability of $15 million under our bank credit agreement. Thus, as of December 31, 2023, the company’s total liquidity was $49 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. That concludes my discussion, and I’ll turn the call back to Rick.

Thank you, Robert. Our first quarter represents a great start to the new fiscal year. And although gaps in rental contracts for ocean bottom nodes will likely cause unevenness in our oil and gas market revenue in the near term we believe greater demand for these products will rebound later this fiscal year. Meanwhile, we intend to continue nurturing the growth of our adjacent and emerging markets as well as build on our successes and operational efficiencies. Combining our leadership in technology innovation with our strong balance sheet and financial discipline, we believe we have the necessary tools to meet these challenges. This concludes our prepared remarks, and I’ll now turn the call back over to Natalie for any questions from our listeners.

Thank you. Our first question comes from Bill Dezellem from Tieton Capital.

Then I’ll begin. Thank you. So British Petroleum is doing a 4D survey in the Azeri field that was recently announced. How does that relate to Geospace? And potentially, how does that relate to the comments that you made in the press release relative to 4D?

Well, we did not reveal any of the information with respect to the purchase of this Mariner system, but certainly, we are aware of these opportunities that are manifesting out there in both 4D monitoring and in greenfield exploration as it relates to the ocean bottom type systems. So that plays well for us, Bill.

And so is it your – well, I guess I’ll ask relative to that Mariner system sale, did that go to an oil company or did that go to a contractor?

No, that went to a contractor.

And are you anticipating that it will be used in traditional seismic or some of this 4D activity?

I suspect it will be used in both as a matter of fact.

Okay. Thank you. And then in the press release, you also referenced that quoting activity was picking up in the energy arena, would you talk further to that point, please?

Yes. It’s related still to the emphasis that they are putting on to their marine production facilities and their marine reservoirs offshore. We don’t see just a whole lot progressing in the land environment as it relates to generating commerce for us. Some of that may occur later in the year because if you think about it, all of the land equipment that’s out there, a good portion of it has reached end of life. It still functions, but there is new technology out there. So most of these quotes that we are seeing are with respect to new ocean bottom surveys, where the OBX and/or the Mariner would be the items of interest that would be performing those.

And that’s both 4D and traditional 3D then?

That’s exactly right. I mean, the greenfield exploration still seems to be highly oriented towards determining if there are reservoirs nearby some of the existing production facilities they already have without having to construct more. There are some that are greener fields than others, I guess, where there is some of that infrastructure would have to be built out. But it is going to be for both 4D and new exploration.

And taking this a step further, I think that Schlumberger had indicated that the final investment decisions in the deepwater, shallow water for the next couple of years are going to be massive. But is that really what you are talking about here is basically the same thing that Schlumberger is saying. It’s just that you’re benefiting on the quoting activity.

Yes. I think it’s the same industry reports that we read and are privy to with respect to how those activities are going and the needle is pointing in the direction of more capital investment, which is required for this sort of exploration activity and seismic projects to go forward.

And then I’d like to jump, if I could, to Aquanaut and then after that, the quantum. So quantity you referenced an order, and it’s going outside of the U.S., if we heard correctly, would you please expand on your comments there?

Yes. This is an order that has an international destination outside of the U.S. We – it’s a modest order as that turns out and not one that we necessarily felt was warranting any sort of independent release of its own with respect to news, but it’s certainly worth mentioning. And it’s sort of the ramp up, the first fruits of that sort of product, and we’re really anxious to see that get out.

And then relative to Quantum, there’s, I think, $1.8 million in backlog was referenced. What is that backlog from? Are these orders that you’ve already talked about?

Yes. These are like the – we have the DARPA contract, which we did announce and some other activities going on and potentially even some follow-up work, we will say, with some of the border patrol things.

And then relative to the border patrol, there is a reference in the release to later in this calendar year. Is that tied to a new budget? Is that tied to an evaluation period? What’s leading to the view that later in the calendar year is the right time to be thinking about that?

Right. No, this comes from a publication that the government provided not that long ago, but with respect to what the intentions were of the government, is it the government accountability office that presented that pros. And it was their indication that the systems that are currently in place, ours being a premier example of that are going through an examination and that additional decisions on new deployments would not come until sometime late in 2024. So that’s really where that comes from.

Understood. And then I think that the 10-K references that Quantum revenues are anticipated to increase this year, would you kind of bring that comment in and tie this all together for us?

Yes. I think first off, completion of these existing contracts are going to be contributors to that. But I did mention that there are some new applications of the analytics that Quantum has developed in some other areas. And it certainly looks like those are going to manifest some additional revenues as well. Carbon capture is taking a while. There’s definite interest. We have multiple discussions with those involved with that. But it doesn’t – it seems to move at a snail’s pace in many respects.

Okay. Rick, I thought that was going to be my last question, but you hooked me with your reference to other areas in energy. Would you please talk a little bit more about that?

No, I really can’t. These are proprietary utilizations of that technology that we’re working towards. And I think once they’re completed, we will be able to have more discussion about that.

Okay, thank you. And congratulations on putting a lot of money on the bottom line.

Thank you.

Thank you.

Our next question comes from Robert Marcin with TB Partners. You may proceed.

Thank you. Well, excellent quarter, gentlemen. I guess the $1 million question is what we follow it up with. I had a question on the ratio of the sales price of $30 million to the rental price at $20 million. It seems if the units were roughly the same, it seems that there’s a distinction of annuity there because it seems like who would rent if it’s only 50% more to purchase. Am I correct in assuming that? Offshore is heck pay 1.5x of annual rent for my house. That would be a little bit of a bargain. But I’m a new shareholder here. I have a few questions because part of my ignorance on the situation because there’s not a lot of information available from management’s communication with shareholders, and I don’t know if this has ever been answered in past calls. So could you just enlighten me as to that relationship? Thank you.

Yes. There’s some reasonable logic in what you’re saying there. But certainly, the rental agreements that we are known for are ones that the customer as that rental proceeds is able to earn an equity interest in that equipment such that they can purchase it at a later date at below its initial list price value. So, some of that is accommodated in the types of rental agreements that are reflected there. It was certainly less than what the face value of the equipment was as it related to the overall sale, the outright sale simply because it’s going to be – that revenue is delivered over the course of time. But yes, in this particular case, they examined the very situation you’re seeing, keeping in mind even the equity value they would have gained over the course of that rental contract and felt it was a better value for them based on the project and utilization that we’re going to have to go ahead and purchase it in advance. These are rather expensive instruments. We do our best to keep the costs down on these instruments, and we’ve made great progress in actually doing that, especially with the Mariner because it has absolutely brand-new technology in it, but as cost effective as we can possibly manufacture it, but that being said, they still remain a pretty big investment, and that’s why the rental of these units has been a historic manner of the commerce.

Okay. And when you make a large deal like this, is there any kind of recurring revenue for providing data or analytics or service or refurbishment and maintenance, any of that kind of stuff? Or is it all – is it on a one-off transaction where that goes out the door and that’s all we see for the lifetime of that equipment?

There is certainly an element of recurring revenue as it relates to maintenance and upgrades and things of that nature. But by far, it’s a much smaller percentage and does not represent any significant amount going forward.

And do we have a preference, will we rather rent everything or sell everything? Or doesn't it matter to our income statement?

Well, selling is something we like to do. The fact is that we could and do rent equipment normally because it does represent such a large investment. But it’s not really viable to only offer a rental market because there are competitors out there that build equipment that is intended to serve the same purpose. And if a customer wants to buy the equipment, if we would not allow them to do so, then they would probably go buy it from someone else.

Okay. And then...

Resembling our equipment also is a better use of our manufacturing facility versus doing...

Okay. Do we know anything about the TAM from the last cycle and where the replacement cycle would be if the last big up cycle 7 years ago were sort of recreated over the next few years with the lag in investment in the offshore area?

Well, with respect to our involvement, it’s a closed market. It’s not a huge – an infinite sink for product demand as it were. So that is a careful balance actually that we have to monitor with respect to how much we’re willing to invest in our rental fleet compared to the volume of work that’s being led out for utilizing this equipment. That being said, it’s not a firm number because it varies significantly because of the demand itself varying enormously between the oil companies. But that’s where we’re encouraged because we are seeing more capital investment coming from the oil companies towards the seismic exploration and monitoring of existing reserves.

Okay, thank you. I appreciate it. I will go back into the queue.

Our next question comes from Scott Bundy with Moors & Cabot. Please go ahead.

Good morning, guys.

Hi, Scott.

A couple of questions. Robert, regarding trade accounts and notes receivable, will 50% of that number will you receive that over the next 3 to 6 months?

We will receive payment, particularly on the Mariner or rather quickly. We anticipate to get – have a sizable portion of that receivable paid before the end of the second quarter.

So Rick, with what appears to be close to $50 million plus. What are you guys thinking about as it relates to that amount of money and the fact that it’s growing very nicely?

Well, I mean, we have operational needs for that money. I mean, to the extent that we do anticipate our rental revenue will see a hit to the extent that, that $20 million contract, for example, that was going to generate more incremental revenue over the course of time is going to represent a deficit in the near term. And these gaps that we mentioned too, which seem to be a seasonal affair with some of these offshore exploration activities and seismic projects that we’re involved in. So that money will go a long way towards operational needs at this point in time. And then we will certainly examine whether there are other deployments of that cash that makes sense.

So regarding PRM, are there still potential final investment decisions out there that you guys are aware of that you might be associated with?

There are. And as we’ve said before, those – we don’t expect anything to really happen this fiscal year towards the conclusion of those discussions. But yes, there are still discussions associated with PRM systems with more than one oil company as they examine either initial data that they’ve acquired to give them a better feel for how they want to instrument a permanent situation on those reservoirs. And that is exactly why that it’s not going to be imminent when that happens.

Lastly, guys, regarding Quantum, can you give us an idea and I’m just going to use the word pilot programs associated with these people who are quoting where you guys are quoting activity? Are there a number of pilot programs out there?

Yes, there are actually several that are under discussion. I don’t think we believe all of them are going to happen all at one-time. They will incrementally be ones that come to pass, but there’s definitely more than one out there. And of course, we’re still talking to the government in various situations about new deployments of that technology with government agencies as well.

So, as part of this CapEx a result of these pilot programs that you are putting to work out there?

No, I don’t think there is no significant CapEx involved in what needs to go on there.

For evaluation, that’s interesting. Okay, guys. Thank you.

They’re just not large.

I got it. Enough for them to make an evaluation is what you’re telling me.

That’s exactly right. You got it.

Okay, thank you.

Thanks, Scott.

If there are no further questions at this time, I will now turn the floor back over to Mr. Rick Wheeler for any additional or closing remarks.

Alright. Well, thank you, Natalie, and thanks, everybody that listened to our call today. We look forward to speaking with you again on our conference call for the second quarter of fiscal year 2024, which will be in May. So, thanks and goodbye.

Thank you. This does conclude today’s Geospace Technologies first quarter 2024 earnings conference call. Please disconnect your lines at this time, and have a wonderful day.