Geospace Technologies Corporation (GEOS) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Geospace Technologies Corporation. Please note that today's meeting is being recorded. This meeting is also being held virtually. [Operator Instructions] It is now my pleasure to turn today's meeting over to Gary Owens, Chairman of the Board. Mr. Owens, the floor is yours.

Good morning. I am Gary Owen, Chairman of the Board of Geospace Technology Corporation. On behalf of myself and other members of the Board of Directors, I welcome you to the 2024 Annual Meeting of Stockholders. We are pleased to have each of you join the meeting and to have the opportunity to report to you on the company's operations. After the formal stockholders' meeting, Rick Wheeler, CEO and President of Geospace Technologies Corporation, will bring you up to date regarding the company's activities. After that, we will have a brief question and commentaries, where you will be provided an opportunity to ask questions of the management. Before we proceed, I would like to point out that the company has established certain protocols for this meeting. As part of the protocol, if you have joined this meeting virtually and desire to ask a question, you must flip the Q&A tab on your screen and submit your questions where indicated in writing. Before we begin the business portion of the meeting, I would like to recognize several individuals. First, I would like to introduce you to the other members of the Board of Directors who are joining us virtually today. They are: Dr. Thomas Davis, Lead Independent Director; Ms. Margaret Ashworth; Mr. Edgar Giesinger Jr.; Mr. Stephen Jumper; Mr. Richard Miles; Mr. Rick Wheeler. The Executive Officers and other members of the management team of Geospace joining us today are Mr. Walter Wheeler, our Chief Executive Officer; Mr. Robert Curda, our Chief Financial Officer and Secretary; Mr. Robbin Adams, our Senior Vice President and Chief Technical Officer; Mr. David Witt, our Chief Information Officer; Ms. Caroline Kempf, our Chief Marketing Officer; Mr. Kenneth Nesteroff, our Adjacent Markets Director; and Dr. Mark Tinker, Chief Executive Officer of Quantum Technology Sciences. Also, I would like to introduce Kylie Whitecotton and Kendra Blacksher from RSM US LLP, our independent public accountants. If questions arise during the discussion period regarding RSM US LLP, you should address your questions to them, and they will be called upon to respond. Finally, I would like to introduce Melissa Pierce of Computershare Trust Company, our transfer agent and registrar, who will act as Judge of Election for the meeting. Melissa will handle any inquiries that stockholders may have at their respective votes. The Geospace Technology Corporation Annual Meeting of Stockholders is now called to order. I will act as Chairman of the meeting. Mr. Curda will act as Secretary of the meeting. This is the Annual Meeting of Stockholders of Geospace Technology Corporation and, as such, is a forum for dialogue between stockholders and management of the company about matters related to the business of the company. As stated before, if you're a stockholder that has joined the meeting virtually, you may change or vote your vote during this meeting by clicking the link Vote tab on your screen. Your virtual vote will cancel out any prior ballot or proxy that we may previously vote. An affidavit of mailing executed Computershare Trust Company was delivered to the company, which states that Computershare Trust Company caused to be mailed on or about January 3, 2024, to each of the record holders of the company's common stock at the close of business December 15, 2023, a proxy statement, the annual report to stockholders, a pre-addressed proxy card and a return envelope related to this annual meeting. The Secretary of the meeting will cause this affidavit, together with a copy of the proxy statement, to be filed with the minutes of this meeting. Melissa Pierce of Computershare Trust Company will act as Judge of Election for this annual meeting. Melissa will handle any inquiry that stockholders may have about their respective vote. Prior to the meeting, she executed an oath of Judge of Election, presented the oath to the Secretary, and the Secretary of the meeting will file the oath with the minutes of this meeting. A list of stockholders of the company entitled to notice and to vote at this annual meeting, along with their addresses and number of shares held, has been on file with the principal executive offices of the company, open to examination by any stockholder during the ordinary business hours for at least 10 days. This list may also be accessed by stockholders who have joined virtually by clicking on the link on your screen entitled Stockholder List under the Documents tab. The Judge of Election will now report except as to whether the presence of a quorum can be determined from the proxy submitted prior to the meeting and from stockholders virtually present.

Mr. Chairman, a quorum is present. I have set forth the calculations of the quorum in the certificate of proxy inspection and tabulation.

Thank you. The Secretary of the meeting will file the certificate of proxy inspection and tabulation executed by the Judge of Election with the minutes of this meeting. Notice of this meeting has been properly sent and a quorum of shares is represented in person or by proxy. This annual meeting is, therefore, duly constituted and ready for the transaction of business. The first item of business as set forth in the notice is to elect 2 directors to hold office as Class II directors until the 2027 Annual Meeting of Stockholders or until his or her successor is duly elected and qualified. The Nominating and Corporate Governance Committee of the Board of Directors has nominated Ms. Margaret Sidney Ashworth and Mr. Stephen C. Jumper to be elected as Class II directors for a 3-year term. The second item of the business is to ratify the appointment by the Audit Committee of the Board of Directors of RSM US LLP, independent public accountants, as our auditors for the year ending September 30, 2024. The third item of business is to vote on a nonbinding advisory resolution regarding the compensation of Geospace Technologies [Audio Gap]. We will now proceed to the vote. Any stockholder wishing to vote [indiscernible] raise his or her hand at this time so that the ballot may be distributed, presenting the number of shares held by [indiscernible] as indicated on the ballot. If you have voted previously, you do not need to vote again unless you wish to change your vote. Submission of the ballot revokes any prior ballot or proxy you may have submitted. If you have sent in proxies or voted via telephone or Internet and do not want to change the vote, you do not need to take any further action. [Voting]

The Judge of Election will now count the vote. Has all the ballots been counted?

Yes, Mr. Chairman.

Since all the stockholders and proxies entitled and desiring to vote have done so, I declare the polls closed. Will the Judge of Election please report the preliminary results of the votes for the proposals presented?

On Proposal 1, each of the 2 director nominees standing for reelection have received the affirmative vote of a majority of the votes cast for their reelection as directors of the company and are therefore reelected. On Proposal 2, a majority of the shares present in person or represented by proxy at the meeting and entitled to vote were voted in favor of the ratification of the appointment of RSM US LLP, independent public accountants, as the company's auditors for the fiscal year ending September 30, 2024, and therefore the Proposal 2 has passed. And on Proposal 3, a majority of the shares present in person or represented by proxy at the meeting and entitled to vote were voted in favor of the nonbinding advisory resolution regarding the compensation of the company's named executive officers as disclosed in the proxy statement, and therefore, the Proposal 3 has passed. I have set forth the results of my tabulation of the voting in a Certificate of Judge of Election.

Thank you. The Secretary of the meeting will file the Certificate of Judge of Election with the minutes of the meeting. That concludes our formal agenda for today. There being no further business to come before the meeting, the meeting is now adjourned. Rick Wheeler, our Chief Executive Officer, will bring you up to date on the company's activity. His presentation will be followed by a brief question-and-answer session.

Thank you, Gary, and thanks to all of you for attending this year's virtual and in-person Annual Shareholders' Meeting. Today's commentary may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Note that these statements are subject to both known and unknown risks, some of which are discussed in our annual report, in our SEC Form 10-K and 10-Q filings. First, I'll review fiscal year 2023, which ended September 30, 2023, and I'll then follow up with an update on the company through the first quarter of fiscal year 2024. Lastly, I will comment on what lies ahead for Geospace Technologies. Our 2023 fiscal year began on October 1, 2022, following the year that closed with mixed results. Our Oil and Gas segment had faced significant commercial challenges in the year just ended while our Adjacent Markets segment had demonstrated healthy and consistent revenue growth. This increased demand for our Adjacent Markets products spill over into the new fiscal year, where the first quarter revenue for the segment reached its third highest figure, only narrowly missing the prior year's record. Throughout the rest of fiscal year 2023, these products went on to set even higher revenue records, offering validation of the stability we intended from these important diversification efforts. The new fiscal year also fostered in a complementary resurgence in demand for our Oil and Gas segment products, driven by the world's thirst and absolute need for energy. Revenue from the Oil and Gas segment in the first quarter of fiscal year 2023 exceeded every quarter of the prior 3 years. Even though our land-based traditional and wireless seismic products did not participate in any noticeable recovery, demand for our marine seismic products experienced a definite upward move. Moreover, sales and rentals of our OBX ocean-bottom nodes in fiscal year 2023 culminated in the greatest amount of annual revenue generated from our Oil and Gas segment since 2014. Our OBX systems report multicomponent seismic data and seaboard equipments designed for both greenfield exploration and brownfield foundry. The quality of data provided by these instruments, coupled with the extensive focus many oil and gas companies replacing on offshore resources, led to the utilization of our OBX rental fleet reaching near goal capacity. Under these improved conditions, fiscal year 2023 closed with revenue exceeding that over the last 9 years and net earnings totaling $12.2 million or $0.92 per share. Along with these gains, the year ended with a preserved balance sheet, barring no debt, and total liquidity of almost $47 million. This place the company in an admirable position for starting the new fiscal year. And with that, now let's review the recently reported first quarter of fiscal year 2024. Representing operations for the 3 months ended December 31, 2023, our first quarter of fiscal year 2024 produced revenue totaling $50 million, the highest quarterly figure since March of 2015. We posted net income of $0.94 per share. The quarter provided a compelling start to the current fiscal year. Over 20% of this revenue came from our Adjacent Markets products, further exemplifying the value of our diversification. The [indiscernible], the primary contributor to the success of the quarter, was the sale of Mariner ocean-bottom seismic acquisition system. The Mariner is a direct response to the industry's growing demand for our OBX ocean-bottom systems. It comprises new state-of-the-art engineering and defines the next generation of ocean-bottom technology. In June of 2023, we had secured a contract with a major international seismic contractor for the rental of Mariners. Delivery was scheduled for the first quarter of fiscal year 2024 with the contract slated to bring in a total of $20 million over the course of the next year. However, in December, our customer concluded instead that its best value proposition was an outright purchase of the Mariner system for $30 million. As such, the transaction resulted in significant amounts of revenue being drawn into the first quarter, in contrast with the smaller incremental revenue amounts that would've been received during the year from the rental contract. This leads us to now examine what lies ahead for Geospace and the remainder of fiscal year coming 2024. As the new fiscal year continues to unfold, it appears that oil and gas companies will continue to focus on maximizing development of their offshore assets. That includes the search for new discoveries and reservoir extensions that can be tied back to existing production facilities. We believe their ongoing strategy maintains a conducive market environment for the relevant sales of our ocean-bottom marine nodes. Nonetheless, we fully expect gaps to occur in the utilization of our OBX rental fleet due to the seasonal nature and weather dependencies affecting submarine seismic surveys. This will translate to lower rental revenues during these gaps. And in addition, rental revenue [indiscernible] will be lessened by the exchange of the Mariner rental contract for the sale of the system that we just executed. Despite the reduction, we believe the quotes and discussions underway for projects in the second half of the fiscal year are an indication of renewed demand. Our Adjacent Markets products are also poised for continued growth in fiscal year 2024. Because of the ever-expanding smart city within these municipalities and the proliferation of IoT-connected devices, we believe our specialty water meter cables will make notable contributions to revenue this year. This segment should also see larger contributions from our cloud control Aquana water valves. Regarding our Emerging Markets segment, we believe our current discussions with customers for innovative applications of our Quantum subsidiary's [indiscernible] Analytics will lead us to new projects brought to bear during the year. This, in addition to fulfilling the existing backlog of Mariner-related contracts already underway and combining the opportunities of each of our business segments with our continued effort to control costs and hone our efficiencies, we expect fiscal year 2024 to continue along the path of success. In closing, I'd like to give credit to our dedicated employees for making Geospace the premier company it is today. They continue to be the drivers of our success, keeping our customers's needs high on their lists. I'd also like to thank all our valued shareholders for their trust and support over the years. This gives us the honor and incentives to provide the best value possible to both shareholders and customers alike. And with that, I'll turn the meeting back over to Gary.

We'll now proceed to the stockholder question and commentary. Again, if you joined the meeting virtually, you may ask questions by clicking the Q&A tab on the screen [Audio Gap], where indicated, in writing. Please note, we will attempt to answer questions as time allows, but only questions that are appropriate and germane to the meeting will be addressed. Are there any questions or comments? We've received no questions. So this concludes the question-and-answer session and the presentation, and we'd like to thank you for your participation in today's meeting. Thanks, and have a great day.

This concludes the meeting. You may now disconnect.